If there’s one thing three of the world’s most prominent geologists, geochemists and drill completion experts agree on it’s this: Namibia’s Kavango Basin could end up being the last major onshore oil discovery on Earth.
There’s almost no known major sources of oil or gas left to discover on land, except in a few wildly underexplored parts of Africa.
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.
But Exxon (NYSE:XOM) has been on the acquisition trail in this friendliest of African regimes, scooping up 7 million net acres offshore …
And onshore, a rising star junior company has bought up the entire Kavango sedimentary basin from Namibia all the way to Botswana.
That’s a basin over 8.75 million acres, as deep as the Permian basin in Texas and as wide as the Eagle Ford.
Previously, this newly discovered Permian Basin was estimated to hold over 18 billion barrels of oil in place. But that’s only half the story, astounding as it is. Now, a world-renowned geochemist says it could possibly generate 120 billion barrels of oil.
While a major discovery for Exxon offshore Namibia would give the beleaguered company’s stock a much-needed boost, for wildcatter Reconnaissance Energy Africa (TSX:RECO.V, OTCMKTS:RECAF), the owners of the entire Kavango basin, it could be a huge bonanza for shareholders.
Kavango: The Permian Potential
World-renowned geologist and geophysicist Bill Cathey, the president of Earthfield Technologies in Houston and a geologist to the supermajors, studied RECO’s Kavango Basin find, saying that “Nowhere in the world is there a sedimentary basin this deep that does not produce commercial hydrocarbons.”
Then, Daniel Jarvie, a key force behind the massive Barnett play in Texas and former chief geochemist for EOG Resources, jumped in on RECO as a shareholder because he saw a “very strong, independent junior explorer… sitting on a sedimentary basin that rivals South Texas in a massively underexplored region”.
Also catching this speeding train is world-class drilling and completions expert Nick Steinberger, who after many recent successes could have gone anywhere, but chose Recon Africa in Namibia.
The numbers seem to be lining up in RECO’s favor.
First, in 2018, Sproule estimated 12 billion barrels, but that was only looking at the source rock potential.
Then, earlier this summer, Sproule came back with a new estimate of 18.2 billion when it added Recon’s Africa’s extended portion of the basin in Botswana, the license for which it acquired in June. Now, armed with new data, Jarvie thinks we’re looking at much larger potential - just like the Permian basin in Texas.
Earlier this month, Jarvie came out with his own estimates showing the potential for 120 billion barrels of oil equivalent based only on 12% of Recon’s holdings. He says he’s being conservative.
In other words, while this basin may be bigger than Eagle Ford, it’s more aligned with the Permian in Texas because of its enormous potential as a conventional play.
Not only does Kavango appear to be analogous to the Permian Basin in Texas, but also to the Main Karoo in South Africa, where Royal Dutch Shell is a major player.
RECO (TSX:RECO.V, OTCMKTS:RECAF), is moving full speed ahead in Namibia, with the first drilling campaign to start in December.
RECO drew up technical plans using high-density aero-mag surveying and Halliburton’s advanced LithoTect technology, among other data sources, that has Steinberger so, excited. The geomagnetic survey of Recon’s huge license area confirmed “alluring” depths of up to 30,000 feet under “optimal source rock conditions”, just like the Permian basin in Texas.
“The Permian produces nearly 5 million barrels per day. I don’t know if it will be that big on the world-class scale because it’s too early and the drill campaign gets off the ground in November. But I will say this: It’s the same setting, the same geological time frame, and looks like the same type of thickness. The Permian section of Kavango will be 6,000-8,000 feet in depth, which is the same as the Permian in Texas,” Steinberger recently told Oilprice.com.
What A World-Class Oil Discovery Would Mean
No major conventional onshore oil discoveries of a world-class nature have been made for years. In 2019, we only saw new discoveries of around 8 million barrels of oil equivalent - both onshore and offshore. That compared to 10 billion barrels in 2018.
And new discoveries certainly aren’t keeping pace with the loss of conventional resources, according to Rystad Energy.
For every six barrels of oil consumed, we’re only replacing them with one newly discovered.
That may seem just fine at the moment when the pandemic has crippled demand, but as soon as the dust settles, the supply squeeze may be on, and no one will be prepared.
The big banks are bullish. Both Citigroup and Goldman Sachs are convinced that oil prices will recover in 2021 to $60 and that the oil oversupply will have been drawn down by then.
But even at $40 oil prices, a Kavango basin big discovery would be a major boon for shareholders.
And because we’re dealing with a junior company with a small market cap of around $40 million, the upside potential is huge, with a big risk-reward premium for success. You would never get that with a supermajor, and supermajors aren’t the ones who make onshore discoveries happen outside of the United States, says Jarvie.
Now, things are expected to start moving very fast.
According to Steinberger, the first well will be 12-13,000 feet in depth and will take 30-40 days.
The second one will be 13-14,000 feet deep.
And they’ll have a crew on site taking in samples for every section.
Both Jarvie and Steinberger have high expectations on this one. Jarvie anticipates “high-quality oil”, calling Kavango a “no brainer”. And he’s got tons of experience in Africa to back it up.
As far as Steinberger is concerned, the only risk of not getting any oil is if they don’t get the rig over there and don’t drill. “That’s not very high. The rig is coming in a couple of months and we will be drilling by the fourth quarter,” he said. “I find it very unlikely we don’t find anything in the conventional zones supported by prolific source rocks. I think there is so much potential and so thick a section I find it very unlikely that we will find nothing. I think the risks are so low and the reward is so high that whatever the price is at 50-60-70 cents it is a very good play to be in.”
Other companies worth keeping an eye on as oil prices bounce back:
Total (NYSE:TOT) is one of the few oil majors truly diving head first into the new energy reality It is not only 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 looming climate crisis if changes are not made. In its push to create a better world for all, it has committed to contributing to each of the United Nations’ Sustainable Development Goals. From workplace safety and diversity to societal progression and reducing its carbon footprint, Total is checking all of the boxes that the next generation of investors hold close to their hearts. And that should pay off for the giant.
While Total’s share price slipped in March along with the wider market, Total’s pivot towards sustainability has helped it outperform some of its peers. Though it still maintains a major presence in the global oil and gas industry, it has made significant strides in the renewable realm, as well.
BP (NYSE:BP) is another European energy giant slowly pivoting towards greener energy alternatives. BP, which has been criticized in the past as being slow and late to the environmental cause, could now leapfrog its peers. We are still a long way from Beyond Petroleum. But chief executive Bernard Looney believes that we are only 30 years from a net zero BP. He has promised that in September the company will lay out a more detailed plan that shows the path to that destination. But he has shown already that there is more to his commitment to net-zero than there was to Beyond Petroleum 20 years ago.
“Renewables and natural gas together account for the great majority of the growth in primary energy. In our evolving transition scenario, 85% of new energy is lower carbon,” Spencer Dale, BP group chief economist, said, commenting on the outlook to 2040.
Exxon (NYSE:XOM) is another oil giant looking to cash in on Namibia’s upcoming crude oil boom. It recently bought up an additional 7 million net acres from the Namibian government for a block extending from the shoreline to about 135 miles offshore in water depths up to 13,000 feet, with exploration activities to begin by the end of this year.
ExxonMobil is also big 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. This has been in place since 1970, and the company claims to have captured more CO2 than any other company — more than 40 percent of cumulative CO2 captured.
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Though Canadian oil has had a particularly rough go at it this year, Canadian Natural Resources (NYSE:CNQ; TSX:CNQ), 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.
While the Canadian energy giant has seen its stock price slump this year, it could provide a potentially opportunity for investors as oil prices rebound. It is already up over 170% from its March lows, and it could still have some more room to run.
As one of the biggest names in energy, Suncor Energy (NYSE:SU, TSX:SU) 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, it is 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.
TransCanada (TSX:TRP) is a major oil and energy company based in Calgary, Canada. The company owns and operates energy infrastructure throughout North America. TransCanada is one of the continent’s largest providers of gas storage, and owns and has interests in approximately 11,800 megawatts of power generations.
With TransCanada’s massive influence throughout North America, it is no wonder that the company is among one of Canada’s highest valued energy companies. Investors can feel comfortable with the company due to its huge and diverse portfolio, and continuing eye for success.
Franco-Nevada Corporation (TSX:FNV) specializes in securing precious-metal streams, but the company also works in the oil and gas industry. With key assets in some of North America’s most desirable oil and gas plays, including Texas, Oklahoma and Alberta, it is clear that the company has amazing potential in the coming years.
FNV ended 2016 with a relative bang. And as oil and gas prices inch up, investors are watching this diverse company very closely.
Cenovus Energy (TSX:CVE) is most known for its oil business, but it is also actively investing in renewable energy. More importantly, however, is that it has set truly ambitious sustainability goals for itself, aiming to cut emissions by a massive 30% in just 10 years.
This is one of the most actively traded stocks on the TSX. The potential is certainly here for this oil company, so for investors who are bullish on the return of the oil markets, this is a perfect pick in the Canadian market.
By. Sarah Jennings
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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, 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.
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