Incentive Arrangements Update

23 July 2021

Challenger Energy Group PLC

("Challenger Energy" or the "Company")

Incentive Arrangements Update

Challenger Energy (AIM: CEG), the Caribbean and Atlantic margin focused oil and gas company, with production, appraisal, development and exploration assets across the region, provides the following details of new incentivisation arrangements.

Background

On 23 April 2021, in its Notice of Extraordinary General Meeting, the Company advised of its intention to implement refreshed incentivisation arrangements, as follows:

The Board considers it appropriate that incentive arrangements for the ongoing / future Board and management / employee team of the Company - especially those charged with executing the Company's future business and strategy - be appropriately refreshed. It is imperative that the Company continues to have dedicated, competent people at work on delivering the planned work programs and executing the Company's future strategy focussed on production and cashflow growth. Equally, the Company must continue to be able to recruit, retain and incentivise high-quality personnel, whether that be existing employees, or new ones. The Company operates in a competitive global job market for skilled and talented personnel, and thus it is essential that the Company has the ability to offer fair, market-based incentive arrangements which serve to align management with the creation of shareholder value.

To ensure these objectives and the desired alignment of interests, the Company indicated in the Notice of Extraordinary General Meeting that it intended to provide new options for key members of the continuing Board / executive / employee group, to be granted in three tranches, with new vesting and exercise conditions linked directly to delivery of production growth and shareholder value growth - that is, linked directly to and consistent with strategy. At the time, the Company advised that the detailed terms and allocation of new options would be determined by the Board following recommendation from the Remuneration Committee, with the implementation of these revised option arrangements to be conducted under the Company's general share issuance authority (assuming this was approved at the Extraordinary General Meeting). The general share issuance authority, along with all other resolutions, were subsequently passed by the shareholders of the Company at the Extraordinary General Meeting held on 17 May 2021.

Consistent with the intentions identified above, since the Extraordinary General Meeting the Remuneration Committee of the Board engaged in a process of consultation with various advisers, with a view to developing new option arrangements. Following this process, a new option arrangement was endorsed by the Board. However, completing an allocation of new options to continuing members of the Board, executive and staff was not permitted during the course of drilling of the Saffron-2 well, as that constituted a closed period for these purposes. Likewise, the allocation of new options will not be permitted once production testing of the Saffron-2 well commences, as that again would comprise a closed period for these purposes. Given that production testing of Saffron-2 has not yet commenced but is expected to commence imminently, the allocation of new options has thus been finalised at this time, during what is an open period for these purposes.

New Incentive Arrangements

The following new incentive arrangements have been introduced:

·    Series A Options: a total pool of up to 50,000,000 options over ordinary shares, fully vested on issue, with an exercise price of 4 pence per ordinary share and an exercise period of 5 years from grant. However, only 16,000,000 of the Series A Options have been granted, with the balance retained for potential future use. The exercise price of the Series A Options represents a material premium to the current trading price of the Company's shares (approximately 110%, as well as a material premium to the price of the recent Open Offer and Placing (approximately 15%).

·    Series B Options: a total pool of up to 50,000,000 options over ordinary shares, which shall only vest at such time as the Company net average production is 1,000 bopd or higher (measured over a period of 30 consecutive days), with an exercise price of 4.5 pence per ordinary share and an exercise period of 5 years from grant. Only 16,000,000 of the Series B Options have been granted, with the balance retained for potential future use. The exercise price of the Series B Options represents a material premium to the current price of the Company's shares (approximately 135%), as well as a material premium to the price of the recent Open Offer and Placing (approximately 30%). The criteria established for this series of options is designed to align the future potential value of the options to the core stated strategic goal of the Company, which is to deliver production growth.

·    Series C Options: up to 50,000,000 options over ordinary shares, which shall only vest at such time as the Company's share price is 6 pence or higher measured over a period of 10 consecutive trading days, with an exercise price of 5 pence per ordinary share and an exercise period of 5 years from grant. Only 16,000,000 of the Series C Options have been granted, with the balance retained for potential future use. The exercise price of the Series C Options represents a material premium to the current price of the Company's shares (approximately 260%), as well as a material premium to the price of the recent Open Offer and Placing (approximately 50%). The criteria established for this series of options is designed to align the value of the options to a simple and measurable metric: shareholder value creation.

Allocations

Allocation of the 16 million options issued in each of Series A, B and C are as follows:

The intention is that an equivalent allocation will be made to other non-executive Board members (current or future) at such time as those non-executive Board members have completed six months of service with the Company.

Note: The aggregate of 1.5 million options to be issued to non-executive board members represents only approximately 9% of total options issued, and approximately 3% of the total available option pool.

Note 1: these will be widely distributed in the Company, to approximately 10 key members of the executive and operating staff base, to secure retention and incentivisation.

Bill Schrader, Chairman, commented:

"The previously existing incentive arrangements for the Company's Board and team of executives and employees was singularly linked to the delivery of the Perseverance #1 well in The Bahamas - this arrangement notwithstanding a significant expansion of the Company asset portfolio and business since mid-2020 and completion of Perseverance #1 in early 2021. With the revision of the Company's asset base and the associated expansion of its business objectives, it is appropriate that revised incentive arrangements be put in place that align the interests of the Company's continuing Board / management and employees with that of shareholders, as was endorsed by shareholders at our recent Extraordinary General Meeting.

Going forward, the Company must continue to have dedicated, competent people at work on delivering work programs and executing the Company's future strategy. Equally, the Company must continue to be able to recruit, retain and incentivise high-quality personnel, whether that be existing employees, or new ones. Challenger operates in a competitive global job market for skilled and talented personnel, and thus the Company must have the ability to offer fair, market-based incentive arrangements which serve to align management with the creation of shareholder value. It is with these objectives in mind these new arrangements have been adopted. Notwithstanding the current share price of the Company, all new options have been set by reference to values well in excess of the pricing of the recent Open Offer and Placing, such that there will be no reward unless and until, at a minimum, this threshold is once again met and substantially exceeded."

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 licence in each of Uruguay and The Bahamas are highly prospective, and 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