Challenger Energy (AIM: CEG), the Caribbean and Americas focused oil and gas company, with oil production, appraisal, development and exploration assets across the region, is pleased to announce that it has entered into and simultaneously completed a transaction for the sale of its St Lucia domiciled subsidiary company, Caribbean Rex Limited ("Caribbean Rex").
· Sale of Caribbean Rex and associated assets and subsidiary entities for for a value of US$1.5m:
o immediate cash payment of US$1 million, received
o subsequent payment of US$0.2 million due in mid-March 2023, and
o US$0.3 million of third party liabilities have been assumed by the buyer
· In addition, a three well drilling obligation at the South Erin field (at a potential cost of up to US$5 milion) will now pass from the Company to the buyer, with the Company retaining an 18-month option to repurchase a 49% interest in the South Erin field in the event of the buyer's drilling success
Key terms of the Transaction
· The Company has sold Caribbean Rex, an indirectly wholly-owned St Lucia incorporated subsidiary. Caribbean Rex in turn holds various assets and subsidiary entities in St Lucia and Trinidad. This includes (via interposed subsidiaries) CEG South Erin Trinidad Limited ("CSETL"), a Trinidadian company that is party to a farm-out agreement for, and is the operator of, the South Erin field, onshore Trinidad. The buyer of Caribbean Rex is a Trinidadian drilling and oil services company.
· The transaction was entered into and completed simultaneously, and is not subject to any condition precedent. The agreed consideration is US$1.5 million, consisting of US$1.2 million payable in cash (of which US$1 million has been received by the Company and US$0.2 million is payable by 15 March 2023), and approximately US$0.3 million in third-party liabilities that have been assumed by the buyer.
· In addition, the buyer has committed to fulfil CSETL's 2023 drilling commitments at the South Erin field, thereby relieving the Company of these commitments (3 new wells with an estimated cost of up to US$5 million).
· As part of the transaction, the Company has retained a back-in option, granting the Company the right to repurchase a 49% non-operating interest in the South Erin field. This back-in option may be exercised at the Company's election, at any time in the next 18 months. Consideration payable if the Company exercises the back-in option is a fixed cash amount of US$1 million, plus 49% of all amounts spent by the buyer on South Erin field activities and new well drilling.
· The South Erin field currently produces approximately 35 bopd (representing less than 10% of CEG's total Trinidadian production), but new well drilling by the buyer could significantly increase production through the course of 2023 - CEG will be able to commercially assess the value of exercising the back-in option against the outcomes of the drilling campaign and the level of increased production.
· For the year to 31 December 2021, CSETL made a loss of TT$3.5 million (or approximately US$0.5 million). As at 31 December 2021, CSETL had negative net book value (net liability position) of approximately TT$51.6 million (or approximately US$7.6 million) of which approximately TT$48.1 million (or approximately US$7.1 million) is intra-group and will be written-off as at the Completion Date. Cash received from the transaction will be used for general working capital in the Company's operations.
Eytan Uliel, Chief Executive Officer of Challenger Energy, said:
"Through the transaction announced today we get upfront cash, we give up only a small percentage of overall production, we are relieved of various liabilities as well as the cost of a committed drilling campaign, and we retain optionality while someone else drills those wells and funds that cost. This is consistent with the structure we adopted for the previously announced transaction relating to the Cory Moruga licence, and is, generally speaking, the model for how we intend to take smaller, non-core assets in Trinidad forward: through transactions that monetise the assets and offset our operating and financial risks, yet retain upside exposure in a success case."