British energy producer Amerisur Resources Plc said it has received a prospecting permit from Paraguay's Ministry of Public Works and Communications to dig deeper into the Espartillar block in the arid and sparsely populated Chaco region.
Chaco was the scene of a territorial war involving Paraguay and Bolivia from 1932-1935 but its rich wildlife has led to environmental concerns about the effect of oil exploration in the region.
Paraguay has abundant renewable energy, mostly hydro-electric power, but aims to reduce dependence on fossil fuels in the country's largely impoverished and isolated rural communities that do not have access to other fuels. Poor distribution of electricity remains a major barrier to development in rural Paraguay, official data indicated.
In contrast Paraguay is one of the largest bulk exporters of electricity through joint hydro-electric power generation with Argentina and Brazil. Despite abundant production, the government has been unable to extend the distribution networks where they are needed.
Availability of oil will give some way toward making more energy accessible to the poor.
Hydrocarbon prospecting in the Chaco area has been encouraged by its proximity to the oil-producing Lomas de Olmedo region in Argentina.
Amerisur said its initial studies will focus on the Espartillar, Las Palmas and Coronillo blocks to determine whether to proceed with further exploration in the area.
The company is awaiting the results of technical surveys before deciding whether to apply for a concession contract and how much to invest in the project.
Investigations are likely to include aerial surveys and magnetic investigation to obtain more geological data as not enough is known about the area. Previous exploration operations did not fill the gaps in the information and some were abandoned because of poor feasibility and lack of finance.
Amerisur Resources is already active in Colombia and is listed on the Alternative Investment Market of the London Stock Exchange. The company hopes to expand its Latin American portfolio with a positive result in Paraguay.
Meanwhile, the World Bank is pushing for a plan to "increase the availability, quality and reliability of power supply in Paraguay, thereby fostering economic growth and improving the country's competitiveness."
More than $100 million will be spent on the project between now and the end of 2015, World Bank data indicated.
A World Bank report said the project aims "to increase electricity supply to the country in a cost-effective and environmentally sound manner, to reduce transmission and distribution losses as well as service interruptions, and to strengthen capacity in energy policy, strategy formulation, in planning and
Results of the project so far have been unsatisfactory, World Bank data indicated.