Challenger lays out possible future of Saffron field

Caribbean and Atlantic margin-focussed oil and gas company Challenger Energy updated the market on the ongoing clean-up of the Saffron-2 appraisal well, as well as the timing and funding plans for the development of the field on Thursday.

The AIM-traded firm said the Saffron-2 well production offtake was still being optimised as the well cleaned up over a range of reservoir zones.

All production currently emanated solely from the Middle Cruse reservoirs.

It said it was planning to continue clean-up operations, and to perforate and production test additional zones, so as to continue to develop the technical understanding of the field's production capacity while also maximising revenues and cash flow being generated by the well.

With Saffron-2 having proved the presence of moveable hydrocarbons in the Lower Cruse reservoirs, the company said it considered that the reservoirs could ultimately contribute toward production, both at Saffron-2 and in future Saffron wells.

No production from the Lower Cruse was currently contributing to overall well production rates.

Based on current production rates from Saffron-2, Challenger said it considered a development of the Saffron field could be justified economically, even without assuming production contribution from the Lower Cruse.

In that context, work was underway to incorporate the results of Saffron-2 into an updated geological and reservoir model, leading to a revised forward development plan for the Saffron field and associated revised permitting and approvals.

The board said that, subject to approval of a revised field development plan, the firm was now targeting a development of Saffron to start in the first half of 2022.

Challenger and Arena Investors were still discussing funding options for a Saffron field development, with those talks to be further advanced once the revised development plan for the field was finalised.

At the same time, based on the outcomes of Saffron-2, the firm said it had started 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 had been considered to-date.

The company had also started investigating various reserves-based lending options as a potential debt component of any project funding plan.

“On 25 August, Challenger Energy advised of initial production test results at the Saffron-2 appraisal well in Trinidad's South West Peninsula,” said chief executive officer Eytan Uliel.

“Testing is ongoing, but we have since received queries as to the implication of the well results so far for the project as a whole, in response to which I'd make two general comments - one, Saffron-2 has told us that a project at Saffron is likely viable, but two, it will not look the same as the project we had envisaged pre-drill.

“Specifically, we now know that a project based solely on shallower, cheaper wells targeting just the Middle Cruse can stand on its own, and we are working on revising technical models and development plans accordingly.”

Uliel said the company also now knew that there were moveable hydrocarbons in the Lower Cruse, although more work was needed to figure out how to get sustained production from those zones, which had the potential to then expand the scope of any development over time.

“Finally, what we have learned from Saffron-2 will allow us to systematically revisit all available financing options, plus there is a body of work to be done in terms of updating relevant regulatory and planning requirements,” Eytan Uliel added.

“The important point is that based on the results of Saffron-2 we believe Saffron is a commercial project, and so we are doing the work needed to advance to a development as soon as possible, until which time we will continue to maximise cash flow from the Saffron-2 well itself.”

At 1249 BST, shares in Challenger Energy Group were up 7.69% at 1.4p.