A three-well drill campaign has just been launched by a small-cap explorer in a massive Permian basin that could end up being the next major conventional onshore oil discovery in the world.
And everyone’s watching as many names in the oil industry and resource assessment gather around Reconnaissance Energy (TSX-V: RECO; OTC:RECAF).
It’s exciting for two reasons.
First, there’s no more potentially lucrative risk-reward setup than a small-cap sitting on a high-risk exploration play.
Plays like this that succeeded have netted some investors 1,000-4,000% gains in the past.
And this play is in Africa, where we’ve seen it happen before:
- Africa Oil netted well timed investors over 1,000% gains.
- Tanganyaika Oil netted investors up to 4,000% gains.
- Centurion Energy International netted investors over 1,200% gains.
And those gains were for plays that might in the end pale in comparison to the potential of RECO’s 8.5-million-acre Kavango basin in Namibia and Botswana.
RECO’s land package is far bigger and far more consequential, with well known geoscientists in the industry backing what they think could end up being 120 billion barrels of oil in place.
The drilling has just begun and the first 6-2 exploration well has been spudded. Over the next quarter, the first results and analysis should come in, and Haywood sees way more reward than risk.
Haywood, which initiated coverage of RECO in November at a $2.50 price target, has now bumped that up to $4.00 in the short term precisely because it knows potential upside when it sees it.
Haywood lists a series of examples of 380%-1,000% upside for companies with an initial oil discovery during the exploration phase, noting: “With an initial discovery, ReconAfrica could experience rapid value accretion. It is in this phase; share price growth can be rapid on success and/or anticipation of success.”
The World Still Needs A Lot of Oil
Heading into 2021, we expect the oil industry--which took a beating this year--to experience a sound rebound.
And even though the industry appears to be under threat by the EV boom, even in the transportation sector, we’re still looking at years and years of fossil fuels dominance.
There are other vital oil by-products the world still desperately needs, as well--from construction and agriculture to medical devices, daily household items, clothing, furniture, toys, and even electronics and solar panels. Yes, the next big energy transition can’t happen without fossil fuels.
Even the EV boom is dependent on fossil fuels, with nearly half of the materials made up of plastic from the petrochemicals industry.
But there won’t likely be any more triple-digit oil prices.
That means companies will have to produce at lower costs, which also means that a lower-cost conventional oil discovery of the potential magnitude of Kavango would be a big win all around.
The Big Money Is Looking to Conventional & Loves the Permian
Saudi Arabia’s conventional oil wells are extremely cheap to operate. In fact, the Saudis can produce oil for as low as $3 a barrel.
American shale costs many times more to extract, and in some cases up to $73 per barrel. It’s not as simple as drilling a hole in the ground and watching the oil gush out.
And while U.S. shale or “unconventional” oil was all the rage behind the boom that ended up making the United States a top producer to challenge even the Saudis, the new rationale is that the next big discovery will have to be conventional--and huge--in order to make economic sense.
That’s exactly why the Permian basin in Texas has always been--and remains--the most coveted basin in the world.
Now, Wood Mackenzie--the most trusted name in resource assessments--says ReconAfrica’s (TSX-V: RECO; OTC:RECAF) Kavango Basin is analogous to the Midland Basin in Texas, part of the prolific Permian.
Not only that, but Woods Mackenzie estimates the overall development value of Midland to be $540 billion.
Texas’ Permian basin boasts one of the world’s thickest deposits of sedimentary rocks, formed during the Permian geological period. It’s a 250-mile-wide, 300-mile-long sedimentary basin housing the Midland Basin, the Delaware Basin, and the Central Basin Platform across West Texas and Southeast New Mexico.
It’s produced 28.9 billion barrels of oil and 75 trillion cubic feet of gas, with no sign of letting up. As of the time of writing, the Permian basin is producing over 4 million barrels per day.
In 2019, it became the top producer in the world, even outranking the Saudis.
And … it’s analogous to Kavango, the next potentially huge conventional oil discovery that we’re about to find out about in a matter of months.
A 2021 Oil Frenzy Can Only Happen in Africa
It’s generally thought that there’s almost no oil or gas left to discover on land, except in Africa, which remains massively under explored.
There aren’t likely to be any more huge discoveries in Nigeria and Angola, Africa’s No. 1 and No.2 producers, respectively, and environmental disasters, corruption, and heavy-handed tax regimes are rendering both increasingly toxic.
Namibia hasn’t produced a single barrel of oil in its history - onshore or offshore. Offshore, Exxon (NYSE:XOM) has scooped up 7 million net acres …
Onshore, Recon Africa (TSX-V: RECO; OTC:RECAF) is the superstar--and the only player with significant acreage in the field. That’s because it bought up oil and gas rights to the entire Kavango sedimentary basin from Namibia all the way to Botswana before anyone had time to blink.
Now, the company is setting itself up for an even bigger potential win than Africa Oil did in a stunning discovery that put Kenya on the oil map back in 2010. When small-cap Africa Oil discovered the East Africa Rift oil, investors saw a 10X windfall right off the bat.
RECO is attempting to do the same in a different rift basin, but in a jurisdiction that has never produced a barrel of oil but has world-class infrastructure and ports due to a strong mineral resource sector that is investor-friendly.
World-Famous Geochemist Estimates 120 Billion Barrels
The prospects here are so tantalizing that some of the most renowned geoscientists in the world have chimed in.
Dan Jarvie, one of the original geoscientists that helped locate their claim in Namibia, is a world-renowned geochemist who’s analyzed and interpreted petroleum formations the world over.
He was one of the primary drivers behind the exploration of the Barnett resource play and former Chief Geochemist for oil and gas major EOG Resources (one of the largest independent oil producers in North America).
He is a household name in the industry.
Jarvie recently came out with estimates showing the potential for generation of 120 billion barrels of oil equivalent based only on 12% of Recon’s holdings. He says he’s being conservative.
And it’s not just 120 billion barrels to Jarvie: “We could even be looking at the last major onshore oil discovery on Earth.”
Even better: ReconAfrica (TSX-V: RECO; OTC:RECAF) still has plenty of cash on hand to complete their drill program – and with a massive 8.5-million-acre land package, it’s also got plenty of promising targets to choose from.
With the first test well already spudded, and drilling operations now underway as of today, by mid-February, we could already see them reach a depth of 12,000 feet. Next comes 2D seismic acquisition and interpretation in Q2 2021, followed by 6-2 well evaluation and drilling of two other back-to-back wells in the same quarter.
By the second half of next year if everything goes to plan, it’s likely RECO will already be in JV discussions if drilling goes as planned. RECO just went one step closer to de-risking a “massive potential resource”, according to Haywood. In a few weeks, early-in investors will find out, and it will be on everyone’s radar.
Other companies looking to capitalize on the rebound in oil:
Exxon (NYSE:XOM) has been desperately pulling on all the levers in a bid to get through the oil slump with its dividend intact but could be running out of options. Exxon has announced that it will cut 15% of its workforce in order to protect its fat dividend (10.6% yield) and also slash capital expenditure--again.
Exxon is also pondering something else unExxon-like: A major asset writeoff. The company is currently reassessing its North American natural gas holdings and could impair a staggering $25B-$30B. Wall Street has been hard on Exxon for the company's earlier refusal to lower its capital spending and reluctance to adjust the book value of its assets to reflect the current reality.
ExxonMobil isn’t ignoring the reality of the market, however. It has made major moves in its commitment to reduce its emissions. It claims to have about one-fifth of the world’s total carbon capture capacity. The company captures about 7 million tons per year of carbon.
Like many of its peers, ExxonMobil has also shed nearly half of its value since the beginning of 2020. Despite this, Exxon has been making big moves in the energy realm, and is positioning itself perfectly to capitalize on the rebound in oil prices, as well as the global pivot to natural gas, in the coming years.
CNOOC Limited (TSX:CNU) is one of China’s oil majors. It’s the country’s most significant producer of offshore crude oil and natural gas, and may well be one of the most controversial oil stocks for investors on the market. A label that has nothing to do with its operations, however.
It's not yet clear how the growing antipathy between China and the United States will affect the U.S. natural gas sector, given that CNOOC is China's largest importer of LNG. But as the Biden Administration prepares to take power, Chinese companies, including CNOOC, are likely to breathe freely once again, and it could be a boon for Chinese stocks.
Inter Pipeline Ltd (TSX:IPL) is a Canadian pipeline company that holds plenty of upside for the coming year, IPL is particularly interesting for its exposure to the oil sands sector which is sure to see a boost in production as more and more companies focus on increasing output in the new high oil price environment.
The crisis in Venezuela has already seen heavy oil imports to North America drop, and as demand for the product increases and prices for oil continue to rise, companies in the space are sure to see growth.
MEG Energy Corp (TSX:MEG) is a Canada-based oil producer which operates primarily in Northern Alberta’s oil sands. The forward-thinking company uses steam-assisted gravity drainage to retrieve oil from the deep wells which it drills. The excess heat and electricity produced from this process is then sold to Alberta’s power grid.
The company’s large proven resources and their cutting-edge technology make MEG a promising company for investors looking to get in to the promising oil sands in Alberta.
Gibson Energy (TSX:GEI) has a long history in Canada’s oil and gas game, going back to 1953. The company has a diverse portfolio which includes transportation, storage, processing, marketing and distribution of oil, condensates, oilfield waste, refined products and natural gas. With Gibson’s huge array of assets and its multi-platform sales strategies, it’s hedged a lot of the risk for investors in an inherently high-risk, high-reward industry.
Pembina Pipeline Corp. (TSX:PPL): The North American pipeline industry has had a tough year, but the approval of the Keystone XL pipeline route and the growing need for transportation capacity should act as a boon for the sector.
Pembina Pipeline Corp. has ridden the oil price crash in an impressive manner, maintaining a good stock price and increasing its dividend. This is a stock that pays you to wait, and as the sector continues to improve it is likely investors will see good gains here.
By. Polly Steele
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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, 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 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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