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.
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.
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.
Italian energy major, Eni (NYSE:E), described 2020 as a “year of war”, regarding the energy crisis experienced in the face of a global pandemic. But it may be too soon to see the issues faced last year as a thing of the past. Eni is committing to lower the price of oil at which the company breaks even going into 2021, as a means of tackling the uncertainty of the oil economy in the coming months. Francesco Gattei, CFO at Eni, stated that “Volatility is growing every year.”, highlighting the need to be prepared for the energy demand of the future. In fact, Eni has now set out a plan to lower its greenhouse gas emissions by 80% by 2050.
Like many fossil fuel companies, advocates, and apologists, Eni views natural gas as a necessary bridge as the world tries to wean itself off fossil fuels. Natural gas does produce about 28% less CO2 emissions than heating oil and 50% less than coal for the same amount of energy when burned. Further, natural gas can be used to keep the power grid stable as solar and wind power fluctuate. Though Eni says it actually intends to ramp up oil production by 3.5% per year through 2025, afterwards, it will begin to shift to natural gas, ramping up its production by 85% through 2050.
In addition to its natural gas push, Eni is also jumping on the green hydrogen bandwagon. In fact, in December, the Italian oil major announced a partnership with Entel to produce hydrogen using electrolyzers powered by renewable energy. “Our goal is to accelerate the reduction of our carbon footprint by implementing the best applicable low carbon solution, either green or blue, to reduce our direct emissions as well as switching to bio products to supply our clients,” Eni’s chief executive officer (CEO), Claudio Descalzi, said in a company statement.
Like other oil majors, Eni’s share price took a major beating in 2020, falling by as much as 30% over the course of the year. But thanks to recovering demand and its diversification efforts, Eni is looking more and more appealing to investors.
Halliburton (NYSE:HAL) is one of the largest oilfield services companies in the world. The company has secured its place as a giant in the oil and gas industry. But it didn’t happen overnight. The oilfield services sector is highly competitive and ripe with innovation. In order to stay ahead, companies must be on the absolute cutting edge of technology. And that’s exactly what Halliburton has done. And recently, Halliburton increased the heat for its competition. Partnering with Microsoft, Halliburton has become one of the most exciting “tech” plays in the industry.
This partnership is significant. Microsoft, a leader in the tech world, is looking to bring machine learning, augmented reality, and the Industrial Internet of Things to the oil and gas industry, and Halliburton is welcoming the new take on the resource realm with open arms.
The oilfield services sector was among the hardest hit in the 2020 oil price disaster, and Halliburton was not immune to its impact. The company saw its share prices crater, falling by 79% from January to March. The hit definitely stung, but Halliburton rose to the challenge. Thanks to its strong management and innovative approach to the industry, the company’s stock managed to stage a fairly impressive recovery, climbing from $5 in March to today’s price of $20, proving that it’s still got what it takes to remain competitive in this industry.
Pioneer Natural Resources (NYSE:PXD) was one of the big—and few—dealmakers of 2020, acquiring Parsley Energy for about $7.6 billion in an all-stock deal that also included Parsley’s debt. The landmark deal helped make Texas-based Pioneer the largest independent oil and gas producer in the Permian Basin. Having worked together previously, the merger expects significant savings and greater pressure on regulators in the region. Working in the Permian Basin, the world’s most prolific oilfield with a production of 558,000 bpd equivalent, Pioneer hopes this will ensure it rides out the Covid-19 slump.
As a leader in the Permian, Pioneer is also making major waves in its commitment to cut back flaring in the region. In fact, Pioneer consistently flares a smaller percentage of its production than the basin average. The average flaring rate for oil producers in the Permian is 3.7%, according to GaffneyCline, yet Pioneer’s average is just 0.8%.
Despite its commitment to the Permian, however, CEO Scott Sheffield isn’t particularly bullish on the region in the short term. “I never anticipate growing above 5% under any conditions,” Sheffield also said. “Even if oil went to $100 a barrel and the world was short of supply.” The shale major CEO explained this was because the service costs associated with adding more drilling rigs would undermine profit margins.
But that doesn’t mean investors shouldn’t keep an eye on the company. Share prices of Pioneer have nearly doubled since November, climbing from $77 per share to today’s price of $132. And while outlook for the shale patch isn’t particularly inspiring at the moment, Pioneer is an undervalued stock in an industry that will inevitably return to its previous glory.
Enterprise Products Partners (NYSE:EPD) is the top transporter of natural gas liquids (NGLs) and also owns the most NGL fractionation capacity in the United States, as well as dock space for exports. Enterprise Products is the largest midstream MLP in the country. Enterprise has clearly read the signs of the times and has begun to work with partners to scale back its project backlog. In the past, EP was able to weather the normal industry headwinds thanks to robust cash coverage and manageable leverage. Unfortunately, Covid-19 has been anything but your average downturn, and EP has been forced to seriously cut back on Capex.
After spending $17 billion in capital projects in 2015-19, including new oil pipelines, NGL and LPG pipeline-and-export facilities, and NGL fractionation plants, the giant MLP spent just $2.5-$3 billion last year, down from a prior budget of $3.5-$4 billion as well as a combined $4 billion in 2021-22. However, these dramatic cuts are expected to pay off big time.
Despite the downturn, which saw Enterprise lose as much as 30% of its value in 2020, things are already looking up for the company. Its dividend distribution is still attractive to investors at 8.6%, its cash flow is sustainable, and its fiscal expectations look promising. Altogether, that puts Enterprise in an attractive position for investors looking for potentially undervalued stocks as oil prices stage a comeback.
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
**IMPORTANT! BY READING OUR CONTENT YOU EXPLICITLY AGREE TO THE FOLLOWING. PLEASE READ CAREFULLY**
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.
ADVERTISEMENT. This communication is not a recommendation to buy or sell securities. Oilprice.com, Advanced Media Solutions Ltd, and their owners, managers, employees, and assigns (collectively “the Company”) have been paid by Recon seventy thousand U.S. dollars to write and disseminate this article. As the Company has been paid for this article, there is a major conflict with our ability to be unbiased, more specifically:
This communication is for entertainment purposes only. Never invest purely based on our communication. We have not been compensated but may in the future be compensated to conduct investor awareness advertising and marketing for TSXV:RECO. Therefore, this communication should be viewed as a commercial advertisement only. We have not investigated the background of the company. Frequently companies profiled in our alerts experience a large increase in volume and share price during the course of investor awareness marketing, which often end as soon as the investor awareness marketing ceases. The information in our communications and on our website has not been independently verified and is not guaranteed to be correct.
SHARE OWNERSHIP. The owner of Oilprice.com owns shares of this featured company and therefore has an additional incentive to see the featured company’s stock perform well. The owner of Oilprice.com will not notify the market when it decides to buy more or sell shares of this issuer in the market. The owner of Oilprice.com will be buying and selling shares of this issuer for its own profit. This is why we stress that you conduct extensive due diligence as well as seek the advice of your financial advisor or a registered broker-dealer before investing in any securities.
NOT AN INVESTMENT ADVISOR. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.