Oilprice.com founder James Stafford sits…
One of the world’s most…
Two and a half decades ago, Nick Steinsberger invented what is now the modern-day frack in the Barnett shale. Now, the petroleum engineer extraordinaire is tasked with proving up untold billions of barrels of oil in Namibia’s Kavango Basin in what could very well be the world’s last-ever discovery of a massive onshore sedimentary basin.
In an exclusive interview with Oilprice.com, Steinsberger reveals:
James Stafford: I read a fascinating article about you in the Atlantic where they described what they called an “accidental discovery that revolutionized American energy” back in 1997 when you were supervising the completion of a well in Texas.
That discovery completely changed the future of fracking. That makes you pretty much the Father of Fracking, and now you’re considered to be a world leader in well completions from Eagle Ford and Wolfcamp to Marcellus and the drilling of some 1500 wells across North America.
So, we’re very excited to see what one of the men who made the American shale boom happen is about to do in Namibia--the next contender for a shale boom.
Why Namibia? And why the Kavango Basin?
Nick Steinsberger: First of all, that fracking discovery that took place in 1997 was when I was with Mitchell Energy, in charge of completion for the Barnett Shale. I am honored to have been responsible for completing the first 25 horizontal shale wells ever drilled in this shale patch. This is indeed where modern-day fracking began. Now, I’m hoping for something just as exciting in Namibia’s Kavango Basin.
Why Kavango? Well, part of the reason is that I’ve seen all the data and the source rock looks very promising, but the other reason is because of who’s behind it. Not just anyone can take on a massive basin like this--especially a junior player. Recon Energy Africa bought up the entire 8.75-million-acre sedimentary basin here and holds all the rights to it. And I know these guys and trust them.
Stafford: I’ve seen all the estimates: First from Sproule, which said 12 billion barrels (unconventional only) but then bumped it up to 18.2 billion when it added Recon’s Botswana portion of the basin. Then geochemist Daniel Jarvie just came out with a report showing potential for 120 billion barrels of oil equivalent based only on 12% of Recon’s holdings …
That’s a lot of pressure on you as Recon’s newly onboarded VP of drilling and completion. It’s down to you to prove up those estimates. Given your history as the man who made the shale boom possible, we’re doubting you would take a position like this with a junior company unless you were pretty optimistic about the drilling.
Steinsberger: I could have gone pretty much anywhere, but we all want something big. The next big find. And they don’t happen very often these days--at least not onshore. We’re looking for the next American shale boom, and Africa’s got the most potential.
But Recon is a special story because I had already been working with them in Mexico for about five or six years. We put together a really nice block with a potentially world-class shale play there, but then a populist government rose to power and the climate changed and the sheer scale of the Kavango Basin in Namibia distracted us from Mexico.
Stafford: How huge does it have to be to distract one of the founding fathers of fracking?
Steinsberger: Big. And in this case, I think it’s a huge undiscovered Permian basin and I’m very excited to be working on it.
Stafford: How big?
Steinsberger: Drilling hasn’t started yet, but will in November. But what got me was the geomagnetic survey of Recon’s license area, confirming depths of up to 30,000 feet under optimal source rock conditions. So, you’d clearly have to hypothesize that this is going to be pretty good source rock. The Permian basin in Texas is the same type of sedimentary basin with a huge amount of Permian shale in it.
We don’t know until we drill, but all the indicators are there that it’s a deep basin with good Permian rock.
Stafford: Can you tell us more about those indicators?
Steinsberger: Again, it’s the depth that is so alluring here and that’s what the geomagnetic survey shows. And there is work that has been done to the west of Kavango and it’s the same kind of basin. That’s the Owambo Basin.
There’s a test well on a shelf to the left that has the same rock in it as Kavango. Although Kavango will be deeper, more thermally mature, hotter, or more cooked. In other words, Owambo’s shale was shallower and immature; the rock couldn’t produce hydrocarbons.
Stafford: What does it mean that Kavango is a lot deeper for those of us who aren’t geologists?
Steinsberger: In Kavango, the analysis shows it will be deeper, which means more pressure and more heat to cook the hydrocarbons. It’s also thicker, so that means more potential for hydrocarbons. Both of these things make it very promising. Listen, the source rock is the shale. That’s exactly what my background is, and what Dan Jarvie’s background is. This is where our expertise lies. We are very excited about the Permian shales. The thickness and depth make us think there will be production.
Stafford: So, you’ve worked on many impressive projects all around the world--even in China. So, what really makes this one stand out as something you want as part of your continuing legacy?
Steinsberger: It’s still early, but we KNOW it’s a Permian basin, so it can be compared to the West Texas plays. Right off the starting blocks, that’s a brilliant thing to know. Just think of all the conventional plays that unfolded in West Texas over the past 50 years--not even to mention the unconventional that changed the American energy picture completely.
Stafford: Could it really be as big as Texas’ Permian Basin?
Steinsberger: 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.
We can’t determine productivity until we drill it.
Stafford: This is really important. What other similarities have you seen between the Texas Permian and Kavango?
Steinsberger: First of all, Kavango is a marine deposit similar to what West Texas was several hundred million years ago. Again, it appears to be the same thickness. The time, maturity, heat, and pressure should be along the same lines. So It’s a question of how much of the plants, animals and dinosaurs died there to generate the hydrocarbons.
Stafford: What is your confidence level at this stage based on everything you know and the people you’ve spoken to, the other experts involved in the project?
Steinsberger: Well, I’m confident that we will prove up a hydrocarbon system. I’m confident it will be a producer. I don’t know if it will be world-class, or a huge find that all the majors will chase after, but there will be hydrocarbons in this rock. The question is how big a play it will be. By this time next year, we will have a much better indication.
Stafford: How did you select the three drill sites you chose for your November-launch campaign?
Steinsberger: The geologists chose the first site on an edge of the basin that is being uplifted. There should be traps with potential conventional plays as well as some deeper shales. The second well is a straight shale test, drilled through the shale section to see what’s there. The third well will be in a different area but similar to the first--some potential traps, potential conventional targets, and shale again. So we are looking for different things. But the basin is so big you could drill exploratory holes for years and continue to find potential targets.
Stafford: Can you tell me a bit more about the drilling program?
Steinsberger: We will be taking the rig and equipment to drill these wells and we will leave the rig over there. The first well will be 12,000 feet in depth and will take 30-40 days. The second one will be 13-14,000 feet deep, which is about the deepest well this rig can do.
Stafford: And how often will you take samples?
Steinsberger: We will have the equipment and people on-site taking samples for every section. The first section for the conventional targets will be 4-6,000 feet. We will set the casing and drill to the 12,000’ level and take samples of those shale rocks throughout this section. We will take samples like this on all 3 wells
Stafford: As I noted earlier on in our talk, Dan Jarvie said that conservatively there are 120 billion barrels of oil there. And that’s only 12% of Recon’s holdings. What do you think about that number?
Steinsberger: That is a lot of hydrocarbons, for sure. I think it has the potential and it could be higher than that, but I am a conservative engineer so I think: wait and see. I’m very excited about the potential. Everything is there that we need to have a highly productive shale.
Stafford: East Africa is massively under-explored. Why is that, and why are we just now getting down to the potential in Namibia?
Steinsberger: Well I think there are a couple of reasons. Namibia only became independent in 1990, and the Kavango basin itself was only just discovered recently. Recon bought the entire thing up the minute it was discovered. So these countries are only just starting to explore. The government in Namibia and the laws around hydrocarbons are all relatively new, yet it’s one of the friendliest regimes for explorers.
Stafford: Can you give me 5 reasons to buy Recon Energy Africa stock now.
Steinsberger: I think the risk-reward ratio is tremendous. I think the risk is we can’t get the rig over there, we don’t drill to our target section and we don’t find anything productive. That’s not very likely. The rig is coming in a couple of months and we will be drilling by the fourth quarter. I find it very unlikely we don’t find anything with both conventional and shale source rock targets. 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.
I also think exploring an entire basin is incredibly exciting.
Other companies looking towards new oil frontiers for big returns:
Royal Dutch Shell (NYSE:RDS.A) is a veteran in Africa’s oil and gas game. The Dutch oil giant began drilling in the region over 70 years ago, and now has energy assets in over 20 countries across the continent. Though it has sold off a number of its prized plays in the region in recent years, it continues to maintain a strong presence, especially in South Africa.
Shell’s South African assets are important because the government has been significantly more stable than some of the other big bets on the continent. Moreover, the country has been very open to Shell in its projects. The company’s operations in South Africa include retail and commercial fuel, lubricant, chemical and manufacturing. It’s also heavily invested in upstream exploration. It even holds the exploration rights to the Orange Basin Deep Water area, off the country’s west coast and has applications for shale gas exploration rights in the Karoo, in central South Africa.
Exxon (NYSE:XOM) is another company looking to cash in on the next major oil boom. It recently acquired additional 7 million net acres in Namibia from the government for a block about 135 miles offshore in water depths up to 13,000 feet, with exploration activities to begin by the end of this year.
Exxon’s big bet on Namibia is based on the fact that it consists of the same geology as Brazil’s pre-salt oil basins, Santos and Campos, which have already proved enormously resource-rich, according to Deloitte. When oil demand returns to pre-pandemic levels, this will put Exxon in a great position to take an edge over its biggest competitors.
Chevron (NYSE:CVX) is also betting big on Africa, particularly Nigeria and Angola. The supermajor ranks among the top oil producers in the two African nations. Other areas on the continent where the company holds interests include Benin, Ghana, the Republic of Congo and Togo. Chevron also holds a 36.7 percent interest in the West African Gas Pipeline Company Limited, which supplies Nigerian natural gas to customers in the region.
Though its assets are spread out across the region, it’s all strategic. With bets on both oil and natural gas, the company is looking to take advantage of both of the fossil fuels. Though prices are still depressed at the moment, as fuel demand returns to normal, Chevron could be a big winner in as prices climb back up to pre-pandemic levels.
Total (NYSE:TOT) is another oil giant betting big on the region’s potential. The company has been in the region for over 90 years, and it is showing no sign of reducing its footprint anytime soon. In fact, just recently, the company announced a major oil discovery offshore Suriname.
That said, Total also keeps a ‘big picture’ outlook across all of its projects. The company 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 good news for investors who often worry about how local entities are impacted when global energy giants move into their countries.
Suncor Energy (NYSE:SU) has adopted a number of high-tech solutions for finding, pumping, storing, and delivering its resources. While its primarily based out of North America, it’s assets in Africa and the Middle East should not be dismissed. Though the oil downturn has weighed on the company’s share price this year, many analysts are pointing to a turnaround, from which Suncor will most certainly benefit
When oil finally returns to pre-pandemic prices, Suncor will be one of the largest benefactors. While many of the oil majors have given up on oil sands production – those who focus on technology in the area have a really strong long-term outlook. And that upside is further amplified by the fact that it is currently looking particularly under-valued.
Enbridge, Inc (TSX:ENB), based in Canada’s oil sands capital Alberta, is an energy delivery company focusing on transportation, distribution, and generation of energy. Operating in the United States and Canada, Enbridge owns and operates the largest natural gas distribution network in Canada and the longest crude oil transportation system in the world. Founded in 1949, investors can feel confident in Enbridge’s experience and market know-how.
Though not strictly dealing in commodities, Enbridge’s diversified assets and connections to a variety of industries position the company as solidified player in many Canadian investors’ portfolio.
Pengrowth Energy Corp. (TSX:PGF): Another company that looks to have halted its falling stock price and is now preparing to ride the bullish sentiment in oil markets. Having shed a lot of excess weight this year in massive asset selloffs, investors can expect a much leaner and meaner Pengrowth in 2018.
For those investors who like to follow the smart money, billionaire investor Seymour Schulich bought millions of extra shares in Pengrowth in early October, boosting his position from 19 percent of the stock to 24 percent. He claims that he is confident that oil and gas is going up.
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.
MEG Energy Corp (TSE: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.
Pembina Pipeline Corp. (TSE:PPL): The North American pipeline industry has had a tough year, but the recent 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. James Stafford
**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, 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, heterogeneity rates, marketing and transportation, operating in an African country with less infrastructure and familiar laws, 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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