A daring junior oil and fuel explorer has got down to put the African nation of Namibia—which has by no means produced a single barrel of oil – on the world’s vitality map in a wildcat drill marketing campaign that has taken many unexpectedly.
The Namibian authorities was sitting on a treasure chest of knowledge on the large Kavango Basin, and it looks as if nobody knew.
When Reconnaissance Energy Africa (TSX.V: RECO, OTCMKTS:RECAF) initially noticed the knowledge whereas looking round Africa—what could possibly be the untapped last frontier of vitality—it referred to as on world-class geologist Bill Cathey for a second opinion as to what they is perhaps right here.
Cathey—whose shoppers have included supermajors such as ExxonMobil, ConocoPhillips and Chevron—carried out your complete magnetic survey interpretation of the Kavango Basin for ReconAfrica and was very clear about it: “Nowhere in the world is there a sedimentary basin this deep that does not produce hydrocarbons.”
RECO acquired the exploration rights to your complete 6.3-million-acre Kavango basin in Namibia. Then it prolonged that holding to over 8 million acres by acquiring rights to Botswana’s portion of the basin.
Though Cathey is a famend geologist, that is no assure of success. This is, in spite of everything, an enormous enterprise for a junior explorer, which we predict makes it a very high-risk/high-reward play.
Cathey’s assertion garnered a little bit of consideration for Recon Africa, and for Namibia. But then, one other world-class geochemist jumped on board and upped the stakes.
Dan Jarvie, one of many business’s most well-known geochemist ‘wildcatters’ and a significant determine behind the Texas Barnett play, estimated what he thinks the potential oil generated in Kavango could possibly be at Billions of barrels—conservatively.
“You can forget about super-majors like Exxon, Chevron when it comes to onshore exploration outside of the United States… they aren’t the ones who make these onshore discoveries work. Instead, you should be looking for locations where independents are out in force looking for the next big thing,” Jarvie informed Oilprice.com.
“There is a very strong independent junior explorer here sitting on a sedimentary basin that rivals South Texas in a massively under-explored region,” he mentioned.
That gained the firm extra consideration, nonetheless. But it wasn’t till ReconAfrica began drilling that this inventory began to achieve better consideration, for higher or worse.
In January, ReconAfrica launched a 3-well drilling marketing campaign that they hoped would show there was an lively petroleum system right here.
Many of us weren’t anticipating any outcomes till the tip of the marketing campaign. Instead, the corporate shocked us with outcomes indicating a working petroleum system after solely the primary take a look at drill.
Then, lower than two months later, and solely initially of its second drill, which it spudded on May fifth, RECO introduced further indication of a working petroleum system within the shallow part of its second nicely.
Interest round this inventory has grown considerably as outcomes from the total drill (reaching 12,500 ft) of the second nicely are anticipated within the first week of July.
In the meantime, there appears to be like to be a battle looming over RECO, with one report saying short-sellers having amassed huge positions that they need to now cowl, prompting a barrage of misinformation and faux information campaigns focusing on the corporate. (Here is a must read report on short and distort campaigns on Seeking Alpha and the lengths short sellers will go to.)
Time is operating out, and fact-checking has by no means been extra essential for buyers.
Investors want to know the exploration processes, the pitfalls that face a junior explorer in an enormous basin, and the environmental, social, and governance points that we imagine characterize the one method ahead proper now – as a result of nobody needs one other state of affairs like Nigeria.
Just as essential, buyers want to know how brief sellers function nowadays to allow them to navigate the ocean of misinformation.
The Geology of Kavango & Indications of an Active Petroleum System
The historical past of the geological knowledge for the Kavango Basin begins with the Government of Namibia, which commissioned aeromagnetic survey knowledge that was then bought by ReconAfrica who additional had it analyzed by Bill Cathey’s Houston-based Earthfield Technology.
We imagine there are various info right here that may assist readers navigate the barrage of misinformation floating round on the market in regards to the geology itself and the nature of the drilling marketing campaign:
1) The 3-well drill marketing campaign is about establishing the existence of a working petroleum system.
This is the place readers can simply be misled as a result of oil and fuel exploration is difficult. To totally perceive the exploration course of, it’s a must to perceive that there are totally different processes primarily based on whether or not there are already wells on a particular play or not. If there are wells already in existence, then the duty is to accumulate seismic knowledge to determine potential reservoirs. If there are not any wells but, as within the case of Kavango, (a virgin basin) the duty is to drill stratigraphic take a look at wells first to find out if there’s an lively petroleum system. That is what ReconAfrica is doing with its 3-well marketing campaign. The acquisition of seismic knowledge solely is sensible as soon as an lively petroleum system has been recognized, as in any other case the place do you begin on 8 million acres?
2) RECO has twice, to this point, supplied drilling outcomes that point out an lively petroleum system in Kavango.
The first stratigraphic take a look at nicely (6-2) outcomes had been launched on April fifteenth. The pattern log supplied over 200 meters of sunshine oil and pure fuel indicators over three discrete intervals in a stacked sequence of reservoir and supply rock. Oil was then extracted from these samples and the outcomes supported an lively petroleum system with a number of supply intervals.
The second stratigraphic take a look at nicely (6-1) is designed to be drilled to a depth of three,800 meters (12,500 ft). In its first, shallow part, the nicely encountered 343 meters of oil and fuel indicators, additional confirming an lively petroleum system in Kavango. The Company says the nicely will possible attain its full depth within the first week of July. There was a brief break for upkeep that has now been accomplished and drilling is reported to be underway as we communicate.
In a current assertion, Dr. James Granath, PhD Structural Geology and Director of ReconAfrica, famous: Dr James Granath, PhD (Structural Geology), Director of ReconAfrica: “The 6-2 and 6-1 wells are stratigraphic tests, science wells if you like, but the data from the wells including hydrocarbon shows have hinted at something very interesting, and they emphatically scream the imperative to follow through on a comprehensive exploration program. These wells suggest there is commercial potential in the basin. It took 30 wells in offshore Norway to get to this point, we’ve been lucky enough to do it in the first two.”
And nicely evaluation is coming from among the many finest within the business: Including Schlumberger, together with Core Labs, Geomark Research, and Netherland Sewell. It does not get any extra respected or unbiased than this.
3) The subsequent step is seismic acquisition
Now that proof of an lively petroleum system has been decided, the following step is to know any business potential of RECO’s mission, and the following step is the acquisition of seismic knowledge. Recon Africa and its companion, NAMCOR (the Namibian authorities’s oil firm), will conduct an preliminary 450-kilometer low-impact 2D seismic acquisition program for which they’ve employed Polaris Seismic International for a value of below $4.5M. The seismic operations are scheduled to start in mid-July and are topic to last allowing.
4) More wells and seismic deliberate
RECO and NAMCOR additionally plan to hunt approval from the Ministry for the drilling of extra wells past the preliminary 3-well marketing campaign and for added seismic, which they’re focusing on for the second half of this yr, pending allowing and licensing.
Where The Namibian Government Stands
Does Recon Africa (TSX.V: RECO, OTCMKTS:RECAF) have the Namibian authorities’s assist for its Kavango Basin mission? Yes, and that has been demonstrated a number of occasions because the firm’s acquisition of aeromagnetic survey knowledge from the federal government.
It additionally has the assist of the governor of East Kavango, Bonifasius Wakudumo.
“We are pleased with ReconAfrica’s approach to working closely and in constant consultation with our office, the traditional leadership, local authority, and the community. This is only the beginning stages and we have already started to experience the positive economic and social impact of the project in our regions.” Kavango East Governor, Bonifasius Wakudumo mentioned.
In response to short-selling studies spreading what the Namibian authorities has mentioned is “disinformation”, the federal government on June twenty fifth introduced it was making a cohesive public relations technique that may contain all stakeholders to counter misinformation relating to the exploration mission.
A government communique notes: “Cabinet took note of the progress made by Recon Africa under [a] petroleum license. Cabinet directed the ministry of mines to develop an efficient and effective public relations strategy with a communication plan for stakeholder engagement on the project, including constituency councilors, traditional leaders, and local communities in the Kavango East, West, and Zambezi regions.”
The Petroleum Agreement, as examined by our correspondents, seems to be stable. Once exploration is concluded, ReconAfrica will probably return as much as 75% of the licensed basin space to the federal government of Namibia. That return would embody any territory that’s not included in a business discovery zone.
The present exploration license is extendable with Ministry approval to the tip of January 2023. After that, a second extension interval is allowed to 2 extra years of exploration, and past that, one-year extensions are a part of the settlement to 2026. If there’s a business discovery, the petroleum settlement is mentioned to entitle Recon Africa and its native companion to a 25-year manufacturing license that’s renewable for a further 10 years in Namibia (and 20 years in Botswana).
It’s all fairly easy in our view.
Recon Africa’s Cash Position
One of the primary questions any investor ought to ask about this firm is whether or not it has the money to hold out the exploration as deliberate. It is a big basin, as has been mentioned, for a really small explorer. It is a basin that may usually be explored by a supermajor. There are only a few junior oil and fuel corporations of this measurement that would be capable to pull this off, and we predict RECO is one in all them.
ReconAfrica lately accomplished a CDN $41 million fairness elevate and has disclosed that it has CDN $63,000,000 (~$51.2 million) in money reserves for the 3-well drill marketing campaign (of which it is virtually accomplished with drill No. 2, plus the upcoming 450-km of seismic, which is able to value round $4.5 million).
And it has zero debt. That means no debt covenants to crush them and no curiosity funds.
ESG Initiatives: Spreading the Wealth
Let’s begin with water.
Many residents of Kavango East do not have clean drinking water.
An estimated 40% of the 250,000 individuals of the Kavango area stay in generational poverty. An oil discovery might imply jobs and improved entry to primary human rights, equivalent to clear water and medical companies.
They do not need the sources to drill water wells, though they’re sitting on prime of a freshwater aquifer. Instead, they stroll lengthy distances every single day to hold large volumes of water again dwelling.
Recon Africa is drilling these wells as a part of its responsibility to give back to the local communities which can be permitting the corporate to probe for oil in the basin alongside NAMCOR, the government-owned oil firm.
In the meantime, ReconAfrica has dedicated $10 million to ESG and has been utilizing some of its sources to drill water wells for native inhabitants. Water is scarce in Northeast Namibia, and amongst different issues, so far, the corporate has drilled 4 solar-powered group water wells, with plans to drill and donate eight extra water wells for the local people, for which allows have already been awarded.
It’s been cause for celebration in Kavango.
The Company has formally acquired all water nicely regulatory approvals for drilling operations from the Ministry of Agriculture, Water, and Land Reform.
Furthermore, ReconAfrica has dedicated over $1 million to Namibia’s COVID-19 Vaccine Rollout Campaign, along with its contributions final yr to healthcare assist within the Kavango area.
ReconAfrica will not be working in an environmental vacuum right here. These aren’t the times of Shell in Nigeria when it was about nothing greater than exploiting a rustic for its pure sources as a result of nobody was paying consideration.
Today, fortunately, everyone seems to be paying consideration, and ReconAfrica has far an excessive amount of at stake—significantly given the reputations of the world-famous geologists and geochemists backing it—to disregard the important facets of the setting, social duty, and good governance.
As a Canadian firm, ReconAfrica employs finest practices and applied sciences and has assured the general public again and again, as has the Namibian authorities itself, that they’re operating in line with legal obligations.
Its allowing, licensing, and operations have additionally not taken place in a authorized vacuum. Everything is under constant review by a number of businesses, together with the Ministry of Mines & Energy of Namibia, the Ministry of Agriculture, Water & Land Reform, the Ministry of Environment, Forestry & Tourism, the Ministry of Home Affairs, Immigration, Safety & Security, and others on the native and regional ranges.
And it is not fracking. While earlier estimates of potential oil in Kavango accomplished by Sproule had famous the “unconventional” potential, estimates by Dan Jarvie for billions boe of “conventional” oil, which is precisely what ReconAfrica is pursuing. ReconAfrica studies it does not have any fracking permits, nor has it utilized for any. It’s the standard potential that they are specializing in.
The Company studies they’re additionally not threatening the area’s Okavango River, which is greater than 50 kilometers north of ReconAfrica’s operations, nor the ecologically important Okavango Delta, which is 260 kilometers west of Reco’s operations.
ReconAfrica is utilizing seismic tools owned and operated by Polaris Seismic International out of Alberta, Canada. This is the lightest impression seismic tools the world has to supply. More particularly, in accordance with Bill Mooney CEO, it’s a 9-foot-wide Mercedes Benz tractor that drives soundwaves into the bottom, despatched to wi-fi geophones, at a low or idle RPM.
Finally, with regard to drilling fluids, ReconAfrica studies it’s solely on every location for just a few months after which the land is reclaimed and returned to regular. They say they use essentially the most superior drilling fluid within the business, which is a polymer water-based fluid; in different phrases, plant oil. It’s benign, 100% biodegradable and 100% natural. Not solely that, however Steinke says it’s really used to counterpoint soil within the United States.
Local residents are already going by way of a pilot mission the place they domesticate a big space for vegetable gardening, fertilizing it with ReconAfrica’s natural drilling fluid.
Excess fluids and cuttings are managed in a reserve pit adjoining to the drilling rig. The rocks being drilled by way of for the three exploratory wells are environmentally benign (in contrast to in mining operations), and that is true for many typical oil and fuel wells generally. Any fluids encountered whereas drilling keep within the formation as a result of equal circulating density of the drilling fluid system. The cuttings from the nicely are additionally being captured and bagged, with half of the cuttings put aside for the Namibian authorities for future examine.
An natural gel/clay barrier on the pit base prevents seepage into groundwater and soils. This strategy is healthier than polyurethane pit linings, that are simple to put in however difficult to take away throughout reclamation, which may result in shredding and leaks.
Furthermore, native group leaders have come out in protection of the reality, recognizing that external forces and faux information have hijacked their very own capacity to talk.
Predatory Tactics Threatening Namibia for Short Seller Gains
Short sellers first tried to spice up their brief place probabilities on RECO by alleging environmental negligence.
When that misinformation marketing campaign did not have the specified impression, we imagine the marketing campaign was tweaked to give attention to the oil prospects—an space that’s simpler to mislead buyers who usually are not acquainted with the exploration and manufacturing phases and who (very similar to the authors of the brief studies themselves) don’t have any schooling in geology.
The downside we see for brief sellers now could be that ReconAfrica (TSX.V: RECO, OTCMKTS:RECAF) both acquired fortunate on its first two wells to find an lively petroleum system, or it knew what it was focusing on within the first place and luck had nothing to do with it. Either method, it is excellent news for Namibia and unhealthy information for brief sellers whose misinformation campaigns have fallen in need of the specified impression. Under rising strain from buyers now to reverse these losses, the pretend information campaigns have taken on a new form of aggression up to now two weeks.
We suppose that’s largely as a result of time is operating out.
In our view, the world-class standing of Dan Jarvie and Bill Cathey has rendered the geology-related slander ineffective for essentially the most half, and the Namibian authorities itself has rendered the environmental libel null and void.
Now, short-sellers are confronted with the looming completion of the second nicely by ReconAfrica, in all probability inside per week, and the begin of 450 kilometers of seismic.
The July/August timeline is what’s value watching very carefully:
– Seismic: The allow is predicted any day, with first exercise anticipated at first of July, together with the Vertical Seismic Profile of each wells drilled so far.
– 6-1 Well: completion of drilling (first nicely took 4 months, this one, 10 weeks)
– 6-2 Well: compilation of all technical evaluations from third events (Core Labs, Schulmberger, GeoMark Research, Netherland Sewell)
– Completion of ROE acquisition: Court approval anticipated within the third or fourth week of July
– Site preparation for the third nicely with drilling anticipated to begin in September
If the completion of drill No. 2 and the return of lab outcomes prime even the primary and second showings of an lively petroleum system and oil encounters, the brief sellers could possibly be crushed in our choose for the oil play of the last decade. We imagine it is going to possible be a seismic defeat—fairly literally–for these using soiled techniques to destroy a firm that has a few of the largest names within the business behind it.
Other corporations trying to capitalize on the oil restoration:
Enbridge (TSX:ENB) is in a novel place as oil and fuel phases its 2021 comeback. As one of many extra probably undervalued corporations within the sector, it could possibly be set to win massive this yr. But that is provided that it may well overcome a few of the challenges in its path. Most particularly, its Line 3 mission which has confronted scrutiny from environmentalists.
While this problem could show troublesome for Enbridge to beat, the well being of the Canadian oil business is bettering, and with it, the outlook for Canadian producers equivalent to Enbridge. The firm has already began the yr off sturdy, and if it may well proceed its momentum, it is going to possible be capable to see a sustained rally in its share value over the course of the yr.
Canadian Natural Resources (TSX:CNQ) has been capable of do what a lot of its Canadian counterparts have not been in a position to, hold its dividend intact after swinging to a loss for the primary half of the COVID pandemic, whereas Canada’s producers are scaling again manufacturing by round 1 million bpd amid low oil costs and demand. Though Canadian Natural Resources stored its dividend, it withdrew its manufacturing steering for 2020, nevertheless. It additionally mentioned it might curtail some manufacturing at high-cost typical initiatives in North America and oil sands operations and perform deliberate turnaround actions at oil sands initiatives within the second half of 2020.
Though there’s loads of destructive press surrounding Canada’s oil sands, the business is beginning to clear up its act a bit. And Canadian Natural Resources is main the cost. And if analysts are proper about Canada’s comeback, Canadian Natural Resources could possibly be in for a giant yr.
TC Energy Corporation (TSX:TRP) is a Calgary-based vitality large. The firm owns and operates vitality infrastructure all through North America. TC Energy is among the continent’s largest suppliers of fuel storage and owns and has pursuits in roughly 11,800 megawatts of energy technology. It’s additionally one of many continent’s most essential pipeline operators. With TC Energy’s large affect all through North America, it’s no surprise that the corporate is amongst one in all Canada’s strongest and well-known corporations.
Like various its friends, one in all TC Energy’s largest challenges in recent times was grappling with the significantly troublesome approval course of for its Keystone Pipeline. But that is all historical past now, and with the bounce again in oil and fuel demand, TC Energy might stand to profit. While TC Energy’s inventory value has but to recuperate from pre-pandemic ranges, it is among the few business giants which has managed to maintain excessive dividends rolling in. With quarterly payouts exceeding 6%, TC has remained interesting for buyers within the business.
Suncor Energy (TSX:SU) is one other large in Canada’s business. It has set itself aside from a few of its friends by way of various high-tech options for locating, pumping, storing, and delivering its sources. Not solely is it massive within the oil sector, however it’s additionally a pacesetter in renewable vitality. Recently, the corporate invested $300 million in a wind farm positioned in Alberta, exhibiting that it’s dedicated to lowering its carbon footprint.
Now that oil costs are lastly recovering, giants like Suncor trying to capitalize. While most of the oil majors have given up on oil sands manufacturing – those that give attention to technological developments within the space have a nice long-term outlook. And that upside is additional amplified by the truth that it’s at present trying significantly under-valued in comparison with its friends, particularly as lithium, which is current in Canada’s oil sands, turns into an excellent extra fascinating commodity.
By. James Stafford
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Forward-Looking Statements. Statements contained on this doc that aren’t historic info are forward-looking statements that contain varied dangers and uncertainty affecting the enterprise of Recon. All estimates and statements with respect to Recon’s operations, its plans and projections, measurement of potential oil reserves, comparisons to different oil producing fields, oil costs, recoverable oil, manufacturing targets, manufacturing and different working prices and chance of oil recoverability are forward-looking statements below relevant securities legal guidelines and essentially contain dangers and uncertainties together with, with out limitation: dangers related with oil and fuel exploration, together with drilling and different exploration actions, timing of studies, improvement, exploitation and manufacturing, geological dangers, advertising and marketing and transportation, availability of ample funding, volatility of commodity costs, imprecision of reserve and useful resource estimates, environmental dangers, competitors from different producers, authorities regulation, dates of graduation of manufacturing and modifications within the regulatory and taxation setting. Actual outcomes could fluctuate materially from the info supplied on this doc, and there’s no illustration that the precise outcomes realized sooner or later would be the identical in entire or partially as these introduced herein. Other elements that might trigger precise outcomes to vary from these contained within the forward-looking statements are additionally set forth in filings that Recon and its technical analysts have made. We undertake no obligation, besides as in any other case required by legislation, to replace these forward-looking statements besides as required by legislation.
Exploration for hydrocarbons is a extremely speculative enterprise essentially involving substantial threat. Recon’s future success will rely on its capacity to develop its present properties and on its capacity to find sources which can be able to business manufacturing. However, there isn’t any assurance that Recon’s future exploration and improvement efforts will end result within the discovery or improvement of economic accumulations of oil and pure fuel. In addition, even when hydrocarbons are found, the prices of extracting and delivering the hydrocarbons to market and variations in the market value could render uneconomic any found deposit. Geological situations are variable and unpredictable. Even if manufacturing is commenced from a nicely, the amount of hydrocarbons produced inevitably will decline over time, and manufacturing could also be adversely affected or could should be terminated altogether if Recon encounters unexpected geological situations. Adverse climatic situations at such properties may hinder Recon’s capacity to hold on exploration or manufacturing actions constantly all through any given yr.
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