Scenario A assumes that the Endeavour well is dry and therefore no testing costs are incurred. Also, the dispute between the drilling contractor and the partners is resolved in favour of the partners and no additional payments are required with regard to the Victory well. Finally Canadian Superior converts the short-term bridge loan to units thus relieving Challenger of its obligation to repay this debt in cash. Challenger is sold in Q1/09 before any further capital obligations on Block 5(c) are incurred.

The only differences in scenario B are that Endeavour is assumed to be a successful discovery resulting in additional well testing costs and it is assumed that the dispute with the drilling contractor is resolved in favour of the contractor, adding an additional $5 million of costs. We estimate that Challenger would be short just over $10 million, but this may not be problematic if the sale of the company is negotiated early in the quarter and creditors are willing to provide some leeway with regard to re-payment.

Scenario C is the same as B except that it is assumed that Canadian Superior demands repayment of the $14 million short-term bridge loan in cash rather than exercising its option to convert the loan to units. We estimate that Challenger would require just over $24 million to satisfy its obligations under this scenario. Again, if a corporate sale is imminent (binding agreements signed etc.) then creditors may be lenient with regard to repayment but if this is not the case, then Challenger will be forced to raise sufficient capital to repay its debts through alternative financing. This could be difficult if current market conditions and negative sentiment persist into H1/09.

Scenario D includes all the other assumptions described so far but also assumes that no corporate sale takes place in 2009 and Challenger remains a going concern. We estimate that the company would have a minimum capital commitment of C$45 million for the drilling of two appraisal/development wells on Block 5(c). In this best case scenario, Challenger's stock price is in excess of $3.50/share and the company receives $27.4 million of exercised warrant proceeds in Q4/09. We estimate Challenger would require $44 million of additional funds if these assumptions prove correct.

Scenario E

This scenario is the same as D but assumes no warrant proceeds are received. Thus, Challenger would require slightly more than $70 million to fund its going concern obligations through 2009.

To conclude; due to the lack of any cash-flowing assets that could help internally fund on-going obligations, Challenger's financial situation is less than ideal, making a corporate sale imperative in the next six months.

We view Scenario B or C as the likely outcomes and believe that a corporate sale in Q1/09, or Q2/09 at the latest, has a high probability of occurring despite the global credit crisis.