Challenger Energy Group a year of considerable change and progress

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Challenger Energy (LON:CEG), the Caribbean and Atlantic-margin focused oil and gas company, with oil production, appraisal, development and exploration assets across the region, has announced its Annual Report and Financial Statements for the year ended 31 December 2022.

The 2022 Annual Report and Financial Statements will be posted to shareholders by 30 June 2023. The Company’s AGM will be held on 15 August 2023 at 11:00 GMT at The Engine House, Alexandra Road, Castletown, Isle of Man IM9 1TG. Notice of the AGM will also be posted to shareholders in due course.

The 2022 Annual Report and Financial Statements are set out in full below and are also available on the Company’s website https://www.cegplc.com/.

Chairman’s Letter to the Shareholders

Dear shareholders,

I am pleased to report to you as chairman of your Company.

In my last report I discussed the transition that the company was undertaking on several fronts: moving on from legacy issues, refocusing the Trinidad business, and pivoting longer term exploration towards Uruguay. Over the last year, we have delivered on each of these.

In relation to legacy issues, ﬁnal settlements of historic liabilities were agreed at the start of 2022, which, in tandem with a capital raising in March of 2022, allowed the company to clear its balance sheet and refocus its resources. The Company remains in discussions with the Bahamian government regarding the status of its licences there, and our rights to beneﬁt from the substantial work undertaken and cost incurred. However, this project no longer forms part of our immediate business focus.

In Trinidad, we made substantial changes to our business, resetting the basic operating philosophy away from “maximising production” to “efficiency and proﬁt”. We strategically prioritised our main assets in south-east Trinidad, streamlined operations around those main assets, and began a process of divesting and monetising non-core assets. These measures have resulted in a more efficient and sustainable Trinidadian business.

In Uruguay, the Company has beneﬁtted from renewed global focus on energy security and exploration, following the Ukrainian invasion and loss of access to Russian production and reserves in Western energy markets. These developments, when coupled with recent exploration success in Namibia – the “other side” of the Atlantic conjugate margin on which our Uruguay assets sit – have seen Uruguay become a new hot zone in global exploration, as evidenced by the heavy presence of global majors in the country’s recent licencing rounds.

Our AREA OFF-1 acreage has thus become more important for our Company. As Eytan describes more fully in his CEO report, in the past year we have rapidly advanced our AREA OFF-1 technical work program, to enhance the value we hope to realise when we farm-out the asset. The story has been further enhanced by the award of the OFF-3 licence to the Company, which grows our business in Uruguay even further.

In my last report, I noted my belief that oil will remain an important part of the energy mix for many years to come. The events of the last year, and the impact this has had on energy prices and the global energy industry, make these observations as relevant as ever. As the Western world searches for new and more secure sources of energy, we are well positioned to beneﬁt.

I would like to thank all our staff for their efforts over the course of the past year, the Board for their support in managing and guiding this process, and ﬁnally our shareholders for their continued support.

Iain McKendrick Chairman

28 June 2023

Chief Executive Officer’s Report to the

Shareholders

Dear fellow Shareholders,

I am pleased to provide the following commentary on our business and operations during the period under review.

The 2022 ﬁnancial year (that is, from January to December 2022) was a time of considerable change and progress for our Company. In early 2022 we completed a comprehensive ﬁnancial and operational restructuring, along with a recapitalisation. Then, with the beneﬁt of legacy issues behind us, we were able to devote full attention to core operations: our production business in Trinidad and Tobago and developing a deeper insight as to the value of our exploration acreage in Uruguay. And, as the fundamentals and realities of our business and our assets shifted, we reshaped our strategies and priorities to match. The result is that both pillars of our business advanced such that we are now, in 2023, seeing results from the solid foundations laid in 2022.

Exploration Acreage in Uruguay

One of the key drivers of value for any junior E&P company is the ability to adapt rapidly to changes in circumstances. Nowhere was this more evident than in relation to Challenger Energy’s Uruguayan business during 2022.

We were awarded the AREA OFF-1 licence block offshore Uruguay in 2020, but as at the start of 2022, Uruguay was not yet on the global industry’s radar, and Challenger Energy was Uruguay’s sole licence holder. Starting in early 2022, however, everything changed quite dramatically, and very quickly.

The catalyst for this was when two energy majors (TotalEnergies and Shell) each announced in February 2022 that they had made massive discoveries from independent wells drilled offshore Namibia. Those successful Namibian wells served to greatly de-risk the presence of a high-quality, oil-prone source rock and charge, not just in Namibia but on the other side of the South Atlantic conjugate margin – in particular Uruguay, which represents a geological “mirror” of the area where the new Namibian discoveries were made. And whilst in February 2022 the profound signiﬁcance of the Namibian discoveries for Uruguay may not have been immediately obvious to casual market observers, the industry knew exactly what it meant.

As a result, almost overnight we witnessed Uruguay become a global exploration “hotspot.” Thus, in the ﬁrst Uruguayan bidding round after the Namibian discoveries (May 2022), three licences were bid on and awarded to majors Shell and APA (formerly Apache). Then, in November 2022, a further two licences were bid on and awarded, one to a consortium of Shell and APA, and the other to YPF, the Argentinian national oil company. Tellingly, the new entrants offered signiﬁcant work program to secure their licences (as compared to the very modest work program we had bid to secure AREA OFF-1), and a number of other energy majors also registered to bid in the two Uruguayan open rounds held in 2022, but were unsuccessful.

This step change in industry interest validated our ﬁrst-mover, low-cost entry into Uruguay, and conﬁrmed that we had secured highly prospective frontier acreage with potential for considerable near-term value uplift. And once we saw industry interest escalate, we rapidly shifted our strategy to match, prioritising our Uruguay business around three clear workstreams:

• First, we elected to accelerate our work program on the AREA OFF-1 block, with a view to generating proprietary intellectual property and upgrading technical knowledge of the area in light of the new conjugate margin discoveries, and in this way seek to increase the value of the AREA OFF-1 asset. The program of work undertaken included reprocessing of legacy 2D seismic data, advanced attribute variation with offset (AVO) analysis, seabed geochemical and satellite seep studies, full reinterpretation and remapping of all data, and an initial volumetric assessment. The result of this work, announced in early 2023, was the identiﬁcation of three technically robust primary prospects on AREA OFF-1, that in aggregate represent a prospect inventory of approximately 2 billion barrels (Pmean) and up to 5 billion barrels (P10) – establishing that AREA OFF-1 is a world-class asset of scale

• Second, we began preparing for a farm-out process. This is because taking AREA OFF-1 forward to 3D seismic acquisition and ultimately exploration well drilling, especially on an expedited basis, will be a technically demanding and costly undertaking, for which we ideally wish to have an industry and funding partner. Consequently, a formal farm-out process was launched in Q2 2023. The next step is to deliver a farm-out, which we are working diligently on.

• And third, we sought to expand our presence in Uruguay, given our developing knowledge base and energy understanding, the excellent working relationship established with ANCAP, and the attractive conditions in that country for hydrocarbon industry activity. The ﬁrst tangible result of this work came in June 2023, when Challenger Energy was awarded the AREA OFF-3 block – the last available offshore acreage in Uruguay – on attractive terms, subject to licence signing. Once this licence has been signed, our Company will be the 2nd largest acreage holder in Uruguay, with a signiﬁcant prospect inventory, and two high- quality assets in what has fast become a global exploration focus area.

In summary, therefore, through the course of 2022 our early entry into Uruguay was transformed from apparently being little more than “option value” to being a near-term opportunity for substantial value-creation. We are conﬁdent that eventually the equity market will pay attention and reward the value we are creating.

Production Operations in Trinidad and Tobago

It was not only in relation to Uruguay that pragmatic adaptation was required during 2022 – our business in Trinidad demanded a similar strategic reassessment during 2022.

At the start of 2022 our Trinidad and Tobago business was focused on a drive for material organic growth in production from our existing ﬁelds. Our goal was to achieve production growth from applying efficient mature oilﬁeld management practices, ﬁeld improvements, Enhanced Oil Recovery (EOR) initiatives, and targeted production enhancement activities. Yet despite doing all this, production growth proved elusive. The undeniable reality is that our oil ﬁelds are mature, and having produced oil for many decades they have depressurised reservoirs, where the rate at which the remaining resource is produced cannot easily be increased. That noted, no matter what we did the production from our existing ﬁelds was remarkably constant and predictable. That is, the same ﬁeld maturity that mitigates against organic production increase also mitigates against unreliable production performance. And based on this simple observation, we undertook a reassessment of our Trinidad operations in mid-2022, which resulted in the following revised business objectives:

• One – prioritise those areas where Challenger Energy has a competitive advantage.

In practical terms, this meant dividing our Trinidad portfolio into two parts: “core” – consisting of the Goudron and Inniss-Trinity assets in south-east Trinidad, and “non-core” – our assets in central and south-west Trinidad. The rationale for this division was simple: (i) our two assets in south-east Trinidad represent about 85% of our current production; (ii) almost all of our operations, staff and equipment are devoted to these two assets and we are one of the larger operators in that area of Trinidad; and (iii) operating conditions in south-east Trinidad are peculiar and difficult (remote locations, jungle, poor infrastructure, etc.), so we have unique local operational knowledge and capabilities that can be leveraged.

• Two – for core business operations, focus on keeping production constant, drive efficiencies, and match the operational footprint and cost to the production we know can be achieved.

Once core assets had been prioritised, we were better able to schedule equipment movements and workovers in support of those assets alone, and we were able to reshape our staff base, operations, and other costs to better “ﬁt” the needs of those speciﬁc assets. We also switched many of the smaller producing wells over to continuous swabbing – an operational approach that meant we would no longer be chasing increased production from those smaller wells, but at the same time also meant we could run those wells at a fraction of the cost of continually working the wells over. In terms of outcomes, this new focus saw production through 2022 holding constant, total operating expenses and G&A reduced, and positive net operating cashﬂow across 2022 (which represents a substantial improvement on 2021, where the Trinidad business had incurred a net operating cash deﬁcit).

• Three – exit or monetise non-core operations.

We made substantial progress in relation to this objective, and in the later part of 2022 succeeded in selling (i) the non- producing Cory Moruga asset, with the buyer committing to a substantial future work program, including EOR and new well drilling (completion of that sale remains pending regulatory approval in Trinidad), and (ii) the South Erin asset, with that sale fully completed in early 2023, resulting in not only an up-front cash payment, but the assumption by the buyer of our obligation to drill three new wells. In both cases, we have retained future back-in rights, such that if the work undertaken by the new owners (at their sole cost and risk) proves successful, we retain the option to “re-acquire” part of the asset. We continue to work on similar exit options for the remaining non-core assets we hold.

• Four – generate increased production from “new oil”.

We continue to believe that the opportunity exists to create a proﬁtable and growing production business in Trinidad. But, as described previously, the key learning for us in 2022 was that growth in production will not come from our existing well stock. Rather, the path to growing production in Trinidad will be via accessing “new oil” – that is, either ﬁnding places within our existing ﬁelds that have not been drained effectively and drilling new wells, or by getting new licences. As such, we have been working diligently in the background to identify suitable “new oil” options, whether within our existing core operations, or in our broader geographic area of focus.

The ﬁrst tangible expression of this work become evident only recently, when in June 2023 we were nominated as the party invited to negotiate for the Guayaguayare block, located onshore in south-east Trinidad and thus strategically and operationally synergistic with our existing core assets (our bid was submitted in late 2022, following extensive due diligence and bid preparation through 2022). Guayaguayare is one of the largest onshore blocks in Trinidad, and amongst the largest remaining underexplored / undrained contiguous onshore areas, offering excellent upside. Additionally, the block contains over 60 historic wells, a few of which are active, but most of which are currently shut-in / suspended / abandoned, which can be cheaply reactivated and serviced from existing operations, thus offering the possibility of near-term production uplift.

In summary, insofar as our business in Trinidad is concerned, 2022 was a year where not everything worked out as we had initially hoped, but we learned from experience, reﬁned our strategy accordingly, and built from there. As a result, we are now seeing positive outcomes – continuing improvements in ﬁnancial performance, wins on the business development front, and in overall context, progress toward our goal of building a proﬁtable and growing Trinidadian production business.

Corporate Restructuring & Recapitalisation

As I noted at the start of this report, at the beginning of 2022 we completed a comprehensive ﬁnancial and operational restructuring, along with a recapitalisation. This process had begun in mid-2021, and so I had opportunity to comment at length on it in the 2021 Annual Report. I will thus not repeat the details again here, other than to note that the successful conclusion of this process resulted in a signiﬁcantly reduced overhead cost, streamlined operations, a refreshed board and executive, and a cleaned up balance sheet that put the Company into a position where it was free of ﬁnancial debts and able to fund planned activities during 2022. Many people worked tirelessly in difficult circumstances to achieve this outcome, and on behalf of all shareholders I wish to express my gratitude.

Legacy Assets

Insofar as our “legacy” asset portfolio is concerned, through 2022 we continued to manage those with a view to retaining title in good order, ensuring minimal cost, and seeking means of ultimately monetising the assets. In relation to the Company’s licences in The Bahamas we maintained ongoing dialogue with the Government of The Bahamas on two parallel options: (i) the renewal of the licences into a third exploration period, given that we still see considerable long-term exploration potential in those licences, or (ii) a joint initiative seeking to monetise those assets via an alternative approach based around carbon credits. Meanwhile in Suriname there was no ﬁeld activity during 2022 in relation to the WNZ block, but we were granted an initial 6-month extension of the licence, so that we could undertake a further review of the project, focussing on well design options and the long-term commerciality of the ﬁeld. This work has recently been completed, and we are now in discussion with the Surinamese regulator as to the future direction for this asset. I hope to be able to advise of progress in relation to both of these legacy assets in the not-too-distant future.

ESG

Finally, I would like to make a few comments in relation to the broad category of activities referred to nowadays generally as Environment, Social and Governance, or ESG. The fact that these comments come at the end of my report should not in any way be seen as diminishing the importance of this area, because it is absolutely central to everything we do. Not a day goes by at Challenger Energy where we do not devote a portion of our time to discussing, planning, and implementing a variety of programs and actions in support of a simple goal: to make sure that achieving our commercial objectives never comes at the expense of harm to people or the environment.

I am pleased to report that in 2022, our exemplary record in this all-important area was maintained. Across all our operations there were no incidents of note – whether personal injury, property damage or environmental, and all operations throughout 2022 took place without the occurrence of any Lost Time Incidents. Throughout the year we continued to invest in Company-wide training programs and ESG awareness activities, we continued to maintain productive and positive relationships with all relevant Governments and regulatory bodies, and we continued to make targeted social and welfare contributions in the communities where we operate.

Overall, shareholders should be pleased with the Company’s ESG performance and track record in 2022, and we will continue to do our utmost to ensure this continues.

2023 Strategic Direction

Looking ahead, the 2023 focus for our business in Uruguay is unambiguously on securing a farm-out partner for the AREA OFF-1 block, such that we can expedite future technical work program on the block and in particular a 3D seismic acquisition – we see this as the path to signiﬁcant near-term value creation for shareholders. In Trinidad the 2023 focus will be to continue the work of the last two years: maintain current production, drive improved ﬁnancial performance, dispose of remaining non-core assets, and seek to strategically access “new oil” opportunities so as to expand the production base.

I would like to take this opportunity to thank our staff, whose hard work and dedication is at the heart of everything we do. And collectively, all of us who work at Challenger Energy wish to express our deep appreciation for the support we receive from our Board, stakeholders, regulators, suppliers, contractors and especially our shareholders. In 2023 and beyond, we will do everything we can to reward your conﬁdence in us.

Eytan Uliel

Chief Executive Officer

28 June 2023

Challenger Energy Overview

Challenger Energy is a Caribbean and Americas focused oil and gas company, with a range of onshore and offshore oil and gas assets in the region. The Company’s primary focus is on its Uruguay exploration acreage and its Trinidad production business.

Uruguay

Challenger Energy is the holder of two offshore exploration licences in Uruguay – the AREA OFF-1 and AREA OFF-3 blocks. Together the two blocks represent a total of approximately 28,000 km2 – the second largest offshore acreage holding in Uruguay.

OFFSHORE LICENCE HOLDERS – URUGUAY (JUNE 2023)

Source: ANCAP

Uruguay is located in South America, bordering Brazil and Argentina, and with a broad Atlantic Ocean coastline. The country has a relatively high income per-capita in the region, and represents an advantaged operating regime, frequently ranking ﬁrst in Latin America in measures such as democracy, anti-corruption, and ease of doing business.

Since 2022, and following on from successful exploration drilling in the conjugate margin offshore southwest Africa, the region has seen a signiﬁcant increase in licencing and operational activity, and has become an emerging industry “hot spot”. All blocks offshore Uruguay have been licenced in the last 24 months, and with the exception of the two licences awarded to Challenger Energy, all have been awarded to international oil and gas majors. The collective work program of other Uruguay licence holders is estimated to be in excess of $230 million over the next four years. Licence holders in adjacent northern Argentina are also undertaking or expected to be undertaking technical work over the coming two years, including 3D seismic acquisition and deepwater drilling.

AREA OFF-1

The Group has a 100% working interest in and is the operator of, the 14,557 km2 AREA-OFF 1 block, offshore Uruguay.

AREA OFF-1 was awarded in June 2020, and formally signed on 25 May 2022. The licence has a 30-year tenure with the ﬁrst four- year exploration period having commenced on 25 August 2022. The Group’s initial four-year exploration period work commitment (ending September 2026) is to licence and reprocess 2,000 kms of legacy 2D seismic, and undertake two G&G studies. Given the strong emerging interest in Uruguay, and to facilitate a farm-out, this work program has been expanded and accelerated, with the work largely complete as at the date of this report, and with the full program on schedule to be completed in Q3 2023.

As a result of this technical work program, three prospects have been identiﬁed from a range of play types. Prospects are seismically-derived, supported / further de-risked by AVO analysis, and their robustness corroborated by geochemical seabed sampling and satellite seep analysis. These are summarized as follows:

PROSPECT	DEPOSITIONAL ENVIRONMENT	STRATIGRAPHIC AGE	AREAL EXTENT	WATER DEPTH	RESERVOIR DEPTH	ESTIMATED EUR (mmboe) P10/Pmean/P50/P90
TERU TERU	Onlap slope turbidite to shelf margin wave delta AVO supported – Class II	Mid to Upper Creataceous Albian to Campanian	360/210/106 km²	~ 800m	3,925 m	1,647/740/547/158
TERU TERU		Mid to Upper Creataceous Albian to Campanian	360/210/106 km²	~ 800m	3,925 m	1,647/740/547/158
ANAPERO	Outer shelf margin stacked sands AVO supported – Class III	Upper Cretaceous Campanian	304/214/101 km²	~ 750m	3,400 m	1,627/670/445/88
LENTEJA	Lacustrine alluvial syn-rift fan sealed by regional uncomformity	Lower Cretaceous Neocomian	248/85/14 km²	~ 85m	4,500 m	1,666/576/198/17

The overall AREA OFF-1 prospect inventory of approximately 2 billion barrels recoverable resource (Pmean, unrisked), and over

4.9 billion barrels in an upside case (P10, unrisked), is summarized as follows:

ESTIMATED OIL-IN-PLACE, AREA OFF-1, URUGUAY (MAY 2023)

PROSPECT	P10	Pmean	P50	P90
TERU TERU	5116	2334	1777	527
ANAPERO	5267	2190	1493	304
LENTEJA	5730	1969	690	59
TOTAL	16113	6493	3960	890

ESTIMATED ULTIMATE RECOVERABLE (EUR), AREA OFF-1, URUGUAY (MAY 2023)

PROSPECT	P10	Pmean	P50	P90
TERU TERU	1647	740	547	158
ANAPERO	1627	670	445	88
LENTEJA	1666	576	198	17
TOTAL	4940	1986	1190	263

The Group’s forward strategy for AREA OFF-1 is (i) to complete the low-cost minimum work obligations by the end of 2023, (ii) to introduce a partner by the end of 2023 – a formal adviser-led farm-out process initiated, and (iii) proceed to a 3D acquisition on the licence, expedited into the ﬁrst licence exploration period. The Company considers that conjugate margin exploration success, competitive recent licensing rounds in Uruguay, and technical uplift from CEG’s 2023 work will drive a successful farm-out process.

AREA OFF-3

The Group was awarded the AREA OFF-3 licence, offshore Uruguay, in June 2023. The award of the licence is pending formal signing of the licence agreement (anticipated within 2023).

Once signed, the licence will provide for a 30-year tenure with the ﬁrst four-year exploration period commencing on signing. The Group’s initial four-year exploration period work commitment will be to licence and reprocess 1,000 kms of legacy 2D seismic, and undertake two G&G studies. CEG will hold a 100% working interest in and will be the operator of the 13,252 km2 block.

There has been considerable prior seismic activity and interest on and adjacent to the OFF-3 block, comprising ~4,000 kms legacy 2D (various vintages) and ~7,000 kms legacy 3D (2012 proprietary acquisition). The block was previously held by BP, but was relinquished in 2016. There are no prior wells on the block.

Based on prior technical work, two material-sized prospects have previously been identiﬁed and mapped on AREA OFF-3, as follows:

• Amalia: resource estimate (EUR mmbbl, gross): P10/50/90 (ANCAP) 2,189 / 980 / 392 – the Amalia prospect straddles the boundary with Shell’s AREA OFF-2, with an estimated 25% of Amalia contained within AREA OFF-3; and

• Morpheus: resource Estimate (EUR TCF, gross): P10/50/90 (ANCAP) – 8.96 / 2.69 / 0.84 – the Morpheus prospect is entirely contained with AREA OFF-3.

During the initial 4-year exploration period, CEG’s technical focus will be on the re-evaluation of the existing 2D and 3D seismic data on the block, given the renewed interest in the types of plays present in Uruguay occasioned by the recent conjugate margin discoveries offshore south-west Africa. In particular, the data and enhanced technical understanding provided from recent activities in Namibia provides greater conﬁdence that the regional petroleum system charging Venus and Graff (offshore Namibia) is likely to be present offshore Uruguay. As a result, traps that exhibit effective sealing mechanisms, and which may previously have been overlooked or not considered viable, are now potential exploration targets.

Moreover, AREA OFF-3 has the advantage of having the majority of the block covered by relatively recent 3D (2012 vintage) that could be reassessed and subjected to advanced analysis techniques, both in terms of reviewing existing known prospects / plays and identifying potential new prospects / plays. In addition, with the Amalia prospect straddling the border with AREA OFF-2, it potentially facilitates a joint exploration assessment with Shell (since May 2022 the licence AREA OFF-2 licence holder).

Trinidad and Tobago

The Republic of Trinidad and Tobago is a Caribbean nation consisting of the two islands of Trinidad and Tobago, offshore from Venezuela. The nation has a long history of oil and gas activity, both onshore on the island of Trinidad, and offshore, with some of the world’s oldest hydrocarbon producing ﬁelds located in the country.

The Group has four producing ﬁelds, all onshore Trinidad. Across these ﬁelds there are a total of approximately 250 wells, of which approximately 75 are in production at any given time. The Group also has a large exploration licence position in the South-West Peninsula of Trinidad (SWP).

The Company’s strategy in Trinidad is to focus on its core operations, being the Goudron and Inniss-Trinity ﬁelds in the south-east of Trinidad, from which most of the Company’s production is derived and where almost all equipment / resources are deployed.

Various options to expand activity in this core area are being considered, including new licence applications, M&A, and joint programs with neighbouring operators. In line with this strategy, in late 2022 the Company had submitted a bid for the Guayaguayare block under the Trinidadian 2022 Onshore Nearshore Competitive Bid Round. Guayaguayare is a large block covering a 306km2 area in the south-east of Trinidad and the Company’s Goudron ﬁeld lies within the Guayaguayare block (see map further below). In June 2023 the Company was nominated as the party with whom the Trinidadian Ministry of Energy and Energy Industries (“MEEI”) should negotiate the award of Guayaguayare, a precursor step to formal award of the licence.

In parallel, the Company is seeking to monetise non-core assets, so as to maximise cash and offset risk and work program commitments, but at the same time retain upside exposure. In line with this approach on 20 December 2022 the Company announced the conditional disposal of the Cory Moruga licence (presently pending MEEI consent), and, subsequent to the year- end, on 14 February 2023 completed the disposal of the South Erin licence (in both cases, with back-in rights retained). The disposal of these non-core assets represented less than 10% of then current production.

Goudron

The Group owns and operates 100% of the Goudron ﬁeld by way of an enhanced production service contract (“EPSC”) with Heritage Petroleum Company Limited (“Heritage”), the Trinidadian state-owned oil and gas company. The current term of the EPSC runs until 30 June 2030. Within the ﬁeld, 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. The Group has identiﬁed certain well recompletion opportunities (perforating potential oil-bearing zones previously not produced) and is undertaking a comprehensive well optimisation and swabbing programme with the objective of achieving production stability, growth and longevity, as well as reducing overall ﬁeld operating costs. The Group is awaiting approvals for a planned water injection enhanced oil recovery pilot project focused on repressuring reservoir units.

Inniss-Trinity

The Group owns and operates 100% of the Inniss-Trinity ﬁeld by way of an incremental production service contract (“IPSC”) with Heritage. The IPSC has been extended to 30 June 2023 on an interim basis to allow for ministerial consent required for execution of a fresh EPSC effective 1 January 2022 and expiring on 30 September 2031. Within the ﬁeld, 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. As with the Goudron ﬁeld, the Group continues to undertake a comprehensive well optimisation and swabbing programme with the objective of achieving production stability, growth and longevity, and reduced ﬁeld operating costs.

Exploration assets

Guayaguayare

The Group, via its wholly owned subsidiary, CEG Goudron Trinidad Limited (“CGTL”), had submitted a bid for the Guayaguayare block onshore Trinidad under the 2022 Onshore and Nearshore Competitive Bid Round. On 12 June 2023, the Group was advised by MEEI that the Government of Trinidad has authorised MEEI to enter into negotiations with CGTL for the grant of an Exploration and Production (Public Petroleum Licence) for the Guayaguayare block (the “Licence”), following a successful bid for that Licence by CGTL. Formal grant of the Licence presently remains subject to negotiations and ﬁnalisation of Licence terms with MEEI.

The Guayaguayare block is located in South-East Trinidad. It is one of the largest onshore exploration and production blocks in Trinidad (approximately 306 km2), and is strategically and operationally synergistic with the Group’s core Trinidadian production business, in that the Licence wholly encloses the Company’s Goudron licence area, and is adjacent to the Company’s Inniss-Trinity licence area.

The Group considers the Guayaguayare block to be highly prospective, being amongst the largest remaining underexplored / undrained contiguous onshore areas in Trinidad. Additionally, the block contains over 60 historic wells (1970s vintage and earlier), most of which are currently shut-in/suspended/abandoned, and some of which the Company believes can be reactivated and serviced from its existing operations, offering the opportunity for near-term production uplift at minimal incremental cost.

“Option” and non-core assets

Cory Moruga

The Group owns 83.8% of the Cory Moruga licence and is the operator, alongside its partner Touchstone Exploration Inc. which holds a 16.2% non-operated interest. The Cory Moruga ﬁeld is presently not in production. The Cory Moruga licence includes the Snowcap oil discovery, with oil having previously been produced on test from the Snowcap-1 and Snowcap-2ST wells (but rapidly declined when the wells were put on production).

On 20 December 2022, the Company announced entering into binding heads of terms in relation to the sale of T-Rex Resources Trinidad Limited (“T-Rex”), a subsidiary that holds the Group’s interest in the Cory Moruga licence, to Predator Oil & Gas Holdings Limited (“Predator”) for a cash consideration of US$2 million (US$1 million payable upfront and US$1 million in six months from completion) and a further US$1 million contingent consideration payable once 100 barrels per day production is achieved from the Cory Moruga ﬁeld. Further, the Company has the option to buy back 25% of Predator’s share in T-Rex (and thus representing a 20.95% interest in the underlying Cory Moruga asset).

Subsequently, in March 2023, The Company and Predator completed fully termed legal documentation and jointly submitted a written request to MEEI to seek consent on the basis of a committed forward work programme and restructuring certain licence terms including the settlement of past dues and rebasing annual licence fees to an appropriate level. Discussions with MEEI are ongoing and the completion of sale of Cory Moruga presently remains subject to MEEI consent.

South Erin

The Group owned and operated 100% of the South Erin ﬁeld by way of a farm-out agreement with Heritage. The farm-out agreement had been renewed until 31 December 2023 and is extendable up to 30 September 2031 subject to completion of a work programme comprising drilling of 3 new wells by 31 December 2023. On 14 February 2023, the Group announced the sale of Caribbean Rex Limited, a subsidiary that held interest in the South Erin licence through interposed subsidiaries, for a consideration of US$1.5 million comprising US$1.2 million cash consideration (fully received by the Company) and US$0.3 million in the form of assumption of third-party liabilities. 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 exercisable at the Company’s election, at any time in 18 months from the transaction date for 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.

SWP

The SWP contains the Bonasse and Icacos producing oilﬁelds, in which the Group holds a 100% operated interest via a number of private leases covering the Bonasse, Cedros and Icacos licence areas. Similar to other ﬁelds, regular well operations are undertaken on the existing production well stock and repairs to shut-in wells, as and when appropriate. The Saffron-1 and Saffron-2 wells were drilled in the Bonasse licence area during 2020 and 2021, respectively. Both wells primarily targeted the Lower Cruse reservoir horizons and while production could not be sustained from these Lower Cruse horizons, both wells yielded valuable data on the commercial viability of production from the shallower Upper Cruse and Middle Cruse horizons. Accordingly, the Group is presently evaluating the potential for a shallow ﬁeld development plan. In parallel, the Group is seeking to monetise SWP by way of either a sale or joint venture / farm-in with a view to retaining upside exposure as with the sale of the Cory Moruga and South Erin licences.

Legacy Assets

The Bahamas

The Group is the 100% holder of four conjoined exploration licences offshore The Bahamas. The Perseverance-1 exploration well was drilled in the licence area in early 2021, and did not result in a commercial discovery at the drill location. However, a number of other structures and drill targets remain prospective across the licence areas, and the technical ﬁndings from Perseverance-1 indicate the potential of deeper Jurassic horizons. In March 2021, the Group notiﬁed the Government of The Bahamas of its intent to renew the licences into a third 3-year exploration period – this renewal remains pending, and the Group is engaging with the Government on the renewal process. At the same time, the Group is engaging with the Government and various third-party consultants on a joint initiative seeking to monetise the asset via an alternative approach based around carbon credits.

Suriname

During 2022, the Group held a 100% interest in a Production Sharing Contract (“PSC”) with Staatsolie Maatschappij Suriname N.V, the Suriname state-owned petroleum company (“Staatsolie”), for an onshore appraisal / development project contained in the Weg naar Zee Block (“WNZ”). During 2022 the Group was granted an initial 6-month extension of the licence, during which time the group undertook a review of the project, focussing on well design options and the long-term commerciality of the ﬁeld. This work has recently been completed, and the Group is in discussion with the Surinamese regulator as to the future direction for this asset.

People and Operations

The Group’s registered office is in the Isle of Man. In addition, the Group maintains three operational offices, in London (United Kingdom), Montevideo (Uruguay) and San Fernando (Trinidad). Across its operations the business has a total staff of

approximately 75 employees, the majority being operating staff in Trinidad. In support of its active ﬁeld operations in Trinidad, the Group owns and operates two workover rigs, one swabbing rig, and assorted heavy ﬁeld equipment.

The Company’s Board, management team and staff base have a broad range of skills as well as deep technical and industry experience. Company takes great pride in its exemplary HSE&S track record, and constantly aims to be an employer and partner of choice, making a valued contribution to the communities and nations in which it operates.

Governance

Set out below are details of Challenger Energy’s approach to Environmental, Social and Corporate Governance (“ESG”) ESG related activities and areas.

ESG Philosophy and Management

At Challenger Energy, we believe that pursuit of our commercial objectives should never be at the expense of harm to people, community, or the environment.

We believe that we have a responsibility for, and owe a duty of care to, the people who work for us, the contractors and suppliers that work alongside us in our operations, and the broader communities in which we live and work. We take all steps possible to safeguard the health, wellbeing and personal safety of all involved with us as we deliver our operational projects. Our objective is for zero lost time injuries or incidents.

At all times Challenger Energy seeks to conduct its business with integrity and high ethical standards, and foster a working environment of respect for all employees. We wish to see the personal and professional development of our people in the roles that they perform for us. We recognise the importance of diversity to our business, which may relate to gender, nationality, faith, personal background and other factors. We value how diversity beneﬁts our business and how the individual experiences of our people contribute to a positive environment in the Group.

Challenger Energy operates in a number of international locations, and we both depend on and impact the people and institutions in those places. Our business does not exist in a vacuum, and we are part of the societies we operate in. Our commitment is to be a responsible business and good corporate citizen, making a meaningful contribution to the places in which we live and work.

We are very conscious of the natural environment that we operate in, and we work hard to minimise our impact on that environment. The Group is always committed to the responsible stewardship of the environment and we seek to operate safely and responsibly. Our objective is for zero environmental incidents and zero spills or leaks.

Recognising ESG as a core business priority, the Group maintains a structured Health, Safety, Environment & Security (HSES) Management System. This comprises a documented set of policies, procedures and practices, which were substantially revised and updated in 2021, with Company-wide application, designed to promote and foster excellence in all relevant areas of HSES.

Corporate Governance

Challenger Energy operates in the energy sector, which is regulated by strict laws and rules imposed by host Governments and international regulators, as well as being subject to intense public scrutiny. Additionally, the Group’s shares are traded on the AIM Market of the London Stock Exchange, and the Group is thus subject to various additional rules and regulations associated with being a publicly traded entity.

Accordingly, the Board is committed to maintaining the highest standards of corporate governance at all times.

The Board and its Committees

The Board of Directors

The Board meets regularly to discuss and consider all aspects of the Group’s activities. A Charter of the Board has been approved and adopted which sets out the membership, roles and responsibilities of the Board. The Board is primarily responsible for formulating, reviewing and approving the Group’s strategy, budgets, major items of capital expenditure and acquisitions and divestments. The Board currently consists of the Chairman (Iain McKendrick), the Chief Executive Officer (Eytan Uliel), and two Non-executive Directors (Stephen Bizzell and Simon Potter). Iain McKendrick (Chairman) was independent on appointment to the Board. All Directors have access to the Company Secretary and the Group’s professional advisers.

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. Iain is the Chairman of the Company’s Remuneration and Nomination Committee and a member of the Company’s Audit Committee.

Eytan Uliel assumed the position as Chief Executive Officer from 27 May 2021, having previously served as the Company’s Commercial Director since 2014. Eytan is a ﬁnance executive with signiﬁcant oil and gas industry experience. He has signiﬁcant experience in mergers and acquisitions, capital raisings, general corporate advisory work, oil and gas industry-speciﬁc experience in public market takeovers and transactions, private treaty acquisitions and farm-in / farm-out transactions. He has held executive roles in various ASX and SGX listed companies. Prior to working with Challenger Energy, from 2009 – 2014 Eytan was Chief Financial Officer and Chief Commercial Officer of Dart Energy Limited, an ASX listed company that had unconventional gas assets (coal bed methane and shale gas) in Australia, Asia and Europe, and Chief Commercial Officer of its predecessor company, Arrow International Ltd, a Singapore based company that had unconventional gas asset primarily in Asia and Australia. He holds a Bachelor of Arts (Political Science) and Bachelor of Laws (LLB) degree from the University of New South Wales, and was admitted as a solicitor in the Supreme Court of New South Wales in 1997. Eytan is a member of the Company’s Remuneration Committee, Nomination Committee and the Health, Safety, Environmental and Security Committee

Stephen Bizzell has over 25 years’ corporate ﬁnance and public company management experience in the resources sector in Australia and Canada with various public companies. He is the Chairman of boutique corporate advisory and funds management group Bizzell Capital Partners Pty Ltd., a ﬁrm which over the last 15 years has raised more than A$1.5 billion in equity capital for its associated entities. He is also the Chairman of ASX listed MAAS Group Holdings Ltd and Laneway Resources and a Non-executive Director of ASX listed Armour Energy Ltd, Renascor Resources Limited and Chairman of Strike Energy Ltd. He was an Executive Director of ASX listed Arrow Energy Ltd from 1999 until its acquisition in 2010 by Shell and PetroChina for A$3.5 billion. Stephen qualiﬁed as a Chartered Accountant and early in his career was employed in the Corporate Finance division of Ernst & Young and the Corporate Tax division of Coopers & Lybrand. He has had considerable experience and success in the ﬁelds of corporate restructuring, debt and equity ﬁnancing, and mergers and acquisitions. Stephen is also the Chairman of Challenger Energy Audit Committee.

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Simon Potter was previously the Chief Executive Officer of the Company for nearly 10 years and oversaw the safe drilling of the Perseverance-1 well in the Bahamas. Simon assumed the role of a Non-Executive Director in May 2021. Simon qualiﬁed as a geologist with an M.Sc. in Management Science, has over 30 years oil and gas industry and mining sector experience. From the Zambian Copperbelt to a 20-year career with BP he has held executive roles in companies managing oil and gas exploration, development and production; gas processing, sales and transport; LNG manufacture, marketing and contracting in Europe, Russia, America, Africa and Australasia. On leaving BP, having helped create TNK-BP, he took up the role of CEO at Hardman Resources where he oversaw growth of the AIM and ASX listed Company into an oil producer and considerable exploration success ahead of executing a corporate sale to Tullow Oil. Simon is a member of the Company’s Remuneration Committee, Nomination Committee and the Health, Safety, Environmental and Security Committee.

Records of the board meetings

There were 7 meetings of the board of the parent entity in the period 1 January 2022 to 31 December 2022.

Audit Committee

The Audit Committee of the Board comprises Stephen Bizzell (Chair) and Iain McKendrick with input as required from the Chief Financial Officer. The Audit Committee is primarily responsible for ensuring that the ﬁnancial performance of the Group is properly reported on and monitored, for reviewing the scope and results of the audit, its cost effectiveness and the independence and objectivity of the auditor. The Audit Committee has oversight responsibility for public reporting and the internal controls of the Group. A Charter of the Audit Committee has been approved and adopted which formally sets out the membership, roles and responsibilities of the Audit Committee. All members of the Audit Committee have access to the Company Secretary and the Group’s professional advisers, including direct access to the Group’s auditor. The Audit Committee meets on a regular basis, and in 2022 met on two occasions, with all members being present for all meetings.

Remuneration & Nomination Committee

The Remuneration & Nomination Committee comprises Simon Potter (Chair), Iain McKendrick and Eytan Uliel. The Remuneration & Nomination Committee is responsible for making recommendations to the Board of Directors regarding executive remuneration packages, including bonus awards and share options, and assisting the Board in fulﬁlling its responsibilities in the search for and evaluation of potential new Directors and ensuring that the size, composition and performance of the Board is appropriate for the scope of the Group’s and Company’s activities. It is recognised that shareholders of the Group have the ultimate responsibility for determining who should represent them on the Board. The Remuneration & Nomination Committee meets on an as-required basis, and in 2022 met on one occasion, with all members being present for that meeting.

Health, Safety, Environmental and Security Committee

The Board has a Health, Safety, Environmental and Security (HSES) Committee which currently comprises Iain McKendrick (Chair), Simon Potter and Eytan Uliel. The Committee’s purpose is to assist the Directors in establishing ESG strategy and reviewing, reporting and managing the Group’s performance, to assess compliance with applicable regulations, internal policies and goals and to contribute to the Group’s risk management processes. The HSES Working Group reports to the HSES Committee, which meets on a regular basis. In 2022 the HSES Committee met on four occasions, with all members being present for all meetings.

Company Secretary

All Directors have access to the Company Secretary for advice and services. The appointment and removal of the Company Secretary is a decision for the Board as a whole. Directors also have access to independent professional advice at the Company’s expense and receive appropriate training where necessary.

Internal Control

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

Going Concern

These ﬁnancial statements have been prepared on a going concern basis, which assumes that the Group will continue in operation for the foreseeable future.

The Group had incurred an operating loss of $4.2 million for the ﬁnancial year ended 31 December 2022 and the Group’s current liabilities exceeded current assets by approximately $2.0 million as of 31 December 2022. At 31 December 2022, the Group had approximately $2.5 million in unrestricted cash funding and at the date of authorisation of these ﬁnancial statements, the Group had approximately $1.3 million in unrestricted cash funding. In addition, the Group had approximately $0.5m in restricted cash holdings in support of minimum work obligations in Uruguay, for which the work has been substantially completed as at the date of this report. In addition, the Group has several high-probability sources of cash inﬂows expected over the next 12 months to enable the Group to continue as a going concern for the foreseeable future. These include:

1. Contracted proceeds from sale of Cory Moruga licence in Trinidad.

In December 2022, the Group announced the sale of Cory Moruga licence onshore Trinidad and Tobago for a consideration of up to US$3 million of which US$1 million is payable upon completion, US$1 million in six months from completion and a further US$1 million contingent upon Cory Moruga ﬁeld achieving 100 barrels of oil per day production. Cory Moruga licence is presently a dormant licence with previously discovered and tested oil resource. The sale is fully documented and not subject to any conditions to completion other than consent from the Trinidadian Ministry of Energy and Energy Industries (“MEEI”), which remains outstanding. The Group, in conjunction with the acquirer, have been in discussions with MEEI and anticipates consent being obtained and completion of the sale transaction within 3Q 2023. A successful completion would result in the Group receiving US$2 million in cash consideration within six months from completion.

2. Potential inﬂows from successful farm-out of the AREA OFF-1 licence in Uruguay.

The Group had been in discussions with various industry participants in relation to potential farm-out / partnership options for the AREA OFF-1 licence in Uruguay. In June 2023, a formal adviser-led process was commenced with the objective of securing an industry partner to farm-out the AREA OFF-1 licence by the end of 2023. In the event of a successful farm-out, the Group expects signiﬁcant upfront cash consideration, consistent with typical transactions of this nature in the international oil and gas industry. The Group is conﬁdent that a farm-out transaction can be successfully achieved in this timeframe, because (i) multiple high-quality energy majors are presently engaged in the farm-out process, undertaking due diligence as at the date of this report; (ii) the Group’s technical work to-date has resulted in identiﬁcation and deﬁnition of three prospects with an estimated recoverable resource of approximately 2 billion barrels (Pmean) and up to 5 billion barrels in an upside case (P10) establishing that AREA OFF-1 is a high-quality asset of scale, material to any player in the global industry, and (iii) the Directors consider successful completion of the farm-out process to be highly probable in light of the recent industry developments – namely signiﬁcant offshore discoveries in Namibia (Uruguay is considered to be geological mirror of the offshore Namibia basins), and substantial industry interest in offshore Uruguay acreage in the past 12 months, evidenced by licencing activity in the recent Uruguayan licencing rounds that has resulted in all available acreage now having been awarded to industry majors (Shell, APA Corporation and YPF) along with several other interested global oil majors not securing any acreage.

3. Sale of other non-core assets

The Group is also in discussions in relation to the potential sale of other non-core assets in its portfolio. A successful completion of any transaction of this nature would result in the Group receiving cash consideration, thus increasing its available cash reserves.

In addition to the above, the Directors note that the Company is a publicly listed company on a recognised stock exchange, thus affording the Company the ability to raise capital equity, debt and/or hybrid ﬁnancing alternatives as and when the need arises. The Company has a robust track record in this regard, having raised in excess of US$100 million in equity and alternative ﬁnancing in the past ﬁve years. Based on the Company’s attractive asset portfolio and history of capital raising, the Directors are of the view that if required (i.e., in the event sources of cash inﬂows discussed above do not materialise as and when expected) the Company will be able to source fresh capital on short notice. As such, the Directors have prepared the ﬁnancial statements on a going concern basis and consider it to be reasonable.

Anti-bribery and corruption (“ABC”)

Challenger Energy applies a zero-tolerance policy for bribery, corruption or unethical conduct in our business. Our policies require compliance across our businesses with applicable ABC laws, in particular the UK Bribery Act 2010, and all applicable laws in other jurisdictions in which we operate. We have a system of documented ABC policies and procedures in place that provide a consistent policy framework across the Group to ensure awareness of potential threats among our employees and help to ensure appropriate governance of ABC matters. In 2022, all employees across the Group were required to attend mandatory ABC training, with a focus on the areas of legislation most relevant to the Group.

Anti-Money Laundering (“AML”)

Challenger is conscious of the risks arising out of money laundering and terrorist ﬁnancing. These criminal activities threaten society, as well as the Group, its partners, shareholders, and staff. The Group exercises the utmost vigilance wherever its operations are taking place in order to ﬁght these threats. This vigilance extends to third party associates who are at any time active in the Group. Annual AML training is compulsory for Group staff, and during 2022, money laundering training courses were taken by various employees and contractors.

Taxation

Depending on the jurisdiction of operation, the Group is subject to a range of taxes, including corporate income tax, supplemental petroleum taxes, royalties, other ﬁscal deductions, VAT and payroll taxes, amongst others. We are a responsible operator and corporate citizen and the Group is committed to adhering to all relevant tax laws in all jurisdictions of operation: compliance with tax laws and regulations is fundamental to our licence to operate, and is an obligation that we take seriously.

Risk Management

Understanding our principal risks and ensuring that Challenger Energy has the appropriate controls in place to manage those risks is critical to our business operations. Managing business risks and opportunities is a key consideration in determining and then delivering against the Group’s strategy. The Group’s approach to risk management is not intended to eliminate risk entirely, but provides the means to identify, prioritise and manage risks and opportunities. This, in turn, enables the Group to effectively deliver on its strategic objectives in line with its appetite for risk.

The Board’s Responsibility for Risk Management

The board has overall responsibility for ensuring the Group’s risk management and internal control frameworks are appropriate and are embedded at all levels throughout the organisation. Principal risks are reviewed by the board and are speciﬁcally discussed in relation to setting the Group strategy, developing the business plan to deliver that strategy and agreeing annual work programmes and budgets. See “Principal Risks and Uncertainties” section below and the mitigation steps taken to minimise these risks.

Principal risks and uncertainties

The principal risks facing the Group together with a description of the potential impacts, mitigation measures and the appetite for the risk are presented below. The analysis includes an assessment of the potential likelihood of the risks occurring and their potential impact. Identiﬁed risks are segregated between those that we can inﬂuence and those which are outside our control. Where we can inﬂuence risks, we have more control over outcomes. Where risks are external to the business, we focus on how we control the consequences of those risks materialising.

RISKS THAT WE CAN INFLUENCE

1. Health, safety and environment (HSE)

Oil and gas exploration, development and production activities can be complex and are physical in nature. HSE risks cover many areas including major accidents, personal health and safety, compliance with regulations and potential environmental harm.

Potential impact: High Probability: Low

Risk Appetite

The Group has a very low appetite for risks associated with HSE and strives to achieve a zero-incident rate.

Mitigation

The Group strives to ensure the safety of its employees, contractors and visitors. We are very conscious of the natural environment that we operate in and seek to minimise our environmental impact and footprint.

2. Exploration, development and production

The ultimate success of the Group is based on its ability to maintain and grow production from existing assets and to create value through exploration activity across the existing portfolio together with selective acquisition activity to grow the asset portfolio.

Potential impact: High Probability: Moderate

Risk appetite

The Group’s current production is derived from later-life production assets that are in the latter portion of the production decline curve. The development of later life assets can be complex and technically challenging. This can expose the Group to higher levels of risk, particularly in stimulating existing wells through workover or enhanced oil recovery techniques which may, due to their nature, not be successful or may compromise existing production. Identifying locations for optimal locations new inﬁll wells that do not interfere with existing production can be challenging.

The Group has some tolerance for this risk and acknowledges the need to have effective controls in place in this area.

Mitigation

The production team responsible for operating the Group’s assets is very experienced in the industry and in the management, workover and enhancement of the Group’s assets. In addition, the Group has built a trusted network of service providers who are similarly familiar with the assets and who support production enhancing activity including targeted recompletions and other well interventions to further extend the productive life of the Group’s well stock.

3. Reserves and resources

The estimation of oil and gas reserves and resources involves a high level of subjective judgment based on available geological, technical and economic information.

Potential impact: Medium Probability: Low

Risk appetite

The Group has a strong focus on subsurface analysis. We employ industry technical specialists and qualiﬁed reservoir engineers and geologists who work closely with our operational teams who are responsible for delivering asset performance.

The Group tolerates some risk related to the estimation of reserves and resources.

Mitigation

Reserve and resource volumes are assessed periodically using the Petroleum Resource Management System (PRMS) developed by the Society of Petroleum Engineers. An external assessment of reserve volumes may also be undertaken periodically by an independent petroleum engineering ﬁrm. CEG has staff and consultants who are qualiﬁed reservoir engineer with signiﬁcant international experience.

4. Portfolio concentration

The Group’s producing assets are concentrated in Trinidad and are principally characterised as later-life assets. This concentrates production risk in a single jurisdiction and in an asset group with a particular age and production proﬁle

Potential impact: Medium Probability: High

Risk appetite

The principal location of the Group’s producing assets and their age proﬁle places emphasis on the Group’s ability to successfully maintain existing production in Trinidad. The Group has a moderate appetite for this risk.

Mitigation

The Group is continuously seeking to selectively add new development or production onshore Trinidad or elsewhere in the Atlantic margin through new licence applications, M&A activity or partnering arrangements with service providers.

Progressing exploration and eventual development of Uruguay, if successful, will similarly mitigate this risk over time.

5. Financing

Oil and gas exploration, development and production activity are capital intensive. The Group currently generates modest levels of cash from operations and relies on investment capital to enhance the asset base and, in turn, production and consequential cash generation.

Potential impact: High Probability: Moderate

Risk appetite

The Group has a low appetite for ﬁnancing risk. The inability to fund ﬁnancial commitments, including licence obligations, could signiﬁcantly delay the development of the Group’s assets and consequent value creation. Financial or operational commitments are often a pre-condition to the grant of a licence. The Group’s inability to satisfy these could result in ﬁnancial penalty and/or termination of licences.

Mitigation

The Group has a strong track record over many years of successfully raising ﬁnance to fund its activities as and when required.

6. Bribery and corruption

There is a risk that third parties or staff could be encouraged to become involved in corrupt or questionable practices. Transparency International’s rankings (out of 180 countries) and respective scores (out of a maximum of 100 points) on their 2022 Corruption Perceptions Index for the jurisdictions where the Group has presence are as below:

Jurisdiction	2022 (2021) Rank	2023 (2021) score
Uruguay	14 (18)	74 (73)
Trinidad and Tobago	77 (82)	42 (41)
The Bahamas	-30 (30)	64 (64)
Suriname	85 (87)	40 (39)
United Kingdom	18 (11)	73 (78)

Potential impact: High Probability: Moderate

Risk appetite

The Group has a zero-tolerance policy regarding bribery and corruption.

Mitigation

The Group, its board and management have an established anti-bribery and corruption (ABC) policy that requires all new hires to conﬁrm that they have read and understood the contents and personal requirements of the policy. The Group ensures that our third- party contractors and advisers follow our procedures and policies related to ABC. Annual ABC training and brieﬁngs are carried out.

RISKS BEYOND OUR INFLUENCE

7. Commodity prices

The Group is exposed to commodity price risk in relation to sales of crude oil.

Potential impact: High Probability: Moderate

Risk appetite

The Group has a moderate appetite for commodity price risk. A material decline in oil prices could adversely affect the Group’s proﬁtability, cash ﬂow, ﬁnancial position, and ability to invest.

Mitigation

All the Group’s production in Trinidad is sold to Heritage under the terms of the respective production licences and the Group is fully exposed to adverse commodity price ﬂuctuation (and also conversely beneﬁts from favourable commodity price movement).

The Group does not currently use hedging instruments to mitigate oil price risk as the volumes are relatively small and signiﬁcant volatility observed in crude prices in the recent years coupled with oil futures curve backwardation make it difficult to assess effectiveness of a hedge. The Group monitors the oil and gas benchmark prices, principally WTI and Brent Crude, and may consider enter hedging arrangements if market conditions and ﬁnancial and risk analysis suggest that price risk is lowered by doing so.

8. Demand/ limited sales routes

All the Group’s current production is derived from its Trinidad assets and sold to a single customer, Heritage Petroleum Company Limited, the state-owned oil and gas company.

Potential impact: High Probability: Low

Risk appetite

Demand can be negatively affected by economic conditions in Trinidad and globally. The Group accepts demand risk related to its crude oil production.

Mitigation

All the Group’s production is sold to Heritage as required under the terms of the licence agreements with Heritage. There is no history of Heritage refusing delivery of crude produced by the Group. The Group accepts this potential risk.

9. Fiscal and political

The Group’s operations are located in Trinidad and Tobago and Uruguay, with legacy assets in The Bahamas and Suriname, and the Group is therefore exposed to both in-country ﬁscal and political risk.

Potential impact: High Probability: Moderate

Appetite

The Group accepts a modest amount of ﬁscal risk. The Group is exposed to currency risk resulting from ﬂuctuations between currencies in various jurisdictions of operation, and in particular between the US Dollar (in which most expenses are denominated) and the Pound Sterling (as a signiﬁcant amount of the Group’s cash holdings are denominated in Pound Sterling). Currency hedging instruments are not used.

Mitigation

The Group closely monitors ﬁscal and political situation in the jurisdictions it operates in with a view to identifying and minimising the downside risk presented by changes in ﬁscal and political circumstances. While the Group has not hedged its currency exposure in the past, the Group closely monitors currency ﬂuctuations with a view to assessing potential downside risk vis-à-vis foreign currency requirements (and the timing thereof) so as to determine the efficacy of a potential hedge. The Group monitors political risk and political developments of the countries of its operations and considers the structure and operation of the respective governments in each of the jurisdictions of its operations to present low risk to the Group. Further, the Group interacts with relevant Governments, Government Ministries and Agencies, and the state-owned oil and gas companies in the jurisdictions in which it operates. The Group has no exposure to Russian oil production, and recently enacted sanctions have had no impact on the Group’s business or operations.

Directors’ Report

The Company’s Directors present their report and audited ﬁnancial statements of the Company and the consolidated group consisting of Challenger Energy Group PLC (“Challenger Energy” or “the Company”) and the entities it controlled (the “Group”) at the end of, or during, the ﬁnancial year ended 31 December 2022.

Directors

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

Iain McKendrick (appointed 5 March 2022) Stephen Bizzell

Simon Potter Eytan Uliel

Timothy Eastmond (appointed 5 March 2022, resigned 15 July 2022)

William Schrader (resigned 5 March 2022)

James Smith (resigned 5 March 2022)

Principal Activity

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

Results and dividends

The results of the Group for the year are set out on page 26 and show a proﬁt for the year ended 31 December 2022 of $4,382,000 (2021: loss of $23,697,000). The total comprehensive loss for the year of $1,360,000 (2021: loss of $23,845,000) has been transferred to the retained deﬁcit.

The Directors do not recommend payment of a dividend (2021: nil).

Signiﬁcant Shareholders

The following tables represent shareholdings of 3% or more notiﬁed to the Company at 31 December 2022:

Top shareholders (by parent company)
Shareholder	31-Dec-22	%
Hargreaves Lansdown Asset Management	935,028,940	9.72
Bizzell Capital Partners	914,633,600	9.51
Choice Investments (Dubbo) Pty Ltd	837,000,000	8.7
Jarvis Investment Management	562,454,613	5.85
Mr Mark Carnegie	560,000,000	5.82
Mr Eytan M Uliel	545,373,962	5.67
Rookharp Capital Pty Ltd	528,000,000	5.49
Merseyside Pension Fund	417,350,000	4.34
GP (Jersey) Ltd	390,000,000	4.05
RAB Capital	365,900,000	3.8
Interactive Investor	318,545,525	3.31
Maybank Kim Eng Securities	300,000,000	3.12
TOTAL	6,674,286,640	69.38

Directors’ Shareholding and Options

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

Statement of Directors’ Responsibilities in respect of the ﬁnancial statements

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

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

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

• select suitable accounting policies and then apply them consistently;

• state whether IFRSs have been followed, subject to any material departures disclosed and explained in the ﬁnancial statements;

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

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

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

On behalf of the Board

Eytan Uliel Director

28 June 2023

Independent auditor’s report to the members

of Challenger Energy Group PLC

Opinion

We have audited the ﬁnancial statements of Challenger Energy Group PLC (the “Company”) and its subsidiaries (the “Group”), which comprise the Consolidated Statement of Comprehensive Income, Consolidated and Company Statements of Financial Position, Consolidated and Company Statements of Cash Flows and Statement of Changes in Equity for the year ended 31 December 2022, and the related notes to the ﬁnancial statements, including a summary of signiﬁcant accounting policies.

The ﬁnancial reporting framework that has been applied in the preparation of the ﬁnancial statements is applicable law and International Financial Reporting Standards (IFRS).

In our opinion, Challenger Energy Group PLC’s consolidated and company ﬁnancial statements:

• give a true and fair view in accordance with IFRS of the ﬁnancial position of the Group and Company as at 31 December 2022, and of the Group’s ﬁnancial performance and the Group and Company cash ﬂows for the year then ended; and

• have been properly prepared in accordance with the requirements of the Isle of Man Companies Acts of 1931 to 2004.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities under those standards are further described in the ‘Responsibilities of the auditor for the audit of the ﬁnancial statements’ section of our report. We are independent of the Group and Company in accordance with the ethical requirements that are relevant to our audit of the ﬁnancial statements in the Isle of Man, including the FRC’s Ethical Standard and the ethical pronouncements established by Chartered Accountants Ireland, applied as determined to be appropriate in the circumstances for the entity. We have fulﬁlled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

In auditing the ﬁnancial statements, we have concluded that the directors’ use of going concern basis of accounting in the preparation of the ﬁnancial statements is appropriate. Our evaluation of the validity of the directors’ assessment of the Group and Company’s ability to continue to adopt the going concern basis of accounting included:

• verifying the mathematical accuracy of management’s cash ﬂow forecast and agreeing the opening cash position;

• assessing management’s underlying cash ﬂow projections for the Group for the period to December 2024 and evaluating the assumptions including production, prices, operating expenditure and capital expenditure. In doing so we compared production forecasts to historical trends and considered the price assumptions against consensus market prices and historical prices. We compared forecast costs with historical expenditure and to other external and internal sources, including the impairment assessments, where appropriate;

• assessing and validating the impact of post year end cash inﬂow sources and commitments, including contractual proceeds from sale of Cory Moruga licence in Trinidad and Tobago and potential inﬂows from farm-out of Area OFF-1 license in Uruguay;

• assessing management’s ability to take mitigating actions, if required; and

• assessing the completeness and appropriateness of management’s going concern disclosures in the ﬁnancial statements.

Based on the work we have performed, we have not identiﬁed any material uncertainties relating to events or conditions that, individually or collectively, may cast signiﬁcant doubt on the Group’s and Company’s ability to continue as a going concern for a period of at least twelve months from the date when the ﬁnancial statements are authorised for issue.

We have nothing material to add or draw attention to in relation to the directors’ statement in the ﬁnancial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting in preparing the ﬁnancial statements.

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

Other matter

The ﬁnancial statements of Challenger Energy Group PLC and its subsidiaries for the year ended 31 December 2021, were audited by PwC who expressed an unmodiﬁed opinion on those ﬁnancial statements on 29 September 2022.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most signiﬁcance in our audit of the ﬁnancial statements of the current ﬁnancial period and include the most signiﬁcant assessed risks of material misstatement (whether or not due to fraud) we identiﬁed, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and the directing of efforts of the engagement team. These matters were addressed in the context of our audit of the ﬁnancial statements as a whole, and in forming our opinion thereon, and therefore we do not provide a separate opinion on these matters.

Overall audit strategy

We designed our audit by determining materiality and assessing the risks of material misstatement in the ﬁnancial statements. In particular, we looked at where the directors made subjective judgements, for example, in respect of signiﬁcant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We also addressed the risk of management override of internal controls, including evaluating whether there was any evidence of potential bias that could result in a risk of material misstatement due to fraud.

Based on our considerations as set out below, our areas of focus included:

• Going concern;

• Valuation of the Group’s intangible exploration and evaluation assets; and

• Valuation of the Group’s tangible oil and gas assets.

How we tailored the audit scope

Challenger Energy Group Plc is the holders of several oil & gas exploration and production licences located in Uruguay, Trinidad & Tobago, Suriname and The Bahamas.

Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control and assessing the risks of material misstatement in the ﬁnancial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the directors that may have represented a risk of material misstatement.

We performed an audit of the complete ﬁnancial information of ﬁve components, audit of one or more classes of transactions of two components and performed audit procedures on speciﬁc balances for a further four components. The remaining components of the Group were considered non-signiﬁcant and these components were subject to analytical review procedures.

Components represent business units across the Group considered for audit scoping purposes.

Materiality and audit approach

The scope of our audit is inﬂuenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, such as our understanding of the entity and its environment, the history of misstatements, the complexity of the Group and the reliability of the control environment, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the ﬁnancial statements as a whole.

Based on our professional judgement, we determined materiality for the Group and Company at 0.75% of total assets at 31 December 2022. We have applied this benchmark because the main objective of the Group is to utilise its existing oil and gas assets and exploration and evaluation assets to provide investors with returns on their investments.

We have set performance materiality for the Group and Company at 65% of materiality, having considered business risks and fraud risks associated with the entity and its control environment. This is to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements in the ﬁnancial statements exceeds materiality for the ﬁnancial statements as a whole.

We agreed with the audit committee and directors that we would report to them misstatements identiﬁed during our audit above 2.5% of group materiality and 3% of Company materiality, as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Signiﬁcant matters identiﬁed

The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are set out below as signiﬁcant matters together with an explanation of how we tailored our audit to address these speciﬁc areas in order to provide an opinion on the ﬁnancial statements as a whole. This is not a complete list of all risks identiﬁed by our audit.

Other information

Other information comprises information included in the annual report, other than the ﬁnancial statements and our auditor’s report thereon. The directors are responsible for the other information. Our opinion on the ﬁnancial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the ﬁnancial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the ﬁnancial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies in the ﬁnancial statements, we are required to determine whether there is a material misstatement in the ﬁnancial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Responsibilities of management and those charged with governance for the ﬁnancial statements

As explained more fully in the Statement of Directors’ Responsibilities, management is responsible for the preparation of the

ﬁnancial statements which give a true and fair view in accordance with IFRS, and for such internal control as directors determine necessary to enable the preparation of ﬁnancial statements are free from material misstatement, whether due to fraud or error.

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

Those charged with governance are responsible for overseeing the Group and Company’s ﬁnancial reporting process.

Responsibilities of the auditor for the audit of the ﬁnancial statements

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

A further description of an auditor’s responsibilities for the audit of the ﬁnancial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatement in the ﬁnancial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs (UK). The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.

Based on our understanding of the Group and industry, we identiﬁed that the principal risks of non-compliance with laws and regulations related to compliance with AIM Listing Rules, Data Privacy law, Employment Law, Environmental Regulations, Health & Safety, and we considered the extent to which non-compliance might have a material effect on the ﬁnancial statements. We also considered those laws and regulations that have a direct impact on the preparation of the ﬁnancial statements such as the local law, Isle of Man Companies Act 1931 to 2004 and local tax legislations. The Audit engagement partner considered the experience and expertise of the engagement team to ensure that the team had appropriate competence and capabilities to identify or recognise non-compliance with the laws and regulation. We evaluated management’s incentives and opportunities for fraudulent manipulation of the ﬁnancial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to manipulate ﬁnancial performance and management bias through judgements and assumptions in signiﬁcant accounting estimates, in particular in relation to signiﬁcant one-off or unusual transactions. We apply professional skepticism through the audit to consider potential deliberate omission or concealment of signiﬁcant transactions, or incomplete/inaccurate disclosures in the ﬁnancial statements.

The group engagement team shared the risk assessment with the component auditors so that they could include appropriate audit procedures in response to such risks in their work.

In response to these principal risks, our audit procedures included but were not limited to:

• enquiries of management, board and audit committee on the policies and procedures in place regarding compliance with laws and regulations, including consideration of known or suspected instances of non-compliance and whether they have knowledge of any actual, suspected or alleged fraud;

• inspection of the Group and Company’s regulatory and legal correspondence and review of minutes of board and audit committee meetings during the year to corroborate inquiries made;

• gaining an understanding of the entity’s current activities, the scope of authorisation and the effectiveness of its control environment to mitigate risks related to fraud;

• discussion amongst the engagement team in relation to the identiﬁed laws and regulations and regarding the risk of fraud, and remaining alert to any indications of non-compliance or opportunities for fraudulent manipulation of ﬁnancial statements throughout the audit;

• identifying and testing journal entries to address the risk of inappropriate journals and management override of controls;

• designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing;

• challenging assumptions and judgements made by management in their signiﬁcant accounting estimates, including impairment assessment of intangible exploration and evaluation assets, tangible oil and gas assets, investment in subsidiaries and amounts owed by subsidiary undertakings;

• review of the ﬁnancial statement disclosures to underlying supporting documentation and inquiries of management; and

• requesting information from component auditors on instances of non-compliance with laws or regulations that could give rise to a material misstatement of the group ﬁnancial statements.

The primary responsibility for the prevention and detection of irregularities including fraud rests with those charged with governance and management. As with any audit, there remains a risk of non-detection or irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations or override of internal controls.

The purpose of our audit work and to whom we owe our responsibilities

This report is made solely to the company’s members, as a body, in accordance with the terms of our engagement letter. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.