While all recent oil exploration attention has been on Exxon’s (NYSE:XOM) massive string of discoveries in Guyana, another giant player and a junior explorer are shifting to focus toward what may be the next up-and-coming oil hotspot …
It’s Namibia–a country that’s never produced a barrel of oil.
We don’t hear much about new oil discoveries these days. Onshore discoveries are almost unheard of because nearly everything except the African final frontier has been explored. Offshore discoveries are few and far between.
That makes all the exploration activity in Namibia the foundation for another Guyana story–but this time we think there could be a lot more room for investor reward.
Suddenly, Namibia is a growing source of exploration news, with a significant discovery by Shell (NYSE:RDS) offshore and maiden drills by Recon Africa (TSXV:RECO, OTC:RECAF) onshore in the giant Kavango Basin already providing clear evidence of a working petroleum system.
Now, it’s about to get a lot more exciting …
Namibia’s Oil Explosion
Namibia is already turning heads in the oil world. It may have even caught the eye of some of the largest oil exploration companies in the world—and for good reason.
With geological similarities to Brazil and Guyana—the latter having seen astounding oil exploration success—explorers are sinking tons of money into finding and tapping these potential resources.
Namibia’s northern neighbor, Angola, already has a successful oil industry and is a long-time member of OPEC, producing an average of more than one million barrels per day.
Namibia may have the potential to rival this northern neighbor, and with oil prices approaching $90 per barrel, we think it is even more likely that Namibia could become the next big oil and gas player on the global scene.
Shell Namibia
Shell Plc. (NYSE:RDS.A) just stunned us with a discovery announcement at its offshore Graff-1 well in Namibia.
The Graff-1 well results showed at least two reservoirs containing what Reuters sources have called “a significant amount of oil and gas”, which we estimate could be worth up to $29 billion at $88 oil.
Shell’s Namibia discovery is on the Petroleum Exploration License 39, 45% owned by Shell, and 45% owned by Qatar Petroleum. The National Petroleum Corporation of Namibia (NAMCOR) owns the final 10%.
The government of Namibia is expected to make an announcement on the details of Graff-1 next week, while Namibia’s Minister of Energy and Mines said it was in the final stages of data collection to thoroughly assess the find’s potential.
Shell’s success could trigger an increased interest in further exploring the country’s oil resources.
“If successful, Graff-1 could spark significant international investment to a region which has had minimal E&P exploration and production activity over the last 25 years,” IHS Markit analyst Hugh Ewan said in December when Shell began drilling Graff-1, according to Reuters.
Indeed, even more of the world’s best oil finders have taken an interest in Namibia’s offshore oil prospects, including ExxonMobil (NYSE:XOM) and TotalEnergies (NYSE:TTE).
Like Shell, Total began drilling in its Venus-1 exploration block—close to Shell’s discovery—in December. Venus-1 is Namibia’s deepest water exploration well to date, and according to IHS Markit, is “one of the most anticipated wells worldwide.”
An analysis of Venus suggests a minimum economic field size of around 120MMbbls at $70 crude. IHS Markit has also referenced the “favourable fiscal regime in the region” which “suggests that a discovery equal to 300 Mbbls could have an NPV of around 1 billion MMUSD with a break-even below 50$/bbl”.
Exxon, on a wildly successful drilling and production spree in Guyana, and with a presence in neighboring Angola, increased its Namibia acreage in 2019, adding 7 million net acres after signing an agreement with Namibia and NAMCOR for blocks 1710 and 1810, along with farm-in agreements with NAMCOR for 1711 and 1811A.
With Shell’s latest find offshore, the investment into Namibia exploration could increase, and onshore is perhaps where the biggest potential gains may be made because this is where NAMCOR is partnering with a small-cap explorer for whom a discovery could create incredible upside, unlike for a supermajor.
Recon Africa
Along with some of the largest names in oil exploration—Shell, Exxon, and Total—Reconnaissance Energy Africa (TSXV:RECO, OTC:RECAF) is also poised to take part in Namibia’s oil future, with RECO and NAMCOR definitely confirming in August the evidence of an active petroleum system in the giant Kavango Basin.
The results were indicative of a play with “world-class potential,” according to Horizon Well Logging Inc’s Douglas Milham, who conducted the sample logging data and analysis for RECO.
The company’s first Namibia well is due to be spudded this quarter.
RECO is expected to publish its drilling schedule for H1 this year as soon as all permitting is approved by the government.
For RECO, we anticipate things moving pretty quickly now, with seismic interpretations expected to more precisely pinpoint exact drilling locations for what RECO hopes to be a major onshore oil discovery.
RECO has rights to almost as much acreage as Exxon, with 6.3 million acres located in Namibia’s Kavango Basin, which Wood MacKenzie has identified as an analogous basin to the Permian Basin in the United States.
There’s clear reason for our excitement here …
Dan Jarvie, one of the world’s most famous geochemist wildcatters known for the Texas Barnett play calling Namibia the final frontier for potential oil discoveries, notes that this is “a very strong independent junior explorer here sitting on a sedimentary basin that rivals South Texas in a massively under-explored region”.
So, with Shell clocking a “significant” find already offshore and Recon Africa gearing up to continue drilling its massive 6.3-million-acre play onshore that some experts think could contain up to a potential 120 billion barrels, Namibia has every reason to start celebrating its exciting entrance onto the global oil exploration scene.
Other companies looking to capitalize on rising oil prices:
Exxon Mobil (NYSE: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.
Recently, Exxon put up for sale natural gas assets in the Barnett Shale in Texas, Reuters has reported, citing a confirmation of the news by the company.
The assets include 2,700 wells spread across 182,000 acres, according to the report. So far, no buyer has been identified, and no agreements have been reached on the sale, a spokeswoman for the company said.
Aside from the considerable drilling success and exploration upside to be unlocked in the Stabroek Block, operations are proving to be highly profitable. And it hasn’t stopped there. Exxon is also developing the Payara oilfield in the Stabroek Block, located to the north of Liza one at a water depth of around 2,000 meters. The Payara field is expected to break even at $32 per barrel, highlighting the operations’ considerable profitability in an environment where Brent is selling for over $85 per barrel.
More importantly, a combination of low breakeven prices for the oilfields in the Stabroek Block and a very favorable production sharing agreement with Guyana’s government, with a low royalty rate and the means to recover development costs, makes Guyana a highly profitable jurisdiction for Exxon.
Chevron Corp. (NYSE:CVX) comes in just above Shell as the world’s second-largest oil and gas company by market cap. Chevron is also betting big on Africa, particularly Nigeria and Angola. Not only is Chevron looking for riches in Africa, but it is also deep in Iraq’s oil industry, as well.
The newly resuscitated Iraq National Oil Company (INOC) has been authorised by the government in Baghdad to directly negotiate with U.S. oil giant, Chevron, for it to develop the long-delayed Nasiriyah oil field in the southern DhiQar province, according to several domestic news sources.
The idea of developing the 4.36 billion-barrel Nasiriyah oilfield has been mooted by a rapid succession of governments in Iraq since it was discovered by INOC in 1975. The original plan to develop the field on a standalone basis was shelved in the lead-up to the Iran-Iraq war that began in 1980 and lasted until 1988. The field eventually came on-stream in 2009 and was listed on the 2009-2010 fast-track development plan, which aimed to raise its output to at least 50,000 bpd in the first phase.
ConocoPhillips (NYSE:COP) is dedicated to working with others in industry and government to provide responsible development of resources while minimizing environmental impact. ConocoPhillips also strives to make sure their employees feel valued as they work towards success together.
ConocoPhillips' CEO Ryan Lance is bullish on the price of oil, the executive said on Monday at the Argus Americas Crude Summit in Houston.
Lance further expressed his view that the U.S. oil industry is poised for even more consolidation in an effort to bring down costs—costs which the majority of U.S. oil and gas companies see as rising as much as 10%, according to the latest Dallas Fed Survey conducted in December.
Lance said that the consolidation drive, however, doesn't mean that small independents are going to disappear. For the United States, this is good news, because in that same Dallas Fed Survey from December, it was mostly the small independent firms that had plans to raise crude oil production.
Devon Energy Devon Energy (NYSE:DVN) has returned its Q3 scorecard that easily beat on both top-and bottom-line expectations. The Oklahoma-based shale producer reported revenue of $3.47B (+224.3% Y/Y), $1.08B higher than the consensus, while net earnings of $838M represented a vast improvement from the $92M loss the company reported for last year's corresponding quarter. Meanwhile, the company reported Q3 GAAP EPS of $1.24 vs.($0.25), beating by $0.31.
Q3 production soared 87% Y/Y to 608K boe/day, with production expenses declining 1% to $9.91/unit driven by operational efficiency gains and the benefits of scalable production growth in the Delaware Basin.
The company expects Q4 output of 583K-601K boe/day and expects to maintain FY 2022 production of 570K-600K boe/day, with $1.9B-$2.2B in capital spending on its upstream operations.
Devon's free cash flow generation increased 8-fold from the fourth quarter of 2020 to $1.1B, while the balance sheet strengthened with cash balances increasing by $782 million to a total of $2.3 billion.
Crescent Point Energy Corp. (NYSE:CPG; TSX:CPG) is an oil and gas company based in Calgary, Alberta. The Company's shares are traded on the Toronto Stock Exchange under the symbol CPG. Crescent Point holds interests in over one million net acres of petroleum and natural gas rights in Saskatchewan, Manitoba, North Dakota, Utah, Colorado and Montana.
Crescent Point Energy explores, develops, and produces light and medium crude oil and natural gas reserves in Western Canada and the United States. The company's crude oil and natural gas properties, and related assets are located in the provinces of Saskatchewan, Alberta, British Columbia, and Manitoba.
Crescent Point shares once traded above $45 per share and even paid out a generous dividend, compared to the current $5.15 share price.
Unfortunately, the 2014 oil price meltdown left the company battling plunging cash flows and high debt levels leading to heavy dividend cuts–and the shares have never fully recovered. Even after this year's 120% gain, Crescent Point shares are trading 80% below 2014 levels.
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Thankfully, the ongoing oil price rally has allowed Crescent Point to start generating healthy cash flows and make several strategic acquisitions. That said, this stock is likely to remain volatile, and any setbacks in the near future could send the shares crashing again.
Cenovus Energy (NYSE:CVE; TSX:CVE) is one of Canada's largest oil and gas producers. Cenovus Energy develops, produces, and markets crude oil, natural gas liquids, and natural gas in Canada, the United States and the Asia Pacific region. The company operates through Oil Sands, Conventional, and Refining and Marketing segments.
Cenovous Energy shares have shot to a 52-week high after J.P. Morgan upgraded the shares to Overweight from Neutral with a C$14.50 price target (45% potential upside), citing progress on execution of last year's takeover of Husky Energy (OTCPK:HUSKF). Cenovus shares remain undervalued, and with WTI now above $80/bbl for the first time in four years, the company is in a great position to generate enough free cash flow to buy back its ConocoPhillips' stake.
A subsidiary of Exxon Mobil Corporation, Imperial Oil Limited (NYSE:IMO; TSX:IMO) is a Canadian company that produces and refines petroleum products, including gasoline. It has operations in Canada, the United States and elsewhere. Imperial Oil is an integrated oil company that produces and sells crude oil and natural gas in Canada.
A few months ago, Imperial Oil announced plans to move ahead with the production of renewable diesel at a new complex at its Strathcona refinery in Alberta. The facility is expected to produce ~20K bbl/day of renewable diesel when it is completed in 2024, which the company says could reduce emissions in the Canadian transportation sector by 3M metric tons/year. The company says the renewable diesel will be produced from blue hydrogen, involving natural gas reforming accompanied by carbon capture and storage.
Canadian Natural Resources (TSX:CNQ) has 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 2020.
Though there is a lot of negative press surrounding Canada’s oil sands, the industry is starting to clean up its act a bit. And Canadian Natural Resources is leading the charge. And if analysts are right about Canada’s comeback, Canadian Natural Resources could be in for a big year.
Though the Canadian energy giant has seen its stock price slump this year, it could provide a potential opportunity for investors as oil prices rebound. It is already up over 170% from its March 2020 lows, but it is just getting started. If oil prices continue to climb, it could be huge news for investors that held on.
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. With quarterly payouts exceeding 6%, TC has remained appealing for investors in the industry.
Suncor Energy (TSX:SU) is another giant in Canada’s industry. It has set itself apart from some of its peers through a number of high-tech solutions for finding, pumping, storing, and delivering its resources. Not only is it big in the oil sector, but it is also a leader in renewable energy. Recently, the company invested $300 million in a wind farm located in Alberta, showing that it is committed to reducing its carbon footprint.
Now that oil prices are finally recovering, 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.
By. Tom Kool
**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, 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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