Could This Be The Most Promising Oil Play Of The Decade?

July 21, 2021 -

No oil discovery narrative appears to have captured investor attention this year as much as Reconnaissance Africa’s (TSXV:RECO, OTC: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.

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 (TSXV:RECO, OTC: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. (You can read more about short and distort campaigns and the lengths short sellers will go to here on Seeking Alpha.)

No one can know what will happen next, but in our view there are enough breadcrumbs to follow in the latest press releases:

- ReconAfrica & NAMCOR Complete Drilling Operations on the 6-1 in the Kavango Basin, Namibia – July 14, 2021

- ReconAfrica & NAMCOR Granted 2D Seismic Permit for the Kavango Basin, Namibia – July 7, 2021

- ReconAfrica’s Response to Short Seller’s Biased and False Short Report – June 28, 2021

- 6-1 Well Provides Further Confirmation of Working Petroleum System and 1st Report of Progress on ESG – June 3, 2021

- ReconAfrica’s First of Three Wells Confirms a Working Petroleum System in the Kavango Basin, Namibia – April 15, 2021

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.

There are many catalysts here that stand to make the coming days very interesting for investors:

Now that the second drill has been completed, RECO (TSXV:RECO, OTC: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.

There are so many things we expect news releases on in the coming days and weeks:

- Results from the second test well

- Results from the 450km 2D seismic

- The launch of the third test well drill, most likely after the seismic acquisition

- And hopefully some potential JV farmout deals with the majors, who will no doubt be watching like hawks for the next lab and 2D results—and that could be one of the most exciting things for investors

Furthermore, we think there is reason to be excited about 2D seismic results. So does Polaris, Canada’s oldest seismic company contracted to do it:

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 (TSXV:RECO, OTC: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.

The next time you read a story like this, it will probably be in the deep waters, where no junior company can travel alone. Oil narratives like this are potentially once-in-a-lifetime, and that’s precisely what may have short sellers so worried. They may have ended up on the wrong side of exploration history.

Other oil companies worth keeping an eye on:

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.

Enbridge is in a unique position as oil and gas stages its 2021 comeback. As one of the more potentially undervalued companies in the sector, it could be set to win big this year. But that’s only if it can overcome some of the challenges in its path. Most specifically, its Line 3 project which has faced scrutiny from environmentalists.

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. 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 2021.

Suncor Energy (NYSE:SU, TSX:SU) is an energy company that has a strong focus on sustainability. They work hard to ensure their products are safe, reliable, and sustainable. With the industry changing so rapidly in recent years- being able to keep up with change is key for success. Suncor has always been a leader in this area of innovation and it will continue forward as such- keeping all stakeholders happy!

Suncor is a Canadian oil and gas company that has been in business for over 75 years. They are one of the largest producers of crude oil, synthetic crude oil, natural gas liquids (NGLs), and petrochemicals in Canada. Suncor's operations include exploration and production from more than 100 fields located across Alberta, Canada, as well as refining and marketing activities in North America.

Finally, now that oil prices are finally on the rise once again, giants like Suncor looking to capitalize. While many of the oil majors have given up on oil sands production – those 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, especially as lithium, which is present in Canada’s oil sands, becomes an even more desirable commodity.

TC Energy Corporation (TSX:TRP) is a Calgary-based energy giant. The company owns and operates energy infrastructure throughout North America. TC Energy is one of the continent’s largest providers of gas storage and owns and has interests in approximately 11,800 megawatts of power generation. It’s also one of the continent’s most important pipeline operators. With TC Energy’s massive influence throughout North America, it is no wonder that the company is among one of Canada’s strongest and well-known companies.

Like a number of its peers, one of TC Energy’s biggest challenges in recent years was grappling with the particularly difficult approval process for its Keystone Pipeline. But that’s all history now, and with the bounce back in oil and gas demand, TC Energy could stand to benefit. While TC Energy’s stock price has yet to recover from pre-pandemic levels, it is one of the few industry giants which has managed to keep high dividends rolling in.

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. The company exports thermal and metallurgical coals to markets around the world, including Japan, South Korea, China, India and Taiwan. Westshore also offers services to ship various bulk cargoes through its marine facilities. Westshore Terminals has been operating for over 30 years and employs more than 240 employees that work 24/7 shifts to ensure continuous operation. Despite its success and longevity, however, is increasingly being targeted by short sellers.

Short sellers are looking at companies like Westshore Terminals based on a simple fact: they’re in the coal business. While the fossil fuel industry isn’t quite down for the count just yet, coal is seeing a major decline that isn’t likely to slow anytime soon. And without a significant pivot, Westshore’s days could be numbered.

Great-West Lifeco (TSX:GWO ) continues to be a popular stock among short sellers on the TSX. This North American and European financial services holding company has seen its shares drop 8.9% year over year yet it still attracts interest from investors globally due to its healthy balance sheet, strong cash flows, and more.

Is the short interest justified? Their record as dividend payers is very strong: Great West has been paying out an average annualized return on investment (ROI) for stockholders since 1948 that currently sits just below 7%. It also offers a quarterly dividend yield with dividends paid every three months which equals about 6%, or more than five times what most people can expect to earn through investing in savings accounts today. This could emerge as a huge incentive to fight off the short sellers and keep the stock afloat for many loyal investors. 

Pembina Pipeline Corp. (TSX:PPL) is a company that has been around for more than 50 years and was the first pipeline company in Canada to offer gas transmission services. They are now one of the largest natural gas transmission companies in North America with an annual throughput capacity of almost 66 billion cubic feet per day.

Pembina Pipeline Corporation is a Canadian energy infrastructure business that provides products such as natural gas, oil, renewable power, and chemicals to customers primarily located on the eastern coast of North America from its operations in Alberta, British Columbia, Ontario and Quebec.

MEG Energy Corp (TSX:MEG) is a Canadian energy company that provides natural gas and renewable power products and services to customers in Canada, the United States, Europe, and Asia. The company operates in three segments: Pipeline Services; Power Generation Services; Renewable Power Production. MEG has been able to grow their pipeline business by engaging with key stakeholders on regulatory fronts across North America as well as through expansion of their existing pipeline network.

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.

By. James Stafford


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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