Balance Sheet Restructuring and Operational Update

RNS Number : 3608V

Challenger Energy Group PLC

13 December 2021

 

13 December 2021

Challenger Energy Group PLC

("Challenger Energy" or the "Company")

Balance Sheet Restructuring, Licence Renewals and Operational Update

Challenger Energy Group Plc ("Challenger Energy", AIM: CEG), the Caribbean and Atlantic margin focused oil and gas company, with production, development, appraisal and exploration assets across the region, provides the following update on its balance sheet restructuring, licence renewal process, and general operational matters.

Balance Sheet Restructuring

The Company has now largely completed a comprehensive balance sheet restructuring process. The previously reported aggregate balance sheet payables, debts and potential liability exposure of US$22 million is expected to be reduced to approximately US$2.5 million in total. Details are:

· Perseverance-1 creditors : all remaining creditors from the drilling of the Perseverance-1 well in The Bahamas in early 2021 (approximately US$11.3 million) have agreed to be settled for total payment of approximately US$2.0 million in cash, of which approximately US$0.6 million has been paid to-date, with the remaining balance of approximately US$1.4 million payable by 31 January 2022, to reduce the total of remaining Perseverance-1 creditors to nil.  Payment of this remaining balance is to be funded from new capital to the business, which is in the process of being sourced by the Company (refer further below);

· Trinidad payables and creditors (both Saffron-2 and legacy) : approximately US$3.0 million of payables and legacy creditors in Trinidad have agreed to be settled for total payment of approximately US$1.0 million in cash, of which approximately US$0.6 million has been paid to-date, and approximately US$0.4 million remains to be paid during Q1 2022 (payment of this remaining balance to be funded from new capital to the business, which is in the process of being sourced by the Company - refer further below). This will reduce remaining payables and legacy creditors in Trinidad to approximately US$1.5 million. In respect of these, all are at the level of Trinidadian subsidiary entities with no recourse to the Company. Work is ongoing to further reduce or agree further deferrals of these remaining payables. However, even at the current reduced level the remaining balance is well below historic in-country creditor levels, of a quantum that is expected can be satisfied in the ordinary course of business over the next 18 months (on the basis of the increased production assumed - see below in "Operational Matters");

· Claims, legacy licencing payables and potential exposures in Trinidad : the previously reported approximately US$6.5 million of legacy claims, licencing payables and potential financial exposures in Trinidad are expected to be reduced to less than US$1.0 million at nil cash cost. The residual amount has been rescheduled on the basis of various agreed deferral and payment plans, and is expected to be eliminated in the ordinary course of business over the next 18 months;

· Convertible notes : approximately US$0.7 million of outstanding convertible notes (inclusive of accrued coupon) remain owing by the Company, albeit those notes are not due to be repaid until December 2023. The Company expects in the near term to agree commercial terms with noteholders as to the basis on which those notes might ultimately be converted into equity (formal documentation is currently being finalised), thereby eliminating this long-term liability at nil cash cost; and

· Well control insurance balancing payment: as a result of the ultimate cost of the Perseverance-1 well, a "top-up" premium amount may be sought by insurers in relation to the final overall cost of the insurance. This matter remains subject to negotiation with the insurers given that the well was completed safely and without incident almost 12 months ago.

Therefore (assuming the above, and subject to the above-noted payments of final agreed settlement amounts, and eventual conversion of the outstanding convertible notes) the previously reported aggregate payables, creditor, liability and other potential financial exposures on the balance sheet - of approximately US$22 million - will be reduced to approximately US$2.5 million. No material payables or creditors will remain at the Company level, with all residual amounts at the level of Trinidadian operating subsidiaries, and non-recourse to the Company. As noted above, this remaining position is expected to be managed out by the Trinidadian subsidiary entities over the next 18 months, including on the basis of various agreed deferrals and payment plans.

The cost cutting program embarked on in July 2021 is now also substantially complete. The Company's ongoing cash-burn has been reduced from a high of US$700k per month in February 2021 to less than US$200k per month currently. The Company's current cash balance is US$1.5 million, and the Company is presently evaluating various funding alternatives to secure additional capital - both to enable timely payment of the final agreed creditor settlements in Q1 22 (for which approximately $2 million will be required), as well as to provide sufficient working capital thereafter, including to enable progress of a defined, production-focused work programme in Trinidad and Suriname over the balance of 2022 (for which a further minimum of $4 million is estimated to be required). Further updates will be provided as appropriate.

Licence Renewals

The South Erin licence in Trinidad has been renewed on agreed terms, and the commercial framework for the renewal of the Innis-Trinity licence has also been agreed with the renewal process for that licence expected to be completed shortly. This successful renewal process provides clarity on tenure for all key Trinidadian production assets (Goudron, South Erin and Innis-Trinity) and defines the minimum work program in 2022 and beyond. This work program has been formulated with a view to maintaining and increasing production.

Operational Matters

At the Trinidadian operating level, various cost saving measures have now also been implemented, such that at present (based on current production, sales volumes and oil price), the operations in Trinidad are largely self-funding. To the extent production can be increased by approximately 15% - 20% (as is anticipated from work planned for 1H 2022) the Company expects that cashflows generated from operations in Trinidad will be more than sufficient to cover all in-country operational costs and group corporate overheads.

Consequent on operational changes implemented over recent months, the size and cost of the Company's executive has been significantly reduced. A number of executives will thus cease employment with the Company during January 2022. It is also intended that certain changes to the composition of the Board are implemented in the same time frame. In this regard, the Company has identified new Board members and new senior personnel for key executive roles, those identified individuals having considerable experience in mature field operations, production enhancement and maximisation. Appointments are expected to take effect on completion of the restructure and recapitalisation process, with further detailed announcements to be made at that time.

Eytan Uliel, Chief Executive Officer, commented:

"At the start of November, when advising of Challenger Energy's financial results for the first half of 2021, I observed that technical results below expectation and substantial cost increases on two successive wells in The Bahamas and Trinidad, coupled with inherited legacy liabilities, had placed the Company in a stressed financial position - one where aggregate payables, creditors, liabilities and potential financial exposures on the balance sheet substantially exceeded the Company's cash resources.

Since then, we have engaged in a comprehensive, Company-wide balance sheet restructuring process, whereby the stressed financial position has been dealt with by way of agreed settlements with creditors, as well as various other agreed payment deferrals and similar actions. The result is that the previously reported total of payables, creditors, liabilities and potential exposures, of approximately $22 million, is expected to be reduced by approximately 85% by the end of Q1 2022 - with almost none of the residual being at the parent company level. Work is continuing to reduce this even further. Once this process is complete, the balance sheet of the Company will have been substantially repaired.

In parallel, we have completed our cost reduction program, with corporate overheads now reduced by more than 70% across the business. The Trinidadian business is operating on a break-even basis, and we have successfully progressed the renewal process for all core producing licences in Trinidad.  A significant organisational restructuring is also underway, and as part of this we have made some painful but necessary reductions and changes to the executive and staff base. I'd like to take this opportunity to thank those leaving the Company for their service and valued contributions over the years, and I'd like to thank all of our continuing staff for their patience and steadfast commitment while we complete the work on this restructuring process.

With this body of work largely behind us, attention is now focused on a recapitalisation - the last remaining step in what might best be described as the "clean-up" program intended to place this Company back on a firm financial footing for the future. This is needed both to enable final creditor settlement payments to be made, but more importantly, to fund production accretive work going forward. Thereafter, I hope that 2022 can become a year focused on restoring value, and for which we have a full work program planned, focused directly on maximising cashflow from existing producing assets. Further updates as to our progress will be provided."

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 (Withdrawal) Act 2018.

For further information, please contact:

Challenger Energy Group PLC Eytan Uliel - Chief Executive Officer	Tel: [phone]
Strand Hanson Limited - Nomad Rory Murphy / James Spinney / Rob Patrick	Tel: [phone]
Shore Capital Stockbrokers Limited - J oint  Broker Toby Gibbs	Tel: [phone]
Investec Bank Plc - J oint  Broker Chris Sim / Jarrett Silver	Tel: [phone]
Gneiss Energy - Financial Adviser Jon Fitzpatrick / Paul Weidman	Tel: [phone]
CAMARCO Billy Clegg / James Crothers / Hugo Liddy	Tel: [phone]

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  

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