REG - Challenger Energy - £3.3 million Funding Facility and Corporate Update

Challenger EnergyAnnouncement

30/08/2023 07:00

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RNS Number : 7190K  Challenger Energy Group PLC  30 August 2023

The information contained within this announcement is deemed to constitute
inside information as stipulated under the Market Abuse Regulation ("MAR")
(EU) No. 596/2014, as incorporated into UK law by the European Union
(Withdrawal) Act 2018. Upon the publication of this announcement, this inside
information is now considered to be in the public domain.

 

30 August 2023

Challenger Energy Group PLC

("Challenger Energy" or the "Company")

 

£3.3 million Funding Facility

Corporate Update

 

Challenger Energy (AIM: CEG) provides the following update.

Highlights

·    Establishment of a £3.3 million convertible loan note funding
facility, to:

 

·    support business development, in particular continuing with
accelerated technical work programs in Uruguay, for both the AREA OFF-1 block
and the newly awarded AREA OFF-3 block; and

 

·    progress business development opportunities in Trinidad.

 

·    £0.55 million has initially been drawn, with future drawdown of the
remainder at the Company's option.

 

·    3-month extension for completion of sale of Cory Moruga asset in
Trinidad and Tobago (presently awaiting regulatory approval). Relinquishment
of the Weg Naar Zee PSC in Suriname, consistent with the Company's strategy to
focus on core assets.

 

·    Intended purchase of approximately 60 million shares by the Company's
CEO, to increase the CEO's aggregate shareholding to approximately 6% of the
Company.

 

·    Issue of approximately 315 million new shares to various service
providers, in lieu of cash fees.

 

Eytan Uliel, Chief Executive Officer, said:

"In the last year, across the broader Challenger Energy business, we have
completed value-enhancing technical work, improved production operations,
high-graded our portfolio, secured new assets, and ensured a range of options
are available to deliver additional funds into the business. Progress has been
substantial, but the timing of when we need to spend and when we will see cash
inflows is not always within management's control. We have therefore now taken
steps to ensure that we have flexible additional funding available, if and
when needed, so that we can press on with accelerating new licences and high
prospect business development opportunities in both Uruguay and Trinidad. In
the current market we see benefit in having an established facility in place,
even if we ultimately do not use it all.

Personally, I am excited with how Challenger Energy is now poised - a honed
portfolio, a clear focus on those assets which are world-class and have the
potential to deliver a major value uplift in the near term, and the financial
flexibility to take disciplined portfolio decisions when opportunity presents.
Day by day I believe we are creating intrinsic value which I strongly believe
will ultimately be rewarded, and which is why I am increasing my personal
holding in the Company at this time. I look forward to sharing news of
continued progress with fellow shareholders over the coming months."

 

Funding Facility

 

Funding Facility - Summary

 

·    The Company has established a £3.3 million unsecured convertible
loan note funding facility (the "Facility") with a UK based alternative asset
management and investment firm (the "Investor"). £0.55 million of the
Facility has initially been drawn to support the Company's immediate work
program.

 

·    The Facility will provide the Company the flexibility, as needed, to:

 

o    provide funding, as necessary, to further develop the technical case
underpinning the AREA OFF-1 farm-out - the formal farm-out process is
progressing well, and the Company's objective remains to secure a partner for
AREA OFF-1 by the end of 2023, so as to enable 3D seismic acquisition to
proceed in 2024;

 

o    fund an initial work program performance bond and thereafter an
accelerated technical work program for the AREA OFF-3 licence in Uruguay,
similar to that initially undertaken on AREA OFF-1 in support of the AREA
OFF-1 farm-out process;

 

o    provide funding for progressing new licence opportunities in Trinidad
and Tobago, if successfully awarded, and allow the Company to progress certain
other high-potential business development initiatives in that country; and

 

o    bridge working capital needs through to delivery of a number of cash
generative options over the coming 6 months, including those that may result
from a successful AREA OFF-1 farm-out process, and those anticipated from
completion of the sale of the Company's Cory Moruga asset in Trinidad.

 

·    The Company considers that having the Facility in place (and subject
to the Facility's draw down conditions continuing to be met) will ensure that
the Company has the ability to meet all of its capital requirements until at
least 2H 2024, regardless of the amount and timing of any future potential
inflows.

 

Funding Facility - Rationale

 

·    In March 2022, in conjunction with completion of a comprehensive
corporate restructuring, the Company raised approximately US$10m.
Notwithstanding that the capital raising in March 2022 was "sized" for
approximately 12 months of future operations, the Company has not required any
additional external funding to-date (i.e., thus far, to end August 2023). This
is as a result of extremely prudent management of capital over the past 18
months, a significant reduction in corporate overheads, and the sale of
identified non-core assets.

 

·    During the same period of time, the Company has made significant
progress in respect of its core business operations, including in particular:

 

o Uruguay AREA OFF-1 - an accelerated and expanded technical work program,
designed to maximise the value of the asset in any farm-out process, and which
work program has been substantially completed, and with positive outcomes that
significantly exceeded the Company's initial expectations as set out in the
Company's announcements on 26 April 2023 and 31 May 2023.

 

o Uruguay AREA OFF-3 - a successful bid for the AREA OFF-3 licence, thereby
establishing the Company as the 2(nd) largest acreage holder in Uruguay, with
an expanded suite of high-quality prospects and commercial options.

 

o Trinidad - a bid for the Guayaguayare licence in Trinidad, the largest
available onshore licence offering both near-term production and long-term
exploration upside - in May 2023 the Company was nominated as the party with
whom the Trinidad and Tobago Ministry of Mines and Energy Industries will seek
to negotiate a long-term licence agreement, with this process ongoing.

 

·    All of these activities are considerably in excess of that which was
contemplated in March 2022, yet have been funded to-date from within the
Company's existing available capital resources. The Company wishes to maintain
momentum on these various opportunities over the coming 12 months, but
expected funding outflows and inflows are subject to uncertainty as to timing
and quantum.

 

·    Thus, in view of the Company's forward business needs and general
market conditions at this time, the Board considers it would be prudent to
have additional capital available on an as-needed basis. The Facility has been
established accordingly, with a small portion drawn initially, and future
draw-downs at the Company's election (subject to draw down conditions, as
described further below, being met).

 

Funding Facility - Key Terms

 

·    The Facility is arranged into an initial tranche of senior unsecured
convertible loan notes of £550,000 and 10 subsequent tranches of £275,000
each, with the first tranche having been drawn (being the minimum required by
the Investor in order to establish the Facility). The second tranche of the
Facility is available for draw-down at the Company's sole election 90 days
after drawn down of the initial tranche, and each subsequent tranche is
available for draw down at the Company's sole election 45 days after draw down
of the previous tranche (and subject to draw down conditions, described
further below, continuing to be met from time to time).

 

·    Loan notes, once drawn, are all repayable 36 months from the date of
the first draw-down. Interest is fully pre-paid on draw-down, such that on
draw-down 90% of the value of the notes is advanced in cash to the Company.
The Company has the right to make early repayments, all or in part, at no
penalty, subject to the Investor's conversion rights as described below.

 

·    Each tranche of the Facility is convertible into ordinary shares of
the Company ("Ordinary Shares") at the Investor's election at any time prior
to repayment, at the lesser of (i) 140% of the Company's closing bid price on
the trading day immediately prior to the date of draw-down of the relevant
tranche, or (ii) 90% of the lowest closing bid price in the five trading days
immediately preceding the date of conversion (the "Conversion Price").

 

·    The loan notes are redeemable in cash by the Company, all or in part,
at any time after draw down, or in the event of a change of control of the
Company, at 105% of par value. If the Company notifies the Investor of an
intended redemption of any loan notes, the Investor shall have two trading
days to elect to convert some or all of outstanding amounts or accept the
early redemption. In the event of default, loan notes will be redeemable
immediately at 120% of par value of outstanding loan notes.

 

·    Drawn loan notes are convertible into Ordinary Shares at each
tranche's Conversion Price in whole or in part, subject to any conversion
being for a minimum of £50,000.

 

·    Subsequent drawdowns under the Facility are subject to draw down
conditions continuing to be met, which are (i) the closing mid-price of the
Company's Ordinary Shares on each of the five trading days preceding draw-down
date being at least £0.0005 (i.e.: at least 0.05 pence) per ordinary share,
and (ii) the Company maintaining available share issuance authority headroom
and disapplication of pre-emption rights to cover 150% of any draw down amount
divided by the Conversion Price.

 

Corporate update

Director Intended Share Purchase

·    The Company's CEO, Mr Eytan Uliel, has advised the Company that
following the release of this announcement, and subject to the Company not
being in a closed period, he intends to purchase approximately 60 million
Ordinary Shares. If purchased, this would increase his total shareholding in
the Company to approximately 605 million Ordinary Shares, or approximately 6%
of the Company. The Company will advise once a TR-1 is received from Mr Uliel
in respect of any shares purchased.

Cory Moruga Sale Extension

·      On 8 March 2023, the Company announced that it had entered into
an agreement ("Agreement") with Predator Oil and Gas Holdings Limited
pertaining to the sale of the Cory Moruga asset in Trinidad. In that
announcement, it was noted that completion of the transaction was conditional
on consent of the Trinidadian Ministry of Energy and Energy Industries
("MEEI") to a revised work programme for the Cory Moruga licence proposed by
the Company, as well as agreement of MEEI to a revision of future fees for the
Cory Moruga licence and a settlement / cancellation of past claimed dues
pertaining to the Cory Moruga licence. The Agreement stipulated a long stop
date of 31 August 2023 for securing the relevant consent and agreements from
MEEI.

·      Dialogue with MEEI continues, with the parties and MEEI having
made progress on reaching acceptable terms, and the parties remain confident
that appropriate consents and agreement will be forthcoming. However,
completion of the transaction will not be possible by 31 August 2023.
Accordingly, the parties have mutually agreed to extend the last date for
completion of the intended transaction by 3 months, to 30 November 2023.

·    As part of the Agreement, and as advised on 8 March 2023, the parties
had also agreed to establish a collaboration in relation to CO(2) EOR
activities and projects in other areas in Trinidad, including but not limited
to potential application of CO(2) EOR techniques across the Company's other
fields. Pursuant to this collaboration agreement, and in parallel to the
ongoing process to complete the sale of the Cory Moruga asset in Trinidad, the
parties have progressed discussions seeking to re-establish partnering
arrangements in relation to other assets, including in particular a potential
joint-venture or acquisition of the Inniss-Trinity field - further
announcements will be made as appropriate.

·

Weg Naar Zee PSC Relinquishment

·    The Company has agreed with Staatsolie Hydrocarbon Institute, the
Surinamese hydrocarbons industry regulator ("SHI"), to terminate the Suriname
Weg Naar Zee Production Sharing Contract ("WNZ PSC") between Columbus Energy
Resources South America B.V., a wholly-owned subsidiary of the Company and
Staatsolie Maatschappij Suriname N.V., the Surinamese state-owned oil &
gas company ("Staatsolie"). The termination of the WNZ PSC is effective
immediately.

 

·    This portfolio optimisation and capital allocation decision reflects
the fact that the WNZ project, which whilst not without long-term potential,
is early-stage and will thus require both time and substantial investment to
take forward, for an ultimate production potential that is relatively small.
By contrast, the Company's newly secured opportunities in both Uruguay and
Trinidad are of much higher potential impact, in that they offer greater scale
and opportunity for near-term value creation from deployment of the same
capital that would otherwise be required for WNZ. The Company thanks
Staatsolie for the opportunity and the cooperation over the past several
years.

 

Service Provider Share Issuance

·    A number of service providers that have provided services to the
Company over the past 6 months, including in respect of technical work for the
AREA OFF-1 licence in Uruguay (principally seismic reinterpretation and
amplitude variation with offset analysis), have indicated a desire to receive
a significant part of their fees, otherwise payable in cash, in the form of
shares in the Company.

 

·    The Company considers that the willingness of service providers to
become shareholders in the Company demonstrates a high degree of confidence in
the Company generally, and more specifically in the technical and commercial
attributes of its AREA OFF-1 licence, and the merits of that asset to
potential farm-in partners.

 

·    Accordingly, the Company has agreed to the issue of 315,533,332
Ordinary Shares ("New Issue Shares") in total to various service providers, in
lieu of payment of cash fees. The New Issue Shares will be issued from the
Company's standing share issuance authority.

Option Plan

·    On 7 March 2022, the Company advised of the terms and structure of
the Company's approved option plan, which provided for the potential issue of
up to 1,080,000,000 options in four tranches of 270,000,000 each. At the time,
the Company advised on an initial allocation of 240,000,000 options from each
tranche of that approved option plan. Within this allocation, 40,000,000
options from each tranche were allocated to the Company's former director and
CFO, Mr. Tim Eastmond.

 

·    Since that time, the options issued to the former director / CFO have
been returned to the Company and cancelled, consequent on his resignation in
July 2022. These options have now been re-issued to the non-executive
directors of the Company. Apart from the re-issue of a prior director's
options to other directors, no new options have been allocated at this time.
Accordingly, 35,000,000 options in each tranche of the Company's approved
option plan remain available for future issue as may be determined by the
Board from time to time. The terms of the Company's option plan remain
unchanged from that advised in March 2022.

 

·    Thus, the total number of options currently in issue remains
unchanged from March 2022, but are now distributed as follows:

 Optionholder                 Current Distribution                          Previous Distribution

 Iain McKendrick              28,000,000 in each of Tranche A, B, C and D   25,000,000 in each of Tranche A, B, C and D

Non-Executive Chairman

 Stephen Bizzell              18,500,000 in each of Tranche A, B, C and D   Nil

 Non-Executive Director
 Simon Potter                 18,500,000 in each of Tranche A, B, C and D   Nil

 Non-Executive Director
 Eytan Uliel                  Unchanged                                     85,000,000 in each of Tranche A, B, C and D

 Executive Director and CEO
 Executives and Staff ((1))   Unchanged                                     90,000,000 in each of Tranche A, B, C and D

 TOTALS                       240,000,000 in each of Tranche A, B, C and D  240,000,000 in each of Tranche A, B, C and D

                              960,000,000 in total                          960,000,000 in total

o  Note 1: these are distributed to key members of the executive and
operating staff base, to secure retention and incentivisation.

 

·    The terms and conditions applicable to each tranche of options remain
unchanged - refer to the Company's announcement of 7 March 2022 for details.
The exercise price for each of Tranche A, B, C and D under the option plan
remains 0.1p, 0.15p, 0.225p, and 0.3p respectively - that is, in all case, a
substantial premium to the current share price, such that the ability of
option-holders to benefit will only be possible if there is a material upward
rerating of the Company's market value from current levels.

Admission and Total Voting Rights

·    Application will be made for admission ("Admission") of the New Issue
Shares to trading on AIM, and it is expected that on Admission the New Issue
Shares will rank pari passu with the Company's existing ordinary shares.

 

·    On Admission, the total issued share capital of the Company will
consist of 9,935,732,811 Ordinary Shares. The Company does not hold any
Ordinary Shares in treasury. Therefore, the total number of voting rights in
the Company is 9,935,732,811 and this figure may 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.

 

For further information, please contact:

 

 Challenger Energy Group PLC                     Tel: +44 (0) 1624 647 882

 Eytan Uliel, Chief Executive Officer
 WH Ireland - Nomad and Joint Broker             Tel: +44 (0) 20 7220 1666

 Antonio Bossi / Darshan Patel
 Zeus Capital - Joint Broker                     Tel: +44 (0) 20 3829 5000

 Simon Johnson
 Gneiss Energy Limited - Financial Adviser       Tel: +44 (0) 20 3983 9263

 Jon Fitzpatrick / Paul Weidman / Doug Rycroft
 CAMARCO                                           Tel: +44 (0) 20 3757 4980

 Billy Clegg / Hugo Liddy / Sam Morris

 

Notes to Editors

 

Challenger Energy is a Caribbean and Americas focused oil and gas company,
with a range of oil production, development, appraisal, and exploration assets
in the region. The Company's primary assets are located in Uruguay, where the
Company holds high impact offshore exploration licences, and in Trinidad and
Tobago, where the Company has a number of producing fields and earlier-stage
exploration / appraisal projects.

 

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

 

https://www.cegplc.com (https://www.cegplc.com/)

 

ENDS

 

 

 

 

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