Challenger Energy Regulatory News (CEG)

27 September 2021

Challenger Energy Group PLC

("Challenger Energy" or the "Company")

Annual Report and Financial Statements for the year ended 31 December 2020

Challenger Energy (AIM: CEG), the Caribbean and Atlantic margin focused oil and gas company, with production, appraisal, development, and exploration assets across the region, is pleased to announce its Final Results for the year ended 31 December 2020.

The Company's Annual Report will be posted to shareholders, along with the notice of AGM and proxy form, on Thursday 30th September 2021. The AGM is to be held on 25th October 2021 at Challenger Energy PLC, IOMA House, Hope Street, Douglas, Isle of Man, IM1 1AP. 

The Financial Statements for the Year Ended 31 December 2020 and Annual Report, along with notice of AGM and proxy form, are now available on the Company's website https://www.cegplc.com/.

For further information, please contact:

 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.

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 

Challenger Energy Group

(formerly Bahamas Petroleum Company)

Annual Report and Financial Statements

For the year ended 31 December 2020

Highlights

Strategic

· Since early 2020 the Company has pursued a strategy to broaden its asset base and diversify its risk profile such that the Company's future was not solely reliant on the outcome of exploration drilling in The Bahamas, albeit still highly leveraged to its outcome

· In 2020, successful execution of that strategy saw the Company's business transform to become a full-cycle exploration and production company, centred on the Caribbean and the Atlantic margin

· The Company's portfolio now consists of 14 assets in four countries that span the industry value chain from production to development, appraisal, and both infrastructure-led and high-impact frontier basin exploration

Production / Appraisal Operations

· A focussed work program since August 2020, when the Company assumed control of its portfolio of mature producing Trinidadian oilfields, has enabled natural reservoir decline to be mitigated and increasing revenues achieved

· The licence for the Goudron field in Trinidad was extended for 10 years in November 2020; work is underway in respect of extensions of the Innis-Trinity and South Erin fields (for 2022 and beyond)

· The Saffron-2 appraisal well in Trinidad was planned during 2020 and subsequently drilled in July 2021 - the well is currently producing and has demonstrated the commercial viability of the Saffron project, with work underway in support of pursuing a development of the Saffron field in 2022

· Planning, design and environmental approval of the Weg Naar Zee appraisal well and Extended Well Test in Suriname has been completed, with that project targeted to commence as soon as Covid-19 circumstances in Suriname allow

Exploration Activities

· The Perseverance-1 exploration well was drilled offshore The Bahamas between December 2020 and February 2021 - the first exploration well in The Bahamas since the 1980s. Post well analysis has indicated the potential for a deeper Jurassic oil source, with activity now focussed on securing a farm-in partner and renewing licences for the next phase of activity

· Following a competitive bid process, the Company was awarded the OFF-1 offshore block in Uruguay in May 2020, a 15,000 km2 licence area with estimated exploration potential in excess of 1 billion barrels of oil recoverable

· Work has continued throughout the period to better define the exploration potential of the Southwest Peninsula in Trinidad, including reprocessing of the regional 3D seismic grid - several prospects have been identified with an estimated aggregate of more than 200 million barrels of oil recoverable

HSES

· In the context of significantly increased operational activity and the extreme operating challenges presented by the Covid-19 pandemic, a concerted effort has been made across the Company's operations to ensure "best in class" policies, procedures and performance in relation to Health, Safety, Environment and Security (HSES)

· After extensive planning and preparation for the drilling campaign in The Bahamas, Perseverance-1 was drilled without any safety or environmental incidents

· Extensive work was undertaken in late 2020 in pursuit of Safe to Work (STOW) accreditation in Trinidad, which was recommended in January 2021 and approved in August 2021 for a two-year period

Chairman's Letter to the Shareholders

Dear Shareholders,

Over the last 18 months, the Covid-19 pandemic has dramatically altered the global operating environment for all businesses. At the same time, there were a number of significant developments at our Company. These are discussed in further detail in the Chief Executive Officer's report and in the balance of this annual report document. To provide context, however, I wish to offer some comments in terms of three main themes applicable to Challenger Energy's business in the period under review: strategy, focus on HSES, and shareholder value outcomes.

Strategy

At the start of 2020, this Company had a single business focus: a group of four geographically and commercially co-joined exploration licences, located in the southern territorial waters of The Bahamas, with an obligation to drill an initial exploration well prior to the end of 2020. After more than ten years of preparatory work, the Company had entered 2020 in an advanced state of preparation for the drilling of this well, named Perseverance-1. At that time, drilling was scheduled to commence in April 2020. Thus, at the start of 2020, all activities in the Company were focussed in support of this sole objective.

Plans were materially disrupted by the outbreak of the global Covid-19 pandemic in the beginning of 2020. Seemingly overnight, many countries became subject to extensive lockdowns, and international movements of people and resources became difficult, if not impossible. In our industry, this was compounded by a dramatic collapse in oil prices, such that many projects were either delayed or mothballed. Challenger Energy was in a similar position to its industry peers, and once confronted with the full scale of the unprecedented Covid-19 crisis it was soon realised that safe and uninterrupted drilling operations in April 2020 could not be assured. Reluctantly, management decided the best course of action was to defer the drilling of Perseverance-1 to the end of 2020, after the domestic hurricane season and allowing additional time for appropriate planning and preparation once the impacts of the pandemic would be better known.

In the following months, during what could perhaps be described as a period of extended industry "inactivity" occasioned by the pandemic, the Board and management undertook a review of prevailing conditions in the oil and gas exploration sector. Collectively, it was concluded that a business model based on a single-project, high-impact exploration outcome in a frontier location was unlikely to be sustainable in a world being fundamentally - and rapidly - reshaped.

It was determined that a shift in strategy was necessary and eminently possible. Given the prevailing state of the industry, Challenger Energy could broaden from being a single-asset business into a full-cycle exploration and production company centred on the Caribbean and the Atlantic margin. This would complement high-impact exploration with active oil production and thus cashflow. The objective the Board set for management was thus to work toward assembling a diverse portfolio of assets, in multiple jurisdictions, and with a spread of operational activity across the industry spectrum - from production and development to appraisal and exploration.

In terms of execution of this strategy, through the course of 2020 there were two notable developments. In June 2020 the Company was successful in its application and was awarded a high-impact exploration licence offshore Uruguay. Also in June 2020 a transaction whereby the Company would acquire 100% of Columbus Energy Resources PLC (Columbus) was announced. Columbus owned and operated a range of complementary oil assets in Trinidad and Tobago, and Suriname.

That latter transaction completed in August 2020, such that in the space of approximately six months, the Company had been transformed. From being a company with one high-impact project in one country at the start of 2020, the Company exited 2020 with 14 projects in four countries. Detail of this enlarged portfolio of assets is set out further on page 11 of the annual report.

In the process, the risk profile of the Company was likewise transformed, from being 100% exposed to the outcome of a single offshore exploration well in The Bahamas, to having a broad portfolio of assets, including active oil fields in production. So, whilst remaining heavily leveraged to the success of the exploration drill bit, the strategic transformation during 2020 meant that any exploration downside was somewhat mitigated.

HSES

It should go without saying that first and foremost in any oil industry operation is the objective to ensure that work is carried out safely, without incident, and without causing any harm to people or the environment - an objective that in 2020 became all the more acute given the impacts of the pandemic.

Moreover, the impending drilling of Perseverance-1 coupled with the integration of an active production business meant that in 2020 the responsibilities of the Board and management transitioned quickly from being a small team of eight full-time personnel, focussed entirely on exploration activities in The Bahamas, to being an international business with an operating staff base of over 80 and about 40 retained consultants. Operations through 2020 expanded considerably, to encompass not only exploration and appraisal programs in several jurisdictions, but also managing active production from multiple producing oil fields, operating the drilling of a large, complex offshore well in The Bahamas, and preparing for onshore drilling activities elsewhere in the portfolio.

With this substantial increase in operational activity came a commensurately increased assurance process based around an intense focus on all aspects of HSES. Accordingly, through the course of 2020, everyone at Challenger Energy worked diligently to embed new HSES processes, protocols and procedures across the expanded group. The objective was clear: to place HSES outcomes at the centre of every aspect of Challenger Energy's collective endeavours. I am thus pleased to be able to report that there has been a consistent level of performance upgrade across all key HSES metrics.

The Company has also committed to establishing a formal Environment, Social and Governance (ESG) sustainability framework, comprising a clear ESG strategy and associated goals along with regular tracking of performance against those goals. We expect to begin rolling this out across the Company in 2022.

Shareholder Value Outcomes

Over the course of the last 18 months, our business has been supported by a carefully executed funding strategy, including private institutional placings, an open offer to our existing shareholders, and various convertible debt facilities. I would like to thank our shareholders and financiers for their continued support, as well as our directors, management and staff who have participated materially in these funding initiatives alongside shareholders, in support of our common goals.

I feel it would be remiss of me if I did not at this point address "the elephant in the room". That is, since the results of Perseverance-1 became known in February 2021, the Company's share price has declined markedly, and despite a lot of hard work by everyone in the Company there has not yet been the kind of operating success elsewhere in the portfolio required to offset that decline. In this regard, I make several observations.

Firstly, the Company had a clear obligation to shareholders and the Government of The Bahamas to drill Perserverance-1 within a defined time period. This obligation was met, and drilling was carried out safely and responsibly, despite the compounding uncertainties and unprecedented operating disruptions caused by the global pandemic, a last-minute legal challenge from environmental activists, mixed public messaging from Government authorities, and an unprecedented collapse in global oil prices. Individually, each of these impacts would have severely challenged companies with much larger resources, and it is thus a testament to the tenacity of the management team that drilling was nonetheless able to proceed. Collectively, however, these impacts meant that as we approached the start of drilling, the Company's access to funding became materially constrained. This resulted in some last-minute funding decisions that could not be avoided in the circumstances so as to ensure continued operations. Whilst necessary, these decisions were unpopular with some shareholders, and were certainly a divergence from our longstanding funding strategy to that point.

Secondly, there is nothing that anyone could have done to change the eventual drilling outcome of Perseverance-1. After ten years in the making, when the well was finally drilled the rocks encountered did not yield a commercial discovery at the drill location. Given this technical outcome, nothing would have prevented a significant decline in share price following - just as a significant increase in share price would have inevitably followed had the drilling result been an unmitigated commercial success. In the end, this is the risk-reward equation that any investor in an exploration focussed oil and gas company assumes.

Thirdly, for many years, Board and executive remuneration was heavily aligned toward the outcome of Perseverance-1. Many of us have invested substantially in the Company, becoming sizeable shareholders in our own right and/or by having foregone remuneration. Board and management have thus all shared very directly in the poor financial outcome flowing from the result of the well.

Which brings me to my final observation on this subject: we're still here. Without the strategic shift to become an expanded portfolio business initiated in early 2020, and had the Company not succeeded through the course of 2020 in executing on this strategy, the result of Perseverance-1 would unequivocally have meant the end of this Company. Instead, shareholders continue to have a business, and there remain multiple opportunities to restore shareholder value. More than that, everyone who works at Challenger Energy is motivated and incentivised to do so. So, whilst it will of course take time and effort to rebuild, and whilst there are no guarantees in any business, your Company has good assets, an experienced and deeply committed team, and a proven capacity to stick with it and get things done, even in the most trying of circumstances.

Looking Forward

Overall, the last 18 months has been a time of considerable activity at Challenger Energy, with many of the Company's operational objectives achieved, despite some unprecedented challenges. The financial reward for this effort has not been realised given the technical outcomes, but our team has worked diligently and tirelessly throughout the period. I would like to thank everyone at Challenger Energy for their hard work and commitment to the tasks at hand. 

I would especially like to thank Mr Simon Potter, our CEO for the last ten years, who in May 2021 stepped back from daily executive duties. Without Simon's leadership over the past decade, we would not have accomplished the various milestones of the last year, and I am delighted he will continue to support the business as a non-executive director going forward. Mr Eytan Uliel, who has been our Chief Commercial Officer for many years, has taken over as the CEO. Eytan brings not only continuity but also fresh perspective to the Board and I look forward to working with him in the years ahead. I would also like to thank Adrian Collins and Ross McDonald, both of whom have retired from the Board in recent months, for their support over the years.

Looking to the future, your Board remains focussed on delivering the various opportunities across Challenger Energy's expanded portfolio. I look forward to reporting further to you on our progress in the year ahead.

Bill Schrader

Chairman

24 September 2021

Chief Executive Officer's Report to the Shareholders

Dear Shareholders,

This is my first report to you, the owners of the Company, in my capacity as Chief Executive Officer, having assumed that position in May 2021. 

Strictly speaking, this annual report covers the 2020 financial year period (that is, from January to December 2020, before I became CEO). Timing for reporting for the 2020 year has, however, been delayed longer than usual owing to the Covid-19 pandemic, and many of the more significant milestone events for our Company, whilst a direct outcome of work undertaken during 2020, actually occurred in the first half of 2021 and subsequent. In general, therefore, I will speak in this report to the period from the start of 2020 until the middle of 2021.

Perseverance-1 in The Bahamas

Without question, drilling of Perseverance-1 in The Bahamas was a key event in the history of this Company. Drilling commenced on 20 December 2020, and was subsequently completed in February 2021, after having been delayed from the targeted start in April 2020 because of the outbreak of the pandemic. Long-standing shareholders will be well aware, however, that this drilling campaign represented the culmination of more than a decade of work: from the initial award of the licences in The Bahamas in 2007, to the acquisition of 3D seismic in 2011, to an extensive amount of data acquisition and technical work spanning many years, and finally the drilling - the first such well to be drilled in The Bahamas since the 1980s.

We all know the Perseverance-1 well result - drilling did not result in a commercial discovery at the Perseverance-1 location. That is part of life in the oil and gas exploration business: no matter how much high-quality technical work precedes drilling, you do not know what resource lies beneath until the well is down.

That said, there are many aspects of the drilling campaign which everyone associated with Challenger Energy should be proud of. In particular, we did what we said we would do. Despite many challenges and numerous setbacks along the way, we eventually drilled the well, thus meeting our core objective of testing the structures at the chosen drilling location.

To do this, we had to work effectively through several changes of Government in The Bahamas. We had to secure the finance needed for the drill, a task most commentators thought was beyond our grasp. We had to recruit an experienced drilling team, and we had to operate a complex offshore drilling program more typically the province of much larger companies. Along the way we built up and deployed the capacity necessary to execute the well, which included bringing together a contractor group made up of some of the world's most respected service companies - familiar names like Stena, Halliburton and, Schlumberger. And, we saw off a legal challenge from environmental activists that was launched at the very last minute in a cynical effort to halt our legitimate business operations.

More than that: we successfully conducted operations during a pandemic. The safe drilling of any offshore exploration well is always a technical challenge, but to do so during a global pandemic necessitated complex logistical planning, and the fact that we were able to drill for approximately seven weeks without an outbreak of infection on the rig is a reflection of the rigorous systems and procedures employed. In so doing, we fulfilled our commitments to the Government of The Bahamas and its people, through operating the drilling program responsibly, and without any incidents.

Looking forward in The Bahamas, it is worth noting that whilst Perseverance-1 may not have resulted in the commercial discovery we hoped for, a substantial amount of data and learning has been obtained from the drill. We are still integrating all of this information, but it provides encouraging support for the possibility of a deeper Jurassic oil play.

As I have observed in other forums, we had hoped for 'instant gratification' with Perseverance-1, which was not the case. However, it is important to remember that in our industry several exploration wells are often required before the potential of a frontier basin is unlocked, and based on what we have learned from Perseverance-1, we continue to believe that our licences in The Bahamas are prospective. We have thus shifted our focus to the future of this project: (i) renewing the licences into a third, three-year exploration period, and (ii) securing a partner - ideally a large industry player - to provide expertise and capital for the next phase of activity. I look forward to updating shareholders on our progress in this regard.

Production Operations in Trinidad & Tobago

In August 2020 we completed the acquisition of Columbus, creating a new and enlarged organisation with operations spanning across the Caribbean and Atlantic Margin region. As is noted by the Chairman in his letter to shareholders, the logic of this strategic transformation was simple: to expand the Company from being a single asset company in The Bahamas to a more diversified business, with risk and reward potential spread across multiple projects in various locations and at differing stages of the industry value chain.

On assuming control of the Columbus assets in August 2020, we found a business that was showing the effects of being cash-starved for a very long time under previous management. This was manifest in terms of low field activity levels, poor morale amongst staff - many of whom had been suspended or put on half pay at the start of the Covid-19 pandemic, inadequate policies and procedures, poor record keeping, local suppliers who had not been paid for some time and a business reputation in-country that was suffering.

Therefore, through the last quarter of 2020 and into 2021, we began an intensive program of work designed to "right the ship". At its core, we were (and still are) guided by a simple objective: to sustain and increase production, to manage costs tightly, and to thereby grow cashflow from the Trinidadian operations.

Some successes worth noting: we substantially increased field activity, with workover frequency rate increasing by 20% under our management. We also implemented a roster of preventative well maintenance work to maximise well uptime, initiated an automation trial, installed new pumps on a number of wells, perforated additional zones in several wells, and carried out a number of heavy workovers including perforation washes on high producing wells, all with the objective of optimising well performance and sustaining / adding to production.

Alongside this increased level of field activity, we undertook a comprehensive review of all assets, and restructured the Trinidadian organisation so as to drive cost efficiencies and allow for more effective work across the portfolio. We focussed on restoring morale within our staff base, and we began a process to restore confidence with local suppliers, regulators and communities.

It has been hard work, and there have been ups and downs - all the more so given the ongoing effects of Covid-19 in Trinidad, and in particular the extreme difficulty of getting into the country. But we are now beginning to see the fruits of our labour. Notably, we have stemmed the rate of production decline in the producing fields, and have been successful in a core objective of maintaining baseline production in the range of 400 - 450 barrels of oil per day. A rising oil price environment, coupled with cost savings measures we have put in place, means that we have now been able to reach a point where the operations in Trinidad & Tobago are largely self-funding. In 2022, we expect to be able to continue along this trajectory, and generate $2 million or more of positive operating cashflow from our existing production operations. This would represent a fairly significant "turnaround" in a relatively short period of time, and is an achievement for which our team in Trinidad should be rightfully proud.

Beyond this, each and every day we continue to look for ways to drive further growth in production which, given our largely fixed cost base in-country, would flow straight to the bottom line. Indeed, at times during the last 18 months production has gone as high as 500 barrels of oil per day, but then we have not been able to be sustain it at that level for the long term: wells go offline, power supplies get disrupted in inclement weather, and so on.

Our objective for 2022 is thus to crack that particular nut: how can we add 100 barrels or more per day of production from existing fields on a sustainable basis and increase cashflow even further? This will inevitably require some trial and error as we continue in our work to maintain and optimise field performance alongside remediation activities, but we are confident we will get there. We also hope that in 2022 the various Enhanced Oil Recovery (EOR) initiatives that have been tested and trialled through 2020 and into 2021 might ultimately provide some incremental production, too.

Appraisal and Exploration Activities

Apart from Perseverance-1 in The Bahamas and the focus on production activities in Trinidad and Tobago, during 2020 and then into 2021 we continued to progress appraisal and exploration activities across the broader business. Three items are worthy of particular note.

Saffron-2 appraisal onshore Trinidad: The Saffron-1 discovery well, drilled by our predecessor in late 2019 at the Bonasse licence in the Southwest Peninsula of Trinidad, had discovered oil in the Middle and Lower Cruse reservoir horizons. However, that well had been beset by various issues during the drilling campaign, such that no production testing of the Lower Cruse reservoirs had been possible. On assuming control of the asset, we analysed the data collected from the Saffron-1 well, and used that analysis to inform a well design and commence detailed well planning for a second Saffron well. Following that work and after receiving approvals from the Ministry, the Saffron-2 appraisal well, our first operated drilling onshore Trinidad, was successfully drilled to TD of 4567 ft in June and July 2021. Saffron-2 encountered multiple oil-bearing horizons in the Upper Cruse, Middle Cruse and Lower Cruse reservoir zones. Subsequent production tests have proved the ability to flow high-quality oil from the Lower Cruse reservoirs, although sustained production from these reservoir units has not yet been achieved due to technical and mechanical issues encountered in this zone - we are working on engineering solutions. On the other hand, the Middle Cruse reservoir sections are producing, and have thus far demonstrated what we consider could be an economic level of production, with work being progressed to see if we can increase production further. The oil produced at Saffron-2 is already being sold, and the immediate plan is to maximise production revenues from the well, bring on additional production from the as yet unperforated Upper Cruse zone, and revisit our thoughts around a potential development (and funding for that). We would like to see a Saffron development get underway in H1 2022.

Weg Naar Zee (WNZ) appraisal onshore Suriname: WNZ is a large block (approx. 900 km²) onshore Suriname, in a proven hydrocarbon province with 70 historic wells and 2D seismic coverage. Up to 24 MMbbls STOIIP (15° API) has been identified in eight pools on the block, and an initial well followed by an Extended Well Test (EWT) has been designed to appraise the producibility of the resource, and to assess whether the asset is suitable for application of enhanced oil recovery techniques used by Challenger Energy in Trinidad. To date, approval to proceed with the planned drilling program has been received from Staatsolie (our PSC partner and Surinamese state-owned oil and gas company and regulator) and NIMOS (the Surinamese environmental regulator). Various preparatory work streams have been completed including the well site being identified, land lease being secured and equipment and service providers having been engaged. We are thus ready to proceed with drilling of a first WNZ appraisal well, albeit operational challenges arising from the Covid-19 situation in Suriname have resulted in the decision to delay the projected well spud date - ideally, we would like to see this project get underway in late 2021 or early 2022.

OFF-1 in Uruguay: As noted, in June 2020 we were awarded the OFF-1 licence block offshore Uruguay. This acreage, which holds an estimated resource potential of up to 1 billion barrels of oil, provides an exciting addition to the broader portfolio. The licence is for an initial 4-year period during which the Company is obliged to undertake geological and geophysical studies to define prospects and resource potential. This work will be carried out internally on a low-cost basis. Formal execution of the licence by the Uruguayan government has been delayed due to the impacts of Covid-19 in Uruguay - we will commence work as soon as that process is complete. Interestingly, two wells are planned by majors in Namibia toward the end of 2021 on the conjugate margin of our asset in Uruguay. We will thus be watching the outcome of that drilling with keen interest.

HSES

Challenger Energy is committed to providing a healthy, safe and secure workplace for all employees, consultants, contractors, service providers and visitors, across all facets of our operations. We believe strongly that pursuit of our commercial objectives should never be at the expense of harm to people or the environment. Moreover, the change during 2020 to the Company's portfolio mix and significant resultant increase in operational activity, alongside the expanding impacts of the Covid-19 pandemic, meant that clear focus and leadership in relation to HSES became mission critical.

In response, over the past 18 months we have made it an unambiguous priority to embed HSES awareness into every aspect of our business, to accurately track our performance, and to implement learnings from that tracking to ensure accountability to the highest international standards. As an absolute minimum, the Company seeks to comply with all applicable laws and regulations in the countries in which it operates but, where the Company has adopted stricter codes of practice in relation to any aspects of HSES management, then these higher standards are applied.

Some notable achievements: as already mentioned, drilling activities - both offshore in The Bahamas and onshore in Trinidad - were undertaken safely and without incident. Across our active operations, we have seen improving trends in relation to key HSES statistics, such as a marked drop in motor vehicle incident frequency. Over the past 18 months we have also placed an emphasis on staff training, and we have put in place systems to ensure that our contractors also meet all necessary standards - the result has been a heightened awareness of risk evident across the business. Safe-to-Work (STOW) Accreditation - an essential part of the social licence to operate in Trinidad and Tobago - has been achieved, and a substantial body of work has been conducted by our HSES team to review and then update an extensive range of policies, procedures and management systems applicable to all aspects of the Company's operations. These are now being regularly re-examined to ensure currency, relevance and applicability. Overall, shareholders should be pleased with the HSES track record the team has established and is working diligently to maintain. Further details are set out on page 17 of the annual report.

Corporate and Financial Review

In terms of finances, 2020 was dominated by the need to secure the funds needed to drill the Perseverance-1 well. With the expansion of the business to include active operations in Trinidad and Tobago and Suriname, the need for funding increased commensurately.

Accordingly, through the course of 2020 and then into 2021, we implemented a broad funding strategy designed to ensure we would be able to meet our funding needs as and when they have been required. This included two open offers with existing shareholders, multiple institutional placings, drawdown of funds from two independent convertible note facilities, and the sponsorship of a Bahamian domiciled mutual fund. In the process, we raised in the order of $60 million in support of the Company's various project initiatives - a credit to the efforts of our team and the support of our investors.

On completion of the transaction with Columbus, we also for the first time began to receive revenues from oil production and sales. This was a relatively small amount in 2020, given that we only accounted for five months of income, production was falling when we assumed control of the Columbus assets, and oil prices were low. But in the life of any oil company the time at which you begin to generate income is a significant milestone. As mentioned, we have focussed throughout 2021 on maximising that income, reducing costs, and benefitting from rising oil prices, with a view to 2022 being the year in which we begin to see surplus cashflows from production in Trinidad.

In terms of overhead and general operating expenses, these increased significantly through the course of 2020, a necessary consequence of gearing up for offshore drilling operations in The Bahamas plus the addition of active operations in other jurisdictions. However, following completion of drilling of the Perseverance-1 well in The Bahamas, we have taken immediate steps to reverse that trend, by reducing our operating footprint, reducing our staff base, and reducing our general costs wherever possible. I can report that as compared to the "peak" in February 2021, overhead costs are now down by approximately 40%, and there remains work to be done which we expect can reduce overhead even further.

2022 and beyond

As we turn our eye to the next chapter of this Company's story, I can assure shareholders of one thing: all of us who work at Challenger Energy are committed to delivering, and we will give 100% at all times.

Success in 2022 will involve achieving sustainable production growth from our portfolio, and hence increasing free cashflow. It will also require us to have success with the drill bit, so as to grow our reserves and production capacity over time. We will also need to continue to manage our costs tightly, and be smart in how we leverage our position in the industry. And in the longer-term, we remain determined to deliver value from The Bahamas and new business initiatives, like Uruguay.

I hope that 2022 marks the first steps in restoring value in this Company, and I look forward to updating shareholders regularly as to continued progress on that journey.

Eytan Uliel

Chief Executive Officer

24 September 2021

Company Report

Business Overview

Challenger Energy's business comprises a portfolio of oil and gas assets - 14 licences across four countries, at varying stages of the industry life cycle from exploration through to appraisal and production. These include five producing oil fields onshore Trinidad and Tobago, an appraisal project onshore Suriname, a substantial exploration acreage position in the Southwest Peninsula of Trinidad, and two high impact exploration projects - one each in The Bahamas and Uruguay.

Assets Summary

Trinidad and Tobago

The Company has five producing fields onshore Trinidad comprising some 250 wells, of which approximately 80 wells are in production at any given time. In addition, the Company has an appraisal project in the Southwest Peninsula ("SWP") of Trinidad (Saffron project) and has identified several other exploration prospects in the same area.

Goudron Field

The Company owns 100% of the Goudron field by way of an enhanced production service contract (EPSC) with Heritage Petroleum Company Limited, the Trinidadian state-owned oil and gas company. The EPSC was renewed in November 2020 for a 10-year term. The Goudron Field produces light sweet oil with an average API gravity of 37 degrees. The Company is progressing enhanced oil recovery programs at Goudron to support increased production, for example by undertaking a water injection pilot project focussed on re-pressuring reservoir units (subject to necessary approvals). Additionally, regular well workover operations are undertaken on the existing production well stock, including well stimulation operations, reperforations, and repairs to shut-in wells, as and when appropriate.

Inniss-Trinity Field

The Company owns 100% of the Inniss-Trinity field by way of an incremental production service contract (IPSC) with Heritage Petroleum Company Limited. The IPSC is due for renewal at the end of December 2021 and the Company is currently undertaking the process necessary for a renewal of that licence. As part of the Inniss-Trinity IPSC, a CO2 enhanced oil recovery pilot project was undertaken during 2020 and 2021 to establish the potential for increasing field production and with a view to assessing the applicability of the technique for other onshore opportunities. Regular well workover operations are undertaken on the existing production well stock and repairs to shut-in wells, as and when appropriate. In addition, the Company has identified a number of drill-ready compartments on the licence area which will be assessed in the context of other in-field drilling opportunities across the portfolio.

South Erin Field

The Company owns 100% of the South Erin field by way of a farm-out agreement with Heritage Petroleum Company Limited. The farm-out agreement is due for renewal at the end of December 2021 and the Company is currently undertaking the necessary process for such a renewal. Regular well workover operations are undertaken on the existing production well stock and repairs to shut-in wells, as and when appropriate. The Company has identified a number of drill-ready compartments on the licence which will be assessed in the context of other in-field drilling opportunities across the portfolio.

Southwest Peninsula (SWP)

The SWP contains the Bonasse and Icacos producing oilfields in which the Company holds a 100% interest via a number of private petroleum licences covering the Bonasse, Cedros and Icacos licence areas. Similar to the other fields, regular well workover operations are undertaken on the existing production well stock and repairs to shut-in wells, as and when appropriate. The Bonasse licence also includes Saffron prospect which is discussed further below.

Saffron Project

During 2021, the Company successfully drilled the Saffron-2 appraisal well to a depth of 4,567ft encountering Upper, Middle and Lower Cruse reservoirs. During production tests on the Lower Cruse formation pressures at surface of up to 1,400 psi were observed, oil was produced naturally to surface, and oil samples were collected and analysed (48° API). However, sustained production could not be achieved due to the continual inflow of mobile non-reservoir formation materials (clay and shale influx into the wellbore). Subsequently these zones have been isolated, capable of being re-entered, remediated and produced in the future, as appropriate. Production tests of the Middle Cruse formation has seen sustained oil production (20° API), with the well continuing to remain on production and produced oil being gathered and sold. The Company expects to be able to maintain production by optimising production parameters as flow rates become better understood, as well as by producing from a further 11ft of reservoir as yet unperforated in the Upper Cruse, to add to the production mix in due course. The Company is working to incorporate the results of the well into an optimal development plan for the Saffron project, as well as an update of the prospective and contingent resource estimates for both the Saffron location and other targets within the Company's SWP portfolio.

SWP Exploration

The large licence position in the Southwest Peninsula of Trinidad also represents the Company's main exploration acreage in Trinidad, with numerous prospects consisting of both stacked shallow and deeper reservoirs. The area is assessed internally by the Company as having recoverable resources amounting to approximately 230 MMbbls. In late 2020 the Company commissioned a reprocessing of the entire 3D seismic grid over the area, with that work completed in H1 2021. The results from this reprocessing work, along with existing data, are being used in support of ongoing work to select future exploration drill targets.

Cory Moruga Field

The Company owns 83.8% of the Cory Moruga licence and is the operator, alongside its partner Touchstone Exploration Inc. which holds a 16.2% non-operated interest. The Cory Moruga licence includes the Snowcap oil discovery, with oil having previously been produced on test from the Snowcap-1 and Snowcap-2ST wells. The Company is presently reviewing its options for the licence in line with other opportunities across the portfolio.

Suriname

Weg Naar Zee Project

The Company holds a 100% interest in a Production Sharing Contract (PSC) with Staatsolie Maatschappij Suriname N.V, the Suriname state-owned petroleum company (Staatsolie), for an onshore appraisal / development project contained in the Weg Naar Zee Block (WNZ). WNZ is a large block covering approx. 900 km² in a proven hydrocarbon province with 70 historic wells and 2D seismic coverage. Up to 24 MMbbls STOIIP (15° API) has been identified in eight pools (of which around half is in a single pool) with the CPR assessing 2C resources of 1.1 MMbbls and 3C resources of 3.5 MMbbls.

An Extended Well Test (EWT) has been designed to appraise the producibility of the discovered resource in the WNZ block, and to assess whether the asset is suitable for application of enhanced oil recovery techniques used by the Company in Trinidad. To date, approval from Staatsolie to proceed with the planned drilling program has been received as has approval from NIMOS (the Surinamese environmental regulator). The proposed well site has been scouted, various in-country contractors and well equipment has been sourced, and rig tenders have been received from a number of suppliers. Commencement of the drilling and subsequent EWT has been delayed due to operating constraints arising from the Covid-19 situation in Suriname. Drilling is expected to commence as soon as Covid-19 circumstances in Suriname allow, but ideally prior to the end of 2021 / early 2022, and will target the largest of the undrained pools on the block (twinning with a historical production well).

The Bahamas

The Company is the holder of four cojoined exploration licences offshore The Bahamas. The Perseverance-1 exploration well was drilled in the licence area, from 20 December 2020 to 5 February 2021, at a location approximately 20 miles from the Bahamas-Cuba maritime border, in water depth of approximately 518 metres. Perseverance-1 represented the first exploration drilling in The Bahamas since the mid-1980s, and the first test of any prospect located in deeper waters off the shallower water carbonate banks. The well reached a depth of 3,905 metres, having intersected five Albian, Upper Aptian, and Mid-Aptian horizons of interest.

The Perseverance-1 well was drilled safely and without incident, with stringent Covid-19 management protocols operating effectively throughout the drilling campaign. Following completion of drilling operations, the well was plugged and secured in accordance with international and BSEE (Bureau of Safety and Environmental Enforcement) standards.

The well did not result in a commercial discovery at the drilling location, with the source quality and migration interpreted as being the primary reason for this non-commercial well outcome. Post-well petrophysical analysis of the well logs have, however, confirmed high quality reservoirs down to the base of the well with no significant deterioration in porosity with depth, indicating the potential for high deliverability reservoirs in the deeper underlying Jurassic formations.

The technical findings from Perseverance-1 thus support a forward program to include further biostratigraphic analysis, fluid inclusion analysis, and selective re-processing of 3D seismic to further educate sequence stratigraphy and seismo-facies of the deeper Jurassic horizons. This work will underpin an assessment of the merits of a further exploration well in the future, both to continue to assess Aptian horizon potential, whilst at the same time targeting the deeper Jurassic intervals. The Company has recommenced a farm-out process to seek a suitable partner for the next phase of activity in The Bahamas. In parallel, in March 2021 the Company notified the Government of The Bahamas of its intent to renew the licences into a third 3-year exploration period.

Uruguay

OFF-1 Block

In June 2020, following a competitive bid process, the Company was notified that it was the successful applicant for the OFF-1 offshore block in Uruguay covering approx. 15,000km2. Formal signing of the licence for the OFF-1 offshore block is presently awaiting presidential approval, which has been delayed due to the Covid-19 pandemic situation in Uruguay. The Company expects the formal licence award to be completed before the end of 2021 and will thereafter commence initial technical work in 2022.

In the interim, technical work undertaken independent of the Company by ANCAP, the Uruguayan oil and gas regulator, has sought to highlight exploration prospectivity across the licence area. This involves detailed mapping of several play types and prospects, notably the syn-rift play potential within the Company's OFF-1 block. The prospect and lead screening carried out by ANCAP includes the specific identification of the syn-rift Lenteja prospect with a P50 estimated ultimate recovery volume (EUR) of 1.359 billion barrels and an upside case of several billion barrels recoverable, potentially accessible in shallow water depths of just 80 metres. This volume estimate aligns well with the earlier guidance provided by the Company of the potential within its OFF-1 licence area as being in excess of a billion barrels.

Reserves and Resources

In 2020, the Company commissioned an independent Competent Person's Report (CPR) from ERC Equipoise (ERCE). The scope of the report was to focus on reserves and resources across the Company's existing producing assets in Trinidad and Tobago, and the Company's Weg Naar Zee licence in Suriname. ERCE certified net 2P reserves of 1.29 MMbbls and net 2C contingent resources of 7.46 MMbbls across the portfolio of assets in Trinidad and Suriname, summarised as follows:

Notes

1. Company Working Interest resources are based on the working interest share of the field gross resources and are prior to deduction of royalties. Challenger Energy hold a 100% interest in all relevant fields, being Goudron, Inniss-Trinity, South Erin, Icacos and Bonasse in Trinidad, and Weg naar Zee in Suriname.

2. The Contingent Resources are on unrisked basis and have not been risked for chance of development and are sub-classified as development unclarified.

3. Totals are added arithmetically which means statistically there is a greater than 90% chance of exceeding the total 1C and less than a 10% chance of exceeding the total 3C.

4. ERCE did not audit the SWP, including the Saffron project, as part of its CPR.

2P reserves relate to known oil that is capable of being produced economically, and thus the 2P reserves as certified by ERCE relate solely to production capable of being generated from the Company's existing wells in existing fields. The 2P reserves do not assume any contribution from infill drilling and enhanced oil recovery projects. Moreover, apart from routine operating costs required to keep wells online, accessing this production potential does not require material amounts of incremental capital expenditure.

At oil prices ranging from US$50 to US$60 per barrel, it is estimated this level of 2P reserve represents US$65 million to US$75 million of gross cashflow potential to the Company, and a reserve base equivalent to a baseline production of 500 bopd for approximately 7 years.

The 2020 report commissioned by the Company did not include an assessment of the Saffron project, pending the drilling of the Saffron-2 well. With the Saffron-2 well complete, the Company intends to update its reserve and resource estimates accordingly.

2020: Significant Activities Review

Significant activities during the specific period January 2020 to December 2020 are summarised as follows (note that all shares issuance numbers quoted are before the 1 for 10 share consolidation which took effect on 28 May 2021):

· On 14 February 2020, the initial offer period closed for a Bahamian domiciled mutual fund sponsored by the Company. This fund had been created to allow Bahamian resident investors to acquire an ownership interest in the Company. The initial offer period closed with $914,000 in subscriptions, giving rise to 35,337,328 shares being issued to the fund at 2 pence per share. Due to delays in securing final approval for the issuance of the shares by the Central Bank of The Bahamas (arising from the outbreak of the Covid-19 pandemic) final issuance of the shares to the Fund took place on 29 June 2020.

· On 20 February 2020, the Company entered into a zero-coupon convertible loan facility with a Bahamian family office investor, for up to £8m in funding (gross of fees). An initial £2.7m was drawn down on entering into the facility with a further £2m drawn down on 17 March 2020, at which point the facility was expanded to up to £16 million in total (including amounts already drawn down at that date). Full settlement of amounts owing was made through the issuance of shares on 26 February 2020 - 48,000,000 shares, 3 April 2020 - 62,500,000 shares, and 1 May 2020 - 79,059,830. No amounts remain outstanding under this facility, and the facility has lapsed.

· On 27 February 2020, the Company was granted Environmental Authority (EA) from the Government of The Bahamas for the drilling of the Perseverance-1 well. The EA consisted primarily of an Environmental Impact Assessment, Environmental Management Plan and Emergency Response Plan and formed a prerequisite to the commencement of the well, which at that time was scheduled to commence in March / April 2020.

· On 25 March 2020, the Company announced that it had delayed the commencement of the Perseverance 1 well, following an assessment of the likely impact of the Covid-19 pandemic on the ability to conduct drilling. At the same time, the Company notified the Government of The Bahamas of force majeure under the terms of its licences. On 17 November 2020 the Company and Government of The Bahamas formally agreed the end of the force majeure provisions and an extension to the licences of 6 months, to 30 June 2021, was confirmed.

· On 26 May 2020, the Company entered into a contract with Stena Drilling for the provision of an offshore drilling rig to undertake the drilling of Perseverance-1. The contract stipulated a deployment window of 15 December 2020 to 1 February 2021, with Stena notifying the Company on 25 September 2020 that the Stena IceMax rig would be provided on or about 15 December 2020.

· On 9 June 2020, the Company was awarded the OFF-1 offshore exploration licence block in Uruguay. The licence covers an area of approximately 15,000 km2 and is estimated to contain up to 1 billion barrels of prospective resources. The licence, once formally issued, will be for an initial term of 4 years with an initial work obligation during this period comprising of technical studies and seismic reinterpretation. Formal execution of the licence has been subject to continued delays due to the impacts of the Covid-19 pandemic in Uruguay.

· On 11 June 2020 the Company launched an offer for 100% of the shares in Columbus Energy Resources PLC, an AIM quoted UK company holding production, appraisal and exploration assets onshore in Trinidad and Tobago and Suriname. On 24 July 2020 the Company's shareholders approved the transaction and on 27 July 2020 the transaction was approved by the shareholders of Columbus. On 7 August 2020 the transaction became legally effective. Following the completion of the acquisition of Columbus, shares were issued to a number of parties in settlement of the transaction and various supporting services as follows: (i) scheme shareholders of Columbus- 757,261,511; (ii) termination payments to Columbus management - 25,562,167; (iii) settlement of cancelled Columbus management options - 23,684,650; (iv) shares to providers of capital investment linked to the transaction - 98,424,660; and (v) advisors to the transaction paid in shares - 34,216,815. In addition, 21,325,966 options were granted to former management of Columbus at a strike price of 0.002 pence, being the par value of the shares of the Company at the time.

· In the period from June 2020 to December 2020, the Company undertook extensive activities to prepare for drilling of Perseverance-1 in The Bahamas. This included reassembling the drilling team (which had been stood down at the start of the pandemic), and finalising the contractor group (including leading service companies such as Halliburton, Weatherford and Baker Hughes). At the same time, the Company worked closely with all contractors to finalise the drill plan and develop and implement Covid-19 mitigation and operating protocols.

· On 8 August 2020, the Company assumed control of the Columbus portfolio of assets in Trinidad and Tobago, and Suriname. From that date, the Company commenced an intensive period of rehabilitative and improvement work in relation to those assets. This included restoring all employees to full pay, entering into negotiations with various suppliers and contractors to restore and ensure ongoing supply of critical services, ensuring full deployment of both Company owned rigs and a third contracted rig to increase workover rate, and a concerted focus on improving HSES performance.

· On 1 October 2020, the Company undertook a private placing with institutional investors to raise £9.5m in gross proceeds through the issuance of 475 million new shares. 

· On 15 October 2020, the Company issued 146,818,765 new ordinary shares to certain executives and members of the Board in settlement of amounts owing to those persons as at 1 October 2020. On the same date the Company issued 7,733,592 shares to advisors in settlement of fees.

· On 27 November 2020, the Company provided formal public notification of the specific drilling rig to be provided by Stena. On the same date the Company announced the expansion of its conditional convertible loan note facility (put in place during 2019) from £10.25m to £15m, with the first £3m of this facility available to the Company on an unconditional basis on commencement of the Perseverance-1 well.

· On 30 November 2020, the Company finalised a new Enhanced Production Sharing Contract (EPSC) for the Goudron licence block onshore Trinidad. The term of the new EPSC expires on 30 June 2030.

· On 10 December 2020, a request for a Judicial Review of the decision by the Government of The Bahamas to award the EA for Perseverance-1 was brought by a consortium of environmental activists in The Bahamas, along with a request for a stay to the commencement of the drilling of Perseverance-1. On 6 January 2021 the Bahamian Courts refused the request for a stay on the well, which at that time had already been commenced, and granted leave for the consortium of environmentalists to seek a Judicial Review. On 25 January 2021, the Company was added as a respondent to that action and on 2 March 2021 the Court accepted the Company's request that a security bond be posted by the applicants. The applicants failed to provide this bond and, in July 2021, appealed the Court's ruling, although on 8 July 2021, that appeal was withdrawn, and the applicants have subsequently withdrawn from the action entirely. Consent Orders to this effect have been agreed between the applicants, the Company and the Government, and were endorsed by the Court on 13 August 2021, bringing the matter to a definitive close.

· On 14 December 2020, the Company entered into a funding facility with an institutional investment fund for up to $20 million, with an initial subscription of $10 million resulting in the issuance of 375 million shares to the investor and 37.5 million shares to advisors to the transaction in lieu of fees. On 12 January 2021 the Company exercised a put option to issue a further 187.5 million shares under the terms of the facility, raising $5 million in subscription proceeds, with a further 9.375 million fee shares being issued to advisors at this time. 

· On 20 December 2020, the Company commenced drilling of Perseverance 1 offshore The Bahamas. The drilling of the well took 49 days to complete to a TD of 3,905 meters and did not encounter commercial volumes of hydrocarbons in any of the penetrated horizons. The Company continues to analyse the data extracted from the well to greater define the remaining prospects within the licence area, in particular deeper Jurassic plays and remaining undrilled structures.

Health, Safety, Environment and Security Review

The Company has an HSES Committee which comprises Board members, senior executives, and representatives from operations which meets regularly to ensure adequacy of and compliance with standards, processes, systems and procedures.

Within this context, key HSES highlights for the period under review include:

· In November 2020, shortly after assuming control of the Columbus business, the Company's HSES Management System was substantially revised. This was done to ensure a functional system that is tailored to the needs of the Company's operations. Key themes were selected to place additional emphasis on HSES awareness, compliance and culture. These themes are: driving awareness, behavioural safety, and the environment. Throughout 2020 and into 2021, measures against these key themes have been developed and implemented, coupled with enhanced internal communications and Company-wide mandatory awareness sessions on hazard identification, risk management and the importance of safe behaviour.

· The Company determined as a matter of priority to achieve Safe to Work (STOW) Accreditation, a certification programme that is local to Trinidad and Tobago and is a requirement of all operators by Heritage Petroleum Company Limited (and which certification Columbus had not been able to achieve prior to the Company assuming control of the Columbus assets in Trinidad). Following an extensive period of preparatory work in 2020, the Company commenced its audit for STOW Certification in January 2021 and completed same on 11 February 2021. The Company was recommended for, and subsequently became STOW accredited on 5 August 2021, for a 2-year period.

· In 2020 and then continuing into 2021, the Company increased efforts to ensure a trained and competent workforce, through a systematic program of internal and external training, and with a focus on promoting awareness of and compliance with the Company's HSES Management System. In parallel, all Company policies and procedures have been reviewed and updated, and a comprehensive business continuity plan was prepared and adopted.

· Perseverance-1 was drilled in The Bahamas in the period 20 December 2020 to 5 February 2021, although there was considerable field and in-country operations in the months leading up to, and immediately following the completion of, the drilling campaign. Large numbers of crew were successfully moved internationally and on and off the drilling rig, and equipment and supplies were able to likewise be moved on and off the drilling rig responsibly and without any safety or environmental incidents. Covid-19 was a significant impost to operations, but careful management and planning ensured that there were zero infections on the rig for the entire duration of operations.

· Similarly, all Trinidad and Tobago's operations have continued to function within the restrictions outlined by the Government of Trinidad and Tobago, notwithstanding the significant effects of Covid-19 in that country (including the declaration of various states of emergency). Specific Covid-19 Mitigation and Management Procedures have been implemented across the business, including the use of remote working where possible, restricted access to office areas to non-employees, daily temperature checks, daily sanitization and reinforcement of PPE, hand hygiene and cough etiquette. The measures implemented, together with an effective response procedure to manage cases that include the conduct of contact tracing, PCR testing, quarantine protocols and liaison with the Ministry of Health has proven to be effective in mitigating outbreaks amongst the staff.

· In preparation for the drilling of both Perseverance-1 (in 2020) and Saffron-2 (in 2021) large-scale tabletop exercises were conducted involving key personnel within the Company as well as representatives of the drilling contractors, suppliers, and key Government bodies. In the case of The Bahamas, it was especially gratifying that this exercise involved joint coordination of authorities in The Bahamas, the United States, and Cuba. During these exercises, detailed plans were formulated for response to and management of various event scenarios, in a step by step and coordinated manner. Key learnings of the exercises were documented for future reference. The conduct of such exercises greatly improved the Company's readiness for possible emergencies during the drilling operations.

Sustainability Statement

Having a formal Environment, Social and Governance (ESG) sustainability framework, comprising a clear ESG strategy and associated goals along with regular tracking of performance against same, has become an important part of doing business for any company in the modern world.

Unambiguously, Challenger Energy is a hydrocarbon company, involved in the business of seeking out, appraising and ultimately developing and producing hydrocarbons - oil and gas - which are used to create energy. Challenger Energy acknowledges its role as a business, which is to create value for its owners from these activities, whilst at the same time ensuring the impact on stakeholders, the communities and the countries in which it works is positive or minimised. In conducting all of our activities it is our intent to do no harm to the environment, to our people, to the communities in which we live and operate, or to any other stakeholders. We will always seek to work in close collaborations with relevant governments, state owned companies or agencies, and local communities, and will always seek to demonstrate operational excellence whilst at the same time abiding by the highest level of environmental management practices.

The Board of Challenger Energy acknowledges and supports the global move towards a lower-carbon world, recognising that this transition will take time. During this period of transition Challenger Energy's business will continue to be relevant to the world we live in, although at the same time there will be both a social and business imperative for Challenger Energy to be more efficient, to be less wasteful, and to continue to operate safely and responsibly with minimal harm to its people, communities, and the environment.

In this context, Challenger Energy is undertaking a formal process to formulate an ESG sustainability framework, against which ESG outcomes can be tracked and measured. The Company expects to have completed this work in time for the ESG sustainability framework to be advised to shareholders and then implemented across the Company in respect of the 2022 calendar year.

In formulating its ESG sustainability framework, the Company is seeking to recognise two primary, globally accepted sets of standards for ESG, being The United Nations Sustainable Development Goals (UN SDG) and The Global Reporting Initiative (GRI). Those elements of the UN SDG most pertinent or most closely aligned to Challenger Energy's business are being brought into the very core of how we do business. In parallel, adoption of key GRI principles will enable a process by which the Company can identify its environmental, economic, and social impact, and then track and report publicly its positive or negative contributions toward sustainable development goals.

Corporate Governance

Challenger Energy's shares are traded on the AIM Market of the London Stock Exchange PLC. The Board of the Company is committed to maintaining high standards of corporate governance at all times. Whilst the Company is not subject to the requirements of the UK Corporate Governance Code, the Company is required to apply a recognised corporate governance code, demonstrating how the Company complies with such corporate governance code and where it departs from it.

QCA Code

The Directors of the Company have formally taken the decision to apply the QCA Corporate Governance Code (the QCA Code) as the standard against which the Company chooses to measure itself. This QCA Code emphasises the need for well balanced, effective boards, with a strong emphasis on overseeing risk management aimed at protecting the Company from unnecessary risk to enable the Company to secure its long-term future. In addition, the QCA Code highlights the alignment of remuneration policies with shareholder interests and sound shareholder relations. Further information on the Company's application of the QCA Code is available on the Company website at www.cegplc.com.

The Board and its Committees

The Board of Directors

The Board meets regularly to discuss and consider all aspects of the Company's activities. A Charter of the Board has been approved and adopted which sets out the membership, roles and responsibilities of the Board. The Board is primarily responsible for formulating, reviewing and approving the Group's strategy, budgets, major items of capital expenditure and acquisitions. As at the time of this report, the Board consists of the Chairman, the Chief Executive Officer, and three Non-executive Directors. All Directors have access to the Company Secretary and the Company's professional advisors.

Records of the board meetings

There were ten board meetings of the parent entity of the Group during the financial year.

Audit Committee

As at the time of this report, the Audit Committee comprises James Smith (Chairman) and Stephen Bizzell. The Audit Committee is primarily responsible for ensuring that the financial performance of the Group is properly reported on and monitored, for reviewing the scope and results of the audit, its cost effectiveness and the independence and objectivity of the auditor. The Audit Committee has oversight responsibility for public reporting and the internal controls of the Group. A Charter of the Audit Committee has been approved and adopted which formally sets out the membership, roles and responsibilities of the Audit Committee.

Remuneration & Nomination Committee

As at the time of this report The Remuneration & Nomination Committee comprises Simon Potter (Chairman) and William Schrader. The Remuneration & Nomination Committee is responsible for making recommendations to the Board of Directors regarding executive remuneration packages, including bonus awards and share options. The role of the Committee also extends to assisting the Board in fulfilling its responsibilities in the search for and evaluation of potential new Directors and ensuring that the size, composition and performance of the Board is appropriate for the scope of the Group's and Company's activities. It is recognised that shareholders of the Company have the ultimate responsibility for determining who should represent them on the Board.

Health, Safety, Environmental and Security Committee

The Group has a Health, Safety, Environmental and Security Committee which as at the date of this report comprises William Schrader, Simon Potter, Nathan Rayner and Dr. Pardogh Gogna. The committee's purpose is to assist the Directors in reviewing, reporting and managing the Group's performance, to assess compliance with applicable regulations, internal policies and goals and to contribute to the Group's risk management processes.

Internal Control

The Directors acknowledge their responsibility for the Group's system of internal control and for reviewing its effectiveness. The system of internal control is designed to manage the risk of failure to achieve the Group's strategic objectives. It cannot totally eliminate the risk of failure but will provide reasonable, although not absolute, assurance against material misstatement or loss.

Going Concern

The Directors consider that the Group and Company has or will have access to adequate financial resources to enable it to meet its financial obligations for at least 12 months from the date of this report. For this reason, they continue to adopt the going concern basis of preparing the financial statements. Further information regarding the appropriateness of the use of the going concern assumption in the basis of preparation can be found in note 1 to the consolidated financial statements.

Directors' Report

The Company's Directors present their report and audited financial statements of the Company and the consolidated group consisting of Challenger Energy Group PLC ("Challenger Energy" or "the Company") and the entities it controlled (the "Group") at the end of, or during, the year ended 31 December 2020.

Directors

The following persons were Directors of the Company during the financial year under review:

William Schrader

James Smith

Simon Potter

Adrian Collins (retired 25 May 2021)

Ross McDonald (retired 1 June 2021)

Leo Koot (appointed 24 August 2020, resigned 22 January 2021)

Further details of the above Directors can be found on the Company's website: www.cegplc.com.

Principal Activity

The principal activity of the Group and the Company consists of oil & gas production, development, appraisal and exploration in Trinidad and Tobago and Suriname, and high impact exploration in The Bahamas and Uruguay.

Results and dividends

The results of the Group for the year are set out on page 28 of the annual report and show a loss for the year ended 31 December 2020 of $13,992,000 (2019: loss of $4,632,000). The total comprehensive loss for the year of $13,992,000 (2019: loss of $4,632,000) has been transferred to the retained deficit.

The Directors do not recommend payment of a dividend (2019: $nil).

Significant Shareholders

The following table represents shareholdings of 3% or more notified to the Company as at 31 December 2020:

Directors' Shareholding and Options

The interests in the Company at the balance sheet date of all Directors who held office on the Board of the Company at the year-end are stated below.

Record of Board Meetings

There were ten board meetings of the parent entity of the Group during the financial year.

Statement of Directors' Responsibilities in respect of the financial statements

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable Isle of Man law and regulation.

Company law requires the Directors to prepare financial statements for each financial year. The Directors have elected to prepare the Group and Company financial statements in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union. The financial statements are required by law to give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period.

In preparing the financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· state whether IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements;

· make judgements and accounting estimates that are reasonable and prudent; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and to enable them to ensure that the financial statements comply with the Isle of Man Companies Acts 1931 to 2004. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the Isle of Man governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

On behalf of the Board

Eytan Uliel

Director

24 September 2021

Independent auditor's report to the members of Challenger Energy Group PLC

Report on the audit of the financial statements

Our opinion

In our opinion:

● Challenger Energy Group PLC's (formerly Bahamas Petroleum Company PLC) consolidated financial statements give a true and fair view of the state of the Group's affairs as at 31 December 2020 and of its loss and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union;

● Challenger Energy Group PLC's company financial statements give a true and fair view of the state of the Company's affairs as at 31 December 2020 and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union as applied in accordance with the provisions of the Isle of Man Companies Act 1982; and

● the financial statements have been properly prepared in accordance with the Isle of Man Companies Acts 1931 to 2004.

What we have audited

Challenger Energy Group PLC's consolidated and company financial statements (the "financial statements") comprise:

● the consolidated and company statements of financial position as at 31 December 2020;

● the consolidated statement of comprehensive income for the year then ended;

● the consolidated and company statements of changes in equity for the year then ended;

● the consolidated and company statements of cash flows for the year then ended; and

● the notes to the financial statements, which include significant accounting policies and other explanatory information.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing ("ISAs"). Our responsibilities under those standards are further described in the "Auditor's responsibilities for the audit of the financial statements" section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants ("IESBA Code"). We have fulfilled our other ethical responsibilities in accordance with the IESBA Code.

Material uncertainty related to going concern

In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosures made in note 1.28 (ii) of the financial statements concerning the Group's and the Company's ability to continue as a going concern. Management has indicated that the Group and Company require additional funding to meet their forecast cash flow requirements during the 12 months following approval of the financial statements in order to continue as a going concern. Whilst funding options are being pursued certain of these will require creditor agreement outside of the Group's control.

These conditions, along with the other matters explained in those notes to the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the Group's and the Company's ability to continue as a going concern.

The financial statements do not include the adjustments that would result if the Group and the Company were unable to continue as a going concern. In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Our evaluation of the directors' assessment of the Group's and the Company's ability to continue to adopt the going concern basis of accounting included:

· verifying the mathematical accuracy of management's cash flow forecast and agreeing the opening cash position;

· assessing management's underlying cash flow projections for the Group to other external and internal sources, where appropriate;

· assessing and validating the impact of post year end cash movements and commitments;

· assessing management's ability to take mitigating actions, if required; and

· assessing the completeness and appropriateness of management's going concern disclosures in the financial statements.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

Our audit approach

Overview

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. These comprised:

· Material uncertainty related to going concern (Group and Company) as set out above;

· Recoverability of the Group's intangible exploration and evaluation assets and goodwill / Recoverability of Company's investment in subsidiaries and amount owed by subsidiary undertakings;

· Business combination accounting (Group); and

· Impact of Covid-19 on the financial statements (Group and Company).

The key audit matters below are consistent with last year except for the addition of Business combination accounting following the Company's merger with Columbus Energy Group PLC.

Other information

The other information comprises all of the information in the Annual Report and Financial Statements other than the financial statements and our auditor's report thereon. The directors are responsible for the other information.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the directors for the financial statements

The directors are responsible for the preparation of the financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union and Isle of Man law, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group's and Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

● Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

● Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's and Company's internal control.

● Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

● Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's and Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group and Company to cease to continue as a going concern.

● Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

● Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

This report, including the opinion, has been prepared for and only for the Company's members as a body in accordance with Section 15 of the Isle of Man Companies Act 1982 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Report on other legal and regulatory requirements

Adequacy of accounting records and information and explanations received

Under the Isle of Man Companies Acts 1931 to 2004 we are required to report to you by exception if, in our opinion:

● we have not received all the information and explanations we require for our audit;

● proper books of account have not been kept, or proper returns adequate for our audit have not been received from branches not visited by us;

● the company financial statements are not in agreement with the books of account and returns; and

● certain disclosures of directors' loans and remuneration specified by law have not been complied with.

We have no exceptions to report arising from this responsibility.

Andrew Dunn

for and on behalf of PricewaterhouseCoopers LLC

Chartered Accountants

Douglas

Isle of Man

24 September 2021

Financial Statements

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2020

All operations are considered to be continuing (see note 2).

The accompanying accounting policies and notes form an integral part of these financial statements.CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAS AT 31 DECEMBER 2020

COMPANY STATEMENT OF FINANCIAL POSITIONAS AT 31 DECEMBER 2020

CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2020

The accompanying accounting policies and notes form an integral part of these financial statements.COMPANY STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2020

The accompanying accounting policies and notes form an integral part of these financial statements.

STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2020

The accompanying accounting policies and notes form an integral part of these financial statements

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020

(*) Intercompany balances and transactions between Group entities have been eliminated.

(**) Sales revenues were derived from a single customer within each of these operating countries.

As the inclusion of potentially issuable ordinary shares would result in a decrease in the loss per share, they are considered to be anti-dilutive and as such, a diluted loss per share is not included.