Challenger Energy looking ahead after 'difficult year'

Challenger Energy Group reported net petroleum revenue of $2.31m in its interim results on Monday, up from $1.42m for the full 2020 financial year.

The AIM-traded firm said its operating loss was $6.35m for the six months ended 30 June, compared to $13.56m for 2020 and widening from $2.15m in the first half of last year.

It recorded a loss before tax of $11.83m for the half-year, widening from $2.2m in the same period of 2020, while basic and diluted losses per share grew to 2.19 cents from 0.1 cents.

On the operational front, the company drilled the Perseverance-1 well offshore 20 miles from the Bahamas-Cuba maritime border during the period, in water depth of about 518 metres.

The board said the well was drilled safely and without incident, despite the “adverse and ever-changing” impacts of the global pandemic, with stringent Covid-19 management protocols operating throughout the drilling campaign.

Well operations were also successfully carried out despite attempts by environmental activists to derail the company's government-approved operations, the board added.

Overall, while those attempts failed to halt drilling operations, they did impact the company's access to previously-established financing options in the lead-up to and during the drilling campaign.

The successful completion of Perseverance-1 represented the first exploration drilling in the Bahamas since the mid-1980s, and the first test of any prospect located in deeper waters off the shallower water carbonate banks.

Challenger said the well reached a depth of 3,905 metres, having intersected five Albian, Upper Aptian, and Mid-Aptian horizons of interest.

Following the completion of drilling operations, the well was plugged and secured in accordance with international and Bureau of Safety and Environmental Enforcement (BSEE) 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 that 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 thus supported a forward programme focused on deeper Jurassic horizons.

As such, the company said it had initiated a farm-out process to seek a suitable partner for the next phase of activity in the Bahamas.

At the same time, in March it notified the then-government of the Bahamas of its intent to renew the four southern licences into a third three-year exploration period.

A new government was elected in September, and the firm said it was engaging with the new administration on the renewal process.

“I very much wish my inaugural reports to shareholders would have been in the context of more positive business outcomes, but unfortunately the company is labouring from the poor technical results and cost overruns of two successive drilling campaigns, as well as the assumption of debts and unpaid liabilities incurred by the previous management of Columbus,” said chief executive officer Eytan Uliel.

“Each of these situations in isolation would, in the ordinary course of events, be manageable, but in combination present a significant burden to overcome, further exacerbated by the circumstances and complications prevailing over the last 18 months - including the legal challenge by environmental groups in the Bahamas, and the persistent adverse impacts of Covid-19.

“The inability thus far to offset these negative outcomes with positive developments elsewhere in the broader business portfolio means that the company is now in a position where over the near-term it will need to pursue a creditor restructuring and recapitalisation plan.”

Uliel said the board expected to be able to complete that plan, which, if successful, should result in the firm being “well-positioned” for the future, with a largely debt-free balance sheet and a portfolio of assets in active production, and a rising oil price environment.

“Definitively dealing with matters in the balance of 2021 will mean that Challenger Energy will then have a clear ‘runway’ in 2022 to focus on the core business of any hydrocarbon company - maintaining and enhancing existing production, finding new sources of oil, and then growing portfolio wide production in a way that is both profitable and cash flow generative.

“It has undoubtedly been a difficult year for your company, and most definitely not what shareholders had hoped for.”

At 1517 GMT, shares in Challenger Energy Group were down 26.97% at 0.84p.