When Petrel entered the joint venture blocks with Schuepbach Energy International a few years back it had little beyond a dream, a geological model that suggested a Devonian unconventional play might work, and a few local stories about water bores with an "oily sheen" or a smell of kerosene that could easily have been diesel left over from the drilling as much as evidence of a working petroleum system.

Yet with seismic surveys and corehole drilling, Petrel managing director David Casey says the picture has just continued to improve: oil has been found in tight cores and a conventional oil and gas story is also emerging.

Gas

The company has defined sandstones with gas indications up against closure; some 30 AVOs in all, with one lead calculated to have up to 700Bcf of GIP.

While Uruguay is a small nation, Casey said it was well placed to sell gas regionally.

"On the back of the work we have done the Uruguay government has put on hold its planned LNG import facility, but we don't need Uruguay in and of itself as the market, because all of our neighbours have gas deficits," Casey said.

Uruguay's new Punta del Tigre power plant on outskirts of Montevideo will consume

140 million cubic feet per day, Buenos Aires in Argentina consumes around 1.4 billion cubic feet per day and that can increase fivefold in winter, while southern Brazil consumes 3.5 Bcfpd, half of which is imported.

Casey is hopeful Petrel can continue to work up the potential and drill its first wells at 100%, however if the oil price remains flat and Petrel's share price shows no improvement it may have to farm down.

And he remains optimistic the company will attract a farm-in partner, however, because the potential oil story is shaping up nicely too.

Petrel's Salto and Piedra Sola concessions cover around 8% of the tiny South American nation, host just three million people, but it has been able to define a gross prospective resource of up to 910 million barrels of oil and 3.1 trillion cubic feet of gas for its 51%-owned areas.

There is now recognised free oil across majority of Piedra Sola, multiple world class mature source rocks, and excellent porosities, commonly greater than 20%, and permeability measured in the in the Darcy range for some sandstone core samples.

"We now know that we have oil, and we are confident of a gas system," Casey said.

The unconventional Devonian extension is similar to be Bakken, but it has taken a back seat to the conventional sand's permeability and potential.

"These are Palaeozoic rocks, so these numbers are surprising: 20-30 darcies, and many samples in the hundreds or thousands of millidarcies. Fantastic reservoirs," he said.

The challenge is now finding where the oil has migrated into, and with the nation importing around 40,000bopd there is an immediate market for early production.

But it is the independent reports prepared for Petrel, highlighting the potential for tens of trillion cubic feet of gas-in-place and up to 30 billion barrels of oil-in-place within the 14,000sq.km of acreage that has excited the nation's government.

The company has just completed a seismic survey to help it define where structures might be, and it has defined a number of AVO anomalies that support the potential for gas.

"We weren't certain we had the maturity for a gas system, but based on the work we have done, and the reason for those high permeabilites in the Palaeozoic rocks, is that we haven't drilled very deeply," Casey said.

Most of the work to date has focused above 1600m.

It suggests the shallower Permian has oil charge and the Devonian has gas charge, and possibly there is more potential in the older sequences.

Spain

The company's Spanish project will be farmed out, if it can ever get approvals to twin the existing Tesorillo-1 discovery, Casey said.

The well, drilled in the 1950s, flowed gas to surface despite the then operator's attempts to damage the formation, has a gross prospective resource of 2Tcf just 3km from a major pipeline.

While local landowners, and local and provincial authorities are keen to see the project progressed the Spanish government is acting with European slowness.

Without that approval, Petrel can't finalise a farm-in partner, despite getting close several times.

Casey said it was frustrating, but there said there was no choice but to move through the approvals process.