Challenger Energy, the Caribbean and Atlantic margin focused oil and gas company, with production, appraisal, development and exploration assets across the region, provides the following update in relation to its operations in The Bahamas.

Legal Proceedings

In December 2020, various parties in The Bahamas brought an action for judicial review against the Government of The Bahamas in an attempt to stop the drilling of Perseverance-1. The Company was ultimately added as a party to that action, and successfully defended the action such that Perseverance-1 drilling was able to proceed. Perseverance-1 was subsequently drilled with no safety or environmental incidents but, notwithstanding the completion of drilling, the applicants continued with their action. Consequently, the applicants were ordered by the Court to post security for the Company's costs. The applicants had appealed that decision, although on 8 July 2021, that appeal was withdrawn, and the applicants have now withdrawn from the action entirely. Consent Orders to this effect have been agreed between the applicants, the Company and The Government, and were endorsed by the Court on 13 August 2021, such that the matter has now ended.

Perseverance-1 Key Technical Findings

On completion of the drilling of the Perseverance-1 well, the Company had indicated that a technical "debrief" would be provided for shareholders' information once the post-well analysis had been sufficiently advanced. The Company expects to be able to post this report to its website during September 2021, once appropriate prior notices to, and engagement with, the Government of The Bahamas has occurred. However, at this stage the following key highlights / learnings from the drilling of the Perseverance-1 well are noted:

• The Perseverance-1 well was drilled in the period 20 December 2020 to 5 February 2021, in the territorial waters of The Bahamas, at a location approximately 20 miles from the Bahamas-Cuba maritime border, in water approximately 518 metres deep. Perseverance-1 represented the first exploration drilling in The Bahamas since the mid-1980s, and the first test of any prospect located in deeper waters off the shallower water carbonate banks.
• Perseverance-1 reached total depth of 3,905 metres, having intersected five Albian, Upper Aptian, and Mid-Aptian horizons of interest. Post-drill analysis of the well has confirmed the geological risk elements for trap, seal and reservoir were present in the Lower Cretaceous carbonate play. Perseverance encountered high quality reservoirs in the targeted Lower Cretaceous carbonate closures, with thick sequences of evaporites providing effective seals. Depth and thicknesses of reservoir sections encountered were generally as prognosed pre-drill, and reservoir porosity was likewise generally in line with pre-drill expectations (in the range of 10% to 20%).
• The presence of hydrocarbons was encountered at various horizons, indicated by elevated gas chromatography readings detected continually during drilling, generally increasing with depth and through the deeper Aptian reservoir column in particular. Oil was identified from high oil saturation values from logs in a number of reservoir sections, thus verifying the existence of a working Lower Cretaceous petroleum system and reservoir quality sequences in the Aptian.
• Drilling execution using modern technology, revised casing plan, hybrid bits and bottom hole assembly design optimized the achieved rate of penetration. Mud plans and formulation were successful in the primary aim of averting the consistent lost circulation issues experienced in previous wells in The Bahamas.
• The Perseverance-1 well was drilled safely and without incident, with effective Covid-19 management protocols operating throughout the drilling campaign. Following completion of drilling operations, the well was plugged and secured in accordance with international and BSEE (Bureau of Safety and Environmental Enforcement) standards.
• Although hydrocarbons were present, these were not in commercial quantities, with the source quality and migration interpreted as being the primary reason for this non-commercial well outcome.
• Petrophysical analysis of the well logs have confirmed high quality reservoirs down to the base of the well with no significant deterioration in porosity with depth, indicating the potential for high deliverability reservoirs in the underlying Jurassic formations.
• In aggregate, the analysis of the data from Perseverance-1 drilling is broadly indicative of increased potential for oil in the underlying Jurassic interval (which was not penetrated by Perseverance-1). In particular, the relatively cool well temperatures place the postulated Jurassic source rock (producing in nearby Cuba and the US Gulf of Mexico) in the oil window, thus oil generative.
• Ultimately, the technical findings from Perseverance-1 thus support a forward program to include further biostratigraphic analysis, fluid inclusion analysis, and selective re-processing of 3D seismic to further educate sequence stratigraphy and seismo-facies of the deeper Jurassic horizons. This work will underpin an assessment of the merits of a further exploration well in the future, both to continue to assess Aptian horizon potential, whilst at the same time targeting the deeper Jurassic intervals.

Farm-Out Process

Based on the abovementioned post-well technical analysis, the Company has reinvigorated a process, working with Gneiss Energy, to identify a suitable farm-in partner for the next phase of activity in The Bahamas. This process is active, with a number of parties having expressed interest and engaging with the Company. A technical data room has been established, with due diligence underway. Further updates will be provided as and when appropriate.

Licence Status

Under the terms of the Company's licences, three months prior to the conclusion of the second exploration period, the Company had the right to seek a renewal of the licences into a third, three-year exploration period. The second exploration period concluded on 30 June 2021, and accordingly, in March 2021, the Company advised the Government of The Bahamas of its intent to renew the licences. As part of any such renewal, a number of commercial matters must be discussed and agreed between the Government and the Company, including the scope of any future work program and licence obligations. Additionally, under the terms of the Company's licences, on renewal from a second to third exploration period the Company is required to relinquish 50% of the licenced area, for which the Company has submitted a detailed relinquishment proposal to The Government. At present, the Company is awaiting a response from The Government, noting that the process of renewal of the Company's licences from the first to the second exploration period, for example, ultimately took an extended period of time to complete. Thus, the current process may likewise take some time - particularly given the administrative delays occasioned by the Covid-19 pandemic, and the proximity to an election in The Bahamas. Further updates will be provided as and when appropriate.

Eytan Uliel, Chief Executive Officer, commented:
"As I have commented previously, it is often the case in our industry that several exploration wells are required before the potential of a frontier basin is unlocked. We had hoped for 'instant gratification' with Perseverance-1, which was not the case. However, notwithstanding the non-commercial results of that well, based on what we have learned we continue to believe that the licences in The Bahamas are highly prospective. As such, we advised the Government of The Bahamas of our desire to renew the licences into a third three-year exploration period, and are working through that process, which will likely take some time. Meanwhile, we are continuing with our evaluation of the exploration potential of the licences, working to reduce technical uncertainties, and continuing in our efforts to secure a farm-in partner for the future. We will keep shareholders appraised of material developments."

KeyFacts Energy: Challenger Energy Bahamas country profile