Challenger Energy Group PLC (AIM:CEG) said it completed a balance sheet restructuring that it estimates will reduce its debts by around 85% by the end of the first quarter next year.
In a statement, the oil and gas company said its previously reported aggregate balance sheet payables, debts and potential liability exposure of US$22mln are expected to be reduced to around US$2.5mln following settlements with creditors and payment deferrals.
In addition, the company said its cost-cutting programme has shrunk overheads by around 70% and added that it is evaluating options to secure additional funding.
Challenger Energy said creditors from the drilling of the unsuccessful Perseverance-1 well in The Bahamas in early 2021, who were owed around US$11.3mln, have settled for a total payment of US$2.0mln in cash, of which US$0.6mln has been paid to date.
Payment of the remaining US$1.4mln, which is due by 31 January 2022, will be funded from new capital.
Meanwhile, some US$3.0mln of payables and legacy creditors in Trinidad have agreed to be settled for US$1.0mln in cash, of which US$0.6mln has been paid to-date and US$0.4mln will be paid during the first quarter of 2022.
The remaining US$1.5mln of payables and legacy creditors in Trinidad are at the level of Trinidadian subsidiary entities, with no recourse to the company.
The company also said it expects the previously reported US$6.5mln of legacy claims, licencing payables and potential financial exposures in Trinidad to be reduced to less than US$1.0mln, which has been rescheduled and is forecast to be eliminated over the next 18 months.
Challenger Energy has US$0.7mln of outstanding convertible notes that fall due in December 2023. It is hoping to reach agreement with the noteholders to convert the notes into equity.
Finally, as a result of the ultimate cost of the Perseverance-1 well, insurers may seek a "top-up" premium in relation to the final overall cost of the insurance, the company said, adding that this matter remains subject to negotiation with the insurers.
As a result of the restructuring, all residual amounts are at the level of Trinidadian operating subsidiaries and are expected to be managed by the Trinidadian subsidiaries over the next 18 months, through deferrals and payment plans.
The cost-cutting exercise launched in July this year is nearly complete and has reduced the company’s ongoing cash-burn from US$700,000 per month in February 2021 to less than US$200,000 at present.
Challenger Energy currently has a cash balance of US$1.5mln and said it is evaluating various funding alternatives to secure additional capital.
The fresh capital would be used to meet creditor settlements in the first quarter of 2022, for which the company needs US$2mln, and to fund a work programme in Trinidad and Suriname next year, for which a minimum of US$4mln is required.
Challenger Energy said the South Erin licence in Trinidad has been renewed on agreed terms, while the renewal process for the Innis-Trinity licence is expected to be completed shortly.
It said the successful renewals process defines the minimum work programme in 2022 and beyond for its key Trinidadian production assets - Goudron, South Erin and Innis-Trinity – with the aim of increasing production by 15%-20% in the first half of next year.
As operations in Trinidad are largely self-funding following the implementation of cost-saving measures, the anticipated production increase means cashflows generated from operations in Trinidad will be more than sufficient to cover all in-country operational costs and group corporate overheads, the company said.
It said it has significantly reduced its executive in recent months and has identified new board members and new senior personnel for key executive roles.
“With this body of work largely behind us, attention is now focused on a recapitalisation - the last remaining step in what might best be described as the ‘clean-up’ programme intended to place this company back on a firm financial footing for the future,” said chief executive Eytan Uliel.
“This is needed both to enable final creditor settlement payments to be made, but more importantly, to fund production accretive work going forward.
“Thereafter, I hope that 2022 can become a year focused on restoring value, and for which we have a full work programme planned, focused directly on maximising cashflow from existing producing assets. Further updates as to our progress will be provided."
Shares in Challenger jumped 21% to 0.58p on the news, with house broker Shore Capital saying work is continuing to reduce liabilities even further, with the aim of achieving a balance sheet that is substantially repaired.
"In addition, Challenger reports that it has completed its cost reduction programme, with corporate overheads reduced by more than 70%.
“The Trinidadian business is breaking even, and the company has also successfully progressed the renewal process for all core producing licences in Trinidad.
“A significant organisational restructuring process is underway (including reductions and changes to the executive and staff base), with attention now focusing on recapitalisation to enable final creditor settlement payments and fund production-accretive growth going forward.”
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