Jan 14, 2021 (Financial News Media via COMTEX) -- FN Media Group Presents Oilprice.com Market Commentary
London - January 14, 2021 – Oil discoveries are on the decline, but with prices bouncing back, junior explorers are quickly becoming the talk of the town. Especially those with a presence in Africa, which may just be one of the most exciting oil frontiers on the planet. Mentioned in today's commentary includes: Marathon Petroleum Corporation /zigman2/quotes/209634297/composite MPC -2.79% , Valero Energy Corporation /zigman2/quotes/200735463/composite VLO -0.01% , Phillips 66 /zigman2/quotes/207448059/composite PSX -2.99% , Canadian Natural Resources Limited /zigman2/quotes/203976248/composite CNQ -3.64% , TC Energy Corporation /zigman2/quotes/200192679/composite TRP -3.92% .
Reconnaissance Energy Africa (RECO.V; RECAF) is a small $300 million company that has secured petroleum licenses for an entire sedimentary basin in Namibia and Botswana…two extremely resource-friendly countries with very low royalties fees.
This basin - as deep as the Permian - could prove to be one of the world's last-ever giant onshore oil discoveries. And as a new basin, the potential is likely for Conventional Oil and Gas. No Fracking, normal production profiles, low water requirements which means low cost per barrel. And Recon Africa has secured the petroleum licensing rights to the entire basin.
With one of the world's largest onshore, undeveloped hydrocarbon basins - whose potential has been analyzed and acknowledged by some of the industry's most sought-after experts - the oil that is hoped to be discovered by Recon Africa could ultimately prove to be worth tens of billions.
With drilling now underway, it's unlikely that this company remains under-the-radar for much longer - and the world will be very interested to learn about any major discovery made here.
The Most Exciting New Oil Frontier
Recon Africa ( RECO .V; RECAF ) owns the rights to a massive sedimentary basin loaded with potentially hundreds of billions of dollars' worth of oil and gas. Under several long-term petroleum licenses, they have acquired all rights to an entire sedimentary basin in Namibia and Botswana.
The Kavango Basin is comprised of 8.75 million acres and is said to be similar in depth to the Permian. New data on the basin shows that not only is it large - it's also as much as 30,000 feet deep. The Kavango is a rift-basin, which refers to geologically how the basin formed. All of the major onshore oil and gas fields in sub-Saharan Africa are contained in rift basins.
The source rocks in the Kavango are believed to be the same age and quality South Africa's 600,000-square-kilometer Karoo sedimentary basin, home to Shell's massive Whitehill Permian gas play. The difference is that the thermal history in South Africa led to much higher heat flow and subsequent over-cooking that lead to only dry gas remaining. This year, armed with new data, noted source rock expert Dan Jarvie has estimated that the basin could be capable of generating 100 billion-plus barrels of oil.
In November 2020, the highly respected global energy consultants at Wood Mackenzie issued a report proclaiming that the Kavango Basin "represents one of the largest onshore undeveloped hydrocarbon basins in the world."
In this report, the experts at Wood Mackenzie identified three basins that provide a useful benchmark as to what the potential for the Kavango Basin might look like…one of which was the US - Midland Basin (Permian) in Texas that has an estimated overall development value of $540 billion.
Experts Are Backing This New Oil Boom
Bill Cathey, President and Chief Geoscientist of Earthfield Technology is known as the "geological interpreter to the supergiants," as he has consulted for every oil and gas major and large independent in the business. Here's what he had to say about the Kavango Basin:
"Not only was the data on the basin some of the best he had ever seen… nowhere in the world is there a sedimentary basin of this depth that has ever failed to produce commercial quantities of hydrocarbons. "
And Cathey is not the only expert to have weighed in on the potential for Reconnaissance Energy Africa (RECO.V; RECAF).
Sproule - a resource assessment company - in 2018 estimated that the Kavango Basin has a potential 18 billion barrels of oil. But noted source rock expert Dan Jarvie went even further with his projection. Jarvie has estimated Recon Africa's Kavango is capable of generating over 100 billion barrels of oil.
In addition to the expert geologists that spoken to Recon Africa's explosive potential, Haywood Securities recently issued a positive report on the company and upped its target from $2.50 to $4.00 per share.
The Haywood report proclaimed that, "With such a large potential, coupled with the early stage nature of the Company, any success from the current program could be a significant catalyst for the stock. The resulting net impact of this update is favorable to our near-term outlook of the shares. As such, we are increasing our target price from $2.50 to $4.00 and reflects a higher risked NAV given the de-risking of rig mobilization to country and onto drill site location."
Haywood Securities went so far as to include examples in its report of plays in which an initial oil discovery during the exploration phase delivered upside between 380% and 1,000%. While this apparent consensus is no guarantee of future success…it is as strong a forecast for high upside as has been seen in this space in many years.
Africa Is The Last Frontier For Oil Investors
Here's the thing to keep in mind about massive, onshore Permian-sized basins: They're not discovered often. And if they are discovered these days, it's likely in Africa - the final onshore frontier for oil explorers. After all, Africa is the only huge, underexplored venue in the world left where it's possible to have a large discovery made by a small cap exploration company.
Namibia is one of the most exciting up-and-coming African oil venues and that's precisely why companies like Shell and Exxon have been scooping up assets in the region. The location of Recon Africa's Kavango is virtually ideal - with easy accessibility and significant exploration underway nearby involving major producers. The Kavango is part of the Karoo Group, and it's also been shown to have the same depositional environment as Shell's Whitehill Permian resource play in the main Karoo Basin in South Africa.
The Timing Is Perfect
As one might expect with such a potentially lucrative opportunity, the dominoes have already begun to fall. Recon Africa ( RECO .V; RECAF ) has acquired its own rig to minimize costs and to facilitate drilling schedules. The company's ownership of the Crown 750 rig is expected to reduce drilling costs by as much as 60% for its initial holes.
The size of the potential upside for Recon Africa, combined with the speed the company is executing its exploration program, means that this is not likely a scenario where investors are forced to wait for a potential payoff five years or more into the future. Positive drilling results could trigger an increase in share value - or potential partnership and acquisition news - at some point in 2021, probably making this a rare short-term opportunity with significant upside potential.