(Sharecast News) - Caribbean and Americas-focussed oil and gas company Challenger Energy has entered into a binding heads of terms with Predator Oil & Gas Holdings, it announced on Tuesday.
The AIM-traded firm said the term sheet provided for the conditional sale of its interest in the non-producing Cory Moruga licence in Trinidad, as well as a framework for future carbon dioxide collaboration between the company and Predator, and a mutually-agreed settlement relating to the Inniss-Trinity carbon dioxide enhanced oil recovery pilot project previously carried out by Predator at Challenger's Inniss-Trinity block.
It said the binding heads of terms were for the conditional sale of its 83.8% interest in the non-producing Cory Moruga licence, including the Snowcap oil field, to Predator, through the sale of 100% of the issued share capital of T-Rex Resources Trinidad, with retention of a 25% future back-in right based on future drilling and enhanced oil recovery activity, and associated future production.
The company said the total value proposition for it was up to $9m, comprising $2m in staged cash consideration, $1m in contingent cash consideration, the removal of all liabilities and potential exposures associated with the Cory Moruga licence, the retention of residual back-in rights, and a full settlement with Predator over all matters relating to the Inniss-Trinity pilot project.
"I am pleased to advise of today's commercial agreement, to sell our interest in the Cory Moruga block to Predator," said chief executive officer Eytan Uliel.
"Subject to ministry consent and agreement, Predator intends to aggressively take the block forward to production, through a combination of new technical studies, carbon dioxide enhanced oil recovery activities, and new well drilling.
"In the event Predator is successful, we retain a future ability to come back into a 25% interest, and we have put in place a new framework to work with Predator on considering the application of enhanced oil recovery techniques on our other Trinidadian assets."
Uliel said that in financial terms, subject to completion, the transaction would result in cash receipts of $2m through 2023, and a further $1m in the event of commercial production being achieved at Cory Moruga.
"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 enhanced oil recovery 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."
At 1447 GMT, shares in Challenger Energy Group were up 2.86% at 0.09p.
Reporting by Josh White for Sharecast.com.
Challenger Energy (CEG)