New Share & Option Issuance

1 November 2024

Challenger Energy Group PLC

("Challenger Energy" or the "Company")

New Share & Option Issuance

On 29 October 2024, Challenger Energy (AIM: CEG), the Atlantic margin focused energy company, announced the closing of the farmout of a 60% interest in the AREA OFF-1 block to Chevron (the "Farmout"). Consequent on closing of the Farmout, new shares and options will be issued (the "Share Issuance" and "Option Issuance", respectively). Details are set out below.

Iain McKendrick, Non-Executive Chairman of Challenger Energy, said:

"Over the past three years the team has completely transformed the Company, migrating its exploration focus to Uruguay, securing quality assets of global interest as validated by the successful farmout of AREA OFF-1 to Chevron, and it is now looking forward to upcoming value-adding activity across that portfolio.  The Company has also attracted new investors who understand our potential and who are committed to Challenger Energy for the long-term. We're fully funded, with a strong balance sheet and no debts or unfunded obligations, and therefore no need for any additional capital in the foreseeable future. Thus, whilst the share and option issuances detailed are administrative, they're also a milestone, in that they represent the definitive conclusion of the transition of our Company to where we are today. The runway ahead is clear, opportunities lie before us, and the Challenger Energy team is fully committed to exploiting this position of strength for the benefit of all shareholders".

Conversion of Charlestown Loan

On 18 April 2024, the Company announced a strategic investment in the Company by Charlestown Energy Partners LLC ("Charlestown"), under the terms of which Charlestown invested £1.5m in the Company, initially in the form of a loan, but which upon closing of the Farmout (and subject to prior completion of a share consolidation) would convert into shares in the Company, on a pre-agreed basis. The requisite share consolidation was completed on 7 August 2024, and the Farmout was completed on 28 October 2024. Accordingly, Charlestown's loan, along with accrued interest, will now convert into 20,000,000 ordinary shares, and the loan from Charlestown will be fully extinguished. These ordinary shares will be issued from the Company's standing share issuance authority, and will be issued to Charlestown and various associated entities and investment partners of Charlestown.

Service Provider Share Issuance in Lieu of Fees, and issues of Fee Options

Parties that have provided services to the Company over the past 12 months, including in particular various advisory services in respect of the Farmout, have indicated a desire to receive part of their fees, otherwise payable in cash, in the form of shares in the Company. The Company considers that this demonstrates a high degree of confidence in the Company, and also enables the Company to maximise cash reserves. The Company has thus agreed to issue 12,000,000 new ordinary shares to service providers in lieu of cash fees. These will be issued from the Company's standing share issuance authority. Additionally, as part of agreed fees to financial advisers in respect of services provided, the Company will also issue a total of 3,800,000 options over ordinary shares, exercise price of 5p per share, valid for 3 years from date of issue.

Share Issuance to the CEO

The Chief Executive Officer is entitled to a bonus related to the successful closing of the Farmout, which the CEO has agreed to receive in the form of shares in the Company, inclusive of the proviso that none of these shares can be sold within two years from the date of closing of the Farmout. The Company considers the willingness of the CEO to forego cash compensation, and instead increase his shareholding in the Company and to hold those shares for an extended period of time, to be a sign of confidence in the Company and its prospects, which not only retains and incentivises him but at the same time aligns his interests even further with that of all other shareholders. Accordingly, the CEO will be issued with 3,000,000 new ordinary shares from the Company's standing share issuance authority. Following this issuance, the CEO's shareholding in the Company will be a total of 15,122,432 shares, and will represent approximately 6.2% of the issued share capital.

Option Issuance to the CEO and Mr Robert Bose

600,000 options in each tranche of the Company's approved option plan (refer to the Company's announcement of 7 March 2022) will be issued to the CEO as part of his agreed compensation arrangements consequent on successful completion of the Farmout, and 360,000 in each tranche will be issued to non-executive director Mr. Robert Bose, thus providing him with an option holding equal to other non-executive directors. The terms and conditions applicable to the new options to be issued to the CEO and Mr Bose will be as per the Company's announcement of 7 March 2022, but (i) exercise prices applicable to these options have been increased as described in Table A below, and (ii) only half will be exercisable immediately (subject to vesting hurdles), with the balance exercisable only after 1 March 2026. The increased exercise prices for each tranche of options represent significant premiums to the current share price, such that the ability to benefit is only possible if there is a material increase in the Company's market value from current levels.

Total Voting Rights 

In respect of the new shares to be issued as a result of the foregoing, application has been made for admission to trading on the AIM of a total of 35,000,000 new ordinary shares of 1p each. Admission is expected on or around 8 November 2024. On admission the new ordinary shares will rank pari passu with the Company's existing ordinary shares. Following admission, the Company's issued share capital will consist of 244,881,322 ordinary shares, with each ordinary share carrying the right to one vote. The Company does not hold any ordinary shares in treasury. This figure of 244,881,322 ordinary shares may therefore be used by shareholders in the Company, as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change in their interest in, the share capital of the Company under the FCA's Disclosure Guidance and Transparency Rules.

Total Options & Warrants on Issue

Following the Option Issuances, the total number of options and warrants over ordinary shares in the Company, and the terms of those options and warrants, will be as follows:

TABLE A: Consolidated Statement of Options and Warrants on Issue

Notes:                                                                                               

All share and option figures are stated on a post share consolidation basis, reflective of the 50:1 share consolidation that occurred on 8 August 2024.

(1) Terms and conditions of Board & Executive / Staff Options were set out in the Company's announcement of 7 March 2022, and which are restated here for shareholder information, as follows:

- Tranche A: exercise price 5p per share; exercise period of 5 years from grant; vested.

- Tranche B: exercise price 7.5p per share; exercise period of 5 years from grant; unvested, will vest once a share price of 7.5p per share achieved and sustained for a period of 10 consecutive trading days.

- Tranche C: exercise price 11.25p per share; exercise period of 5 years from grant; unvested, will vest once a share price of 11.25p per share achieved and sustained for a period of 10 consecutive trading days.

- Tranche D: exercise price of 15p per share; exercise period of 5 years from grant; unvested, will vest once a share price of 15p per share achieved and sustained for a period of 10 consecutive trading days.

If all Board & Executive / Staff Options that are currently "in the money" were exercised, a total of 4,800,000 ordinary shares would be issued (approximately 1.91% of the Company on a fully diluted basis), and in return for which the Company would receive cash proceeds of approximately £240,000 / US$320,000.

(2) Exercise prices of these options have been increased as follows:

- Tranche A: exercise price 8p per share (increased 60% from 5p per share)

- Tranche B: exercise price 12p per share (increased 60% from 7.5p per share)

- Tranche C: exercise price 18p per share (increased 60% from 11.25p per share)

- Tranche D: exercise price is 24p per share (increased 60% from 15p per share)

(3) 50% of these options are exercisable immediately (but subject to vesting hurdles being satisfied); 50% only become exercisable on 1 March 2026, unless accelerated in accordance with their terms.

(4) Executive and staff options have been distributed widely to key members of the executive and operating staff base, to secure retention and incentivisation.

(5) Since 2018, options and warrants have been issued to various advisors and financiers as part of agreed compensation arrangements for services provided / fundraisings. Many of these have since expired, and of those that remain the number of warrants and exercise prices have been readjusted as a result of share consolidations. Therefore, for shareholder's reference, the number of options and warrants referred to as 'advisor warrants' in Table A constitutes an up-to-date, definitive statement of all such options presently on issue. Of these, 19,831,189 have an exercise price of 5p each, are vested, and expire in respect of 11,031,189 options on 11/03/2026, in respect of 5,000,000 options on 2/11/2026, and in respect of 3,800,000 options on 1/11/2027. Given that these are currently vested and 'in the money' it is expected that they will in due course be exercised in accordance with their terms, and if all exercised, would result in the issue of 19,831,189 ordinary shares (representing approximately 6.9% of the Company on a fully diluted basis), and in return for which the Company would receive cash proceeds of approximately £991,000 / US$1.3 million. A further 2,100,000 warrants were issued consequent on the Charlestown investment, valid to 28 May 2026, exercise price 10p per share (refer to the Company's RNS of 18 April 2024) and, if ultimately these were to become 'in the money' and exercised, would result in the issue of 2,100,000 ordinary shares (representing approximately 0.8% of the Company on a fully diluted basis), and in return for which the Company would receive cash proceeds of approximately £201,000 / US$280,000.

(6) These small number of "legacy" options that remain valid relate to remuneration provided in settlement of fees pertaining to financing of the well drilled in The Bahamas in late 2020. They have an exercise price of 175p each, are vested, and expire on 01/09/2025. Given the extent to which these options are 'out of the money', they are expected to lapse without being exercised.

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Notes to Editors

Challenger Energy is an Atlantic-margin focused energy company, with production, development, appraisal, and exploration assets in the region. Challenger's primary assets are located in Uruguay, where the Company holds two high impact offshore exploration licences, totalling 19,000km² (gross) and is partnered with Chevron on the AREA-OFF 1 block. Challenger Energy is quoted on the AIM market of the London Stock Exchange.

https://www.cegplc.com 

ENDS