Oil Sector Watching Namibia For The Next Giant Discovery


By. Tom Kool

Onshore oil discoveries are pretty much a thing of the past. The last time anyone got remotely excited about one was in 2017, when giant Repsol discovered 1.2 billion barrels in Alaska’s North Slope. But a giant E&P company making a discovery doesn’t really move the needle for investors… But the potential multi billion-boe in Namibia’s Kavango Basin could be a whole different story.  Mentioned in today’s commentary includes:  Exxon Mobil Corporation (NYSE: XOM), Chevron Corporation (NYSE: CVX), ConocoPhillips (NYSE: COP), Coterra Energy Inc. (NYSE: CTRA), Cheniere Energy, Inc. (NYSE: LNG).

The entire Kavango Basin is licensed to a small-cap explorer called Reconnaissance Energy Africa (RECORECAF) with an experienced team of geologists working with some of the industry’s premier service companies, Schlumberger and Halliburton. And they just finished an extensive 450-square-kilometer seismic acquisition aimed to determine the details of a much-anticipated multi-well drilling program starting in Q1 of next year.

There’s a reason when insiders are buying even if short sellers are trouncing the share price. If they weren’t excited about the potential results from their 450-sq km of seismic and the Company’s future prospects, they probably wouldn’t be buying up more and more. Seismic results will help guide Recon Africa where to drill, and Netherland Sewell are expected to then give us a resource estimate, which is what we have been waiting for.

#1 The Namibian government is fully on board

There has been a fair amount of misinformation about Recon Africa’s (RECORECAF) relationship with state and local governments and community stakeholders, but in our view it is exactly that—misinformation, spread by short sellers to manipulate the share price.

Speaking to a mid-October Parliamentary Standing Committee, Namibia’s Petroleum Commissioner, Maggy Shino, clarified Recon Africa’s standing, noting that not only does RECAF have an Exclusive Prospecting License, but that more than 40 consultative meetings with the local communities and other key stakeholders, including all relevant ministries, have already taken place to get to this point.

Namibia’s Traditional Authorities of East and West Kavango made their stance clear as well on October 29th, expressing confidence in the ongoing exploration program, which has already identified evidence of a conventional oil and gas system in the Kavango Sedimentary Basin and could lead to profound socio-economic wealth for the country.

“Everyone is happy with the way ReconAfrica is doing the exploration. This is what we want – the liberation struggle is gone, it is now time for economic freedom. We want exploration, to know what is under the ground,” Hompa Eugene Siwombe, Chairperson of the Kavango Traditional Authority Committee, said.

Recon Africa went in knowing this and adopting this as part of its strategy. Recon African has dedicated NAD$112 million towards its ESG initiatives in Namibia, which has included drilling water wells for local residents and funding a COVID-19 vaccination program, among other things.

Traditional Authority King Hambukushu Fumu Erwin Munika Mbambo echoed the chairman’s statements, suggesting that any outside opposition to Recon Africa’s oil project is unwarranted and not reflective of what Namibians want.

“We are expressing our support because we, as Traditional Leaders, are the ones on the ground and see what is really happening, not people sitting in their distant offices trying to decide what should be done,” the King said.

A play like this can bring out the short sellers who then scramble to cover in time, resorting to what looks to us like share price manipulation, organized social media campaigns, paid articles that talk about “fracking” that doesn’t exist in a conventional play, and irrelevant lawsuits where the lead plaintiff has only 150 shares…

Not only is this a conventional play that does not involve fracking, but Recon Africa reports it has also established a carbon neutral strategy and is currently analyzing greenhouse gas containment approaches and reforestation—not just of their operational area, but of the wider area.

#2 Good things come to those who wait

Oil exploration projects of this size aren’t explored and delineated overnight. We think these are the plays of patience that, if proven successful, have the potential to mint millionaires. Some investors chiming in on the RECAF Reddit channel say they are there for the long haul, and are viewing this as their retirement fund. They say they’re not scared away by short selling tactics and are using the recent share price drop as a buy opportunity …

Recon Africa (RECORECAF)  founder Craig Steinke boosted his shares by $50,000, in our view most likely because he is confident in the upcoming seismic results (early December) and planned drilling program based on the seismic acquisition.

#3 What happens next could be truly seismic

Anyone who’s been following this company knows that Recon Africa drilled two stratigraphic text wells earlier this year and established the existence of a working petroleum system. Now, seismic has been completed, and a multi-well drill plan is the next step.

On October 21st, Recon Africa reported it concluded its acquisition of 450 linear kilometers of 2D seismic data, on time and on budget. It was a massive project that took 150,000 man-hours, led by lead geophysicist Shiraz Dhanani, who has conducted seismic operations around the world for giants such as ExxonMobil and BP.

Processing of the seismic data is being done by Down Under Geophysical in Houston, Texas, and Absolute Imaging in Calgary, Alberta. Both companies follow industry best-practices, and results are expected to be finalized by early December. While investors are anxiously awaiting seismic results, the big day will come with the multi-well drill campaign, and those results.

Recon Africa plans to start that drill campaign in early Q1 2022 “targeting seismically defined traps and conventional reservoirs already encountered in the stratigraphic wells”.

The market is extremely impatient, hoping RECAF will rush to drill before the end of this year. But it will be early next quarter, and that is the art of sound exploration: It is in investor interests for Recon Africa to integrate all possible data as opposed to doing a quick interpretation and drilling a single well immediately. This is a wider, more holistic approach that should benefit investors more in the long run and possibly set the stage for a potential JV deal. The more data, the better, in this complicated exploration game.

That requires a great deal of patience on the part of investors who we believe will have to deal with a short selling campaign until new data is released to the public.

Exxon Mobil (XOM) is one of the largest oil and gas companies in the world. It was founded by John D. Rockefeller Sr. in 1870, with a goal to produce kerosene for lamps, which led to it becoming an integrated oil company that would go on to be one of the most powerful corporations ever built, shaping global events from WWII onward. Today, over 80 different subsidiaries are owned by ExxonMobil Corporation alone.

ExxonMobil is one of the few Western energy companies to invest in developing Guyana’s burgeoning oil industry. By the end of 2020, when global oil companies were tightening their belts and learning to live in a sub-$50 per barrel world Exxon announced it was focusing capital spending on offshore Guyana. That decision is paying off in spades for Exxon.

Chevron Corp. (CVX) is an American multinational energy corporation with headquarters in San Ramon, California and has been operating for more than 110 years. It was founded on September 6, 1879 by Benjamin Silliman Jr.Charles Noyes and John D. Rockefeller as the Standard Oil Company of Ohio which became part of a monopoly that controlled 90% of all oil production in the United States.

Chevron Chairman and CEO Michael Wirth recently expressed optimism about the oil price trajectory, saying that he sees “a fair amount of support” after prices spiked above $80 a barrel in recent weeks.

ConocoPhillips (COP) was founded by two oil pioneers in 1917, and has since grown to be one of the largest energy companies in the world. They are committed to delivering a diverse range of products that meet society’s needs for food, transportation, power generation, home heating oil and more.

A couple of months ago, Bank of America upgraded ConocoPhillips shares to Buy from Neutral with a $67 price target, calling the company a “cash machine” with the potential for accelerated returns.v According to BofA analyst Doug Leggate, ConocoPhillips looks “poised to accelerate cash returns at an earlier and more significant pace than any ‘pure-play’ E&P or oil major.”

Cimarex Energy (CTRA), is a large oil and gas exploration company headquartered in Denver, ColoradoFormed as an independent entity from XTO Energy Inc. in 2006, Cimarex has grown to be one of the top producers of natural gas and crude oil in the United States. Using computer-assisted reservoir modeling techniques combined with its own geological expertise, Cimarex continues to expand its portfolio while remaining committed to responsible development practices including environmental stewardship, community engagement and continuous improvement initiatives aimed at increasing operational efficiencies.

Mizuho says the combined entity trades at an attractive value compared to oil peers and at “just a small premium” vs. gas peers following weakness since the merger announcement.

“Balance sheets have improved significantly YTD, positioning the group for attractive cash return not only at $65/bbl but through the cycle, and we remain very constructive for that reason, with average upside 46% in our oil coverage,” Mizuho’s Vincent Lovaglio writes.

Cheniere Energy (LNG) is an energy company that specializes in liquefied natural gas (LNG) and Liquefied Natural Gas production. The company has a number of plants, pipelines, and storage facilities across the United States as well as a global presence in AustraliaQatarNigeriaCanada, and Trinidad & Tobago. With demand for LNG increasing all over the world due to its role as a safer alternative to coal and oil-based fuel sources such as gasoline or diesel fuel Cheniere Energy is poised for growth over the next few years.

With the global shift towards cleaner energy sources in full swing, LNG and natural gas bring the benefits of being the cleanest-burning hydrocarbon, producing half the greenhouse gas emissions and less than one-tenth of the air pollutants of coal.

By. Tom Kool


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