Activity Update and Work Programme

23 March 2022

Challenger Energy Group PLC

("Challenger Energy" or the "Company")

Activity Update and Work Programme

Challenger Energy (AIM: CEG), the Caribbean and Atlantic-margin focused oil and gas company, with oil production, appraisal, development and exploration assets across the region, is pleased to provide the following activity update and work programme guidance.

Highlights

·    Given the current strong oil price environment, the Trinidad business unit is profitable at current production levels of 350 to 400 bopd

·    Near-term upside potential from production enhancing work presently underway, that is aiming to boost production, with resulting cashflow benefits

·    Balance of the 2022 work programme being finalised, including infill drilling and EOR programs in Trinidad and pilot well testing in Suriname, in support of further increasing production and cashflow

·    Appointed new Country Head in Trinidad with robust technical and production management expertise

·    Company to enter Q2 2022 substantially debt free and with cash reserves available to support ongoing operations and investment in the planned production growth focused work programme

Eytan Uliel, Chief Executive Officer of Challenger Energy said:

"With our restructuring and recapitalisation process now complete, full attention is on growing the core business, through building production and generating cashflow. The higher oil price environment creates an even greater imperative to increase production and maximise every barrel of oil sold, and to that end we are immediately moving forward with some 'low-hanging fruit' operational items. The aim of this work is to stabilise and offset natural decline of baseline production, and then add 10% or more of new production, which can be readily monetised. Thereafter, we can begin to roll out our 2022 work programme, which will see drilling and EOR deployment across the fields, as we work towards achieving our overall sustainable production growth and cashflow targets. I look forward to keeping shareholders appraised of our progress."

Oil Price and Financial Performance

To date, this year, the Company has benefitted from more favourable oil prices compared to 2021. In the year 2022 to date, the Company has realised an average crude sales price of US$76.50 per barrel compared to US$60.00 per barrel for the full year 2021.

The Company's crude production is sold to Heritage Petroleum Company Limited ("Heritage"), the Trinidadian state-owned oil company, at an approximate 10% to 12% discount to the West Texas Intermediate ("WTI") crude benchmark price. The Company does not currently use any hedging instruments in relation to its oil sales so is making full gain of the current pricing regime.

Should the WTI benchmark continue to range between US$100.00 per barrel and US$120.00 per barrel as it has in recent weeks, the Company would expect to see realised prices in the range of US$90.00 and US$105.00 per barrel (assuming the discount to the WTI benchmark is consistent with the Company's recent past sales to Heritage).

At realised prices within this range and based on current production levels (i.e., before any increased impact from near-term production enhancement / growth initiatives, or the broader 2022 work programme) the Company expects that its business in Trinidad will generate free-cash from operations for the 2022 calendar year.

The Company would be able to direct some or all of this free-cash toward offsetting a portion of the Company's ongoing corporate overhead. As previously advised, the Company's ongoing corporate overhead has been substantially reduced following the recent restructuring and recapitalisation process, and is currently less than US$200,000 per month. Indicative netback calculations are included in the 'Illustrative Economic Outcomes' presented below.

Illustrative Economic Outcomes

The table below sets out indicative high-level potential economic outcomes for the Company's Trinidad business unit, on a per month basis, at each of 350, 400 and 600 bopd production levels, and assuming a range of realised oil price outcomes. This should not be read as Company forecasts, but is provided for illustrative purposes only.

^{Refer to footnotes at the end of this announcement.}

Near-Term Production Enhancement Activities

A programme of well recompletions at five identified wells has been approved by the Board and commenced. This will be complemented by targeted workovers at other identified offline and / or underperforming wells across the Company's producing fields. The necessary government permits for all of the planned works have been obtained, and it is expected that this work will be completed by the end of May 2022. In performing the recompletions, the Company will re-enter existing wells and perforate new sand reservoir horizons, potentially resulting in an immediate increase in oil production from the wells subject to recompletion.

The Company is targeting a 10% or more increase in aggregate total production from these activities, with any incremental production able to be monetised immediately and thereby benefit from current strong oil prices.

These near-term production enhancing activities will be supplemented by a package of well equipment and infrastructure purchases and upgrades (utilities, road and facilities) with the objective of maintaining and increasing production integrity, thereby improving field performance and reliability. This includes additional downhole pumps and well swabbing equipment, an increased capacity circulation pump to improve workover pace and efficiency, in-field generator sets to protect against frequent grid power outages, and road upgrades to improve year-round field access and rig cycle time. This program of purchases and upgrades is expected to be completed by the end of Q2 2022.

The total anticipated cost of the above activities, purchases and upgrades is, in aggregate, approximately US$0.5 million, with rapid payback expected across the full range of activities.

2022 Work Programme

In addition to the above-noted near-term production enhancement activities, Mr. Sohan Ojah-Maharaj, the newly appointed Trinidad Country Head, will lead the operations team in finalising of the work programme for the remainder of 2022, focusing on production growth. Highlights of the upcoming work programme are expected to include:

·    an additional infill production well at South Erin (consistent with licence obligations), currently scheduled to be drilled in Q4 2022 with an estimated cost of less than US$1.5 million and targeting an additional 50 bopd of production;

·    drilling an initial pilot production well in Suriname which is currently scheduled for Q3 2022. On completion the well will be put on an extended well test (EWT). The cost of the well and associated extended test is expected to be approximately US$0.7 million and will target an additional 20 bopd of production. The EWT is aimed at establishing the proof of concept for a broader field development which, in a success case, could result in production in excess of 500 bopd for the Company with favourable economics; and

·    deployment of enhanced oil recovery ("EOR") techniques, including both waterflood and CO₂ injection, at the Goudron and Inniss-Trinity fields (consistent with licence obligations). This work is scheduled to commence in Q2 2022 and will run through the remainder of this year. The estimated cost of the initial EOR programme is US$1.2 million in aggregate and targets an additional 50 to100 bopd of production.

The Company's objective is to exit 2022 with a stable production run-rate of approximately 600 bopd, which is expected to provide a springboard toward the Company's targeted stable production base of more than 1,000 bopd by the end of 2024. Based on the outcomes of its production focused work programme during 2022, the Company would also expect to undertake a review of its reserves / resources in the first half of 2023.

M&A

As was noted in the Notice of Extraordinary General Meeting sent to shareholders on 9 February 2022, in addition to work designed to enhance and grow organic production from existing fields, the Company intends to pursue value-based, production accretive acquisition opportunities, as well as seek monetisation opportunities for exploration assets.

To this end, management has intensified its focus on a number of potentially complementary opportunities in Trinidad, as well as various farm-out type opportunities. At this time, the Company is engaging in initial discussions and early-stage due diligence, and will provide updates, as applicable, in due course.

Creditor Restructuring

The majority of payments due under the previously announced creditor settlement agreements were paid as required during February 2022. A small number are due for payment in March 2022, and which are all expected to be made on time, in line with the description of creditor settlements as set out in the Notice of Extraordinary General Meeting sent to shareholders on 9 February 2022.

As a result of these payments, the Company will have substantially eliminated all residual debts and payables associated with the drilling of the Perseverance-1 well. In addition, the non-recourse liabilities of the Company's various subsidiaries in Trinidad and Tobago have been reduced to less than US$2.5 million, an amount considerably lower than the approximate US$8 million inherited as part of the acquisition of Columbus Energy Resources PLC in August 2020. The Company expects that these remaining subsidiary-level liabilities will be gradually discharged in the ordinary course of business over the coming 12-18 months using operations derived income.

The Company therefore expects to commence Q2 2022 debt and liability free at the corporate level, with subsidiary company liabilities significantly reduced and managed in the ordinary course of business. The Company's cash reserves will be applied toward general working capital and supporting a work programme through 2022 and 2023 which is focused on production growth, as previously described.

No Russian Exposure

The Company has no exposure to Russian oil production, and recently enacted sanctions have had no impact on the Company's business or operations.

Corporate Presentation

Additional information is set out in a new corporate presentation that was released on 16 March 2022, which is available on the Company's website (www.cegplc.com).

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Footnotes:

¹ Gross Oil Sales represent value of physical oil deliveries at assumed realised oil prices. Oil price realised by the Company is typically at a discount of approximately 10% to 12% to the WTI benchmark.

² CEG Sales Revenue represents the value of the Company's entitlement oil (excluding first tranche oil as applicable and including the handling fee received by the Company for such volumes). The first tranche volumes are applicable to two of the Company's licences. Therefore, actual revenues will vary depending on the relative contribution to production from the relevant fields to the overall oil sales.

³ Deductions represent state royalties, overriding royalties and deductions as applicable under the licences and lease obligations. The fiscal terms and deductions vary from licence to licence and the actual quantum of deductions vary depending on the relative contribution of various fields to the overall oil sales.

⁴ SPT represents the Trinidadian supplemental petroleum tax levied if the assumed realised oil price exceeds US$75 per barrel. The SPT rate is 18% up to US$90 per barrel and increases by 0.2% for every dollar of oil price in excess of US$90 per barrel. SPT is applied after deducting applicable state royalties, overriding royalties under the licences and leaseholder royalties. The implication is that when realised oil prices are above US$75.0 and up to US$90.0 per barrel, the Company's net realisations are adversely impacted by the flat-rate SPT, becoming neutral at US$90.0 per barrel and value accretive to the Company at realised oil prices in excess of US$$90.0 per barrel

⁵ Operating Costs represent estimated average monthly operating costs of Trinidad operations, including G&A. Such costs are expected to vary month to month and may increase with production increases beyond such level.

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This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014, which forms part of United Kingdom domestic law by virtue of the European Union (Withdrawal) Act 2018 (as amended).

For further information, please contact:

Notes to Editors

Challenger Energy is a Caribbean and Atlantic margin focused oil and gas company, with a range of exploration, appraisal, development and production assets and licences, located onshore in Trinidad and Tobago, and Suriname, and offshore in the waters of The Bahamas and Uruguay. In Trinidad and Tobago, Challenger Energy has five (5) producing fields, two (2) appraisal / development projects and a prospective exploration portfolio in the South West Peninsula. In Suriname, Challenger Energy has on onshore appraisal / development project. Challenger Energy's exploration licences in Uruguay, the South West Peninsula of Trinidad, and The Bahamas offer high-impact value exposure within the overall portfolio value.

Challenger Energy is quoted on the AIM market of the London Stock Exchange. 

https://www.cegplc.com 

ENDS