QUARTERLY ACTIVITIES REPORT FOR THE PERIOD ENDING 30 JUNE 2016

Transcription

1 28 Jul 2016 QUARTERLY ACTIVITIES REPORT FOR THE PERIOD ENDING 30 JUNE 2016 Board of Directors: Michael Fry (Nonexecutive Chairman) Robert Willes (Managing Director) William Bloking (Nonexecutive Director) HIGHLIGHTS Mineral and Petroleum Resources Development Act ( MPRDA ) Amendment Bill deliberations commence in Parliament. Further progress anticipated in next Parliamentary session. Deputy Minister of Mineral Resources states that the amendments will be finalised by November. Issued capital: 384,793,851 fully paid ordinary shares (ASX: CEL) 51,500,000 unlisted options and rights Substantial holders: LQ Super 11.28% W&M Brown 7.56% Registered office: Level 17, 500 Collins St Melbourne VICTORIA 3000 Tel Fax Energy Minister, Tina JoematPettersson, announces decision to develop a comprehensive Gas Policy for South Africa. South African Department of Energy calls for Expressions of Interest in developing a 600 MW gasfired power project in parallel with previously announced 3,126 MW LNG to Power IPP Procurement Programme. Draft Scientific Assessment Reports released for stakeholder comment as part of the Strategic Environmental Assessment ( SEA ) for Shale Gas Development.

2 Legislative Framework As previously reported, the petroleum industry (via the industry associations, the Offshore Petroleum Association of South Africa ( OPASA ) and the Onshore Petroleum Association of South Africa ( ONPASA ) have engaged with government to deliver constructive solutions for the legislative framework (the Mineral and Petroleum Resources Development Act, 28 of 2002 MPRDA ). The MPRDA Amendment Bill has been referred to Parliament and deliberations commenced during the last Parliamentary session. Parliament is currently in recess, but at its last meeting on 25 May 2016, the relevant committee of the National Assembly (the lower house of Parliament), where the Bill is currently under consideration, confirmed its intention to remit the Bill to the National Council of Provinces ( NCOP ) (the upper house of Parliament) after resolution of the substantive issues that remain for the National Assembly to consider. In accordance with the terms of the President s referral of the Bill back to Parliament, the NCOP will then need to convene further public hearings on the Bill to correct defects in the initial public participation process. This should be the final step in addressing the President s reservations. The next session of Parliament will commence in midaugust (following the local government elections scheduled for 3 August) and it is expected that the Bill will be referred to the NCOP for additional public hearings shortly thereafter. The Deputy Minister of Mineral Resources, Godfrey Oliphant, is reported as stating publicly that the amendments will be finalised by November Role of gas in South Africa s energy mix In May the Energy Minister, Tina JoematPettersson, announced her decision to develop a comprehensive Gas Policy for South Africa, stating that; A key strategic focus for the Gas Policy will be to enable the deliberate shortterm development of initial supply of and demand for gas, much of which is latent and unserved at present, in parallel with the actions aimed at expediting the development of longer term supply. The Gas Policy will facilitate the development of the South African natural gas industry and market through ensuring the establishment of anchor demand from gastopower through the IPP programme. It will provide context for our new Integrated Resource Plan as well as the future Gas Industrialisation Policy under development, as the Gas Policy will enable and fasttrack the development of nongastopower gas demand. Initial gastopower together with future nongastopower will ensure that upstream investment in both regional and indigenous sources (through exploration and production) will be encouraged. Through this policy we will enact integration of the various required gas industry building blocks, from gas extraction to final demand, to make a significant contribution

3 to ensuring that South Africa has sufficient, secure and diverse yet cleaner and greener energy in future. Also in May, the South African Department of Energy called for Expressions of Interest to gauge private sector interest in developing a 600 MW gasfired power project alongside one or more stateowned companies. This project will exist in parallel with South Africa's previously announced 3,126 MW LNG to Power IPP Procurement Programme. Minister JoematPettersson indicated that a preliminary information memorandum for the LNG to Power project would soon be made available to the market, with a formal procurement process to follow. She stated that; This will be an important development to stimulate our economy and promote investor confidence. We envisage release to the market of a Request for Qualification for the supply of a Floating Storage and Regasification Unit (FSRU) vessel or FSRUbased bundled natural gastopower solution of up to 3126 MW in the third quarter of financial year 2016/17. Currently three potential ports are considered, namely the port of Ngqura (Coega), Richards Bay and Saldanha Bay. The full scope of the solution will include not only the FSRU, but also LNG supply, development of jetty and associated infrastructure, and the construction of pipeline infrastructure to deliver gas from the FSRU to an initial gas IPP and potential desalination facility. Surplus capacity on the FSRU and associated pipeline infrastructure will be available to serve additional gas offtakers. The media reports that Shell, Total and Cheniere are among the companies understood to be following South Africa's LNG to Power IPP' programme with interest. Bloomberg also reported that South Africa is creating a unit to import LNG; The Gas Industrialization Unit will initially focus on importing LNG as South Africa seeks to reduce its dependence on coalfired power, Garth Strachan, a deputydirector general at the Department of Trade and Industry, said Monday in a presentation in Cape Town. Eventually, the unit will also seek to tap domestic sources of natural gas, he said. "We ve got to ensure that oil and gas industrialization has to be one of the pillars of industrialization going forward," said Strachan. Exploration Rights Application During his address to the National Assembly on the occasion of the Budget Vote (on 19 April), Minister of Mineral Resources Mosebenzi Zwane stated that: We are delighted with the state of South Africa s petroleum exploration potential with frontier basins both onshore and offshore. This potential includes oil and gas. We have also noted the concerns of some members of the community on the potential impact of

4 shale gas extraction on both the environment and water. We have accordingly taken measures to mitigate the risks inherent in the future. Challenger anticipates further progress with regard to the granting of exploration rights once the MPRDA Amendment Bill has passed through Parliament. Strategic Environmental Assessment ( SEA ) for Shale Gas Development ( SGD ) As previously reported, the South African government commissioned a 2year Strategic Environmental Assessment for Shale Gas Development in February The SEA is a highlevel policy and framework setting process with the following mission statement; To provide an integrated assessment and decisionmaking framework to enable South Africa to establish effective policy, legislation and sustainability conditions under which shale gas development could occur. The SEA website states that; The potential future economic and energy security benefits of a large resource of natural gas in South Africa could be substantial; as are both the positive and negative social and environmental issues of establishing a domestic gas industry in the Karoo region. South African government, through Cabinet and various other decisionmaking institutions, has made highlevel public commitments to shale gas exploration. If the exploration phase occurs and yields successful hydrocarbon deposits and gasflow regimes, it is a reasonable assumption that Government would consider development of those resources at a significant scale. DEA, along with other relevant authorities, need to be in a position to make decisions relevant to that choice in a timely and responsible fashion. Although a substantial amount is already known about shale gas development and its consequences based on experience from around the world, very little is known about the industry in the South African context, which makes information very hard for decisionmakers and stakeholders to evaluate. In order to make wellinformed decisions and have some hope that decisions will be broadly accepted by stakeholders as credible and legitimate, a structured and transparent process of information sharing and scientific assessment needs to take place. The Project Team is comprised of the Council for Scientific and Industrial Research (CSIR), the South African National Biodiversity Institute (SANBI), and the Council for Geoscience (CGS). The study covers the areas currently under applications for Exploration Rights by Shell, Bundu and Falcon plus a 20km buffer around these, and comprises some 171,811 km2. It covers seventeen strategic issue topics shown in the diagram below;

5 17 Source: SEA Shale Gas Development in the Central Karoo: A Scientific Assessment of the Positive and Negative Consequences (Second Order Draft) Preface The SEA is currently in the second, or Strategic Assessment Phase. In June, the Second Order Draft reports (in 18 chapters) were made available for stakeholder comment on the SEA website (a link to which may be found on Challenger s website). Challenger and Bundu have worked with the industry association (ONPASA) to provide comments as part of this process. Stakeholder comments will be considered and the final Scientific Assessment report is due around October The third phase is designed to translate the Scientific Assessment into an operational decision making framework in consultation with the affected national and provincial government departments. The Preface to the reports states that; Phase 3 of the SEA concludes around March 2017 and will provide the framework for how site and activity specific assessment processes should be undertaken and provide Government with the necessary tools it needs to enable responsible decisionmaking into the future regarding SGD. This includes guidance on legislation, regulation, monitoring and institutions. The separation between Phase 2 and Phase 3 is to honour the Scientific Assessment mantra of being policy relevant, but not policy prescriptive. The experts involved in Phase 2 have not been asked to make

6 decisions about the development of shale gas. They have been asked to give an informed, evidencebased, scientificallysound and balanced opinion on the consequences of different scenarios and development options for SGD into the future. The ultimate decisions regarding future authorisation processes for shale gas, whether at a national, provincial or local level, will be made by the authorities mandated to do so. In making these decisions they will be guided by the SEA, and any other relevant and trusted sources of information that may have become available between the completion of the SEA and the time at which they need to implement policy, which may be years or decades into the future. Corporate Whilst working to progress the licence application, management continues to focus on cost reduction and on evaluating potential new projects to add to the Company s portfolio. Background The Karoo Basin, which extends across 600,000 km 2, is located in central and southern South Africa and contains organic rich shales of Permian age with combined thickness up to 5,000 feet. The focus for shale gas exploration is in the southern portion of the basin where the shales are at sufficient depth and where five wells, all pre1970, intersected the shales with significant gas shows. One well, the Cranemere CR1/68 well, flowed more than 8 MMcf/day of natural gas from the Fort Brown shale during testing over a 158 feet interval in The production was judged to be from fractures and secondary porosity in the shales. As first mover, Bundu selected its application area centred on this well. The US Energy Information Administration (EIA) updated its 2011 report on World Shale Gas Resources in June The EIA estimates that the Lower Permian Ecca Group shales in the Karoo Basin contain 1,559 Tcf of risked shale gas inplace, with 390 Tcf as the risked, technically recoverable shale gas resource. To demonstrate the scale of the estimated resource, according to the US Department of Energy, 1 Tcf of natural gas is enough to heat 15 million homes for one year, generate 100 billion kilowatt hours of electricity, or fuel 12 million natural gasfired vehicles for one year. Significantly, the current EIA estimate excludes the thicker Upper Ecca shales on the basis that they have a lower reported total organic carbon content. These Upper Ecca shales include the Fort Brown shale, from which gas flowed at the Cranemere CR 1/68 well. The Karoo Basin has become the focus of intense interest in the past few years, following the initial application to explore for shale gas in the basin by Bundu (acquired by CEL in April 2010) in February A number of major international companies, including Shell, Chevron and Falcon Oil & Gas, are also pursuing exploration rights in the region. Furthermore, the low economic growth rates and power crisis in South Africa have strongly motivated the government to pursue potential shale gas resources as a catalyst to transform the economy.

7 As previously noted, Chevron Business Development South Africa Limited (Chevron) has announced an Agreement with Falcon Oil and Gas Ltd to jointly cooperate on unconventional gas opportunities in the Karoo Basin, with the result that Challenger through its subsidiary, Bundu is the only unpartnered junior company with interests in the basin, alongside Shell and Chevron. Yours faithfully Robert Willes Managing Director INVESTOR CONTACT MEDIA CONTACT ROBERT WILLES LUKE FORRESTAL MANAGING DIRECTOR ACCOUNT MANAGER CHALLENGER ENERGY CANNINGS PURPLE CHALLENGER ENERGY (ASX code: CEL,) is focused on the fastemerging, worldscale shale gas province in South Africa s Karoo Basin. The Karoo is strategic, and central to the South African Government s agenda, given the country s power crisis and need for economic growth, jobs and infrastructure development. Through its South African subsidiary, Bundu Gas and Oil Exploration Pty Ltd, Challenger was first to recognise this opportunity and to apply for exploration rights in the Karoo and has since been followed by Shell and Falcon Oil and Gas, which has brought Chevron in as a joint venture partner.

8 Appendix 5B Mining exploration entity and oil and gas exploration entity quarterly report Appendix 5B Rule 5.5 Mining exploration entity and oil and gas exploration entity quarterly report Introduced 01/07/96 Origin Appendix 8 Amended 01/07/97, 01/07/98, 30/09/01, 01/06/10, 17/12/10, 01/05/2013 Name of entity Challenger Energy Limited ABN Quarter ended ( current quarter ) June 2016 Consolidated statement of cash flows Cash flows related to operating activities Current quarter $A 000 Year to date (12 months) $A Receipts from product sales and related debtors 1.2 Payments for (a) exploration & evaluation (b) development (c) production (d) administration (30) (265) (133) (657) 1.3 Dividends received 1.4 Interest and other items of a similar nature 2 6 received 1.5 Interest and other costs of finance paid 1.6 Income taxes paid 1.7 Other VAT refund 28 Net Operating Cash Flows (293) (756) Cash flows related to investing activities 1.8 Payment for purchases of: (a) prospects (b) equity investments (c) other fixed assets 1.9 Proceeds from sale of: (a) prospects (b) equity investments (c) other fixed assets 1.10 Loans to other entities 1.11 Loans repaid by other entities 1.12 Other Net investing cash flows 1.13 Total operating and investing cash flows (carried forward) (293) (756) + See chapter 19 for defined terms. 01/05/2013 Appendix 5B Page 1

9 Appendix 5B Mining exploration entity and oil and gas exploration entity quarterly report 1.13 Total operating and investing cash flows (brought forward) (293) (756) Cash flows related to financing activities 1.14 Proceeds from issues of shares, options, etc Proceeds from sale of forfeited shares 1.16 Proceeds from borrowings (refer 2.1 below) 1.17 Repayment of borrowings 1.18 Dividends paid 1.19 Other costs of equity issues (3) (5) Net financing cash flows (3) 895 Net increase (decrease) in cash held (296) Cash at beginning of quarter/year to date 1, Exchange rate adjustments to item (2) 1.22 Cash at end of quarter Payments to directors of the entity, associates of the directors, related entities of the entity and associates of the related entities Current quarter $A' Aggregate amount of payments to the parties included in item Aggregate amount of loans to the parties included in item Explanation necessary for an understanding of the transactions Payment of Managing Director salary and director fees. Noncash financing and investing activities 2.1 Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows None. 2.2 Details of outlays made by other entities to establish or increase their share in projects in which the reporting entity has an interest None. + See chapter 19 for defined terms. Appendix 5B Page 2 01/05/2013

10 Appendix 5B Mining exploration entity and oil and gas exploration entity quarterly report Financing facilities available Add notes as necessary for an understanding of the position. Amount available Amount used $A 000 $A Loan facilities 3.2 Credit standby arrangements Estimated cash outflows for next quarter 4.1 Exploration and evaluation $A Development 4.3 Production 4.4 Administration 220 Total 220 Reconciliation of cash Reconciliation of cash at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts is as follows. Current quarter $A 000 Previous quarter $A Cash on hand and at bank 851 1, Deposits at call 5.3 Bank overdraft 5.4 Other (provide details) Total: cash at end of quarter (item 1.22) 851 1,146 + See chapter 19 for defined terms. 01/05/2013 Appendix 5B Page 3

11 Appendix 5B Mining exploration entity and oil and gas exploration entity quarterly report Changes in interests in mining tenements and petroleum tenements 6.1 Interests in mining tenements and petroleum tenements relinquished, reduced or lapsed Tenement reference and location Nature of interest (note (2)) Refer to the attached schedule on page 7. Interest at beginning of quarter Interest at end of quarter 6.2 Interests in mining tenements and petroleum tenements acquired or increased Issued and quoted securities at end of current quarter Description includes rate of interest and any redemption or conversion rights together with prices and dates. 7.1 Preference + securities (description) 7.2 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buybacks, redemptions Ordinary securities 7.4 Changes during quarter (a) Increases through issues (b) Decreases through returns of capital, buybacks Convertible debt securities (description) Total number Number quoted Issue price per security (see note 3) (cents) 384,793, ,793,851 Amount paid up per security (see note 3) (cents) + See chapter 19 for defined terms. Appendix 5B Page 4 01/05/2013

12 Appendix 5B Mining exploration entity and oil and gas exploration entity quarterly report 7.6 Changes during quarter (a) Increases through issues (b) Decreases through securities matured, converted 7.7 Options (description and conversion factor) 7,500,000 31,000,000 Performance Rights 8,000,000 4,000, Issued during quarter 7.9 Exercised during quarter 7.10 Options expired 65,896,502 during quarter 65,896,502 Exercise price 15 cents 5 cents Exercise price Nil Nil 20 cents Expiry date 20/11/ /06/2020 Expiry date 07/04/ /04/ /06/2016 Performance rights expired during quarter 7.11 Debentures (totals only) 7.12 Unsecured notes (totals only) 2,500,000 4,000,000 Nil Nil 30/06/ /04/ See chapter 19 for defined terms. 01/05/2013 Appendix 5B Page 5

13 Appendix 5B Mining exploration entity and oil and gas exploration entity quarterly report Compliance statement 1 This statement has been prepared under accounting policies which comply with accounting standards as defined in the Corporations Act or other standards acceptable to ASX (see note 5). 2 This statement does give a true and fair view of the matters disclosed. Sign here: Date: 28 July 2016 Managing Director Print name: Robert Willes Notes 1 The quarterly report provides a basis for informing the market how the entity s activities have been financed for the past quarter and the effect on its cash position. An entity wanting to disclose additional information is encouraged to do so, in a note or notes attached to this report. 2 The Nature of interest (items 6.1 and 6.2) includes options in respect of interests in mining tenements and petroleum tenements acquired, exercised or lapsed during the reporting period. If the entity is involved in a joint venture agreement and there are conditions precedent which will change its percentage interest in a mining tenement or petroleum tenement, it should disclose the change of percentage interest and conditions precedent in the list required for items 6.1 and Issued and quoted securities The issue price and amount paid up is not required in items 7.1 and 7.3 for fully paid securities. 4 The definitions in, and provisions of, AASB 6: Exploration for and Evaluation of Mineral Resources and AASB 107: Statement of Cash Flows apply to this report. 5 Accounting Standards ASX will accept, for example, the use of International Financial Reporting Standards for foreign entities. If the standards used do not address a topic, the Australian standard on that topic (if any) must be complied with. == == == == == + See chapter 19 for defined terms. Appendix 5B Page 6 01/05/2013

14 Appendix 5B Mining exploration entity and oil and gas exploration entity quarterly report CHALLENGER ENERGY LIMITED SCHEDULE OF OIL AND GAS INTERESTS AS AT 30 JUNE 2016 Location Cranemere Project (South Africa) Gross Acreage Working Interest Status Karoo Basin 870,449 95% Application Final area is subject to granting of the application. Mercury Stetson (United States) Location Gross Acreage Working Interest Grayson County ~1,549 15% Status 15% earned to date with the ability to earn up to 50% Leases totalling approximately 180 acres expired during the quarter. The balance of the acreage will expire progressively through October See chapter 19 for defined terms. 01/05/2013 Appendix 5B Page 7