Sintana Energy (TSXV:SEI) — AREA OFF-1 Uruguay block – a world class frontier exploration opportunity

0:00 Good morning ladies and gentlemen and welcome to the Challenger Energy Group plc investor presentation. Throughout this recorded presentation investors will be in listen only mode. Questions are encouraged, they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Just simply type in your questions at any time and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. If you give that your kind attention, I'm sure the company will be most grateful. And I'd like to hand

0:31 over to Eitan. Good morning. Good morning. Well, thank you. I think this is my first time presenting to investor meet companies. I'm very happy to be here. It's a very exciting time for Challenger Energy. And what I'll do is I'll take viewers through a brief introduction instead of slides, but I'll try and keep it quick because I think questions are usually where people are more interested. So if that's okay, I'll just kick on. So for those who don't know anything about Challenger Energy, a very brief introduction. We're an AIM listed company, a junior E and P company with a focus on The Caribbean and The Americas. And really our business consists of three parts. We have an exploration asset in Uruguay, and that's really where all the focus is.

1:23 That's what I want to talk about today because that's where we see the biggest chance for some very serious near term value upside. We also have a small production business in Trinidad which I'll touch on. The company's been around for a while. We have some legacy assets, but they're really a thing of the past. We hang on to them. They have minimal holding costs, no commitments, and the objective is to try and realize some value from those in the next little while. I won't go into those today but obviously if there are any questions I'm happy to take them. And really from a corporate point of view we're a small company. We run a very lean operation. We have no financial debts. We have very low overheads and so we're quite well positioned to take our Uruguay opportunity forward.

2:08 Now, you know, what is our Uruguay opportunity? And, really everything you need to know is summarized on this one slide. Essentially what we have is the area off one license which is offshore Uruguay. It's indicated on the map on the left. And this is a really high grade, high prospect license for several. And the real attractions are summarized in the bars on the right. The first thing is this is a very large offshore license with a lot of running room. We have 100% working interest. It's in reasonably shallow water. It's offshore Uruguay, and the area is relatively unexplored. So in oil speak, this is frontier exploration territory. The next thing is it's got exploration play diversity. So for reasons I'll explain shortly, over the last six months, we've really accelerated our technical work program on the block.

3:03 And what we've, achieved through that work program is we've identified multiple independent plays on the license that have been corroborated by a high quality set of technical work streams and the Saulson Reservoir is similar to that in Namibia in the recent ultra deepwater discoveries there which I'll talk about shortly. We've identified a prospect inventory of between 1,000,000,000 to 2,000,000,000 barrels of oil recovery. So that's material. That's material that makes the supply of global scale and of interest not just to us but the industry at large, the super majors, the national oil companies of the world, etcetera. And Uruguay is a great place to do business. So it's clean, it's transparent, it routinely ranks as the top country in South America in a whole number of indices.

3:54 And the license we have is globally competitive, very good fiscal terms. So all in all, a very interesting and attractive package represented by our license. Now, why is it so interesting right at the moment? So what people who are not familiar with the industry may not know. In January 2022 Total Energy and Shell, two of the world's largest oil companies, drilled independently wildcat exploration wells offshore Namibia and both made what are being now referred to as super discoveries, really, really large discoveries.

4:39 So what is the relevance of this to Uruguay? One hundred and twenty something million years ago when the world was one continent and the South American and African continental plates pulled apart from one another, in the narrow marine channel that formed between them, source rock was deposited. And then as the plates drifted apart over the millions of years, that same source rock wound up on the African side and on the South American side. And what the discoveries made in Namibia have done is not only proved the capacity of that source rock to generate and produce oil on the African side, but because you can correlate the source rock seismically and the Uruguayan basins in particular, the geological mirror of the discovered basins now in Africa, you're able to say, right, well, what's there is also on our side of the Atlantic and it establishes the potential for a very new but prolific petroleum system on our side of the Atlantic.

5:46 And this is critical and this is really big news, and I'll explain what's happened as a result. So it's not just me saying it. This is now being validated by the rest of the industry. So the first thing that happened after you had these big discoveries made in Namibia is a wave of activity in Namibia. It is now really one of the preeminent global hotspots for exploration activity. And you saw follow on discoveries, in two other places. You saw massive uptick in activity. So everyone is now rushing to drill new wells and get seismic activity and really move forward with exploration activities and appraisal activities very quickly in Namibia.

6:32 And what follows that is transactional activity and the few junior companies that exist in Namibia have seen a huge increase in interest in their companies and transactions. Chevron farmed into one licence, Woodside farmed into another licence held by a junior. So that's the pattern of activity that you've seen happen in Namibia as a result of the discoveries. We think and we're already seeing the evidence of it that a similar trajectory appears likely in Uruguay, South Atlantic. So where's the evidence for that? The first thing we've seen is regional activity kick off again after a period of a long period of general inactivity.

7:18 In the immediate wake of the discoveries in Namibia, we see activity going on in Northern Argentina. So for example, any day now the Argarich-one Well is due to spud. This will be the first ultra deepwater well in this part of the world in a long time. In other licenses in Northern Argentina, people are rushing to get seismic campaigns underway. So, yeah, first thing we see is a lot of activity going on next door. And then the next thing, and this is really what is of massive relevance to us, is a huge change in perception and a lot of activity in Uruguay itself. So in May 2020, when Challenger picked up the area off one license, we were the only license holder in Uruguay.

8:07 No one else was there. And we were the junior. So it was one junior company holding one license in Uruguay. What's happened is that in May 2022, so the first licensing opportunity in Uruguay after the Namibian discoveries, suddenly we see Shell and we see Apache taking out new licenses. And in December 2022, which is the next available opportunity, we see Shell, we see Apache, and we see YPF, the Argentinian national oil company taking out more licenses in Uruguay. Equally, what was really interesting in November of last year is we got to see who else registered as potential bidders but didn't come away with a license. And that was the who's who of the international oil industry.

8:55 So what happened in Uruguay is in less than twelve months the landscape changed from Challenger being the sole junior licence holder to all but one license has been taken out and all being taken out by large international oil companies and one national oil company. So we are now the only junior but surrounded by majors. And equally important, our license obligation, was taken out in an uncontested situation, was to do roughly a million dollars of work over the next four years. Whereas the new license holders, the newcomers, have had to bid much bigger work programs and collectively they're going to spend $230,000,000 or more over the next few years. So clearly it's not just us who sees value in Uruguay now. This is the rest of the industry, the big guys if you want to say, have really come along and validated our early entry strategy.

9:58 So the next thing that follows is when we saw this massive uptick in interest and all these new people jumping into the Uruguayan space, we thought to ourselves, okay, let's accelerate our work program. Let's rather than spend it take four years to do it slowly, let's accelerate it and get it done in the next several months. And so we kicked that process off towards the end of last year. And about three weeks ago is when we were able to first, talk about the results of that work program. And to say they've been very pleasing results would be an understatement. They really have been, we did good solid technical work and the outcomes exceeded expectations, I guess. So what did we do? We took 2,100 kilometres of historic legacy seismic data from the 1970s, 1980s, etcetera, and we reprocess that seismic using modern technology.

10:59 And the outcome of that reprocessing is fabulous. What you get to see is much greater, data fidelity. You see much better pictures of what you have. You get to see faults. You get to see structures. And that allows you to really map the prospects in a way that you could never do before, identify new prospects. And, also, it allows you to do something called AVO attribute analysis, which was the next phase of of work we did. AVO stands for amplitude variation with offset. It's a technique that's pretty much standard in the industry for assessing, deep water prospects, and it allows you to, what you're after is finding AVO anomalies. And, and, for us we identified two structures that are AVO supported and this is very relevant in terms of how the industry, will view these going forward. And we did a couple of supplementary studies. We did a geochemistry study.

11:58 We did a satellite sleep study. And all of these things pointed in the same direction which is to helping us identify, properly map calibrate and quantify the prospects we have. This slide just shows you the seismic reprocessing. This may not mean much to those watching the presentation, but to people in the industry this means a lot. You see the picture on the top which is the kind of images you got from the 1970s etc data and this is our reprocessed seismic line. So you can see the much greater image quality. And leading on then to the AVO attribute analysis. AVO analysis is highly sophisticated advanced technology that really is the province of PhD boffins.

12:53 But the ultimate point is that when you find class two or class three anomalies, that is really significant because those types of anomalies are indicative of porous sands and hydrocarbon presence or possible hydrocarbon presence. So being able to support the prospects you identify with an AVO anomaly is really important. The large international majors, etcetera, won't really take, you know, won't take a prospect seriously unless you can show that it's got the AVO support. So we were very, very pleased, that that showed up in our analysis. And as I said, we had other work streams. And when you put it all together, what it pointed to was three main primary prospects. The first called LINTANA. That's the historic one. We knew about that at the time we took out the block.

13:52 That was the basis on which we applied for the block. And we're pleased that our work has confirmed everything we thought about LINTANA. But then the real excitement was the two new prospects we were able to identify in the southern part of the block. One called Terre Terre, one called Anapero. They both are shown on that map there. And it's these two that are AVO supported. And when we put it all together, this table, I'm not sure if everyone can read the fine print, but essentially three high grade prospects, each of them in the order of 500 square kilometres, which is big, manageable water depths, reservoir depths not too bad, clear analogues. And the important thing is, you know, what is the estimated ultimate recoverable here? And we're talking about in aggregate somewhere between one to 2,000,000,000 barrels.

14:47 And that's material. That's of scale on a global basis. It's well above the threshold, needed to develop these kind of, offshore prospects and the sort of thing that will be interesting to the industry at large. We have said that we're in the process of completing a formal volumetric assessment as next piece of work. I'm hopeful that that work will be wrapped up imminently. And so in the very near term, we should be able to, communicate the outcomes of that, which will sort of refine the estimates on this slide. So really what that brings us to is where to next. And the commercial strategy for the balance of 2023 for us is very simple.

15:34 We have a great asset in a great location. We're the only junior there and we are seeing a huge amount of interest in the region generally but in our license in particular. And so our strategy is very simple. We we have a little bit of commercial work that we want to finalise and finish in in the next weeks, months. And really then it's about getting a partner in. So we want to bring in a partner in transaction structure in the industry known as a farm out where the partner will enter, they will agree, they will pay us some money, they will agree to fund the next phase of work on the project, which

16:12 is a three d seismic acquisition. And then we take the project forward together from there. And we have started a formal farm out process. We have multiple parties in a data room. We have stipulated that we'd like to see that farm out process reach a conclusion and we select and move forward with a partner before the end of the year. These things take a little bit of time but six months from now we should have a farm out done. Now there is actually a reason why we want it done by the end of the year and that's summarised on this next slide. The next big step to adding value to the block, really taking it forward is three d seismic acquisition. So all of the data we currently have is based on reprocessed two d seismic.

17:02 Three d allows you to get an even better view of life to really pinpoint the structures, pinpoint where you would one day drill wells in those structures. And it is the next step required before you get to eventual drilling. A three d acquisition program in relation to the structures we've identified, depending on the parameters you choose and so on, could be in the order of 15,000,000 to $20,000,000 And for that, we would need a partner who can pay the costs of that. As it turns out, because Shell, Apache and YPF have taken out the surrounding acreage, the logical way to approach this would be what's known as a multi client seismic program. So we all get together and we do it as one that is more cost effective and operationally more efficient.

17:54 And there are companies out there in the world who do this. So several of the leading seismic vendors are now proposing multi client programs in order for that to happen. They've already begun the process of permitting that's needed in Uruguay, and they are looking to commence that sometime in early twenty twenty four. So with that in mind, back solving, we need to get a partnership done before the end of this year so we can participate in that program. And participating in that program is important because as I said, that's what is the next big technical work step that adds a huge amount of, future value and continues the process of derisking the license. So those are the key takeaways on Uruguay, if I could leave you with them. A prospect inventory of one to 2,000,000,000 barrels, three sizable prospects identified on the back of really high quality technical work, seismically derived, supported by AVO analysis.

18:54 And we're now working a farm out process, which we are confident will achieve a result by the end of the year. To touch very briefly, as I said at the start on Trinidad, what we have in Trinidad is a small production business, four producing fields. We produce around three fifty barrels of oil a day. We inherited that business when we acquired that business in August 2020. At the time we acquired it, it was reasonably messy. We've spent quite a bit of time trying to tidy it up. We've got costs under control. We've cleaned up a whole bunch of legacy items. We've reinvested in the field so production is really stable and routine now. And what we've seen as a result is improving financial performance. So the business in Trinidad is operating breakeven now, marginally profitable, and we hope through the course of 2023 to see that business continue to improve and ideally grow further from there.

19:57 In order to facilitate that, what we did is we kind of said, right, how do we approach this business? And we divide it into what we call core assets and non core assets. The core assets are our two East South Eastern licences, Goodron and Trinity INC. That's in a particular kind of close to one another. It's a difficult environment to operate in. It's quite jungly and it's overgrown and access is quite difficult. So we have the competitive edge in that area and we have a fully fledged staff base, we have equipment and we know what we're doing there. So the focus is very much on maximising those two assets, improving them, getting the production up, getting the costs under control and driving profitability from them.

20:44 And all the rest of the assets are what we're calling kind of non core. And the plan with those is to either divest them or find clever ways of moving them on to other people where we retain some kind of long term exposure but where we're not at risk for the costs associated. Earlier on in this year we did a transaction where we sold one of the assets but with back in rights attached. We also then have sold a second asset, similar structure and that transaction is presently awaiting regulatory approval. So we have a plan in Trinidad and things are going according to that plan so we're pleased with that. People who attend these sorts of presentations are usually very interesting. Well, what's the news flow?

21:31 What do we need to look out for? I've touched on these as I've spoken but it's quite simple. In Uruguay, we're finishing up our work programme. So you should see some news about that as we go. And then it's all about the farm out, how we progress and how we reach a conclusion towards the end of the year. Equally, as I pointed to, work is going on in the neighbourhood. There's a new well happening in Argentina. There's seismic acquisition. So those work programmes and how they progress will have some bearing

22:03 or be relevant to us. In Trinidad, continuing portfolio rationalization, and improving financial performance are the things to look out for. And we are a small nimble company. We're always looking at ways in which we can progress, grow the business, add new assets, etcetera. So that's on the radar for the rest of this year as well. I guess finally, people, why would we follow Challenger? Why is Challenger an interesting investment? Investment opportunity. The first point I'd say is that we offer investors exposure to frontier exploration global high quality frontier exploration.

22:50 That has a particular risk reward profile. That's not a risk reward profile for everybody. But if that is someone's risk reward profile, the opportunity we're offering is typically one that you can only get that is only available to oil and gas majors. There are no other junior companies operating in Uruguay, in Argentina. And so if you're interested in the risk reward profile, that frontier exploration, high quality hotspot Frontier Exploration offers, we're one of the few places where you can get that. As I said, it's a high quality prime asset in a rapidly emerging global exploration hotspot. And the final point, I mean, you would of course expect the CEO of the company to say this, but we do believe we're very undervalued at the moment.

23:38 And, we hope that as we deliver on what we've said we're going to do over the next six months, that, that value gap will close and shareholders, which includes myself, I'm a large shareholder in the company, will see, value uplift as we do that. So that's a quick canter through the world of, challenger energy. It's the end of, my formal presentation, so, I'm open to questions now. Eitan, thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions using the q and a tab situated on the right hand corner of your screen, which is why Atan takes a few moments to review your questions. I'd like to remind you that a recording of this presentation will be available on the Investor Meet Company dashboard. Atan, as you can see you have had a number of questions from investors, thank you to everybody for your engagement. If I could ask you please to read out those questions and, give a response where it's appropriate to do so, and I'll pick up from you at the end. Okay. Terrific. Alright.

24:31 Well, the first question, can you please advise regarding the process, permitting, timelines for achieving a go ahead to drill an exploration well in area OFF one? That's a good question. There's a fairly standard path that these things take. So step one, which I alluded to in my presentation, the next step is a three d seismic acquisition campaign. Permitting is taken care of normally by the seismic vendors. And as I said in my presentation, everyone's kind of hoping to see a three d seismic acquisition campaign kick off in 2024. That will take the better part of two or three months to actually do the seismic. Boats have to mobilise, etcetera. And once the seismic is done, it takes several months to process, receive the results, digest them, analyse them, etcetera.

25:28 Assuming that the seismic tells you what you think it's going to tell you, which is the structures are there, effects are good, here's where you think about drilling a well, You then go and apply for a permit to drill a well. The cost of an exploration well in this depth of water with these sorts of structures is probably in the order of $50,000,000 per exploration well. You would probably look to drill an initial exploration well about a year or so after the seismic is completed. So now in a strict tech in a strict license sense, there is no obligation to drill this well for another five or six years. But if the trajectory in Namibia is anything to go by, people have really been accelerating work programs and trying to get the exploration wells drilled as fast as possible. So to answer the question, what you know, what we'd be looking at is three d seismic in 2024, ultimately an exploration well in 2025 sometime or an initial exploration well, and if that is a success you'd see a series of appraisal wells and so on to follow after that.

26:43 So that's the answer to that question. I'll move on to the next one. I know you're debt free and have low costs. What are your thoughts about funding to maximize the value of your assets? So, yes, we we have no debts. We have an ultra low cost operating, you know, operating overhead. We are not swimming in cash. We raised money more than a year ago now. We've been using that money wisely. We would like to get through this farm out process based on our current financial envelope. It doesn't allow a lot of flexibility. It doesn't encompass any new business or business development, but based on where we are at the moment, we are working through our farm out process, we're looking to see that completed within six months, as I mentioned in my talk, one of the elements of a farm out is usually an upfront cash payment received from the incoming partner.

27:51 So that's what we like to see farm out process, cash coming in and continuing to operate on a low cost basis accordingly. I hope that answers that question. The next one, given you are surrounded by credible industry participants like Shell and your market cap, how do you protect yourself from unwanted bids for the company? Well, short answer is you can't. Anybody can come along at any time and make a bid for the company. And if they did, it would depend on what the bid is and whether the shareholders accept that bid or not. What I can tell you though, having been around in the industry for a while and having done farm outs with various large major companies, the discipline and the people involved in looking at our asset as a farm in proposition is very different to a corporate transaction, you know, and major companies are really oil majors are really very large bureaucracies.

29:00 And the decision making processes to get involved in a block via farming, is a stock standard industry methodology that everyone's familiar with, as compared to the decision making processes to make an on market takeover bid for a small junior AIM company are completely different. So whilst I can very clearly see an end to this process and a farm out being achieved during 2023, I would be beyond surprised if we suddenly received an unsolicited takeover bid from the kind of companies looking at a farm out. That's just my assessment. But the short answer to that question is there's not much we can do to protect ourselves other than get on with it, get our work done and hopefully add value and a rerating in our share price.

29:59 Next question. When do you expect other operators in the area to announce their plans for the asset? Well, to an extent, the other operators already have. The terms of their license bids are public information and were summarized on one of the slides. We know what they've bid. Apache, for example, blocks is committed to drilling an exploration well within the initial exploration period of the license. So really, the only thing we don't know is exactly when they're going to be doing these things, and that's up to these large companies to decide. I'm not sure they're going to specifically announce it in the way we would because an exploration programme and a licence in Uruguay for Shell is not material in the way it is for us. But we do know what they're obliged to do and we do know that that all has to happen in the next few years. And as I've said a few times, if what's going on elsewhere is any guide, you can expect to see that work happening sooner rather than later. Again, we know what's happening in Argentina. I mean, is a well that should be spud any day now.

31:10 So, you know, there will be announcement of that in due course. There's seismic activity going on. So so we do expect work to be happening over the next year or two. We just don't know exactly what work and when, and we'll find out as our neighbors progress. Next question. Do you have any institutional shareholders and do you have any plans in this regard? The answer is yes, we do. In March of last year when we did our last recapitalisation and we really restructured the company, we had zero sizeable shareholders. The company's shareholding base was disparate, lots of day traders all over the show.

31:55 It was one of my strategic objectives to really reshape the shareholder base of the company And we've done that quite successfully. So on our website is a list of all of our top shareholders. What you'll be able to see is that about 70 something percent of the company is now in the hands of large shareholders. About half of those are investors from Australia, people I knew from previous investments who, you know, we had some very successful investments in the energy sector together, and they are completely on board with the strategy around Uruguay. You know, some of those shareholders hold between five to 10%, so they might not be institutional, but they're wealthy individuals who have very high understanding of company and the sector we're involved in and who are really in this for the long term to see what we can make out of Uruguay.

32:50 We've also been able to attract a number of institutional high net worth, family office type shareholders of scale in The UK. And so, as I say, 70 something percent of the shareholder base is now in what you might call permanent hands who really understand what we're trying to do. And I mentioned that part of that is myself. I've written checks to become a seven and a bit percent shareholder in the company, so I'm heavily aligned to all shareholders to make sure that we deliver the outcome. So yeah, we're pleased with where we are and we do have institutional shareholders. On to the next question.

33:35 What's the likelihood of an aggregated three d survey? I think that would be really positive. Surely, cost would be proportional to acreage owned, so you would need a partner beforehand, in which case Shell, etcetera, would be the obvious partners. Yes. Historically, Uruguay's waters is a, you know, a grab bag of different seismic campaigns. On some areas, there were three d. On some, historic two d, etcetera. As it turns out, on most of area off one, which is ours, and on the neighboring blocks, area off two and area off four, there are there is no three d seismic. So there needs to be three d seismic. And as the questionnaire the questionnaire is pointing out, the logical way to do that is that us, Shell, Apache, YPF get together and we do that as an aggregated three d survey or as is known in the trade, a multi client survey.

34:35 So the likelihood of that happening is pretty high because it makes economic sense. The costs become proportional to acreage owned and you also get cost efficiencies. The main cost one of the main costs in any three d seismic program is the mobilization and demobilization of the boat or boats. So if everyone is sharing the program and you only have to mobilize and demobilize once, that in itself is a main is a big cost saving, which you then share proportionally. Equally, when you are doing a seismic, you have a string of seismic sensors that trail behind the boat for 10 or so kilometres. And one of the big inefficiencies is when the boat has to turn around and you have to turn off the sensors and move them into place. When you are doing bigger areas and the boat can sort of travel in straight lines and only turn at the end of each, so that's what's called the racetrack design.

35:38 If you can get a more efficient racetrack design, again you wind up saving money. So the costs will come down if we all get together and do the seismic program together. So the multi client seismic makes sense and given the area, the multiclient seismic participants would be us, Shell, Apache, and potentially YPF. So that I think answers the first part of the question. The second part of the question is would you need a partner beforehand? Absolutely. Even, you know, the the the indicative area that needs to be covered is about 12 to 15,000 square kilometres. Our corner of that, depending on how much acreage we want to cover within OFF one, would be around 5,000 square kilometres.

36:29 And our share of a total programme would be, as I said in my talk, somewhere between 15,000,000 to $20,000,000 So we need a partner for that. You know, a farm in partner, someone who purchases or comes into a portion of our licence so we can then participate. That could be Shell, of course, they're the neighbours, it would make sense, but it could be anybody else. And as I said, our farm out process has kicked off. We have a significant number of participants who've all signed NDAs, are all participating, are all looking at the asset quite thoroughly. So the partner could be anyone, whoever wants to become, you know, get into this play and become a partner of us and then participate in the seismic that way.

37:18 So that answers that question and I think it's the end of the questions. You certainly have Eitan and thank you very much indeed to all the investors for their questions this morning. Eitan, I know investor feedback will be important to you and I'll shortly redirect investors on the call to give you their thoughts and expectations. But I wonder before doing so if I may, just ask you for a few closing comments to wrap up with and then I'll send investors to give you their feedback. Yes, sure. Well, mean we're very excited. I hope people can hear from my voice the level of enthusiasm and excitement we have in the company. It's been a while to get here, but we've been super happy with the technical outcomes of our work. We're very excited by what's going on around us and we really do see a very clear opportunity over the next six months to do something quite special for a small company like us. So, you know, I hope to be able to present to this forum again in the future and stay tuned, we're very excited about what's to come. That's great. Thank you very much indeed for updating investors this morning. Could I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in all that management can better understand your views and expectations.

38:30 This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Challenger Energy Group PLC, we'd like to thank you for attending today's presentation. Good morning to you all.