REG - Challenger Energy Predator O&G Hldgs - Sale of Cory Moruga and settlement agreement

Challenger EnergyAnnouncement

20/12/2022 07:00

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RNS Number : 2067K  Challenger Energy Group PLC  20 December 2022

20 December 2022

Challenger Energy Group PLC

("Challenger Energy" or the "Company")

 

Heads of Terms for the Sale of Cory Moruga; future EOR collaboration and

settlement agreement with Predator Oil & Gas Holdings Plc

Challenger Energy (AIM: CEG), the Caribbean and Americas focused oil and gas
company, with oil production, appraisal, development and exploration assets
across the region, is pleased to announce that it has entered into a binding
heads of terms (the "Term Sheet") with Predator Oil & Gas Holdings Plc and
relevant subsidiary entities ("Predator"), providing for (i)  the conditional
sale of the Company's interest in the non-producing Cory Moruga licence in
Trinidad, (ii) a framework for future CO(2) collaboration between the Company
and Predator, and (iii) a mutually agreed settlement in relation to all
matters relating to the Inniss-Trinity CO(2) enhanced oil recovery ("EOR")
pilot project previously carried out by Predator at the Company's
Inniss-Trinity block (in aggregate, the "Transaction").

 

Highlights

·    Binding heads of terms signed for the conditional sale of CEG's 83.8%
interest in the non-producing Cory Moruga licence in Trinidad, including the
Snowcap oil field, to Predator, by way of sale of 100% of the issued share
capital of T-Rex Resources (Trinidad) Limited, with retention of 25% future
back-in right based on future drilling / EOR activity and associated future
production

 

·    Up to US$9m aggregate value proposition for Challenger Energy,
comprising US$2m in staged cash consideration, US$1m in contingent cash
consideration, removal of all liabilities and potential exposures associated
with the Cory Moruga licence, retention of residual back-in rights, and a full
settlement with Predator in respect of all matters relating to the
Inniss-Trinity CO(2) EOR pilot project

 

About Cory Moruga and Transaction Background

·    The Cory Moruga licence is a direct licence from the Trinidadian
Ministry of Energy and Energy Industries ("MEEI") in which the Company's
wholly-owned subsidiary T-Rex Resources (Trinidad) Limited ("T-Rex") holds an
83.8% operating interest, alongside its partner Touchstone Exploration Inc.
which has a non-operating 16.2% interest.

·    The Cory Moruga licence includes the Snowcap oil discovery, with oil
previously having been produced on test from the Snowcap-1 and Snowcap-2ST
wells. On the basis of the production tests, a development plan was submitted
in 2018, prior to the Company taking control of the asset, however, the block
has not been further developed since that time.

·    Subsequent to the acquisition of Columbus Energy Resources PLC in
2020, the Company undertook a detailed technical review of its Trinidad
portfolio and assessed that Cory Moruga field required further appraisal
before a commercial development decision could be made. There is currently no
production from the Cory Moruga licence.

 

·    As a consequence of the lack of current production and the need for
further appraisal, the Company considers the Cory Moruga licence to be
non-core to its cash flow generative production-focused business in Trinidad,
and therefore no further work has been planned for the Cory Moruga field in
the near-term. In contrast, Predator considers the Cory Moruga field to
represent an ideal candidate for a CO(2) EOR project.

·    The Company's wholly owned Trinidadian subsidiary, CEG Inniss-Trinity
Trinidad Limited, was a party to a Well Participation Agreement (and
subsequent amendments) ("WPA") with Predator and its subsidiaries, pursuant to
which Predator agreed to carry out a CO(2) EOR pilot project in a restricted
part of the Company's Inniss-Trinity field in Trinidad. The pilot project was
carried out in 2020 and 2021, with the WPA terminated by the Company in August
2021.

·    Following mutual discussions, the Company and Predator consider that
a broader collaboration in relation to CO(2) EOR projects in the Company's
existing portfolio of mature oil fields across Trinidad could provide a
mutually beneficial outcome for both parties, leveraging shared past
experiences utilising CO(2) EOR techniques and methodologies.

·    The Company and Predator have therefore entered into the binding Term
Sheet, summary details of which are set out in this announcement, to reflect
the parties' strategic intent and the agreed commercial terms between the
parties in respect of the Transaction.

Key terms of the Transaction

·    Predator will acquire 100% of the issued share capital of T-Rex, an
indirectly wholly-owned subsidiary of the Company that holds the Company's
83.8% interest in, and is the operator of, the Cory Moruga licence.

 

·    The Company will retain a "back-in right" which will afford the
Company the option in the future to repurchase 25% of Predator's share in
T-Rex (and thus representing a 20.95% interest in the underlying Cory Moruga
asset).

 

·    CEG and Predator have 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.

 

·    As part of the overall Transaction, the Company (and its relevant
subsidiaries) and Predator (and its relevant subsidiaries), without admission
of fault and liability on either party's part, have agreed to a mutual
settlement and discharge of all disputes and claims in relation to the
Inniss-Trinity CO(2) EOR pilot project previously undertaken by Predator,
including the repayment of all loans and debts owed or claimed to be owed by
either party to the other in respect of the Inniss-Trinity CO(2) EOR pilot
project.

 

·    The Transaction represents a gross potential value proposition to
Challenger Energy of up to US$9 million (as estimated by the parties to the
Transaction), comprising:

 

o US$2.0 million payable to the Company by Predator in cash, in instalments as
follows: (i) US$1 million upon completion of the transaction (the "Completion
Date"), and (ii) a further US$1 million on the date that is six months after
the Completion Date;

 

o a further US$1 million conditional cash payment, payable once the Cory
Moruga field production first reaches 100 barrels of oil per day;

 

o the option-value embedded in the retained back-in right;

 

o the removal of all ongoing T-Rex financial obligations, and the elimination
of all T-Rex associated liabilities from the Challenger Energy balance sheet,
as well as the elimination of all contingent and potential liabilities
associated with the Cory Moruga licence, whether crystalised or not;

 

o the settlement of any outstanding loan amounts in respect of the
Inniss-Trinity CO(2) EOR pilot project (recognising that absent a settlement
between the parties, such amounts would be recoverable only from incremental
production from the Inniss-Trinity CO(2) EOR pilot project area); and

 

o a full and final mutual settlement in respect of all disputes and claims
between the parties in relation to the Inniss-Trinity CO(2) EOR pilot.

 

·    In relation to the back-in right, it may be exercised at the
Company's sole election at any time in the period commencing three years after
the Completion Date or first commercial production from Cory Moruga field
(whichever is earlier) and ending six years after the Completion Date.
Consideration payable if the Company elects to exercise the back-in right is a
fixed cash amount of US$2.25 million, plus a variable percentage of the costs
incurred by Predator on the Cory Moruga field subsequent to the Completion
Date, the percentage dependent on the P50 Resource attributable to the Cory
Moruga field at that time, as follows: (i) 50% of costs incurred if the P50
Resource is less than 5 million barrels of oil (MMbbls), (ii) 75% of costs
incurred if the P50 Resource is more than 5 MMbbls but less than 10 MMbbls,
and (iii) 100% of costs incurred if the P50 resource exceeds 10 MMbbls.

 

·    Predator will have until 31 January 2023 to complete confirmatory due
diligence, prior to which time the parties will also work in good faith to
enter into long-form transaction documentation in respect of the Transaction.
However, the Term Sheet is expressed to be legally binding, and will remain as
the operative legal document in respect of the Transaction until long-form
transaction documentation is entered into.

 

·    Thereafter, completion of the Transaction will be 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 Predator
(to include technical work, CO(2) EOR activity, and new well drilling), 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 and other amounts
pertaining to the Cory Moruga licence. Completion of the Transaction will
occur 7 days after satisfaction of this condition and any other relevant
conditions precedent that may be stipulated in the long-form transaction
documentation. The parties have agreed to work together to secure the required
consents and agreements with MEEI and thus achieve completion of the
Transaction as soon as reasonably practicable on or before 30 May 2023, with a
long stop date of 31 August 2023.

 

·    For the year to 31 December 2021 T-Rex made a loss of approximately
TT$4.5 million (or approximately US$674,000), largely reflective of the annual
licence fees and dues in respect of the Cory Moruga licence. As at 31 December
2021, T-Rex had net liabilities of approximately TT$48.0 million (or
approximately US$7.1 million) of which approximately TT$31.7 million (or
approximately US$4.7 million) is intra-group and will be written-off as at the
Completion Date. Cash received in relation to the Transaction will be used for
general working capital in the Company's operations.

Eytan Uliel, Chief Executive Officer of Challenger Energy, said:

"I am pleased to advise of today's commercial agreement, to sell our interest
in the Cory Moruga block to Predator. Subject to Ministry consent and
agreement, Predator intend to aggressively take the block forward to
production, through a combination of new technical studies, CO(2) enhanced oil
recovery activities, and new well drilling. In the event Predator are
successful, we retain a future ability to come back in to a 25% interest, and
we have put in place a new framework to work with Predator on considering the
application of CO(2) EOR techniques on our other Trinidadian assets.

In financial terms, subject to completion, the transaction will result in cash
receipts of US$2 million through 2023, and a further US$1 million in the event
of commercial production being achieved at the Cory Moruga field. In addition,
we will see tangible realisation of value in the form of the embedded option
value of the back-in right retained, all liabilities and potential liabilities
associated with the Cory Moruga entity being removed, and a resolution of all
outstanding matters between us and Predator being achieved in an amicable
manner.

It is worth noting though that whilst Cory Moruga may currently be
non-producing and thus non-core to our existing business in Trinidad, the
block does have future production potential, albeit new wells and the
application of innovative, environmentally-friendly EOR techniques will be
required to unlock that potential. We will thus be working with Predator in
the coming months to seek the consents and agreements necessary from the
Ministry to enable the future work program intended by Predator to proceed.
This will not only be to the benefit of our Company and Predator, but will
meet the Trinidadian Government's objective of seeing EOR deployment in
Trinidadian onshore fields, with a view to establishing the basis for new oil
production in the future. Further updates will be provided as appropriate."

---

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:

 

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

 Eytan Uliel, Chief Executive Officer
 Strand Hanson Limited - Nomad               Tel: +44 (0) 20 7409 3494

 Rory Murphy / James Spinney / Rob Patrick
 Arden Partners plc - Broker                 Tel: +44 (0) 20 7614 5900

 Simon Johnson
 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 exploration, appraisal, development and production assets and
licences, located onshore in Trinidad and Tobago, and Suriname, and offshore
in the waters of Uruguay and The Bahamas. 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 (https://www.cegplc.com/)

 

ENDS

 

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