This is the story about an oil play that so far has lived up to its promise…
Namibia is the setting…
And a little-known Canadian explorer is the protagonist.
It was the speculative investment of 2020…
But now we think it’s being de-risked following two successful drill results…
And its stock price has been flying as a result.
The first interview we had with the founder Craig Steinke was very well received by our readers who were very impressed with what Reconnaissance Energy Africa (TSXV:RECO, OTC:RECAF) had accomplished in such a short time. But since then it has been speculated that certain hedge funds have been spreading disinformation due to large naked short positions and we wanted to get Craig on the phone again to set a few things right.
In the interview we discuss:
- What investors can expect from the coming results
- Why Recon could be sitting on a large field with just their first 2 wells
- Why log and core data results could result in substantial investor and industry interest
- Why their ESG program is creating such a positive impact within Namibia
- How the Kavango region would benefit from a commercial oil discovery
- What they expect the 2d seismic to show
-When the core data analysis will be completed
-What to expect during the summer months
- What investors should keep their eyes on as new releases come out
- Exactly how well-known geochemist Dan Jarvie is feeling about the results to date
James Stafford: We only spoke a few weeks ago but a lot has happened since then. Tell me about what you have found in the first part of well 2. What does this actually mean for the basin and the chance of this turning into a producing field?
Craig Steinke: Results from the first part of the second well further confirmed an active conventional petroleum system in this basin. The oil and gas shows are very similar to what we saw in the first well 16 km to the south. This suggests connectivity between the two wells and a potentially large field. Although the upcoming seismic survey will better define this possible connection.
JS: You mention in both releases about well 1 and well 2 that you have found a working petroleum system. What does this actually mean?
CS: A working conventional petroleum system consists of a mature source rock to cook the organic material to create liquid hydrocarbons, a migration pathway for the hydrocarbons to migrate to a conventional reservoir rock, a trap and a seal. These are the key elements ReconAfrica and its partner, NAMCOR, the state oil company of Namibia, are confirming in order to achieve commerciality in the Kavango.
JS: How long do you think it will take you to drill the second section of well 2 and what are you hoping to find there following the success of the first section?
CS: We expect to reach total depth of the deeper section of the second well by the first week of July. Our expectation is we will establish further evidence of light oil and natural gas as we’ve seen in the more shallow section. This will provide further evidence to confirm ReconAfrica’s expectation that the Kavango Sedimentary basin is charged with hydrocarbons.
JS: I have spoken with a large number of people and it seems that there is a lot of money sitting on the sidelines waiting for the log and core data from well 1. Do you think that this is the hard data people are waiting for before really getting behind the company? When do you expect we will have the data from well 1?
CS: Given ReconAfrica holds the rights to the entire sedimentary basin, there’s no question positive results with this data is going to precipitate much industry and investor attention. Specifically, core analysis is used to define the important elements of a reservoir rock such as porosity, permeability, fluid saturation and grain density. All of these measurements are essential to better understand the potential productivity of the basin. ReconAfrica and NAMCOR are working with some of the industry’s best third party evaluators, Corelabs, GeoMark and Netherland Sewell based in Houston and Dallas Texas. Therefore, you can be assured the results we have are going to be credible. The Company expects these results will be released in July, 2021.
JS: So in both wells you have found oil and gas shows? Can this be produced? If yes, with what you know so far do you think it could be economical to do so?
CS: It’s important to remember these initial wells were not designed to produce. In keeping with ReconAfrica’s commitment to the Namibian government, these wells were designed to prove an active petroleum system in this virgin basin. Having said this, the first well was only temporarily capped, providing the Company and NAMCOR the opportunity to return to the well and test it for production at a later date.
JS: So analyzing the data you have Schlumberger, Geomark Research & Corelabs (Houston, Texas) and Netherland Sewell and Associates (Dallas, Texas). Could you tell us a little about these companies and why they are the best people to be analyzing your data and samples?
CS: Schlumberger for example employs 82,000 people and operates in 120 countries. Core Laboratories has been in business for 85 years and is a leading provider of reservoir analysis and production enhancement services. All of these service providers are used extensively by the Majors and IOCs. They’re the best in the business.
JS: Can you tell us about your ESG program and what you are hoping to achieve for the environment and the people of Namibia?
CS: June 3, 2021, along with its latest drilling results, ReconAfrica announced a $10 million commitment to ESG. This is an initial commitment and one we expect will grow based on successfully developing a sustainable energy source. The Company is working with local and national governments to refine the program but generally it will comprise efforts to achieve carbon neutrality, support for higher levels of education for the children in the Kavango Region, better access to fresh water and medical services, more sophisticated irrigation systems to achieve higher productivity and measures to protect and regenerate wildlife throughout the region.
Specifically, what is very important to many of the adults within the Kavango region is higher levels of education for their children. They know this is the answer to transcending generational poverty that has stricken the region.
JS: It seems that you are working from the highest levels of government in Namibia all the way down to the local tribes. How are your efforts being received by these groups.
CS: Our efforts are being received extremely well, particularly in light of the fact the drilling program has established a working petroleum system in the Kavango. Achieving commerciality will transform the economics of the local region as well as greatly assist the national government in achieving their Vision 2030 of industrializing their country.
JS: This might seem like a rather basic question - but I'm hoping you can bear with me. Your first well showed over 660 feet of oil and natural gas indicators and on the first part of the second well you reported 440 feet of light oil and gas. Now these wells were 16km apart. So is this basically an underground river of oil that is flowing towards some geological structures called traps that are basically giant underground storage containers for the oil? And judging by the size of the "river" oil could be stored in huge quantities?
CS: We prefer to not make too much out of this currently, but there are definitely similar rock and hydrocarbon characteristics shared between the two wells. If the 2D seismic confirms connectivity between these two wells then potentially it could be a rather large field, but let’s wait to see the results of the seismic.
JS: How excited are you with what you have seen from Well 2 so far?
CS: I’m very excited. We either just got lucky on these first two wells or these wells are indicative of what the entire Kavango basin holds.
JS: In your ESG plan I see that you have already drilled 4 water wells for villages. Could you please let us know what this has done for these people? How did they get their water before they were drilled?
CS: Providing the rural people of the Kavango region with much better access to water is central to our ESG program. Many of us take immediate access to fresh water for granted as we’ve always had it. If you don’t have it, it’s rather a big deal as there is nothing more essential to life than fresh water. Fortunately, there is a prolific freshwater aquifer 80m to 160m below the surface throughout the most part of the Kavango region. The sad part is the local residents do not have the financial wherewithal to drill water wells to access it. As a consequence, mostly women, are tasked with hauling approximately 45 pounds of water on their head for up to 10 km each day. Just try to imagine doing this every day.
ReconAfrica has responded to this problem by already drilling four community water wells and along with permitting and additional 16 water wells. As soon as the permits are ready we will start drilling again. It’s difficult to understand until you actually meet the residents of Kavango of how profoundly this changes their lives on a daily basis.
JS: Our readers were very interested in how Dan Jarvie was feeling last time. With the recent progress how is Dan now?
CS: Dan is the first to admit we’re still in the early stages but he is definitely smiling.
JS: Thanks for your time, Craig. It sounds like things are coming along very well. We are all looking forward to the core results and finding out what is in the deeper part of well 2.
Other oil companies looking to capitalize on the rise in crude prices:
Total (NYSE:TOT) barely squeezes into the top 4 oil and gas companies in the world, as well. And it’s no stranger to the African oil game, either. Total betting big on the region’s potential. The company has been in the region for over 90 years, and it is showing no sign of reducing its footprint anytime soon.
Recently, Total said that it would accelerate its dividend growth “in the coming years” as it looks to return more cash to shareholders. The group will increase its “dividend by 5 to 6 percent per year instead of the 3 percent per year as previously announced,” Total said.
It's also one of the most conscious companies in the business. Total checks every box in the ESG checklist. It is promoting diversity and safety, making massive changes in its operations to ensure that its business is environmentally sound, and has even committed to going carbon neutral by 2050 or sooner. It’s no surprise that shareholders are loving its forward-thinking approach.
BP (NYSE:BP) is another European energy giant slowly pivoting towards greener energy alternatives. BP, which has been criticized in the past as being slow and late to the environmental cause, could now leapfrog its peers. We are still a long way from Beyond Petroleum. But chief executive Bernard Looney believes that we are only 30 years from a net zero BP. He has promised that in September the company will lay out a more detailed plan that shows the path to that destination. But he has shown already that there is more to his commitment to net-zero than there was to Beyond Petroleum 20 years ago.
“Renewables and natural gas together account for the great majority of the growth in primary energy. In our evolving transition scenario, 85% of new energy is lower carbon,” Spencer Dale, BP group chief economist, said, commenting on the outlook to 2040.
Baker Hughes (NYSE:BKR) recently announced what it calls the largest deployment of its remote operations digital technology, and this deployment involved all of Aramco’s drilling operations. This is how the company describes what the project entails: “a single solution that covers data aggregation from the edge; real-time, unified data streaming and visualization; data management; software development services; rig-site digital engineers; and monitoring personnel.”
In other words, what we may call remote drilling in a conversation actually involves a comprehensive push to unify and centralize operations in the upstream industry. Baker Hughes has been doing it for 20 years already, and its peers are doing it, too. According to Jegatheeswaran, this is the future of the upstream. Because it’s beneficial for everyone involved.
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. The digitalization of the global oilfield will prove to be very sticky and begin to deliver subscription-type returns to both companies.
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.
Marathon Petroleum (NYSE:MPC) is one of the leading E&P companies and the owner of the nation's largest refining system, with approximately 2.9 million barrels per day of crude oil processing capacity across 13 refineries. Earlier in the year, four of Texas’ largest oil refineries saw widespread damage from the cold snap and could take weeks to repair, according to Bloomberg. The outages could reduce demand for crude, but cut the supply of refined products.
The four refineries include ExxonMobil’s Baytown and Beaumont plants, Marathon Petroleum’s Galveston Bay refinery, and Total’s Port Arthur facility. The impact undoubtedly impacted Marathon’s bottom line, but the company is back on track, and despite underperforming compared to its peers, it’s still well-positioned for a rebound.
Though Canadian oil has had a particularly rough go at it this year, Canadian Natural Resources (NYSE:CNQ; TSX:CNQ), kept its dividend intact after swinging to a loss for the first half of the year, while Canada's producers are scaling back production by around 1 million bpd amid low oil prices and demand. Though Canadian Natural Resources kept its dividend, it withdrew its production guidance for 2020, however. It also said it would curtail some production at high-cost conventional projects in North America and oil sands operations and carry out planned turnaround activities at oil sands projects in the second half of 2020.
While the Canadian energy giant has seen its stock price slump this year, it could provide a potentially opportunity for investors as oil prices rebound. It is already up over 170% from its March lows, and it could still have some more room to run.
Even old-school fossil fuel producers are getting in on this race. While many of the oil majors have given up on oil sands production – companies like Suncor (NYSE:SU, TSX:TU) who focus on technological advancements in the area have a great long-term outlook. And that upside is further amplified by the fact that it is currently looking particularly under-valued compared to its peers. But that’s just one part of its business, however. Suncor is also a world leader in renewable energy innovations. Recently, the company invested $300 million in a wind farm located in Alberta.
Cenovus Energy (TSX:CVE) is most known for its oil business, but it is also actively investing in renewable energy. More importantly, however, is that it has set truly ambitious sustainability goals for itself, aiming to cut emissions by a massive 30% in just 10 years.
This is one of the most actively traded stocks on the TSX. The potential is certainly here for this oil company, so for investors who are bullish on the return of the oil markets, this is a perfect pick in the Canadian market.
Tourmaline Oil Corp (TSX:TOU) is another Canadian resource producer focusing on exploration, production, development and acquisition within Western Canadian Sedimentary Basin. The company is in possession of an extensive undeveloped land position with long-term growth opportunities and a large multi-year drilling inventory. Tourmaline’s strong leadership make the company a promising pick for investors looking to take advantage of the tremendous Canadian oil opportunities which are due for a strong rebound as oil prices inch higher.
Westshore Terminals (TSX:WTE) is a coal export terminal located at Roberts Bank Superport in Delta British Columbia. It is Canada's largest coal export facility, surpassing the combined coal shipments of all other terminals in Canada. Short sellers are eying at like Westshore Terminals based on a simple fact: they’re in the coal business. And the coal business is living on borrowed time.
Though the fossil fuel industry isn’t quite down for the count just yet, coal is seeing a major decline that is only going to get worse.
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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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