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London – July 21, 2021 – No oil discovery narrative appears to have captured investor attention this year as much as Reconnaissance Africa’s (RECO, RECAF) acquisition of the rights to Namibia’s giant, 6.3-million-acre Kavango Basin, which was followed in short order by two confirmations of an active petroleum system. Mentioned in today’s commentary includes: Schlumberger (NYSE: SLB), Baker Hughes (NYSE: BKR), ConocoPhillips (NYSE: COP), Enbridge Inc. (NYSE: ENB) (TSX: ENB), Canadian Natural Resources (NYSE: CNQ) (TSX: CNQ).
It’s captured our attention for several reasons; not the least of which is that onshore discoveries are pretty much a thing of the past, except in the final frontier of Africa, where Namibia—which has never produced a barrel in its history—is anxiously awaiting the possibility of its day in the energy spotlight. It’s also captured our attention because this is a junior explorer who is sitting on what we think is a supermajor-size basin, and it’s fully-funded for its current 3-test well drill campaign. But in recent weeks, our attention has been drawn by reports of surprise early results—twice. And now, there is a lot to potentially look forward to in the coming days and weeks.
On Monday last week, ReconAfrica announced that it had completed its second drill at its 6-1 stratigraphic test well. In a matter of days, we are expecting the results from that drill.
Expectations are high because not only did RECO show indications of an active petroleum system in its first test-well drill (6-2), but it also showed over 200 meters (over 660 feet) of oil and natural gas indicators over three discrete intervals in a stacked sequence of reservoir and source rock.
Expectations are also high because only part way into the second drill (6-1), in the shallow section, RECO again provided clear evidence of an active petroleum system, with 134 meters (440 feet) of light oil and gas shows. Now, RECO is launching 2D seismic, and soon to release full drill results from (6-2)—the well that’s already delivered positive results in the shallow sections.
Everything Lines Up in RECO’s Favor
Everything appears to be lining up in RECO’s favor, from day one when they took the giant leap of faith to acquire the rights to this huge basin in Namibia, and then to add another huge section of the same basin in Botswana. That gave them a total of 8.5 million acres.
A huge boost of confidence came first from Bill Cathey, an industry recognized geologist for the biggest oil companies in the world, who performed the magnetic survey interpretation for RECO. Cathey came out saying that, “Nowhere in the world is there a sedimentary basin this deep that does not produce hydrocarbons.”
Then came Daniel Jarvie, a leading geochemist and source rock expert who is now all-in on RECO (RECO, RECAF) … Jarvie estimated, conservatively, that the basin has generated billions of barrels of oil and gas. He liked what he saw—a lot—so joined the RECO team. The company reports it has full government support—local and national, and has been helping Namibia from the start, from drilling water wells for Kavango residents who have limited access to potable water, to helping to fund the country’s COVID-19 vaccine rollout.
Short-Selling Desperation May Have Hit Fever Pitch
So, now, with two confirmations of an active petroleum system under its belt, new results expected just days away, 2D seismic having launched… we think those who have taken on enormous short positions against RECO are thoroughly desperate.
That desperation may have led to organized media campaigns against the company, in what we think is an attempt to bring the stock down enough to give them time to cover their shorts before there is no longer any way to stop the march forward in Namibia.
One of the most important breadcrumbs comes in the latest press release from Monday, which tells us that both test wells, 6-2 and 6-1, will have a VSP (vertical seismic profile tool) run through them, connecting them along the same seismic line. And later this month, the company says casing will be run and cemented to isolate the prospective hydrocarbon bearing zones.
Investors who have no background in geology might now be able to interpret this clearly, but for us, the most important breadcrumb is this: ReconAfrica would never fund the complex operation of running a VSP to tie these two wells together along the same seismic line if there wasn’t a potential for something big there—in both wells.
Now that the second drill has been completed, RECO (RECO, RECAF) reports it is making multiple logging runs and that up to 50 sidewall cores will be taken to maximize potential hydrocarbon recovery. Once that is complete, the VSP is run as part of the 2D seismic program.
RECO (with its partner NAMCOR, the state oil company) received approval from the Namibian government on July 7th for seismic and will begin acquisition of the initial 450 km 2D seismic program across the Kavango basin any day. That will last for approx. 6-8 weeks.
Polaris COO, Joe Little stated, “The acquisition plan is progressing very well for a successful recording launch in mid July. Given our past success with the environmentally friendly Explorer 860 source units on past projects in Africa and given the very high resolution parameters designed by ReconAfrica’s seismic team, we anticipate getting excellent data results on the project.”
What has made an organized misinformation campaign so hard to manage on the part of short sellers is the fact that RECO isn’t a fly-by-night junior explorer and a lot of RECO’s online followers appear to be very well informed and are keeping fellow investors up to date, which for a short and distort campaign is a problem as they need uninformed investors for their illegal strategies to work:
It’s difficult for us to second-guess results and operations when some of the biggest names in the industry are involved, including the likes of giant Schlumberger, and Polaris. None of the companies involved in this operation would be willing to associate themselves with a fraudulent oil exploration play. And we think short sellers are having a hard time covering because RECO (RECO, RECAF) has done everything by the book, with some of the best in the industry. There may be no other way to approach a basin of this size. This is not another Canadian micro-cap plopping itself down on a random piece of Alberta and pretending to drill while taking investor money. This is the big time, and it could end up being our last big onshore oil discovery—ever.
Other Companies Looking To Capitalize On The Rise In Oil Prices
Schlumberger (NYSE:SLB) is transforming itself to survive and thrive in an oilfield a fraction of the size it was only a few years ago. The emphasis is shifting from throwing big chunks of iron and a schoolyard full people at a project to minimizing capital intensity of operations through the digital PSO transformation we have discussed here.
SLB is ahead of the rest of the oilfield pack with their New Energy Genvia venture, which aims to produce carbon free blue hydrogen through a hydrogen-production technology venture in partnership with the French Alternative Energies and Atomic Energy Commission (CEA), and with Vinci Construction. This new venture will accelerate the development and first industrial deployment of the CEA high-temperature reversible solid oxide electrolyzer (SOE) technology.
Like many of its peers, Baker Hughes (NYSE:BKR) has also faced mounting pressure to join the green revolution. And it’s risen to the call-to-arms. Surprisingly, however, it wasn’t investor pressure that got Baker Hughes into the hydrogen boon. In fact, it’s been in the game for well over half a century. It built its first hydrogen compressor in 1962, and hasn’t stopped since.
Because it’s still primarily an oil field service company, however, Baker Hughes has had its share of ups and downs over the past year, but the $27 billion industry giant still remains a smart buy for long-term investors. Not only has it shown that it can adapt to the times, but it also pays dividends!
ConocoPhillips (NYSE:COP), as the largest pure upstream company, has performed relatively well in this depressed market, generating ample free cash flow and returning a good chunk of it to shareholders. Unlike many of its peers who continued to expand aggressively during the shale boom, COP has taken several steps to lower costs and fortify its balance sheet.
Thanks to a global recovery in demand, Conoco has seen an increasingly bullish look on the industry, and it was one of the few companies which did not partake in the mass-layoffs seen in the industry last year. In addition, Conoco has also seen a fairly decent about of insiders buying into its stock, which is a good sign.
The company, Enbridge Inc.(NYSE:ENB) (TSX:ENB), is a Canadian multinational energy company. Founded in 1949 by the World War II veterans Kenneth W. Dam and Arnold R. Parry, it has since grown to be one of North America’s largest pipeline companies with over 2 million miles of pipelines across Canada and the United States. They also provide services for gas transmission, natural gas storage, distribution as well as power generation and electricity retailing. They have more than 150 years combined experience in developing energy infrastructure that provides Canadians with affordable energy that they can rely on to heat their homes during long winter months or cool them down during hot summer days.
Canadian Natural Resources (NYSE:CNQ) (TSX:CNQ) is one of the biggest names in the Canadian energy sector with operations spanning across North America and Western Europe. The company has been around since 2010 but has had roots dating back to 1952 when Panarctic Oils was founded by Harold Lothrop, Kenneth Lothrop (Harold’s father), and two other partners.
Like Enbridge, Canadian Natural Resources has struggled through the pandemic, but the companyhas been able to do what many of its Canadian counterparts haven’t been able to, keep its dividend intact after swinging to a loss for the first half of the COVID pandemic, while Canada’s producers are scaling back production by around 1 million bpd amid low oil prices and demand.
By. James Stafford
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Forward-Looking Statements. Statements contained in this document that are not historical facts are forward-looking statements that involve various risks and uncertainty affecting the business of Recon. All estimates and statements with respect to Recon’s operations, its plans and projections, size of potential oil reserves, comparisons to other oil producing fields, oil prices, recoverable oil, production targets, production and other operating costs and likelihood of oil recoverability are forward-looking statements under applicable securities laws and necessarily involve risks and uncertainties including, without limitation: risks associated with oil and gas exploration, including drilling and other exploration activities, timing of reports, development, exploitation and production, geological risks, marketing and transportation, availability of adequate funding, volatility of commodity prices, imprecision of reserve and resource estimates, environmental risks, competition from other producers, government regulation, dates of commencement of production and changes in the regulatory and taxation environment. Actual results may vary materially from the information provided in this document, and there is no representation that the actual results realized in the future will be the same in whole or in part as those presented herein. Other factors that could cause actual results to differ from those contained in the forward-looking statements are also set forth in filings that Recon and its technical analysts have made. We undertake no obligation, except as otherwise required by law, to update these forward-looking statements except as required by law.
Exploration for hydrocarbons is a highly speculative venture necessarily involving substantial risk. Recon’s future success will depend on its ability to develop its current properties and on its ability to discover resources that are capable of commercial production. However, there is no assurance that Recon’s future exploration and development efforts will result in the discovery or development of commercial accumulations of oil and natural gas. In addition, even if hydrocarbons are discovered, the costs of extracting and delivering the hydrocarbons to market and variations in the market price may render uneconomic any discovered deposit. Geological conditions are variable and unpredictable. Even if production is commenced from a well, the quantity of hydrocarbons produced inevitably will decline over time, and production may be adversely affected or may have to be terminated altogether if Recon encounters unforeseen geological conditions. Adverse climatic conditions at such properties may also hinder Recon’s ability to carry on exploration or production activities continuously throughout any given year.
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