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Investor Presentation

August 2011



This announcement contains "forward-looking statements". Such forward-looking statements include, without limitation: estimates of future earnings, the sensitivity of earnings to oil & gas prices and foreign exchange rate movements; estimates of future oil & gas production and sales; estimates of future cash flows, the sensitivity of cash flows to oil & gas prices and foreign exchange rate movements; statements regarding future debt repayments; estimates of future capital expenditures; estimates of reserves and statements regarding future exploration results and the replacement of reserves; and where the Company expresses or implies an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, forward looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed, projected or implied by such forward-looking statements. Such risks include, but are not limited to oil and gas price volatility, currency fluctuations, increased production costs and variances in reserves or recovery rates from those assumed in the company's plans, as well as political and operational risks in the countries and states in which we operate or sell product to, and governmental regulation and judicial outcomes. For a more detailed discussion of such risks and other factors, see the Company's Annual Reports, as well as the Company's other filings. The Company does not undertake any obligation to release publicly any revisions to any "forward looking statement" to reflect events or circumstances after the date of this release, or to reflect the occurrence of unanticipated events, except as may be required under applicable securities laws.


Corporate Overview

Non Executive Chairman - Michael Fry

Michael holds a Bachelor of Commerce degree from the University of Western Australia, is a Fellow of Financial Services Institute of Australasia, and is a past member of the ASX. Michael has extensive experience in capital markets and corporate treasury management specialising in the identification of commodity, currency and interest rate risk and the implementation of risk management strategies.

Shares on Issue: Listed Options Unlisted Options: Share Price: Market Cap: Shareholders: Top 20 Holding: Cash

Note 11: 20c Options - 30 June 2012

214,021,000 105,222,171 1 11,500,000 0.12 as of 25/08/2011 $25.68M 796 50.11% ~$5.9M

Managing Director - Paul Bilston

Paul Bilston has a Bachelor of Mechanical engineering and a PhD in Structural engineering, with 15 yrs experience in all aspects of the oil & gas sector. He has worked in a number of senior technical, commercial and management roles for companies including Worley, GHD, AGL Energy and AJ Lucas. In recent years his focus has been on the unconventional hydrocarbon space in Australia and overseas, and most recently managed the Gloucester Gas project in NSW which was sold in December 2008 for $370M by AJL & MPO.

Executive Director - David Prentice

David Prentice's career includes 21 years experience in commercial management and business development within the natural resources sector, working for some of Australia's leading resource companies. This has included high-level commercial and operational roles with a number of listed and unlisted resource companies.

Chief Operating Officer ­ David Woodley

David Woodley holds a Bachelor of Chemical Engineering degree, with over 22 years experience in the oil and gas sector gained in Australia, North America, UK and Europe. He has considerable experience in drilling and completion, field development planning and asset management and evaluation.

Company Secretary ­ Adrien Wing

Mr Adrien Wing is CPA qualified. He practised in the audit and corporate divisions of a chartered accounting firm before working with a number of public companies listed on the Australian Stock Exchange as a corporate/accounting consultant and company secretary.



Identify, acquire and appraise material upstream oil and gas exploration opportunities:

Utilising network of global contacts Primarily unconventional hydrocarbons, CBM, Shale Gas, Shale Oil. Low cost of entry, with primary expenditure on the drill bit High materiality (> 1 TCF Gas, or >10 Million bbl Oil) Projects where Challenger will act as operator

Evaluate and high grade exploration projects to ensure efficient expenditure of shareholders funds Implement staged and cost effect exploration and appraisal programs to evaluate projects with an eye on the best development or exit strategy


Why Unconventional Gas?

Can test large play concepts cheaply Attractive acquisition targets for major Oil & Gas Companies

Deal BHP - Petrohawk BHP-Chesapeake PetroChina - Encana Talisman-Sasol Ev EP/Enervest Chevron­Atlas Mitsui-Anardarko Total-Chesapeake ExxonMobil-XTO Energy

Location Eagleford (SA) Fayettteville (USA) Cut Ridge (Canada) Montney (Canada) Barnett (USA) Marcellus (USA) Marcellus (USA) Barnett (USA) Various (USA)

Date July 11 Feb 11 Feb 11 Dec 10 Nov 10 Nov 10 Feb 10 Jan 10 Dec 09

Net Acres 1,000,000 487,000 317,500 25,500 20,200 Gross 1,209,000 100,000 270,000

Value US$12.0b US$4.75b C$5.4 b C$1.05 b US$967M US$3.2 b US$1.4 b US$2.5 b US $41 b

Historical transactions for unconventional fields indicate LAND: Typical range is $9,500 to $15,000 per acre, though some much higher. RESOURCE: $0.4/mcf to $0.6/mcf


Asset Portfolio

Mercury Stetson Shale Gas Prospect

Barnett Shale Woodford Shale

Triple Crown

Hybrid Gas Play Ellenburger

South Africa

Fort Brown Shales


Mercury Stetson

Two proven shale formations ­ Barnett and Woodford Large prospect area ­ potentially up to 55,000 acres (86 sq miles) Properties consistent with core areas of current shale plays. Significant contiguous lease position

Ft. Worth Basin



Anadarko Basin

Arkoma Basin

Hollis Basin

Newark Field Core Barnett

~ 26,000 acres target ~ 35,000 acres (55 sq miles) Massive OGIP estimated at 360 BCF/sq mile Potentially > 1.5 TCF net resource to CEL Close to existing infrastructure & services Recent Barnett (only) transaction (EV Energy Partners) paid $47,700/acre for Core area

Republic of Mexico GoM


Prospect offers an entry position into proven shales with HUGE UPSIDE POTENTIAL


Expected Stratigraphy & Thickness

Note: TOC results are from cuttings ­ Actual TOC expected to be ~ 100% higher based on experience with analysis of results in the Barnett shale.


Elements of successful shale play


Kerogen Type - Target: Amorphous Kerogen Organic Richness (TOC) - Target: 2% to 6% Gas in Place - Target: >100 BCF/Section (sq Mile) Thermal Maturity - Target: 1.0 ­ 1.8% Ro Uplift = Free Gas - Target 5,000' to 10,000' Silica (Quartz) Content - Target 30% to 80% Thickness - Target: >150' Fracturing

Mercury Stetson Prospect

Amorphous Kerogen Range: 2% to 5% Avg: Barnett 3.2%, Woodford 3.1% 360 BCF+ estimate 1.5% Barnett (dry gas window) 1.5% Woodford (dry gas window) 5,000' to 7,000' of uplift 43% Barnett 50% Woodford 415' Barnett - 185' Woodford Could thicken significantly off structure Evidence of fractured Sycamore between shales ("considerable LCM")


Proven Shales

Barnett Shale First recognised shale gas project in US with more than 14,000 wells now drilled Wells in core area recovering ~ 3 BCF Producing 1.8 TCF/yr Woodford Shale More recently developed Wells in core area recovering ~ 4 BCF Over 1,000 wells drilled Producing 240 BCF/yr

Much lower risk than shale plays in frontier areas.


Mercury Stetson - Go Forward Plan

2011 2012 2013 and beyond

First vertical Well PROOF OF CONCEPT



Vertical Analysis Well & Seismic Program


Drill 2 HZ wells Delineation Wells


Target 600 BCF 3P (100%)

Drill additional Vertical or HZ Delineation Wells


Target 3 TCF 3P (100%)

Land Acquisition & Lease Management


Triple Crown Prospect

Existing Ellenburger Fields

Existing Canyon Sands Fields

De ve lop me n


HP Pipeline


Triple Crown Edwards County

Houston San Antonio

50 km


Triple Crown Prospect- Texas

45,000 Acres in Edwards County Texas Options over ~ 6,500 acres acquired Challenger has 80% WI (100% before payout) Two Targets

Ellenburger Hybrid (Sand/Unconventional)


First appraisal well successfully drilled Dec/Jan 2011. Strong gas shows whilst drilling over a number of zones. A total of 2,300 ft of gas charged zones were intersected



Fracture and high porosity zone

Drilling results confirmed a significant gas charged structure ­ potentially multi TCF gas in place Fractures and high porosity intersected at the top of the Ellenburger, however zone cemented during setting of casing, which likely limited gas production Upper zone at the top of formation is the initial target for horizontal well Original Gas in Place (OGIP) 1.6 TCF


Triple Crown ­ Canyon Hybrid Play

Very strong gas shows over an 1150 ft Sand Challenger believe this to be a hybrid play that consists of a number of sands interbedded within a large unconventional gas zone Sand 1,150 FT Gas Column Strong Gas Shows Unconventional Zone with interbedded sand stringers 2.5 - 10%

Preliminary analysis suggests this play has a very large gas in place, with analysis of known wells suggesting Original Gas in place (OGIP) equivalent to 7.4 TCF over existing acreage

As expected by the depositional environment, analysis of logs of previously drilled wells in the area suggest the potential for this play improves moving down dip off structure Sand/Siltstone


Triple Crown - Go Forward Plan

2011 2012 2013

Core & Petrophysical Analysis as well as regional mapping

Stimulate & production test PROOF OF CONCEPT


Drill Core Delineation Analysis Wells

Pilot production testing



Land Acquisition

Drilling expected to commence shortly to side track into the Ellenburger with a short (500 ft) Horizontal well. Unless the Ellenburger is completed as a producer, a fracture stimulation of the Hybrid will be completed as a "Proof of Concept"


Karoo Basin ­ International gas focus

Shale Gas within the Karoo Basin is now a major focus for international E&P companies seeking to put their foot on new resources Following initial 12 month Technical Co-Operation permits, both Shell and Falcon have moved to the next step of formally applying for Exploration Permits Challenger permit of ~ 800,000 acres centred on only well (CR 1/68) within the basin to flow significant gas to surface Very well positioned having already reached agreement with Black Empowerment Partners (BEE), and first company to submit its application EMP submitted in September 2010 ­ awaiting approval. Currently a fraccing moratorium in place until March 2012.



Falcon Challenger(Bundu)


Cranemere Well (CR 1/68)

Located in the centre of the Application Area Drilled 1968 Well blowout at around 8,300 ft Peak flow of 16 mmcfd during DST Fort Brown Shales

dark grey to black and carbonaceous with occasional siltstone stringers. Strong gas shows in a number of intervals across the 5,000 ft section.

US Energy Information Administration Report on Shale gas potential around the world identified the following:

Karoo Basin large potential "Risked Recoverable Resource" averaged across basin ~ 6.8 BCF / square mile. Equivalent to more than 7 TCF of Risked Recoverable Resource within Challengers Application Area



Challenger Energy's strategy is to identify, acquire and appraise material upstream oil and gas exploration opportunities Mercury Stetson Prospect in North Texas, US

Two proven shale formations ­ Barnett and Woodford Massive potential gas in place with OGIP estimated at 360 BCF/sq mile Large prospect area ­ potentially up to 55,000 acres (86 sq miles) Prospect is close to existing infrastructure Contiguous land position of ~ 26,000 acres with a short term target of 35,000 acres.

Triple Crown Prospect in Texas, US

Significant acreage ­ 45,000 acres with options over a further 6,500 acres. Large gas charged zones, Ellenburger (dolomite) and an unconventional Hybrid play which is geologically analogous to Montney Hybrid Play in Western Canada with an estimated OGIP of 9 TCF. Testing to commence shortly on both the Ellenburger and Hyprid Play

Karoo Basin in South Africa

Shale gas in Karoo Basin now a major focus for international E&P companies (eg Shell, Cheasapeake, Statoil and Sasol) Challenger Energy's permit of approx. 800,000 acres centred on only well within basin to flow significant gas to surface to date, awaiting approval. Independent US Energy Information Agency report suggests Risked Recoverable Resource of more than 7 TCF in application area.

Attractive assets have exciting potential to grow significant shareholder value


Appendices Supporting Mercury Stetson Slides

August 2011


Prospect Scope


OGIP / Section (Square Mile) (BCF)


280 ­ 420




Based on analog data and comparison of shale properties to existing plays Dependent on well spacing Further seismic required to fully define prospect area. Dependent on well type and frac stages, based on equivalent areas, vertical may be an effective option in this area. Based on equivalent areas Drilling through the Oauchita Thrust may increase Costs Based on 80 acre spacing

Estimated Recovery Factor (%) Prospect area (Acres) Initial Production (IP) MMSCFD

10 ­ 40% 20 ­ 55,000 2­6

15% Barnett 30% Woodford 35,000 (55 sq miles) 3.0 HZ Barnett 5.0 HZ Woodford

Reserves per well (BCF) Cost per well (BCF) Drilling Locations

2.5 ­ 6 $2.5 ­ $5.0

3.0 HZ Barnett 4.0 HZ Woodford $3.5 M HZ ~ 875 each Barnett & Woodford


Joint Venture Agreement

Governs relationship between the parties until no leases held by any party. Provides for Challenger to earn 50% interest in Phase 1, by the following:

Payment of up to $2.2 million as and when required for the renewal and extension of existing leases plus the acquisition of additional leases Drill, fracture stimulate, complete and test TWO vertical wells. The parties anticipate that the first well will incorporated the re-entry and completion of the existing well on the property, however in the event that is unsuccessful, a new well will be drilled and the value of the seismic program adjusted to keep Challenger whole. Conduct a seismic program funded partially by revenue from first well to fully define the extend of the shales in the prospect area Connect the two wells to the nearby sales pipeline Challenger is required to pay the balance of the $2.2 M if it does not drill and complete the first well.

Phase 2

Subject to the terms of the agreement, provides for the parties to enter into a Phase 2 program including two horizontal wells in each of the Barnett and Woodford shales. Parties to fund their share, or in the absence of all parties agreeing to fund their share, a mechanism exists for the funding parties to earn additional interest

Scoping Economics

Single Well

Case Well IP MMSCFD 1 2 3 4 2.0 3.0 4.0 5.0 Capex US$M 2.6 2.6 4.0 4.0 EUR BCF 2.5 3.0 4.0 5.0 $4.5 1.8 2.1 2.1 3.0 NPV(10) @ US$/mscf Flat $6 2.4 3.4 3.8 5.2 $7.5 3.4 4.8 5.5 7.2


Based on current operators in the sector, the Expected Ultimate recovery (EUR) Barnett Core ~ 3 BCF/well with well costs ~ $2.6 M/well Expected Ultimate recovery (EUR) Woodford Core ~ 4 ­ 5 BCF/well with well costs ~ $ 4M These Economics are conceptual and unrisked, and are calculated are based on a set of assumptions derived by comparison with existing Barnett and Woodford production


Barnett / Woodford drilling activity


Anadarko Basin Arkoma Basin


Hollis Basin

Oau chit a Th rust Fau lt


New Mexico Texas

Ar d M Ba mo ar si re ie n tta M ue B as ns i te rU n pl ift


Map showing Barnett and Woodford remnant basins (purple) with 2000-2011 shale gas drilling areas (yellow circles)


c bu Ar kl e .U Mt ft pli




Ft. Worth Basin

Republic of Mexico

Exploration for Barnett Shale (called Caney Shale in OK) and Woodford targets under the Quachita Thrust Sheet is now underway in Oklahoma



Source: adapted from Gale, J.F. ,, 2010, AAPG Search & Discovery Article # 10226

NW-SE Ardmore Basin X-Section A-A



Cretaceous Pennsylvanian

Red River


Stetson /Mercury Area


Caney Shale


Barnett Shale

Ouachita Thrust Sheet


Woodford Shale

100 miles


NE-SW Texas/Oklahoma X-section B-B

Stetson / Mercury Area 10 miles east of section


Muenster Arch Ft. Worth Basin


Ardmore Basin

Arbuckle Mtns.

Arkoma Basin

Woodford Shale


Barnett Shale



120 miles



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