Kavango Basin oil exploration is lighting up again with a series of big announcements on Friday by the junior explorer behind what we consider is the most exciting onshore play in a decade.
After stunning markets with two consecutive confirmations of an active petroleum system in Namibia’s giant Kavango Basin, Reconnaissance Energy Africa (TSX.V: RECO, OTCMKTS:RECAF) has now initiated an ambitious 450-kilometer 2D seismic acquisition, expects to release more comprehensive results from their first well and launched an impressive community water well drilling program for Namibia.
In a July 30th press release, Recon Africa and its Namibian state-run partner NAMCOR, launched the first-ever 2D seismic program in the 6.3-million-acre Kavango Basin, following successes with the drilling of two stratigraphic wells—both of which confirmed an active conventional petroleum system.
The Company reports that a 450-kilometer seismic program is designed to delineate potential traps and hydrocarbon reservoirs. Importantly, 95% of the seismic program will be conducted on existing roads over 10 seismic lines. For the past week, Recon Africa—working with Canada’s most established seismic provider Polaris Geophysical - has been testing the first line before moving into full acquisition mode.
The entire 450-km seismic acquisition is scheduled to be concluded by the end of October. And that--along with Vertical Seismic Profiles (VSPs) being prepared right now to connect the first two stratigraphic test wells (6-1 and 6-2)—will be used to guide the next round of drilling before the end of this year.
RECO has already completed multiple logging runs and taken 86 sidewall cores in the 6-1 well. Next, it will run and cement casing to isolate the prospective hydrocarbon-bearing zones and run the VSP to total depth to tie both wells into the wider 2D seismic program.
Shareholders have also been anticipating additional results from the first test well, and we expect they won’t be disappointed: according to their latest press release, RECO plans to release these results this week, right after they submit them to NAMCOR and the Namibian Ministry of Mines and Energy.
On the ESG front, it doesn’t get much better than this, with Recon Africa (TSX.V: RECO, OTCMKTS:RECAF) working closely with the national and local governments in ways desired to immediately improve living conditions for Kavango residents. Namibia, which has never produced a barrel of oil in its history, has a lot to look forward to, including a series of new water wells for communities that haven’t had any nearby access due to a lack of resources for drilling.
That was one of RECO’s first moves in its host country. On July 30th, Recon Africa launched its expanded water well drilling program, working together with the Ministry of Agriculture, Water and Land Reform, as well as with local Kavango governors.
Earlier on in the exploration process, Recon Africa drilled four community water wells. On Friday, it announced drilling on its expanded, 20-water-well program, with 8 initial locations selected and bidding among local water well drilling companies already concluded. Drilling of the first 8 wells—all to be solar powered--will begin next week and will be completed during the second week of August for a cost of CAD$355,000.
The junior explorer is also not operating in an ESG vacuum when it comes to its seismic acquisition. Polaris—a world-class seismic company and the oldest in Canada—brings low-environmental-impact seismic acquisition to the table with Polaris Explorer 860 tractors. These highly advanced seismic acquisition tractors operate at an extremely low frequency to protect wildlife communications.
From here on out, we expect the news flow on Kavango to be heavy—and increasingly exciting, especially for those who got in on the ground floor on what could potentially end up being the last major onshore oil play in the world.
Short-sellers have failed to bring this stock down, and they’ve run out of time to cover—a situation that has led short sellers to arrange massive, organized social media and other campaigns against Recon Africa. That is to be expected when a junior company stakes its claims on a supermajor-size basin that has world-class geologists jumping on board over what they have seen. But it’s been an uphill battle for short-sellers, given that two renowned geoscientists—Bill Cathey and Daniel Jarvie—have staked their reputations on this one. Cathey finding it would be very surprising to not hit big oil, and Jarvie estimating the basin has generated billions of barrels of oil.
This fully-funded 4-well drilling campaign is the highlight of the exploration summer, and initiating the huge 2D seismic acquisition is a major step. This week, we think investors can gear up to be impressed (and rewarded) again, with additional results from the first well, for which Recon Africa (TSX.V: RECO, OTCMKTS:RECAF) has already confirmed an active petroleum system.
It’s going well for this most-talked-about junior explorer, and it’s all uphill for short-sellers desperate to avoid losing by camping out on what we consider the wrong side of oil exploration history.
Other companies looking to capitalize on rising oil prices:
TotalEnergies (NYSE:TTE) is one of the world’s most impressive -and progressive- energy companies. And for good reason. The company is one of the most diversified and forward-thinking oil majors in the business. TotalEnergies is distinctly aware of the needs that are not being met by a significant portion of the world’s growing population, it is also hyper-aware of the growing threat of climate change. This is good news for investors who often worry about how local entities are impacted when global energy giants move into their countries.
From oil and gas to renewables and beyond, TotalEnergies is setting itself up nicely for the long term. And thanks to its diversification, it has outperformed other pure oil majors. It is also staying ahead of the looming climate crisis by boosting its renewable assets. And it has a stellar ESG record, as well. From diversity and societal progression and workplace safety to its commitment to reducing its own carbon footprint, the near-100-year-old energy giant is checking all the right boxes for investors.
Eni (NYSE:E) is another company to watch as resource prices inch higher, especially natural gas. It is a global energy company that was established in 1959. They have grown into one of the top 10 natural gas producers and are ranked #2 for production and reserves. Eni has operations around the world, with its headquarters located in Rome, Italy.
Eni described 2020 as a “year of war”, regarding the energy crisis experienced in the face of COVID-1. But it may be too soon to see the issues faced last year as a thing of the past. Eni is committing to lowering 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, leveraging natural gas as a major tool in its arsenal.
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 bioproducts to supply our clients,” Eni’s chief executive officer (CEO), Claudio Descalzi, said in a company statement.
While the U.S. shale patch and companies making big claims about the energy transition capture most headlines, investors are largely ignoring one of the oil industry’s most exciting frontiers, Brazil. And one company, in particular, is taking the lead. Petrobras (NYSE:PBR) is focused on developing its pre-salt operations. And it’s easy to see why. Those upstream projects being approved for development must have a breakeven price of $35 per Brent or less. Brazil’s national oil company has budgeted capital spending for exploration and production activities of $46.5 billion from 2021 to 2025.
Clearly, while the pandemic has hit Brazil’s oil industry causing production to fall because of savage budget cuts and well shut-ins, it appears to have done no material long-term damage. Demand for Petrobras’ low sulfur content fuel is firm and will grow because of the global push to significantly reduce emissions, which will ultimately make Petrobras even more valuable over time.
Petrobras remains one of the most underrated oil majors in the world. It’s got desirable crude oil, a massive footprint in its domestic industry, and a growing amount of interest from investors. It’s also bouncing off of low share prices like the rest of the industry, indicating there could be some upside left.
ConocoPhillips Company (NYSE:COP), as the largest pure-play upstream oil company, has performed relatively well in this depressed market, generating ample free cash flow and returning a good chunk of it to shareholders. Unlike many of its peers who continued to expand aggressively during the shale boom, COP has taken several steps to lower costs and fortify its balance sheet leading to one of the best cash positions in the oil patch.
ConocoPhillips has been gradually offloading non-core assets, including the sale of its North Sea oil and gas assets for $2.7B and the planned sale of its Australian assets for $1.4B. Its asset portfolio, however, remains healthy. Conoco has been particularly bullish on oil demand outlook in 2021, and it was one of the few companies which did not partake in the mass-layoffs seen in the industry last year. In addition, Conoco has also seen a fairly decent about of insiders buying into its stock, which is a good sign.
Investors should not ignore the shale patch, either. Pioneer Natural Resources (NYSE:PXD) is an independent oil and gas exploration and production company with a diversified portfolio of high-quality assets in the United States. The company's operations are concentrated primarily in two areas: West Texas, where it has developed one of the most significant unconventional resource plays in North America, the Eagle Ford shale; and Southern California, where it has assembled a large position onshore Los Angeles basin. Pioneer Natural Resources was founded in 1954 by Ross Shaw who had long been involved with land leasing for drilling purposes. With his son James as president, they drilled their first well near Big Lake, Texas.
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%.
CEO Scott Sheffield isn’t particularly bullish on the Permian 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.
It’s worth taking a look outside of energy producers, however. Enterprise Products Partners (NYSE:EPD) is a leading provider of innovative solutions for the global energy industry. We partner with some of the world's most renowned companies and provide them with integrity, expertise, and innovation in all aspects of their business including exploration, production, refining, transmission & distribution. Enterprise has been around since 1928 when it first started as an oil pipeline company in Tulsa Oklahoma.
Enterprise Products 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.
Canada’s oil scene is bouncing back in a big way, and it’s opening up a lot of upside for investors in the know. Enbridge Inc.(NYSE:ENB, TSX:ENB), in particular, is making major moves. Founded over 70 years ago by 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 of 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. The $2.6-billion project plans to replace Enbridge's existing 282 miles of 34-inch pipeline with 337 miles of 36-inch pipe. The new Line 3 would have the capacity to move 370,000 barrels of oil per day, alleviating the takeaway capacity constraints that Canadian oil producers have been struggling with for years now. Line 3 is one of two pipeline projects in the works that are—in their unfinished state—keeping Canada's oil industry from reaching its potential.
Canadian Natural Resources (NYSE:CNQ, TSX:CNQ) is another Canadian natural resources company that conducts oil and gas exploration, development, production, and marketing operations. They are one of the largest independent crude oil producers in Canada with producing assets primarily located in the Western Canadian Sedimentary Basin. The firm also operates two refineries: Strathcona Refinery near Edmonton, Alberta; and Scotford Refinery near Edmonton, Alberta.
Canadian Natural Resources was an outlier in the industry. Unlike many of its peers, Canadian Natural Resources kept its dividend intact after swinging to a loss for the first half of the year, 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 2020.
Suncor Energy (TSX:SU) is a Canadian multinational energy company, headquartered in Calgary, Alberta. It operates Canada’s largest oil sands project - Suncor's Oil Sands Operations. The company is Canada's most profitable and one of the world's largest integrated energy companies with its operations spanning North America and 20 other countries around the world. With over $120 billion in assets, it has more than 10 million acres of land holdings for exploration and production across six continents.
Suncor has adopted a number of high-tech solutions for finding, pumping, storing, and delivering its resources. Not only is it big in the oil sector, however, but it is also a leader in renewable energy. Recently, the company invested $300 million in a wind farm located in Alberta.
When the rebound in crude prices finally materializes, giants like Suncor are sure to do well out of it. 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.
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 its pipeline business by engaging with key stakeholders on regulatory fronts across North America as well as through the expansion of its existing pipeline network.
The company’s large proven resources and their cutting-edge technology make MEG a promising company for investors looking to get into the promising oil sands in Alberta
Gibson Energy (TSX:GEI) is an energy company that specializes in the production, transmission, and distribution of natural gas. Gibson Energy has been providing reliable service to its customers for over 100 years. The company currently employs more than 1,400 people across North America.
Gibson has a long history in Canada’s oil and gas game, going back to 1953. The company has a diverse portfolio that 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) 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. This blog post will discuss Pembina's recent acquisition by Enbridge Inc., their financial performance, and how they view long-term growth opportunities.
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.
By. Tom Kool
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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, timing of drilling, other exploration and results, 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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