Disclaimer: This is not financial advice and should not be construed as such. If you require personalized financial advice, please seek the services of a relevant professional.
This post is transferred, originally written in September of 2021
Recon Africa (ticker symbol RECAF) is up 500% since last year. Reaching highs of $12 per share in June, it has since then lost 55% of its market value. Therefore, the question must be asked, is Recon Africa still a sound investment?
What does Recon Africa do?
RECAF is an exploratory oil company based out of Canada, with the rights to drill an 8.5-million-acre region in North-Eastern Namibia (a country in the southern region of Africa). That is nearly the size of Switzerland! It was founded by Craig Steinke in 2013 after his team began searching for an untapped, undiscovered hydrocarbon basin. Top geophysicists reviewed previously unanalyzed data (from aeromagnetic mapping), discovering a large (and deep) basin with a high potential for hydrocarbons (oil/gas).
Recon Africa’s basin mapped over Florida for reference.
“ReconAfrica purchased aeromagnetic survey data which the Government of Namibia had commissioned, and had this data processed by Earthfield Technology, based in Houston Texas , one of the world’s leading specialists in quantitative analysis of magnetic and gravity data.”
Daniel Jarvie, a well-respected geophysicist in the O&G industry, predicted a maximum petroleum generation capacity of 120 billion barrels (based on a 12% portion of the land). This prediction was made several months ago, prior to the drilling of the first two wells (which have been completed thus far). It is important to note Jarvie said his estimates were conservative with a higher maximum generation capacity potential being possible. Regarding the 12% figure, it is not as if the other 88% are necessarily non-conducive.
Now… what does this mean? If the 120-billion-barrel estimate proves true, would that mean an equal amount could be extracted and sold? No. In general, the amount of oil is in fact around 10-30% of the maximum oil potential. Furthermore, from that figure, ~10-30% could be recoverable (meaning it can be sold). Note, these are very general estimates. Meaning, these figures could be significantly higher or lower.
To further analyze the potential of this basin, if 1 of the 12% sections have 120 billion barrels petroleum generation capacity, it may be extrapolated the rest of the basin has 200-400+ billion barrel generation capacity (considering 30-60 billion for each). Clearly, this is highly speculative, and may prove highly inaccurate upon further review. However, it serves as a simple exercise to reveal the potential of this land area.
In the last year, notable progress has been made, with the shipment of one oil drill rig to Namibia (which is being used for the preliminary testing). At first, it was announced three test wells would be drilled in different areas throughout the basin. A few months ago, it was announced a further series of wells were scheduled. Thus far, two wells have completed testing, showing extremely positive results for both. Drilling for the third well and seismic testing has been ongoing.
Craig Steinke (founder) has expressed that Daniel Jarvie is, “very happy” with the recently acquired data and, does not express the need to decrease his estimates downwards. The first goal for Recon Africa was to establish a functioning petroleum system. That goal has been achieved with both test wells (being 10 miles apart).
“As reported on April 15, 2021, the mud/well sample log, conducted by Horizon Well Logging Inc., of the 6-2 well provides over 200 meters (over 660 feet) of light oil and natural gas indicators/shows over three discrete intervals in a stacked sequence of reservoir and source rock. Extraction of oil from these samples and subsequent fingerprinting for key characteristics of the liquids, supports an active petroleum system with multiple source intervals.”
With both wells 6-2 and 6-1 having established a functioning petroleum system, this investment has been significantly de-risked and possibly remains undervalued. Some have postulated this “undervaluation” is possibly contributed to by a so-called “short and distort” campaign ongoing. It has been hypothesized by some that certain organizations are conducting this campaign and are distributing false or misleading statements in an effort to cast doubt among shareholders. Although it is unknown, it may be possible.
To express insider confidence, Bill Cathey, a long-time geophysicist, has never invested in any company he has worked for… until now. Furthermore, significant insider buying has occurred throughout the last year. Without a doubt, the Recon Africa team certainly believes in this project’s potential.
According to Dr Ansgar Wanke, PhD (Geology), former Head of Geology Department, University of Namibia, who has worked onsite at Recon Africa’s drilling operations…
“I have been supervising and managing the well site geology of both stratigraphic test wells, namely ST 6-2 and ST 6-1. There, I have been closely working with the mudloggers and observed cuttings and core material, as well as well-site gas readings and liquid hydrocarbon indicators, such as fluorescence cuts. In fact, at both wells I could see and smell petroleum directly. I am thrilled to have witnessed clear indicators of a working petroleum system in the Kavango Basin.”
Over the last several months, more and more evidence has emerged suggesting Recon Africa is sitting on an ocean of oil, light sweet oil (the most valuable type).
Taking a further look into Recon Africa’s team, there is certainly no shortage of renowned individuals from the O&G industry. For one, Nick Steinberger, the inventor of hydraulic fracking, was appointed as the Senior Vice President of Drilling and Completions during the summer of 2020. That being said, no fracking will occur, which Recon Africa has expressed repeatedly (in response to concerns from locals and environmental groups). The government of Namibia has confirmed this as well.
CEO: Scot Evans
CFO: Carlos Escribano
Director: Mark Gerlitz
Director: Dr. James Granath
Chairman of the board and director: J. Jay Park
Rest of management: https://reconafrica.com/about/directors-and-officers/
One might ask, when all is said and done, how much of the oil profits/revenue do investors/Recon Africa get? As it has not been established in this article yet, Recon Africa is partnered with Namcor (National Petroleum Corporation of Namibia). Accounting for the percentage of profits Namcor directly receives, as well as taxes, it ends up being ~50-50 split between RA and the Country of Namibia. A pretty good deal for both sides.
Considerations for future share price:
The Haywood analysis considers a $59 share price increase for every 1 billion barrels of recoverable oil proven.
The DeWolf analysis estimates a $72 (Canadian dollars) SP per billion.
Meaning, that if 40 billion barrels of recoverable oil is established, this would represent an SP of around $2000 if directly accounting for these surface level calculations. This hinges upon a linear increase, meany there may very well be diminishing rises in the sense of, from 1-5 is more than from 5-10 billion. Nonetheless, theoretically, triple digit share prices could be in play (unadjusted for a share split).
Would it take long to establish remarkably high SP’s? Depends on what thinks of as long. Overall, a couple years probably. According to Dewolf Research.
“History shows that the first few wells in a new exploration play establish the multi-billion-barrel fields very quickly” -Dewolf Research.
Considering all, Recon Africa appears to be a company with exceptionally high potential, may be undervalued, and is de-risked (reduced, still plenty of risk) relative to before testing was completed.
I’ll leave you with this statement from James Granath PhD…
“In the Middle East, the immense productivity in Saudi Arabia, Iraq and Iran, especially the Zagros belt, are based on multiple stacked source rocks and various kinds of reservoirs including carbonates, which are involved in many types of traps. This is not to say that Kavango is the same as the Middle East, but some structures there–the Zagros in particular—are similar to what we suspect we have drilled into in the Kavango Sedimentary Basin. 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.”