Challenger Energy Regulatory News (CEG)

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10 February 2022

Challenger Energy Group PLC

("CEG" or the "Company")

Posting of Circular and Notice of Extraordinary General Meetingrelating to the Placing, Broker Option and Restructuring

Challenger Energy (AIM: CEG), the Caribbean and Atlantic margin focused oil and gas company, with oil production, appraisal, development and exploration assets across the region, is pleased to announce that a Circular and Notice of Extraordinary General Meeting of the Shareholders ("EGM"), to be held on 4 March 2022, was posted to Shareholders yesterday. The EGM is being convened in relation to, inter alia, the Company's recently announced Restructuring and Fundraising (including the Placing and the Broker Option) as set out in the prior announcements dated 26 January 2022, 27 January 2022, 31 January 2022 and 3 February 2022. A copy of the Circular and Notice of the EGM is available on the Company's website (www.cegplc.com).

Key Highlights

· The Company has successfully completed a recapitalisation fundraising as part of a broader corporate restructuring exercise, and subject to Shareholder approval at the EGM will have raised gross proceeds of approximately £7.3 million:

o approximately £5.0 million via a Placing with institutional and other investors (of this amount, the Company has already received approximately £0.7 million via a Firm Placing pursuant to existing share issuance authorities in place, with receipt of the remainder conditional on Shareholders' approval at the EGM), and

o approximately £2.3 million from existing shareholders via a Broker Option, with receipt of funds conditional on Shareholders' approval at the EGM.

· Successful completion of the corporate restructuring and fundraising will finalise the process of "cleaning- up" the Company's balance sheet, as well as repositioning the Company to pursue a future business strategy centred on production and cash flow growth. In particular, the funds raised will:

o allow final payments as per agreed creditor settlement arrangements, thereby resulting in previously reported balance sheet liabilities of approximately US$23 million being reduced to approximately US$2.5 million, and

o facilitate an active, low-risk work program in 2022 and 2023 focused on production growth, with a target of increasing production from c. 400 bopd to over 1,000 bopd by 2024, as well as pursuing production focused growth and inorganic growth opportunities

· The Directors unanimously recommend that Shareholders vote in favour of the resolutions to be proposed for voting at the Extraordinary General Meeting and intend to do so in respect of their respective beneficial shareholding representing approximately 4.0% of the existing issued share capital. In the event the resolutions are not passed, the Company's financial resources will be considerably less than anticipated and the Company would not be able to meet financial obligations such that the Company would likely not be able to continue as a going concern in these circumstances. The Directors therefore considers it of utmost importance for Shareholders to consider the Notice of EGM carefully, and vote in favour of the resolutions proposed.

1. Introduction

On 27 January 2022, the Company announced that it has raised approximately £5.0 million (before expenses) via a placing (the "Placing"), undertaken in two components: a firm placing and direct subscription by institutional and other investors of 691,401,490 New Ordinary Shares issued pursuant to existing share issuance authorities (the "Firm Placing"), and a conditional placing and direct subscription by institutional and other investors, subject to Shareholders' approval, for the issue of 4,327,698,510 New Ordinary Shares (the "Conditional Placing").

In addition, on 26 January 2022 the Company announced an open offer to qualifying existing Shareholders (the "Open Offer") to raise up to an additional £2.0 million. The Open Offer was intended to provide qualifying existing Shareholders with an opportunity to participate in the proposed issue of New Ordinary Shares at the same price as that offered to institutional and other investors in the Placing. Subsequently, on 31 January 2022, the Company advised that, due to the requirement to submit a Prospectus should the Open Offer proceed and the consequential delay to the timetable for the proposed capital raise whilst a prospectus was prepared, the Open Offer would no longer proceed. In substitution, and to remain true to the commercial intent of providing as many existing Shareholders as possible with the opportunity to participate in the Fundraising on the same basis as new institutional and other investors, the Company announced the launch of a Broker Option. The objective of the Broker Option was to raise up to an additional £2.0 million by accommodating any requests from existing Shareholders, who were also Qualifying Investors, to participate in the Placing, thus affording those Shareholders the same opportunity as was intended by way of the originally intended Open Offer. As announced on 3 February 2022, the Company received applications from the then existing Shareholders who were Qualifying Investors under the Broker Option for 2,273,517,925 Ordinary Shares, representing an additional approximately £2.3 million. Given the intent of the Broker Option as noted above, the Company decided to accommodate all applications received (including those in excess of the £2.0 million initially intended to be raised via the Broker Option), such that the final Broker Option will raise an additional approximately £2.3 million.

The Firm Placing was conducted pursuant to existing share issuance authorities in place, and the New Ordinary Shares in relation to the Firm Placing were admitted and commenced trading on 1 February 2022 (the "First Admission").

The Conditional Placing and the Broker Option components of the Fundraising (as well as the issue of the Settlement Shares as discussed in Section 9 below) are conditional, inter alia, on the passing of various resolutions (the "Resolutions") by the Shareholders at the EGM, which has been convened for 11:00 a.m. on 4 March 2022. If the Resolutions are passed, the New Ordinary Shares in respect of the Conditional Placing, the Broker Option and the Settlement Shares are expected to be allotted after the EGM, conditional on admission, which is expected to occur on or around 8:00 a.m. on 7 March 2022. Should Shareholders' approval not be obtained at the EGM, the Conditional Placing, the Broker Option and the Settlement Shares will not proceed. Neither the Placing nor the Broker Option has been underwritten.

Assuming completion of the Placing, admission of the Conditional Placing Shares, the Broker Option Shares and the Settlement Shares is expected to occur at 8:00 a.m. on or around 7 March 2022 (the "Second Admission").

The issue price under both the Placing and the Broker Option is 0.10 pence per New Ordinary Share (the "Issue Price"). The Placing Shares and Broker Option Shares will represent, on completion of the Fundraising and Restructuring, approximately 50.2 per cent. and 22.8 per cent. respectively of the Company's enlarged share capital following Second Admission (assuming the Conditional Placing and the issue of the Broker Option Shares and Settlement Shares is approved by Shareholders).

2. Background to and reasons for the Restructuring and Fundraising

The Placing and Broker Option (together, the "Fundraising") are part of a consolidated range of operational changes designed to reconstruct the Company and its business (the "Operational Changes"), coupled with a restructuring and definitive settlement of the Group's historic debts and liabilities, so as to simplify and 'clean-up' the Company's balance sheet (the "Financial Restructuring") (the Operational Changes and the Financial Restructuring together referred to as the "Restructuring").

In terms of the Operational Changes, following unsuccessful commercial outcomes with a high-risk exploration well and a higher-risk appraisal well during 2021 in The Bahamas and Trinidad and Tobago respectively, the Company has sought to redefine its business strategy, operations and goals moving forward, with a view to focusing on lower-risk production activities, so as to generate and maximise cash flows.

In support of this, the Company has formalised a work programme for 2022 and 2023 which will require the expenditure of approximately US$7.1 million across the period on activities designed primarily to enhance production in existing producing fields, and is targeting an organic production increase to more than 1,000 bopd by 2024. This in turn is expected to result in the Company becoming financially self-sustaining and generating positive EBITDA and free cash flow.

The proposed Operational Changes also include various changes to the Board and management of the Company going forward, and consequent substantial ongoing reductions to the operating cost base of the Company, to take effect on the successful completion of the Fundraising.

Further details of the Group's forward business and strategy are set out in Section 5 below, further details of the planned 2022 and 2023 work programme are set out in Section 6 below, further details of the various planned Operational Changes are set out in Section 7 below, and further details of the Group's assets are set out in Section 8 below.

In parallel with the proposed Operational Changes, the Financial Restructuring has sought to comprehensively address various legacy liabilities (payables, borrowings and other amounts) owing by the Company, as well as various legacy amounts and liabilities of various subsidiaries of the Company in Trinidad and Tobago, all of which the Company and its subsidiaries in Trinidad and Tobago would otherwise be unable to pay.

The Financial Restructuring should thus be viewed as a comprehensive 'clean-up' of the Company's consolidated balance sheet. The Financial Restructuring also involves the issue of the Settlement Shares in definitive settlement of various outstanding fees, claims and entitlements, a reapproval of the standing share issuance authority, and revised future incentive arrangements for management and employees aligned with achievement of the Company's future goals.

Further details of the Financial Restructuring are set out in Section 3 below, further details of the Settlement Shares are set out in Section 9 below, further details of the proposed reapproval of the standing share issuance authority are set out in Section 11 below, and details of the revised incentive arrangements are set out in Section 12 below.

The proceeds of the Fundraising (i.e. the Placing and the Broker Option), when added to projected cash flows from operations, are necessary to provide the financial resources needed by the Company both to execute the 2022/2023 work programme, as well as to meet the costs of the Financial Restructuring, thereby repairing the Company's balance sheet and providing a solid, largely debt-free financial footing for the future.

Further details of use of funds are set out in Section 4 below.

3. The Financial Restructuring

On 1 November 2021, the Company announced, as part of its interim results for the six months to 30 June 2021, that it was in discussions with various suppliers, contractors and financiers in relation to a creditor restructuring coupled with a recapitalisation plan. In that announcement, the Company noted that across the Company's group (the "Group") there were approximately US$23 million of total liabilities (payables, borrowings and others) with the Company's available cash balance at that time being approximately US$2.4 million.

Since that time, the Group has systematically sought to address this situation via the comprehensive Financial Restructuring. In broad terms, this has involved the Company entering into a range of definitive settlement agreements and various compromise arrangements with a wide range of counterparties, which in summary provide as follows:

(i) Approximately US$12.0 million of the total reported liabilities (including 100 per cent. of all direct liabilities of the Company and 100 per cent. of those liabilities of the Company's subsidiaries otherwise guaranteed by or with recourse to the Company) will be eliminated at a total cost of approximately US$2.0 million (approximately US$0.7 million of which has already been paid from available cash, and approximately US$1.3 million of which remains to be paid on completion of the Fundraising), and

(ii) The balance (approximately US$11.0 million, all of which comprises residual liabilities and potential exposures at the Trinidadian subsidiary level and entirely non-recourse to the Company) has been restructured according to various discounted and/or deferred payment plans (against which approximately US$0.5 million has already been paid from available cash and approximately US$0.4 million remains to be paid subsequent to the completion of the Fundraising), and/or are the subject of pending legal and commercial processes that will see various amounts eliminated on a non-recourse basis, such that the Company considers that on completion of the Restructuring an amount of approximately US$2.5 million will ultimately remain owing, this amount being at the level of Trinidadian operating companies, non-recourse to the Company. The Company expects this amount to be discharged gradually in the ordinary course of business across 2022/2023, funded from operating cash flows.

In summary, therefore once the Financial Restructuring and Fundraising is completed, the Company will be debt and liability free at the corporate level, and the non-recourse legacy liabilities of the Company's various subsidiaries in Trinidad and Tobago will be reduced to approximately US$2.5 million - an amount consistent with past general levels of liabilities in Trinidad and Tobago, and which amounts the Company expects can be gradually discharged in the ordinary course of business through operating cash flows.

Put in other terms, once the Restructuring on Fundraising is completed, the previously reported approximately US$23 million of total liabilities will have been reduced to approximately US$2.5 million, with no material corporate liability remaining, and with any remaining exposure 'quarantined' at the subsidiary company level, on a non-recourse to the Company basis.

Further details are set out as follows:

Direct corporate liabilities (i.e., liabilities with recourse to the Company)

As at 31 October 2021, the Company's direct corporate liabilities (including subsidiary level liabilities guaranteed by the Company or otherwise recourse to the Company) comprised of:

(i) amounts remaining owing in respect of the drilling the Perseverance-1 well in The Bahamas in early 2021 (approximately US$11.3 million), and

(ii) outstanding convertible notes not due for repayment until the end of 2023 (approximately US$0.7 million, inclusive of interest accrued up until the end of February 2022).

In relation to item (i) above - amounts remaining owing by the Company in respect of the drilling of the Perseverance-1 well - the Company has entered into binding settlement agreements with relevant creditors, under which the approximately US$11.3 million of the liabilities are to be settled by way of a cash payment of approximately US$2.0 million, with approximately US$0.6 million paid in November and December 2021 and the remaining balance to be settled by payment of a further approximately US$1.4 million - approximately US$0.1 million payable by no later than 31 January 2022 and the balance of approximately US$1.3 million by no later than 17 March 2022. A payment of approximately US$0.1 million was made on 31 January 2022, and the proceeds from the Conditional Placing are expected to be utilised to make payment of the balance.

In relation to item (ii) above - the outstanding convertible notes - the Company and Bizzell Capital Partners Pty Ltd (as principal and on behalf of various underlying noteholders) (collectively the "Noteholders") have agreed that the principal value of the notes that remains outstanding (£500,000) will be discounted by 10 per cent., with that discounted value (£450,000), plus accrued interest on the notes (being £70,000) converted into equity contemporaneously with the completion of the Fundraising, on the same pricing basis as the Fundraising, such that the Noteholders will be issued 520,000,000 New Ordinary Shares and 25,000,000 warrants to subscribe for New Ordinary Shares as the Issue Price up to 20 April 2023 alongside the Fundraising, in full and final settlement of repayment of the principal value of the notes that remain outstanding (and all accrued interest).

The issuance of 520,000,000 Ordinary Shares and the 25,000,000 warrants as set out above to the Noteholders in settlement of the £520,000 convertible loan notes (inclusive of interest) is deemed a related party transaction under the AIM Rules as Stephen Bizzell, a non-executive Director of the Company, controls Bizzell Capital Partners Pty Ltd. Due to the participation of Eytan Uliel in the Placing and Broker Option and the proposed issue to him of 365,000,000 Settlement Shares (see Section 9 below) and the proposed issue of Ordinary Shares to non-executive directors as described further below (see Section 9) there is no Director independent of the Restructuring and Fundraising to provide the necessary AIM Rules related party transaction opinion. Accordingly, Strand Hanson Limited, the Company's Nominated Adviser, is satisfied that the terms of the settlement as set out above is fair and reasonable insofar as the Company's Shareholders are concerned.

In parallel, a number of other fees, payables, claims and other amounts that would otherwise become owing by the Company on completion of the Financial Restructuring and Fundraising will be settled by the issue of New Ordinary Shares. This will be addressed contemporaneously with the completion of the Fundraising, via the issuance of up to 1,383,058,641 New Ordinary Shares (a number of items remain subject to commercial negotiation and agreement, such that the final number of New Ordinary Shares to be issued could be less). A further 551,559,486 warrants will be issued to the Company's Bookrunner, Financial Adviser and Placing Agent, and various other parties as part compensation for services rendered in respect of the Restructuring and Fundraising (these warrants being to subscribe for Ordinary Shares at the Issue Price with an exercise period of four years after the date of issue).

In aggregate, therefore, up to 1,903,058,641 New Ordinary Shares and 576,559,486 warrants over Ordinary Shares will be issued alongside completion of the Fundraising as part of the overall Restructuring, so as to definitively clear the balance sheet of all outstanding convertible notes and accrued interest, as well as achieve non-cash settlement/payment of various other fees, payables, claims and other amounts that would otherwise become owing by the Company on completion of the Restructuring and Fundraising (together, the "Settlement Shares"). Further details are set out in Section 9 below.

The net result of the above is that, on completion of the Restructuring and Fundraising, the Company will have successfully eliminated all direct Company level debts and liabilities. Thereafter, apart from de minimis remaining debts and routine payables incurred in the ordinary course of day-to-day business (less than US$300,000 in aggregate) the Company will be debt-free.

Finally, it is noted that as a result of the ultimate cost of the Perseverance-1 well, a "top-up" premium amount for well control insurance may be claimed by insurers in relation to the final overall cost of the insurance, although the amount of such claim (if any) is presently unknown. The matter remains subject to negotiation with the insurers given the outcome of the creditor settlement process, and further given that the well was completed safely and without incident more than 12 months ago.

Trinidadian subsidiary liabilities (non-recourse to the Company)

In addition to the above-noted recourse liabilities at the level of the Company, a process has been initiated to definitively address various other legacy amounts owed by, and potential exposures of, various subsidiaries of the Company in Trinidad and Tobago (albeit which amounts are non-recourse to the Company). As at 31 October 2021, these legacy amounts comprised of:

(i) amounts due by various subsidiaries of the Group in Trinidad and Tobago to various suppliers in respect of the drilling of the Saffron-2 well, as well as amounts due by various subsidiaries of the Group in Trinidad and Tobago in respect of legacy payables inherited at the time of the acquisition of Columbus and other creditors (approximately US$4.5 million in aggregate), and

(ii) various amounts claimed as owing by various subsidiaries of the Group in Trinidad and Tobago in respect of various legacy licencing amounts and various other claims and potential exposures (approximately US$6.5 million).

In respect of items (i) above - amounts due by various subsidiaries of the Group in Trinidad and Tobago to various suppliers of, in aggregate, approximately US$4.5 million - the relevant subsidiaries owing these amounts have entered into various settlement agreements with certain major creditors (largely international contractors and larger domestic contractors) and made or agreed to make discounted payments to a range of smaller domestic creditors. The net result is that approximately US$3.0 million of the liabilities will be settled by way of a cash payment of approximately US$1.0 million, with approximately US$0.5 million, paid to-date and the remaining balance to be settled by payment of a further approximately US$0.5 million to be paid through the course of 2022 (assuming successful completion of the Fundraising).

Thereafter, in relation to the balance (approximately US$1.5 million), these remain at the level of relevant Trinidadian subsidiaries without any recourse to the Company. Work is ongoing to further reduce or agree further deferrals of these remaining payables and the Company expects this amount to be progressively repaid/eliminated over the 18 months following completion of the Fundraising, and with such repayments to be met from Trinidadian operating cash flows. It is noted that this level of carry-forward payables is consistent with historic levels in the Trinidadian business, and the Company is thus confident that these residual payables are manageable within the scope of ordinary business.

In respect of item (ii) above - amounts claimed as owing in respect of various legacy licencing and various other claimed and potential exposures, in aggregate, approximately US$6.5 million - a process has been initiated to either restructure the terms of, or in the alternative formally forfeit a non-producing asset, which will eliminate approximately US$4.3 million of this amount, without further recourse to the Company. As to the balance of approximately US$2.2 million, approximately US$1.0 million are theoretical maximum exposures in relation to historic costs which the Company does not consider will crystalise immediately and are expected to be eliminated gradually in the ordinary course of business by way of deferral and/or payment plan arrangements.

The net result of the above is that in respect of the reported approximately US$11.0 million of non-recourse liabilities and exposures at the level of the Company's Trinidadian subsidiaries, approximately US$2.5 million remains to be paid, with such amounts expected to be repaid and/or eliminated in the ordinary course of business as explained above. Thereafter, apart from routine payables incurred in the ordinary course of business, those operating subsidiaries, like the Company itself, will be substantially liability/debt-free. As noted above, the remaining US$8.5 million has been addressed by way of (i) definitive settlements as part of the creditor restructuring process (approximately US$3.0 million), (ii) a formal process to either restructure the terms or forfeit a licence not in production (approximately US$4.3 million), and (iii) appropriate management of other amounts that the Company reasonably considers will not ultimately be payable (approximately US$1.2 million).

4. Cash Position and Use of Proceeds

In May 2021, the Company completed a US$9.7 million open offer and placing, resulting in a cash position after completion of that open offer and placing of approximately US$13.7 million. Since that time, approximately US$5.6 million was used to effect partial repayments of Perseverance-1 creditors, approximately US$2.5 million was used on drilling the Saffron-2 well, approximately US$0.4 million was used to effect partial repayments of Trinidad and Tobago creditors and provide working capital support to the Trinidad business unit, and approximately US$4.6 million was used to pay corporate overheads (including one-off costs as part of the corporate restructuring to reduce overheads from approximately US$0.7 million a month at peak in February 2021 to less than US$0.2 million moving forward).

As at 31 January 2022 (inclusive of various creditor settlement payments already made both at the corporate level and in Trinidad and Tobago, but excluding any proceeds from the Firm Placing), the Company has available cash resources of approximately US$0.4 million. Assuming successful completion of the Placing (including the Broker Option), the Company will receive a further approximately US$10 million before expenses. Based on the proposed forward work programme, the Company also expects during 2022 and 2023 to generate positive operating cash flows (assuming the growth in production being targeted from the planned work programme).

On this basis, the intended use of funds during 2022 and 2023 is as follows:

(i) Approximately US$1.7 million will be applied towards remaining payments to creditors during 2022, as described in Section 3 above;

(ii) Approximately US$7.1 million will be applied towards the intended work programme in Trinidad and Tobago and Suriname over the course of 2022 and 2023, including three infill wells on South Erin, waterfloods and recompletions on Goudron, CO2 enhanced oil recovery and recompletions on Inniss-Trinity and a pilot well and extended well test in Suriname, as described in Sections 5 and 6 below;

(iii) Approximately US$1.5 million will be required to effect paydown of residual Trinidad and Tobago unsecured creditors in the ordinary course of business during 2022 and 2023, as described in Section 3 above;

(iv) Approximately US$0.3 million will be applied toward certain of the costs of the Restructuring and Fundraising (it being noted that much of the Restructuring and Fundraising costs are being met via issuance of Settlement Shares, thus removing the need for cash payments by the Company); and

(v) The residual balance, plus any additional future free cash flows, will be available to be applied towards general working capital, any further work programmes for 2023, and/or pursuing business development/inorganic production growth opportunities.

Assuming the proceeds of the Fundraising and the cash flow assumed to be generated from operations as a result of the intended work programme, the Directors believe that the Company would have sufficient cash available to meet general working capital needs for at least the next 12 months.

5. Business and Strategy

The Company's historic business focus and evolution leading up to the Restructuring and Fundraising

Single-asset high impact exploration focus until mid-2020

Since the Company's inception and until mid-2020, the 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, targeting a large oil prospect. 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 focused in support of this sole objective.

Plans were materially disrupted by the outbreak of the global COVID-19 pandemic in the beginning of 2020 - extensive in-country lockdowns and border closures were imposed globally making international movement of people and resources very difficult, if not impossible. In the oil and gas industry, this was compounded by a dramatic collapse in oil prices, such that many projects were either delayed or mothballed. The Company 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. In that context, the Company decided the best course of action was to defer the drilling of Perseverance-1 to the end of 2020, after the domestic hurricane season in The Bahamas and allowing additional time for appropriate planning and preparation once the impacts of the pandemic were better known.

Pandemic-led shifts in the industry dynamics necessitated a review of the Company's single-asset business model

In the following months, during what could perhaps be described as a period of extended industry "inactivity" occasioned by the pandemic-caused demand collapse and low oil price environment, the Company undertook a review of prevailing conditions in the oil and gas exploration sector and 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, the Company considered that it should broaden from being a single-asset business into a full-cycle exploration and production company centred on the Caribbean and the Atlantic margin. The intention was to complement high-impact exploration with active oil production and thus cash flow. 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.

The Company evolved from single-asset focus to a full-cycle exploration and production business

In terms of execution of the strategy described above, through the course of 2020 there were two notable developments. In June 2020 the Company was successful in its application for a high-impact exploration licence offshore Uruguay. Also, in June 2020 a transaction in which the Company would acquire 100 per cent. 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 exploration project in one country (The Bahamas) at the start of 2020 to a company with a portfolio of 14 assets across the exploration and production life-cycle in four jurisdictions (The Bahamas, Uruguay, Trinidad and Tobago, and Suriname). The Company's portfolio comprised of five onshore producing fields in Trinidad and Tobago, and several other exploration/appraisal prospects which included two immediate higher risk higher reward drill-ready opportunities - the Perseverance-1 well in The Bahamas and the Saffron-2 well onshore Trinidad and Tobago.

Drilling activity ensued targeting transformational near-term production boost and long-term growth but which did not produce commercial outcomes

Both these drill-ready opportunities, whilst at the higher end of the risk spectrum, were considered highly prospective and had the potential to transform the Company. Specifically, the Perseverance-1 well offshore The Bahamas was targeting a multi-billion-barrel potential play that, had a discovery been made, would have created enormous shareholder value and secured the Company's long-term future. The Saffron-2 well onshore Trinidad and Tobago was targeting de-risking a multi-million-barrel potential development for near-term production growth, and had the well been a technical success, was expected to boost production immediately by an estimated 200 - 300 bopd and pave the way for a long-term development that could add material production and cash flow.

The Company drilled the Perseverance-1 well between December 2020 and February 2021, and the Saffron-2 well between May 2021 and July 2021. Unfortunately, both these drilling campaigns did not produce a commercial outcome, and both wells experienced significant cost increases through the course of drilling. As a consequence, the Company's legacy payables position expanded considerably, to a level considerably in excess of available cash resources, and without the benefit of successful drilling campaigns, no ability to secure additional capital to meet that shortfall.

The Restructuring and the Fundraising is a direct response to that circumstance.

2021 Operational Highlights

Total group production in Trinidad and Tobago for 2021 was 142,816 barrels of oil, equating to approximately 391 bopd average across the full year. Average realised oil price across 2021 was US$60 per barrel (noting that this reflects the oil price as pertained during 2021 - at current benchmark oil prices in excess of US$80 per barrel, the expected average realised oil prices are considerably higher, at greater than approximately US$70 per barrel). Net revenues received by the Company (i.e., after taking into account physical delivery losses, first tranche oil deductions, handling fees and all relevant Government take) was approximately US$4.1 million, representing a net take of approximately 52 per cent.

Field-level operating profit (unaudited) was approximately US$0.8 million, representing an operating profit per barrel of approximately US$6. Net of in-country overhead and administration expenses (inclusive of lease costs), the Trinidad and Tobago business unit incurred a loss (unaudited) in 2021 of approximately US$0.3 million, although the business unit currently operates on an approximately break- even basis following implementation of certain cost reduction measures in Q4 2021.

In respect of the Company's South Erin licence, as at end 2021, the Company had reached agreement and executed an extension to the licence arrangement (being a Farmout Agreement) with Heritage Petroleum Company Limited ("Heritage"), the Trinidad and Tobago state-owned oil and gas company. Under this extension, the Farmout Agreement has been extended for two years until December 2023, during which period the Company must fulfil an agreed work obligation, consisting of the drilling of three wells. One of these wells is required to be undertaken in 2022, and two in 2023. Upon completion of these obligation wells, the Farmout Agreement is extendable for a further period till 30th September 2031, being the coterminous expiry date of Heritage's core licence.

In respect of the Company's Inniss-Trinity licence, the Company and Heritage have engaged in negotiations relating to the grant of a new Enhanced Production Sharing Contract ("EPSC") sub-licence for a period coterminous with the remainder of the term of Heritage's core licence, i.e., nine years and nine months to 30th September 2031. To allow time to conclude the final terms remaining to be settled and preparation of EPSC documentation, Heritage has granted a three-month interim extension of the existing Incremental Production Services Contract ("IPSC") to 31 March 2022 - similar to the interim extension process that pertained in relation to the Company's Goudron field prior to the execution of the Goudron EPSC in November 2020.

In relation to HSE&S, operations in 2021 took place without the occurrence of any Lost Time Incidents. The Company was awarded Safe to Work certification in Trinidad and Tobago for two years, effective 5 August 2021. This is the maximum period for which a company can be accredited. Throughout 2021, Trinidad and Tobago operations and activities continued relatively uninterrupted despite the ongoing COVID-19 pandemic. This was inclusive of conducting both drilling operations and routine activities during a limited State of Emergency and the implementation of nationwide curfews.

Forward focus - deliver organic production growth

Given the outcomes from the two successive drilling campaigns (in The Bahamas and onshore Trinidad and Tobago, as described above), and the need to address the legacy payables and inability to pay them, the Company has sought to redefine its strategy, and thereafter restructure its business operations and reconstruct its balance sheet, so as to chart a future course for the Company.

The first element - redefining the Company's strategy - has sought to focus on the Company's core production assets in Trinidad and Tobago, which the Company considers to be of intrinsic value given they are in (i) production, and (ii) retain organic production growth potential and thus increased cash generation potential.

The Company's strategic focus going forward is thus to concentrate all business activities, work programmes and available cash resources on lower-risk production and production enhancement activities. In the immediate term, this will see the Company execute a focused low-risk development work programme during the course of 2022 and 2023, targeting growth in production from approximately 400 bopd at present to over 1,000 bopd by 2024.

A corollary to this revised strategy is that existing higher-risk assets (the projects in The Bahamas, in Uruguay and in the South West Peninsula of Trinidad and Tobago) will be retained but considered non- core - that is, retention of these projects for the foreseeable future will be only on the basis of the relevant project requiring limited work and limited capital expenditure. No material work or capital expenditure is thus planned in respect of 'legacy' exploration assets in The Bahamas, Uruguay, or the South West Peninsula of Trinidad and Tobago, beyond routine work required to maintain the relevant licences in good order and progress discussions relating to farm-out and/or other monetisation options - the costs associated with such activities during 2022 are expected to be minimal. A central element of the future direction of these existing higher-risk assets will be to seek farm-out partnerships or other partnering arrangements that will reduce both risk and the need for any material capital allocation from the Company to those assets.

Inorganic growth opportunities

Complementing the Company's strategic focus through 2022 and 2023 on organic production growth from low-risk development opportunities within the existing portfolio, the Company considers that on completion of the Fundraising and Restructuring it will be well positioned to opportunistically pursue complementary inorganic growth opportunities.

In this regard, a number of new onshore business development activities are currently being considered by the Company, with a view to creating a pathway for the Company to see further production growth in the near-term. In particular:

the Company is evaluating a number of "bolt-on" acquisition opportunities of existing producing fields onshore Trinidad and Tobago. In particular, the Company has already identified certain specific acquisition opportunities with current production ranging between 300 - 400 bopd (as well as incremental production growth potential in excess of 1,000 bopd), which, if successfully concluded, the Company believes could be immediately accretive to production and cashflows;

(i) the Company has been invited to submit letters of interest for available onshore production blocks being offered by the Trinidad Ministry of Energy and Energy Industries, and anticipates the commencement of the negotiation process for potential new blocks to begin in the second quarter of 2022; and

(ii) the Company has submitted an Expression of Interest to Heritage for new onshore sublicences with a focus on improved oil recovery opportunities at existing production fields, as a means of enabling the Company's experience in recent years to be strategically extended to new onshore fields. The Company anticipates this new sublicensing process to commence during 2022.

The Company will be seeking to mature one or more of these opportunities through the course of 2022, although no assurances can be provided at this time as to whether such opportunities can be successfully concluded, or in what timeframe, or on what terms.

6. 2022 and 2023 Planned Work Programme and Capital Costs

The Company's planned low-risk development work programme for 2022 and 2023, in Trinidad and Tobago and Suriname, has been guided by detailed technical review and full-field asset reference plans undertaken by the Company for each of the operating fields. This technical work has identified potential for improved reservoir recovery and potential unswept or compartmentalised oil that may be recovered through production optimisation, workovers, recompletion of certain zones, enhanced oil recovery techniques such as CO2 injection, water injection or other similar techniques, as well as potential infield drilling.

Further, to supplement a targeted low-risk development work programme in Trinidad and Tobago, the Company also plans to undertake low-cost appraisal activity in Suriname, which, in a success case, provides further organic production growth potential within the existing portfolio.

The Company's planned work programme for 2022 and 2023, and anticipated capital costs, is summarised in Section 4 above.

7. Operational Changes

Changes to the Board

The Board currently consists of William (Bill) Schrader (Non-Executive Chairman), Eytan Uliel (Chief Executive Officer), James Smith (Non-Executive Deputy Chairman), Stephen Bizzell (Non-Executive Director) and Simon Potter (Non-Executive Director).

Following completion of the Restructuring and Fundraising, William Schrader and James Smith will step down as Directors of the Board and Iain McKendrick will be appointed as Non-Executive Chairman of the Board, and Tim Eastmond will be appointed as Chief Financial Officer and will join the Board.

Therefore, following successful completion of the Restructuring and Fundraising, the Board is expected to consist of Iain McKendrick (non-executive Chairman), Simon Potter (non-executive director), Stephen Bizzell (non-executive director), Eytan Uliel (CEO), and Tim Eastmond (CFO). Further, Simon Potter has indicated that he will step down from the Board within three months of completion of the Fundraising.

Given the above, it is the intention following completion of the Restructuring and Fundraising to commence a process to recruit up to two additional non-executive directors of the Board. In view of the revised strategic focus of the Company, the ideal Board candidates would present with strong industry and technical backgrounds.

Brief biographical details of the proposed new Board members are as follows:

Iain McKendrick, proposed Non-Executive Chairman

Iain McKendrick has over 30 years of industry experience, holding Board positions across several listed companies. He was previously with NEO Energy, was Chief Executive Officer of Ithaca Energy, was Executive Chairman of Iona Energy, and spent several years with Total, including acting as Commercial Manager of Colombia.

Tim Eastmond, proposed Chief Financial Officer

Tim Eastmond has over 25 years of industry experience. He was previously Vice President Finance at Phoenix Global Resources, a Mercuria-backed AIM-quoted company, was Director of Finance at AIM- quoted Green Dragon Gas and was with PricewaterhouseCoopers for over 20 years in the Energy and Infrastructure and Capital Markets Groups.

The following additional information is provided in accordance with paragraph (g) of Schedule Two of the AIM Rules.

Iain Charles McKendrick (aged 57) has held the following directorships and/or partnerships in the past five years.

Iona Energy Company (UK) plc and certain of its subsidiary undertakings entered administrative proceedings 6 January 2016 with an estimated shortfall to creditors of US$258 million.

Timothy John Eastmond (aged 49) has held the following directorships and/or partnerships in the past five years.

There is no further information to be disclosed in relation to Iain McKendrick or Timothy Eastmond's appointments pursuant to paragraph (g) of Schedule Two of the AIM Rules.

On completion of the Restructuring and Fundraising, the three existing Committees of the Board will be reconstituted as follows:

(i) Audit Committee - Stephen Bizzell (Chair), Iain McKendrick and Tim Eastmond

(ii) HSE Committee - Simon Potter (Chair), Iain McKendrick and Eytan Uliel

(iii) Nominations & Remuneration Committee - Iain McKendrick (Chair), Simon Potter and Eytan Uliel

At such time as further transition of the Board takes place, the composition of the various Board Committees will be revised accordingly.

As part of the Placing, Iain McKendrick (Chairman designate) and certain of the key executives of the Company, namely Eytan Uliel (Chief Executive Officer), Tim Eastmond (Chief Financial Officer designate) and Gagan Khurana (Chief Commercial Officer designate), subscribed for Ordinary Shares for an aggregate of £275,000. In addition, as part of the Broker Option, Eytan Uliel, will subscribe for 20,000,000 Ordinary Shares for an aggregate subscription amount of £20,000. In aggregate these participations represented approximately 5.9 per cent. of the Placing and approximately 4.0 per cent. of the total Fundraising (i.e., inclusive of the Broker Option).

Further, also as part of the Placing, Bizzell Capital Partners Pty Ltd, a firm controlled by Stephen Bizzell (non-executive director) subscribed for Ordinary Shares for an aggregate of £200,000. Of this amount, approximately £50,000 represents Ordinary Shares held or to be held beneficially on behalf of Stephen Bizzell (with £29,000 of these subscriptions having been issued in the Firm Placing), with the balance held on behalf of clients of Bizzell Capital Partners Pty Ltd. Stephen Bizzell's direct participation represented approximately 1.0 per cent. of the Placing and would represent approximately 0.7 per cent. of the total Fundraising (i.e., inclusive of the Broker Option).

The subscription for New Ordinary Shares in the Placing by Bizzell Capital Partners Pty Ltd, as set out above, for a value of £200,000 is considered a related party transaction for the purposes of the AIM Rules. Due to the participation in the Placing and Broker Option by Eytan Uliel, the proposed issue to him of 365,000,000 Settlement Shares and the proposed issue of Ordinary Shares to the non-executive directors, as set out below on page 21 there is no Director independent of the Restructuring and Fundraising to provide the necessary AIM Rule related party transaction opinion. Accordingly, Strand Hanson Limited, the Company's Nominated Adviser is satisfied that the terms of the subscription by Bizzell Capital Partners Pty Ltd are fair and reasonable insofar as the Shareholders are concerned.

In relation to compensation of non-executive Board members:

(i) all current non-executive Directors have not drawn any directors fees that they are contractually entitled to since at least October 2021, and have agreed to forego payment of those fees, as well as (in the case of non-continuing directors) to forego any termination payments otherwise due on cessation of being a director, and all directors have agreed that all directors fees accrued and owing up to the time of their ceasing to be a Director will be satisfied through the issuance of Ordinary Shares contemporaneously with completion of the Fundraising and Restructuring. Accordingly, a total of 150,693,000 New Ordinary Shares will thus be issued amongst all non-executive Directors, and comprise part of the Settlement Shares (see further Section 9 below).

(ii) The Chairman designate has agreed to a Board fee of £45,000 per annum (inclusive of the fee for service on one Board committee), plus £5,000 per annum per Committee for service on any additional board Committees. This represents a reduction of approximately 25 per cent. to the fees historically paid to the Chairman of the Company, and the Company believes this compares favourably to fees paid to non-executive Chairmen at other similar AIM-quoted entities.

(iii) Non-executive Directors fees going forward, both for existing non-executive Directors and for any new non-executive directors that may be recruited, will be £35,000 per annum (inclusive of the fee for service on one Board committee), plus £5,000 per annum per Committee for service on any additional board Committees. It is noted that these fee levels are approximately 25 per cent. lower than historic levels of non-executive Director Board fees at the Company, and the Company believes this compares favourably to non-executive Board fees paid at other similar AIM-quoted entities.

The issue of the 150,693,000 Ordinary Shares at the Issue Price to all Non-Executive Directors of the Company, as set out above, is deemed a related party transaction under the AIM Rules. Due to the participation of the only other Director, Eytan Uliel in the Placing and Broker Option and the proposed issue to him of 365,000,000 Settlement Shares (see Section 9 below), there is no director independent of the Restructuring and Fundraising (of which the issue of these shares forms a part) to provide the necessary AIM Rule 13 related party transaction opinion. Accordingly, Strand Hanson Limited, the Company's Nominated Adviser, is satisfied that the terms of the issue of the shares are fair and reasonable insofar as the Shareholders are concerned.

The issue of the above noted Ordinary Shares to the Company's non-executive Directors is comprised as follows:

- William Schrader: 27,083,333

- James Smith: 17,708,333

- Simon Potter: 59,026,334

- Stephen Bizzell: 46,875,000

Changes to management and operations

With the revised focus and forward strategy as described in Section 6, significant changes have been made and/or are proposed to be made to the Company's operating structure and management team, including as follows:

(a) In addition to Tim Eastmond commencing as Chief Financial Officer, the Company has entered into an agreement with a highly experienced UK-based petroleum engineer with robust reservoir engineering background, who on successful completion of the Fundraising, will relocate to Trinidad and Tobago to assume responsibility for the Company's revised production focused business strategy - further details will be provided at that time.

(b) Certain prior executives (including the Chief Operating Officer and Finance Director) have either ceased to be employees of the Company or will shortly cease in those roles. Gagan Khurana will assume the role of Chief Commercial Officer.

Full details of the Company's management team will be provided on completion of the Fundraising and Restructuring.

In addition to the above, various other non-essential staff positions have been eliminated, the Company's operating office in The Isle of Man has been shut and replaced with a corporate service provider, the Company's operating office in The Bahamas has been shut and any residual Bahamian operations going forward will be serviced from Trinidad and Tobago, and the Company has established a small (serviced) London office to act as a central hub for coordinated operational activity.

With these additions and changes, the operating footprint of the Company has been significantly reduced, and the core executive management team of the Company streamlined to a group considerably leaner and more cost-effective than in the past. On this basis, the overall operating cost of the Company is approximately US$2 million per annum (excluding costs in Trinidad and Tobago, which are anticipated to be met by in-country operating cash flows). This is inclusive of staff salaries, Board costs, insurances, occupancy costs, and all costs associated with being a listed entity, which is comparable with the operating cost base of similar sized AIM-quoted companies and is thus considered appropriate on a go-forward basis.

Notwithstanding this, the Chief Executive Officer has been tasked by the revised Board to make further recommendations to the Board as to the appropriate management structure, skills maintenance and staffing levels, with a view to implementing any further management and organisational changes in the coming 3-4 months.

8. Information on the Group

Information on Challenger Energy

Challenger Energy is a Caribbean and Atlantic margin focused oil and gas company, with a range of production, development, and exploration 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 producing fields, and in Suriname, Challenger Energy has an onshore appraisal/development project - these producing and near-term production assets comprising the core focus of the Company's activities. Additionally, Challenger Energy has a dominant licence position and multiple exploration prospects in the South West Peninsula of Trinidad and Tobago, and exploration licences in each of Uruguay and The Bahamas - all of the company's exploration portfolio are characterised by low holding costs, minimal near-term work commitments, and material, high-prospect targets.

Information on Challenger Energy's core assets

Trinidad and Tobago

In Trinidad and Tobago, the Company has five producing fields - comprising of some 250 wells (of which over 80 are producing) - with current production averaging in the range of 400 bopd. At an approximate US$65/bbl realised oil price, 400 bopd of stable production from these fields results in annual cash flows to CEG of approximately US$5 million per annum, net of government take. This adequately covers the Company's in-country operating costs and overhead in Trinidad and Tobago. The Company's strategic target is to see production increase organically to approximately 1,000 bopd by 2024, which would result in the Company being EBITDA positive, generate sufficient cash flow to cover all operating costs and overhead (both Corporate and in Trinidad and Tobago) and generate free cash flow beyond that.

A brief overview of the Company's primary fields in Trinidad and Tobago is set out below:

a) Goudron Field: through a subsidiary company, the Company owns 100 per cent. of the rights to the Goudron field by way of an EPSC with Heritage, the Trinidad and Tobago state-owned oil and gas company. The EPSC was renewed in 2020 and expires in June 2030. The Company is progressing enhanced oil recovery programmes at Goudron to support increased production, for example by undertaking a water injection pilot project focused on re-pressuring reservoir units. 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. In addition, the Company has identified certain infill drilling opportunities in the field with the potential to grow the production further in the longer term.

b) Inniss-Trinity Field: through a subsidiary company, the Company owns 100 per cent. of the rights to the Innis-Trinity field by way of an IPSC with Heritage. The IPSC has been extended to 31st March 2022 on an interim basis to allow finalisation of key commercial terms and documentation for a fresh EPSC with September 2031 expiry. During 2020 and 2021, a pilot CO2 enhanced oil recovery project was undertaken to establish the potential for increasing field production and with a view to assessing the applicability of the technique for other onshore opportunities. The Company is progressing further CO2 enhanced oil recovery work in the near-term as well as regular well workover operations are undertaken on the existing production well stock and repairs to shut-in wells, as and when appropriate.

c) South Erin Field: through a subsidiary company, the Company owns 100 per cent. of the rights to the South Erin field by way of a Farmout with Heritage. The Farmout has been extended for a two- year term until 31st December 2023 and is extendable for a further term until September 2031, subject to, inter alia, completion of the minimum work obligations in the current term. 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, three of which are intended to be drilled during 2022 and 2023

d) Bonasse and Icacos (South West Peninsula ("SWP") Fields): the SWP contains the Bonasse and Icacos fields. Through subsidiary companies, the Company holds a 100 per cent. interest in a number of private petroleum licences for 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.

In December 2020, ERC Equipoise Pte Ltd ("ERCE") prepared a Competent Person's Report ("CPR") for the hydrocarbon reserves and contingent resources held by the Company within several oil and gas accumulations in the Company's asset portfolio. A summary of the reserves and resources from that report are below.

Company working interest reserves and contingent resources are based on the working interest share of the field gross reserves or resources as applicable and are prior to deduction of royalties. Contingent resources are unrisked and have not been risked for chance of development and are sub-classified as development unclarified. Totals are added arithmetically which means statistically there is a greater than 90 per cent. chance of exceeding the total 1P/1C and less than a 10 per cent. chance of exceeding the total 3P/3C.

The Company owns and operates two workover rigs which are used to complete incremental workover projects across its fields of operation. The Company expects to undertake approximately 150 well workovers per annum with the scope of work ranging from routine maintenance to pump installations and replacements, wellbore clean-outs as well as perforation of additional oil-bearing zones identified but previously not produced. The workover activity is generally evenly spread throughout the year except during the wet season.

In addition to the above fields in active production, through a subsidiary the Company owns 83.8 per cent. of the rights to the Cory Moruga licence, alongside its partner Touchstone Exploration Inc. which owns 16.2 per cent. The Cory Moruga licence includes the Snowcap oil discovery, with oil previously having been produced on test from the Snowcap-1 and Snowcap-2ST wells, and with an approved development plan for this field in place. Historically, over US$40 million has been spent on technical work and drilling in this licence area. The Cory Moruga licence is a direct licence from the Ministry of Energy and Energy Industries (MEEI) and is characterised by high annual licence fees. Additionally, the Ministry is claiming various past fees and dues relating to this licence, dating back as far as 2012. The Company has, however, been able to obtain old records from prior owners of the licence and in the process located and provided documentation to MEEI evidencing payment of some of the various past fees and dues being claimed. The Company is also disputing some of the other past fees and dues being claimed as not being payable in respect of the relevant time period, and has in any event proposed a "rebasing" of this licence whereby all claimed past dues would be cancelled, the annual licence fees rebased to an appropriate level, and a new future work programme agreed. To the extent a suitable arrangement of this nature cannot be agreed with MEEI, the Company intends to surrender the licence, in which case the subsidiary company holding the licence will be placed into administration, and all liabilities claimed in respect of this licence will be eliminated, without recourse to the Company (albeit in this circumstance, in addition to forfeiting the licence, substantial tax losses associated with that subsidiary entity will be lost).

Suriname

In October 2019, through a subsidiary the Company entered into a Production Sharing Contract ("PSC") with Staatsolie Maatschappij Suriname N.V, the Suriname state-owned petroleum company ("Staatsolie"), to secure an onshore appraisal/development project contained in the Weg Naar Zee Block ("WNZ"). The Company holds a 100 per cent. working interest in WNZ, however, Staatsolie has the right to participate in the development phase with up to a 50 per cent. working interest, subject to Staatsolie reimbursing Challenger for its pro-rata share of costs incurred up to that point and funding its own share of costs thereafter.

WNZ is a large block (900 km²) in a proven hydrocarbon province with 70 historic wells and 2D seismic coverage. Up to 24 MMbbls STOIIP (15 degrees API) have been identified in eight pools and independently assessed 2C contingent resources of 1.1 MMbbls and 3C contingent resources of 3.5 MMbbls.

An appraisal well followed by an extended well test ("EWT") has been designed to appraise the producibility of the discovered resource in the WNZ block. To date, approval from Staatsolie to proceed with the planned drilling programme 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.

The Company plans to drill the first WNZ well in the second quarter of 2022. This first well that will target the largest of the undrained pools (twinning with a successful historical production well), will be drilled to a total depth of less than 1,000 ft. and has an estimated cost of US$0.7 million. In a success case, the Company expects some production from the well (in the range of 20 bopd to 40 bopd) but, more importantly, would use the results of this programme for a broader field development concept, with a view to establishing a producing field generating 500 bopd or more of production.

Tax Losses

The Company has approximately US$100 million of accumulated unused tax losses, held in various of its subsidiary companies in Trinidad and Tobago, which subject to applicable rules and regulations in Trinidad and Tobago, can generally be used to shelter future income over time.

Appraisal and Exploration assets

The Company has a portfolio of legacy appraisal and exploration projects in Trinidad and Tobago, The Bahamas, and Uruguay. Being comparatively high-risk, and as described above, these no longer comprise part of the Company's core activity programme in the near-term. However, each of these projects can continue to be held at very low cost for future option value, or alternatively can be discontinued without financial repercussion.

A. The Saffron Project

The Saffron Project is located on the Bonasse licence in the South West Peninsula, onshore Trinidad and Tobago. The Saffron-1 well, drilled in late 2019/early 2020, had discovered oil in the Middle and Lower Cruse reservoir horizons. That well however had been beset by various issues during the drilling campaign, such that no production testing of the Lower Cruse reservoirs had been possible. The Company, on assuming control of the asset from August 2020, analysed the data from the Saffron-1 well, and used that analysis to inform a well design and plan for a second Saffron well. Upon obtaining the requisite planning and ministerial approvals, the Saffron-2 appraisal well, the Company's first operated drilling onshore Trinidad and Tobago, 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 proved the ability to flow high-quality oil from the Lower Cruse reservoirs, although sustained production from these reservoir units could not be achieved due to technical and mechanical issues encountered in these zones. The Middle Cruse reservoir sections were production tested and achieved initial commercially viable production rates of approximately 80 bopd, but then witnessed rapid decline thereafter, coupled with variable production rates and high rates of water production. The Company thus continues to undertake work to incorporate the results of the Saffron-2 well into an updated geological and reservoir model, so as to seek potential engineering solutions to these issues. Strategically, given these issues, the Company has begun investigating options for a farm-out of the Saffron project, which, if achieved, would present a fundamentally different approach and risk profile for development of the project than has been considered to-date.

B. The Bahamas

Drilling of the Perseverance-1 well in The Bahamas commenced on 20 December 2020 and was completed in February 2021. The well was drilled offshore at a location approximately 20 miles from the Bahamas-Cuba maritime border, in water depth of approximately 518 meters. The well was drilled safely and without incident, despite the adverse and ever-changing impacts of the global pandemic, with stringent (and costly) COVID-19 management protocols operating effectively throughout the drilling campaign, and the attempts (ultimately unsuccessful) by environmental activists to derail the Company's Government-approved operations. The successful completion of Perseverance-1 well 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 meters, having intersected five Albian, Upper Aptian, and Mid-Aptian geological horizons of interest. 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 discovery at the drilling location, with the source quality and migration interpreted as being the primary reason for this well outcome. However, post-well petrophysical analysis of the well logs 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 well thus support a forward programme focused on deeper Jurassic horizons. As such, the Company has initiated 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 then Government of The Bahamas of its intent to renew the four southern licences into a third 3-year exploration period. A new Government was elected in The Bahamas in September 2021, and the Company is engaging with the new administration on the renewal process.

C. Uruguay

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. Subsequently, the Company has been advised by ANCAP, the Uruguayan state-owned oil and gas company, that the signing of the licence for the OFF-1 offshore block presently awaits presidential approval, which has been delayed due to the COVID-19 pandemic situation. Subject to the formal licence execution the Company will commence initial desk-top and enhanced technical work. Technical work undertaken independent of the Company by ANCAP has sought to highlight exploration prospectivity across the circa 15,000 km2 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 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 (Source: ANCAP 2021), located in just 80 metres of water. This volume estimate aligns well with the earlier guidance provided by CEG of the potential within its OFF-1 licence area in excess of a billion barrels. The Company expects near-term activities in Uruguay to be low-cost (previously indicated by the Company to be in the range of US$200,000 per annum), and whilst there is no drilling obligation during the initial four-year exploration term, the Company will be working to reconfirm attractive volumetrics and mature a range of drillable prospects encompassing syn-rift and Guyana analogue plays from reprocessed and improved 2D seismic imaging that has revealed new exploration upside previously unable to be mapped due to poor data quality. The outcome of planned drilling campaigns on the conjugate margin in Namibia may increase interest in the licence through the course of 2022/2023, in which case the Company intends to explore farm- out options.

9. Settlement Shares

As previously noted, contemporaneously with completion of the Fundraising, a total of up to 1,903,058,641 New Ordinary Shares will also be issued in full and final settlement of various items/amounts/claims/payables/liabilities that would otherwise be payable or owing in cash on completion of the Fundraising and Restructuring. This can be summarised as follows:

(i) 520,000,000 New Ordinary Shares will be issued to convertible noteholders, in full and final settlement of those outstanding convertible notes (inclusive of all accrued interest), thereby eliminating all liability in this regard. As noted in Section 3 above, in deriving the number of Ordinary Shares to be issued, the principal value of the outstanding notes was discounted by an agreed 10 per cent., and the conversion of that residual amount, plus all accrued interest, was implemented based on a price equivalent to the Issue Price under the Placing and Broker Option;

(ii) 467,365,641 New Ordinary Shares will be issued to various professional advisers in relation to fees due to those advisers for work undertaken on the Restructuring and the Fundraising, where those advisers have agreed to be paid in the form of shares and not cash, thus maximising the amount of cash available to the Company. All such shares will be issued at a price equivalent to the Issue Price under the Placing and Broker Option; and

(iii) As noted in Section 7 above, 150,693,000 New Ordinary Shares will be issued to current non-executive Directors in full and final settlement of all amounts owed or that will become owing to those non-executive Directors up to the date of completion of the Restructuring (and in respect of non-continuing Directors, in consideration of all termination fees that would otherwise be payable being foregone), and up to 400,000,000 New Ordinary Shares will be issued to various former or exiting employees and other parties in relation to agreed termination payments and other agreed commercial/legal settlement agreements (albeit that a number of items remain subject to commercial negotiation and agreement, such that the final number might be less). 365,000,000 New Ordinary Shares will be issued to the Chief Executive Officer, in full and final settlement of amounts that would otherwise be owing to him on completion of the Restructuring and Fundraising in relation to his contract.

Eytan Uliel has participated in the Placing and the Broker Option for a value of £150,000 and £20,000 respectively. This participation, and the issue of 365,000,000 Settlement Shares to him, as set out above, is considered a related party transaction in accordance with the AIM Rules. Due to the proposed issue of Ordinary Shares to all of the non-executive directors of the Company, as set out above, there is no Director independent of the Restructuring and Fundraising to provide the necessary AIM Rule related party transaction opinion. Accordingly, Strand Hanson Limited, the Company's Nominated Adviser, is satisfied that the terms of the Mr Uliel's participation in the Placing and Broker Option and of the issue of 365,000,000 Settlement Shares are fair and reasonable insofar as Shareholders are concerned.

It is further noted that (i) as part of the agreed settlement arrangements above, and (ii) in part payment of agreed fees to the Company's broker and financial adviser in respect of services provided in respect of the Fundraising, the Company has agreed to issue the Fee Warrants, being a total of 576,559,486 warrants over Ordinary Shares, to various parties. All Fee Warrants will have an exercise price equivalent to the Issue Price under the Placing and Broker Option. 25,000,000 of the Fee Warrants will be exercisable prior to 30 April 2023, and the balance of the Fee Warrants will be exercisable at any time prior to four years after the date of issue. If all Fee Warrants were to be exercised in accordance with their terms, the Company would be required to issue 576,559,486 new Ordinary Shares, and would receive cash subscription amounts of £576,559.

10. Existing Options and Warrants

Approximately 87 million Options over Ordinary Shares are currently in issue - approximately 73 per cent. held by prior and existing executives and existing Board members of the Company, and approximately 25 per cent. held by various advisers and financiers. All of these Options have exercise prices in either the range of 3.5-5p, or 24-28p - that is, all options are significantly "out of the money". Agreement has been reached with certain of the existing Option holders (including all Directors and continuing executives) that will see approximately 73 per cent. of the currently outstanding Options cancelled for nil consideration on completion of the Restructuring and Fundraising. The balance of historical Options will remain in issue in accordance with their terms. However, given their deeply "out of the money" exercise prices, for all intents and purposes these residual Options have little value to their holders, and the Company expects therefore that these Options will eventually lapse unexercised in accordance with their terms.

11. General share issuance authority and authorised share capital

At the EGM Shareholders will be asked to approve a temporary authority for the Company to issue up to 10,000,000,000 New Ordinary Shares. If this authority was ultimately to be used in its entirety this would represent a total potential dilution of approximately 50 per cent. of the enlarged share capital post completion of the Restructuring and Fundraising, without the need for seeking further shareholder approval, and with such capacity to be in place until the end of 2023.

The rationale for the proposed temporary general issuance authority is directly related to the Company now embarking on a course to restore value through a strategy aimed at significantly increasing production and thus cash flow, and which may involve the need to secure fresh capital over time, in particular the issuance of additional Ordinary Shares to secure access to new assets or portfolios of assets complementary to this strategy. Further, as noted in Section 12 below, it is intended that the implementation of revised incentivisation arrangements - considered essential to the ability of the Company to continue to operate with competent and motivated executives and employees - will be conducted under this general share issuance authority.

The Company currently has an authorised share capital of £400,000 consisting of 2,000,000,000 ordinary shares of 0.02 pence each. In order to facilitate the allotment of shares required by the proposals, it is necessary to increase this level of authorised share capital. The Shareholders will therefore be asked at the EGM to approve an increase in the authorised share capital of the Company to £10,000,000 consisting of 50,000,000,000 Ordinary Shares of 0.02 pence each.

12. Incentive Arrangements

As the Company embarks on the above-noted process of Board and operational/management change, the Board, on the recommendation of the Remuneration Committee, considers it appropriate that incentive arrangements for the new Board members and ongoing executive/employee team of the Company be appropriately refreshed. The largely new management team was recruited on the basis of the ability to offer fair, market-based incentive arrangements that align management with the creation of shareholder value once the Restructuring and Fundraising is complete.

The new options to be issued will initially relate to 10 per cent. of the Company's Enlarged Share Capital. This level of incentive ownership is consistent with that in place at several companies similar to the Company and has been benchmarked accordingly by the Remuneration Committee and the Company's advisors.

New options will be granted in four tranches, with vesting and exercise conditions for each tranche linked directly to material share price appreciation as compared to the price of the Fundraising - that is, linked directly to growth of shareholder value following completion of the Restructuring and Fundraising.

The implementation of these revised option arrangements will be conducted under the Company's general share issuance authority (as proposed pursuant to Resolution 3 at the EGM). As such, these revised option arrangements, which will be fully disclosed once allocated, do not require specific approval of Shareholders outside of the approval of the general share issuance authority. However, the allocation of the new options will likely be deemed a related party transaction in accordance with the AIM Rules, and for which a fairness opinion will be obtained as required.

13. Details of changes to the Capital Structure

As a result of the Restructuring and the Fundraising, the capital structure of the Company will undergo significant change. The following tables provide a summary of the Company's capital structure prior to the Restructuring and Fundraising, and the capital structure assuming completion of the Restructuring and Fundraising as described above:

Table 1: Capital Structure prior to Restructuring and Fundraising

^ Exercise prices range from 4p - 28p per share; exercise periods range from 3 years to 4.5 years

* Exercise prices range from 3.5p - 20p per share; exercise periods range from 0.75 years to 3.75 years

+ This authority has been used following the issue of the Firm Placing Shares

Table 2: Capital Structure after completion of the Restructuring and Fundraising

# Consisting of 796,552,914 Ordinary Shares on issue prior to the Restructuring and Fundraising, 5,019,100,000 Ordinary Shares to be issued pursuant to the Firm and Conditional Placing, 2,273,517,925 Ordinary Shares to be issued under the Broker Option, and up to a maximum of 1,903,058,641 Settlement Shares to be issued

^ Exercise price at the Issue Price, exercise periods ranging from 1.2 years to 4 years

* Exercise prices range from 3.5p - 28p per share; exercise periods range from 0.75 years to 4.5 years. The number reflects agreements that have been reached for cancellation of approximately 73 per cent. Of the existing options and warrants on completion of the Restructuring and Fundraising. Given the exercise price of these options, the Company expects that the remainder of these will lapse unexercised in due course.

14. The Fundraising

Details of the Fundraising

The Company has raised gross proceeds of approximately £7.3 million comprising:

(i) £5.0 million through the successful Placing of 5,019,100,000 New Ordinary Shares with institutional and other investors at the Issue Price. Of this, approximately £0.7 million has been raised as part of the Firm Placing pursuant to existing share issuance authorities in place, and approximately £4.3 million has been conditionally raised as part of the Conditional Placing. The Conditional Placing is conditional, among other things, on Shareholder approval, which will be sought at the EGM to be convened on 4 March 2022; and

(ii) A further approximately £2.3 million of gross proceeds has been conditionally raised under the Broker Option. The Broker Option is conditional on Shareholder approval, which will be sought at the EGM.

The Fundraising has not been underwritten. Arden Partners Plc acted as broker and bookrunner to the Fundraising (the "Bookrunner") and Gneiss Energy acted as placing agent to the Fundraising (the "Placing Agent").

Completion of the Conditional Placing and the Broker Option are conditional, inter alia, upon:

a) the passing of the Resolutions;

b) the Placing Agreement between the Company, the Bookrunner and Placing Agent (the "Placing Agreement") becoming unconditional in all respects (other than Second Admission) and not having been terminated in accordance with its terms; and

c) Second Admission occurring by no later than 8:00 a.m. on 7 March 2022 (or such later time and/or date as the Company, the Bookrunner and the Placing Agent may agree, not being later than 21 March 2022).

Accordingly, if any of the conditions are not satisfied or waived (where capable of waiver), the Fundraising will not proceed, the Conditional Placing Shares and the Broker Option Shares will not be issued and all monies received by the Bookrunner and the Placing Agent or the Company (as the case may be) pursuant to the Conditional Placing and the Broker Option will be returned to the applicants (at the applicants' risk and without interest) as soon as possible thereafter.

Details of the Placing

Under the terms of the Placing Agreement, the Bookrunner and the Placing Agent have placed the Firm Placing Shares and conditionally placed the Conditional Placing Shares at the Issue Price with institutional and other investors, and have conditionally placed the Broker Option Shares with existing Shareholders of the Company who are Qualifying Investors. The Placing Agreement contains certain warranties and indemnities from the Company in favour of the Bookrunner and the Placing Agent. The Bookrunner or the Placing Agent may terminate the Placing Agreement in certain circumstances.

Details of the Broker Option

The Company granted an option to the Bookrunner under an amendment to the Placing Agreement in order to deal with demand in the event that requests to participate in the Placing from existing Shareholders who are Qualifying Investors were received between 7.30 a.m. UK time on Monday 31 January 2022 and 6:30 p.m. UK time on Wednesday, 2 February 2022 (the "Broker Option Period"). To participate in the Broker Option, during the Broker Option Period, Shareholders who were Qualifying Investors were required to communicate their interest to the Bookrunner via their independent financial adviser, stockbroker or other firm authorised by the Financial Conduct Authority (all of whom were required to confirm to the Bookrunner that their client was an existing Shareholder and Qualifying Investors), as the Bookrunner could not take direct orders from individual private investors. The Broker Option was not being made available to the public, only to existing Shareholders who were Qualifying Investors, and the Broker Option was not offered in any jurisdiction where it would have been unlawful to do so. No Prospectus was issued in connection with the Broker Option.

During the Broker Option Period, the Bookrunner received bids for 2,273,517,925 New Ordinary Shares to be issued pursuant to the exercise of the Broker Option ("Broker Option Shares"). In consultation with the Company, the Bookrunner agreed to accept all bids, in full, and exercised the Broker Option accordingly. An announcement of the results of the Broker Option was made by the Company on Thursday, 3 February 2022.

The Broker Option Shares will be issued on the same terms and conditions as the Conditional Placing Shares and at the Issue Price. The Broker Option is conditional on the approval by the Company's Shareholders at the EGM.

The Broker Option Shares will be issued free of all liens, charges and encumbrances and will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of their issue.

Subject to Shareholder approval at the EGM, application will be made to the London Stock Exchange for the Conditional Placing Shares and the Broker Option Shares to be admitted to trading on AIM. It is expected that Admission will become effective at 8:00 a.m. (London time) on or around 7 March 2022 and that dealings for normal settlement in the Conditional Placing Shares and the Broker Option Shares will commence on or around 8:00 a.m. on 7 March 2022.

15. Notice of Extraordinary General Meeting

A notice convening the EGM to be held at 34 North Quay, Douglas, Isle of Man, IM1 4LB at 11:00 a.m. on 4 March 2022 has been sent to Shareholders. This document will also be available on the Company's website (www.cegplc.com).

In accordance with current government instructions in respect of the evolving situation regarding COVID-19, Shareholders are requested to not physically attend the EGM and instead are encouraged to return their form of proxy or appoint a proxy electronically (as the case may be) by the relevant time and appoint the chairman of the meeting as proxy. As at the time of publication of this document, it is unclear what restrictions will be in place regarding public gatherings at the time of the meeting and in order to comply with current government public health instructions, it may be that gatherings of individuals are restricted in number and accordingly any Shareholder or proxy that attempts to physically attend the EGM may be refused admission.

The situation in relation to COVID-19 continues to develop. The Company will continue to update Shareholders on arrangements for the Meeting through a Regulatory Information Service and the Company's website. Shareholders are advised to check the Company's website for updates.

At the EGM, the following resolutions (the "Resolutions") will be proposed:

1. As an ordinary resolution, to authorise the increase in the authorised share capital of the Company to £10,000,000 being 50,000,000,000 Ordinary Shares of 0.02 pence each.

2. As a special resolution, to authorise the issue of up to 8,504,275,076 Ordinary Shares in respect of the Conditional Placing, the Broker Option and the Settlement Shares, and to authorise the potential issue of up to 576,559,486 Ordinary Shares in respect of the Fee Warrants.

3. As a special resolution, to authorise a general share authority such that the directors may, prior to 31 December 2023, issue up to 10,000,000,000 New Ordinary Shares without the need for further Shareholder approval (and from within which general share authority the proposed new incentive arrangements will be implemented).

Brief explanatory notes for each of the Resolutions are set out in the notice of EGM that has been sent to Shareholders.

16. Recommendation

The Directors consider the approval of the Resolutions to be proposed at the EGM to be in the best interests of the Company and its Shareholders as a whole and, accordingly, unanimously recommend Shareholders to vote in favour of the Resolutions, as they and their associated parties intend to do in respect of their beneficial holdings, which in aggregate total approximately 60.0 million Existing Ordinary Shares, representing approximately 4.0 per cent. of the existing issued share capital of the Company.

Without receipt of the proceeds of the Conditional Placing and Broker Option, the Company's financial resources will be considerably less than anticipated, and the Company will not be able to meet financial obligations due in March 2022 and will not be able to execute many parts of the intended work programme during 2022. This would have a negative impact on expected production, cash flows and operations, and ultimately the Company would likely not be able to continue as a going concern in these circumstances. The Board thus considers that it is of the utmost importance that Shareholders consider the notice of EGM document carefully, and vote in favour of the Resolutions.

17. Expected Timetable of Principal Events

Announcement of the Placing 4:54 p.m. on 26 January 2022

Announcement of results of the Placing 7:53 a.m. on 27 January 2022

Commencement of Broker Option Period 7:00 a.m. on 31 January 2022

First Admission and dealings in the Firm Placing Shares 8:00 a.m. on 1 February 2022 commence on AIM

Where applicable, date that CREST accounts were credited in 1 February 2022respect of Firm Placing Shares in uncertificated form

Close of Broker Option Period 6:30 p.m. on 2 February 2022

Announcement of results of the Broker Option 7:00 a.m. on 3 February 2022

Share certificates dispatched for Firm Placing Shares in By 8 February 2022 certificated form

Publication and posting of the Notice of Extraordinary General 9 February 2022Meeting and Proxy Form

Latest time and date for filing of proxies for the 11:00 a.m. on 2 March 2022 Extraordinary General Meeting

Extraordinary General Meeting 11:00 a.m. on 4 March 2022

Announcement of the result of the Extraordinary General Meeting 4 March 2022

Second Admission and dealings in the Conditional Placing Shares, 8:00 a.m. on 7 March 2022 the Broker Option Shares and the Settlement Shares

expected to commence on AIM

Where applicable, expected date for CREST accounts to be As soon as practicable after credited in respect of Conditional Placing Shares, the Broker 8:00 a.m. on 7 March 2022 Option Shares and the Settlement Shares in uncertificated form

Share certificates dispatched for Conditional Placing Shares, By 14 March 2022the Broker Option Shares and the Settlement Shares in certificated form

Notes:

(1) All of the above times refer to London time unless otherwise stated. The dates set out in the Expected Timetable of Principal Events above and mentioned throughout this announcement may be adjusted by the Company, in which event details of the new dates will be notified by means of an announcement through a Regulatory Information Service and, where appropriate, to Shareholders.

(2) Completion of all events in the above timetable following the holding of the EGM are conditional upon, inter alia, the passing of the Resolutions at the EGM.

(3) Different deadlines and procedures for return of forms may apply in certain cases.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014 as it forms part of United Kingdom domestic law by virtue of the European (Withdrawal) Act 2018.

Unless otherwise stated, defined terms are as set out in the Circular and Notice of Extraordinary General Meeting as has been sent to Shareholders, and which is available on the Company's website.

For further information, please contact:

Notes to Editors

Challenger Energy is a Caribbean and Atlantic margin focused oil and gas company, with a range of production, development, appraisal and exploration 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 Southwest Peninsula. In Suriname, Challenger Energy has on onshore appraisal / development project.

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

https://www.cegplc.com