Could This Be The Top Oil Play For 2021?
At a time when there is not much oil to discover on land and the super majors have gone to sea, where development takes decades and costs are often prohibitive, there is nothing more exciting than a quick look at one of the last giants to throw onshore oil plays.
Africa is the industry's final frontier, and the final frontier is a geological system that runs from Namibia to Botswana.
And while there are many super majors floating around in this unexplored part of Africa, the last great onshore game is developing into the massive Kavango basin, in which a small young researcher shakes up the tradition in a supermajore way.
One of the most famous geochemists in the world, Dan Jarvie, the driving explorer behind the Barnett gas game and former chief geochemist at EOG Resources, revealed the oil potential of Recon Africa in an amazing report.
Jarvie sees 120 billion barrels of oil in only 12% of Recon Africa's stocks.
Recon Energy Africa (TSX.V: RECO, OTCMKTS: RECAF) owns the entire Kavango Basin in north-east Namibia and north-west Botswana. That's over 8.75 million acres as deep as the productive Texas Permian Basin.
With nods of confidence from all sides - geologists, geochemists, and investors - Recon bought more.
Your land position is now almost as big as Switzerland.
This could be the piece that will change this region of Africa forever. That would be a tremendous feat for a company with a $ 140 million market cap that is above its weight and is winning so far.
The pure game of the decade
Jarvie believes Kavango even has the potential to compete with the wildly productive Permian Basin in Texas.
Recon Africa has now acquired all long-term rights for the entire Kavango Basin in northeastern Namibia and northwestern Botswana.
That's over 8.75 million acres as deep as the Permian, one of the most productive basins in the world.
And Kavango appears to be analogous to the main Karoo in South Africa and the Permian Basin in Texas, where Shell will stand by and watch while Recon Africa tries to prove and expand Kavango.
Meanwhile, the numbers just keep rising ...
First and foremost was the reservoir engineering office Sproule, which already examined the oil potential in the Namibian part of the Kavango Basin in 2018. At the time, Sproule estimated the basin could hold up to 12 billion barrels of oil (or 119 trillion cubic feet) of natural gas.
And it gets better. In its most recent report, Haywood notes that reporting has been initiated and a short-term price of US $ 2.50 has been set for RECO as the company "is committed and funded to launch a potentially tangible resource game on land in Namibia and Botswana at 1,348 mmbbls / 58.1 Tcf decrease. (UPDATE: Haywood just raised its short-term price target to $ 4.00.)
Haywood recommends "establishing a position ahead of the drilling / evaluation news flow in the first half of 21 to demonstrate the existence of a functioning hydrocarbon system which, if confirmed, should provide ample opportunity for further exploration and evaluation drilling".
As mentioned above, in a recent analysis Dan Jarvie sees a potential for 120 billion barrels of oil potential on only 12% of the stocks of Recon Africa.
And Jarvie thinks his estimates are “conservative”.
In a must-read interview with Oilessene, Jarvie said that while the estimates of potential oil are conservative, "they are pretty much comparable to the Permian in Texas."
Drill down to put Namibia on the oil map
Namibia has never produced a drop of oil - never.
Recon Africa (TSX.V: RECO, OTCMKTS: RECAF) hopes to be the first to change this. And now it is ready to drill its first well.
And Jarvie, who sits in the front row, has a trick up his sleeve that gives Recon an edge in Kavango: They use water-based mud for drilling, which Jarvie says makes it easier to locate the highly exploitable zones - the wage zones.
According to the geochemist, this is what exploration often makes or breaks. Oil-based mud makes it difficult for geochemists to identify what they are drilling through, as that mud is mixed with recycled oil residue that could even come from another basin.
This is a problem they have in Mexico and the Permian, mostly because oil-based mud makes it a little easier for the drills that are only there to drill. But Jarvie is at the forefront here, and it's not just about drilling, it's about pinpointing the payment zones. He won't risk bypassing them on mud.
And once they hit the wage zone, the development costs look just as cute as the basin itself. Based on the recoverable oil from the game in Namibia (12 billion barrels) it looks like this:
These are projected development costs per barrel that would thrive even if the pandemic continued.
And while we wait for the first drill results, we should remember that Bloomberg and Reuters got the per-acre value of Kavango, a prime property that the super majors get excited about when a junior develops:
Why it's all about the Junior Explorers
The supermajors don't really explore onshore anymore. They went offshore and are delegating to the juniors. The MO is simple: let a savvy junior make the discovery, prove, and expand, and then a super major comes in and records it.
Huge offshore finds putting Guyana and Suriname on the map are for super majors and some mid-caps who can make it. But the next big onshore fund, which is becoming rare now that we've developed almost everything on land, is likely to come from the small-cap corner.
For investors, unless you are a large hedge fund, the risk / reward ratio of the uptrend is in the Junior Pure games.
That's why Jarvie says, "Forget super majors like Exxon, Chevron when it comes to onshore exploration outside of the US. They aren't the ones who make these onshore discoveries work." Instead, you should look for places where independents are in place to look for the next big thing. "
And there are no arguments that Africa is the final land frontier, and on the continent Namibia sits on a geology that is largely unexplored. So far it has been to the delight of some of the world's most famous geologists and geochemists.
If the results are nearly as good as the experts predict, Kavango could become a household name and if so, the company that placed it there will be the junior game to be remembered.
Other companies will rise as the oil recovers:
Chevron (NYSE: CVX) is an oil super major with a massive presence in Africa, particularly Nigeria and Angola. In fact, the oil jewelry is one of the top producers in the two African countries. Other areas on the continent in which the company has interests are Benin, Ghana, the Republic of the Congo and Togo. Chevron also has a 36.7 percent interest in West African Gas Pipeline Company Limited, which supplies Nigerian natural gas to customers in the region.
Egypt has also caught the oil giant's attention in recent years. In fact, it was only this year that the country awarded the key Chevron and Shell exploration blocks in the glowing Red Sea. The blocks cover a total area of around 10,000 km² and have a combined minimum investment of 326 million US dollars, said the Egyptian Ministry of Oil. The potential investment would increase to "billions of dollars" if discoveries were made.
Although his interests are spread across the continent, everything is planned. By betting on oil and natural gas, Chevron wants to use both fossil fuels. While prices are currently still depressed as fuel demand normalizes again, Chevron is expected to rise if oil returns to pre-pandemic prices.
After Chevron fell to an annual low of $ 66 in mid-March, the share price rebounded over 30%. And while it hasn't yet recovered to pre-pandemic levels, the future still looks bright for the industrial giant.
Royal Dutch Shell (NYSE: RDS.A) has been in the African oil game for ages. In fact, the Dutch oil giant began drilling in the region over 70 years ago. While it has sold a number of assets in the region in recent years, it continues to have a strong presence, particularly in South Africa.
Shell's South African assets are important as the government has been far more stable than some of the other big corporations on the continent. It has also been very supportive of Shell in its efforts in the country. Operations in South Africa include retail and trade fuels, lubricants, chemicals and manufacturing. There is also heavy investment in upstream exploration. It even holds the exploration rights for the Orange Basin deep water area off the west coast of the country and has applications for exploration rights for shale gas in the Karoo in central South Africa.
Shell is not ignoring Namibia either.
"Namibia is one of those places where geology is very interesting," said Colette Hirstius, Vice President of Exploration for the Middle East and Africa at Shell Upstream, at a recent African oil conference in Cape Town. "We recently collected seismic data and we continue to be encouraged by what we see," she added.
Like many other oil companies, Shell had a huge hit in March when the oil markets collapsed. After falling from a start of the year of $ 60, it fell to $ 25. However, since then it has seen positive gains and is up over 40% to today's price of $ 35. While the year is not over, the positive sentiment for Shell and other oil companies is growing.
Total (NYSE: TOT) has a wide reach in the energy industry. From oil and gas to renewables and beyond, it maintains a big picture throughout its endeavors. And thanks to that, it has outperformed other pure oil majors this year. Not only is it aware of needs that are not being met by a significant portion of the world's growing population, but it also stays ahead of the looming climate crisis by strengthening its renewable resources. In its quest to create a better world for all, Total is committed to contributing to each of the United Nations Sustainable Development Goals.
As such, Total not only relies heavily on renewable energies, but also helps reduce emissions in its daily activities. Patrick Pouyanné, Chairman and Chief Executive Officer of Total, stated: "It is our job to meet the growing demand for energy while reducing CO2 emissions."
It's also one of the most conscious companies in the industry. Total selects every checkbox in the ESG checklist. It promotes diversity and security, is making massive changes to the way it does business to ensure its business is environmentally sustainable, and has even committed to becoming carbon neutral by 2050 or earlier. It's no surprise that shareholders love her forward-looking approach.
As mentioned earlier, Total was one of the more resilient oil companies this year. It's still 23% lower than last year, but that's significantly better than many of its competitors where market cap has been cut in half or even worse.
Exxon (NYSE: XOM) is another oil giant looking to capitalize on the impending crude oil boom in Namibia. Recently, the Namibian government purchased an additional 7 million net acres for a block that extends from the coast to about 135 miles offshore in water depths of up to 13,000 feet. Exploration activities are scheduled to begin at the end of this year.
ExxonMobil is also deeply committed to reducing its emissions. It is claimed to have about a fifth of the world's total carbon capture capacity. The company captures around 7 million tons of carbon annually. This has been the case since 1970 and the company claims to have captured more CO2 than any other company - more than 40 percent of the accumulated CO2.
Like Royal Dutch Shell, ExxonMobil has lost almost half of its value since the start of the year. Even so, Exxon has made great strides in the energy space and is perfectly positioned to capitalize on the recovery in oil prices and the global hub for natural gas in the years to come.
Suncor Energy (NYSE: SU, TSX: SU) has developed a range of high-tech solutions for finding, pumping, storing and delivering its resources. Not only is it big in the oil sector, it's also a leader in renewable energy. The company recently invested $ 300 million in a wind farm in Alberta.
When the recovery in crude oil prices finally hits, giants like Suncor are sure to do well. While many of the major oil companies have given up oil sands production, those focused on technological advancement in the region have good long-term prospects. And that upward trend is further compounded by the fact that it currently looks particularly undervalued compared to its peers.
Better still, some analysts are already a little more optimistic about the oil sands, which is good news for Suncor.
"With improved cost structures and an increased tendency towards capital discipline, Canadian producers emerge stronger from the downturn and can generate free cash flow," said analysts Benny Wong and Adam J Gray of Morgan Stanley
By. Peter Catley
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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 uncertainties that could affect Recon's business. All estimates and statements regarding Recon's business, plans and projections, the size of potential oil reserves, comparisons with other oil fields, oil prices, recoverable oil, production targets, production and other operating costs, and the likelihood of oil recovery are forward looking. Viewing statements under applicable securities laws necessarily involves risks and uncertainties including, without limitation: risks related to oil and gas exploration, timing of reporting, development, use and production, geological risks, marketing and transportation, availability of adequate financial resources , Volatility of commodity prices, inaccuracy of reserve and resource estimates, environmental risks, competition from other manufacturers, government regulations, start of production and changes in the regulatory and tax environment. Actual results could differ materially from the information provided in this document, and there is no assurance that actual future results will, in whole or in part, match those presented here. Other factors that could cause actual results to differ from those contained in the forward-looking statements are also disclosed in the filings of Recon and its technical analysts. We are under no obligation to update them forwards unless otherwise required by law. looking statements unless required by law.
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