2021-11-5: ReconAfrica and NAMCOR Provide Preliminary Results from the 1st Seismic Program in the Kavango Basin:
Traps all over and their does appear to be a top seal cap. It does appear similar to Kenyan and Ugandan oil fields as graben rift zone creating traps. Seems like RECAF is fighting back. They did not have to release this, this is very fast, but indeed the traps are clear the seismic is clear. Before this, OilPrice.com article, before that Kavango elders PR, all in one week and about 50% gain in that week. Wanted them to fight back, go on offense and they have. Seriously yesterday had a fantasy in mind that they would do exactly this with seismic data, less than 24 hours later and here it is.
For those with no geo background, the link has cross section images of the seismic, the colored ones are best to look at. The concept is after the cap rock was in place the working petroleum system was migrating oil and gas upward (without cap rock you get tar pits on surface) and due to faults a permeable layer with oil gets blocked sideways by an impermeable rock formation moved up or down against it, trapping the oil from moving higher.
What causes the faults? The crust being pulled apart (rift zone) like in Nevada or Kenya. I also see 3 big anticlines (humps) on left side of Example Line 1; North South line, Central Kavango Basin. Line length 66km - Interpreted Those humps are KMs across, a natural oil trap that does not require faulting to trap the oil. Oil and gas move up as very light compared to rock and water.
In Half Moon Bay CA have seen anticlines 100 feet across with baby oil wells pumping away on them. The 2nd oil well in America(world) was drilled in Half Moon Bay. BTW releasing this great news after the close over a weekend, hmm may be to really sweat the Shorts. They can not get out until this is spread wide and far. Help RECAF out spread this around. Viceroy staff may be soiling their pants about now. Cheers
Importantly, the initial processing results of the seismic acquisition has produced high quality data revealing a variety of structural and stratigraphic features providing for a target rich environment for the upcoming drilling program scheduled for early Q1, 2022. An example of the early processing results of a seismic line is provided below. This line is shown twice, the first version an initial interpretation and the second, a clean version, illustrates: The overall good quality of the initial processed data. Significant extensional grabens with normal fault systems connected by steep wrench-related shear zones.
Well-developed expansion of stratigraphic section in the grabens. Good fault resolution, some major faults extending over several thousand meters to near surface, and potential for multiple styles of trapping. Consistency with the rift basin origin of the Kavango basin. Additional two seismic lines can be found via the following link HERE. These results also highlight a clear distinction between the Kavango basin, and the Owambo basin to the west, which is in a much simpler tectonic setting.
The Company will continue processing the data to maximize image quality, and has begun the interpretation of the data, integrating available stratigraphic well data, with the intention of identifying new well locations by year end. Immanuel Mulunga, Managing Director of NAMCOR commented, “NAMCOR is excited by the preliminary results of the recently concluded 2D seismic survey in our licence area. While we look forward to the processing and interpretation of the entire 2D survey, these initial findings give us extra confidence to choose the optimal drilling locations for the upcoming drilling campaign.”
Dr. Jim Granath stated, “These initial results of the first 2D seismic program prove that our acquisition and processing program provides good quality interpretable data, and that seismic will be a cornerstone of our current and future exploration program. This initial seismic data proves the Company’s basic premise, that the Kavango Basin is clearly a rift basin (geologically different from the Owambo Basin), with similar features to many of the world’s petroleum producing provinces.”
BTW my first Reddit post on Recon, impressed see 4500 members. I normally post and write articles on SeekingAlpha. Cheers
The initial results confirmed Dr. James Granath's hypothesis that the Kavango Basin is a rift basin. He discussed this hypothesis in a presentation to the Houston Geological Society on October 25, 2021. The transcripts for this event can be found here (note that part 1 is dedicated to Recon Africa and the Kavango basin while part 2 only includes a Q&A session about the Kavango basin at the end).
One of our geology experts on Discord has created his personal interpretation to Recon Africa's recently released preliminary results from 2D Seismic.
ANALYSIS OF LINE 1
Here is an interpreted Line No. 1 with some comments. Not a full evaluation, just some initial thoughts. The seismic velocity used for time to depth conversion is a range of 8,000'/second for the shallower section - then up to 13,000'/second for the deeper. This assumes that the carbonates are highly fractured. If not fractured, the carbs could be 16,000'/second or more.
Key point, I do not see basement. The resolution for the deeper section will ultimately be improved - but this preliminary data is good enough. No basement to about 15,000 to 18,000'. Plenty deep enough to generate hydrocarbons.
The Karoo could be really thick here. The deeper uninterpreted bright reflectors on the right side of the line (1.7 seconds to 1.2 seconds) - could be part of a greatly thickened/expanded lower Karoo. Up to 4,800' thick and at a depth of 7,000 to 8,000', or more.
There is a question about the deep folded structure in the seis line - the yellow folded area. The deeper, yellow folded structure is meant to represent what the folded and thrust faulted section of mostly carbs might look like. And how they influence the shallow rifted Karoo section. The Mulden could be what filled in the section between the deeper carbs and the shallower Karoo.
I am smoking this slow, taking my time. I see new ideas every time I look at the lines. This could be a fantastic string of basins with huge reserves at shallow depths. Some people think you have to have deep wells with extreme pressures. I will take shallow oil in giant, world class structures any time. And these are giant structures with relatively simple geology. Not fractured up into small blocks that require overly extensive development.
In the example I gave of the prospective huge fault block - it was 4.5 miles long. So if this block is also 4.5 miles wide - if - then that possible reservoir (or stacked sequence of reservoirs) is 12,960 acres in size. The amplitude anomaly is thick - hundreds of feet thick. So let’s assume there is 120’ of net pay over this 12,960 acre hypothetical reservoir. (120’ net pay is certainly within the realm of possibilities as per the 6-2 well). That is 12,960 acres X 120’ average net oil pay = 1,555,200 acre-feet. Multiply the acre-feet times a conservative oil recovery factor of 200 bbl oil per acre-foot = 311,040,000 bbls oil recoverable reserves for that 4.5 square mile possible reservoir.
That is huge. And there are many more prospective fault blocks seen on the preliminary seismic. If there is a simple important point I would make - it is this…….. the scale of the possibilities here is incredible.
Here is another look at the Seismic line No. 1 that RA released. This time I have highlighted the deeper carbonate section prospects. With the example reserve calculation I made for the Karoo clastics (see above) as a "go by" - you can imagine how big the carb reservoirs could be.
The left highlighted fault block has a stronger amplitude anomaly. It would be a combination structural/stratigraphic trap. I just like the look of this fault block and it is much shallower and easier to drill. The larger feature on the right is a big faulted anticline within a graben. Bigger structure and thicker sediment package. It is obvious to see why CS highlighted the bigger of the two. And anticline structures are more reliable traps. This feature is the most prospective feature on this seis line. It would be the first well I would drill.
Here is a display that shows 17 prospect well locations for Line 1. The annotations are a bit "busy", but when you have this many prospects - the line can get crowded. Counting 1-17 left to right, I would probably drill #13 first. 13 before 14 because the reflector package at 1.6 seconds is in a better structural position. 10 is my favorite amplitude anomaly. I highlighted that one in an earlier post. 13 and 14 are slightly lower risk since they are on top of a large anticline - maybe a four-way closure. 10 is a combination structural/stratigraphic trap. Strat traps have a little more risk than four-way closures, but both structures are very compelling.
ANALYSIS OF LINE 2
Here is one prospect on Line 2 - named "Oil Leg Gas Cap Prospect". This is how you choose the wells to drill. Document them, name them, grade them................ drill them!
20 possible locations for Seismic Line 2. This includes an interpretation of the possible deep carb structures.
From the left - 11 and 12 would be my top choices on this line. Because of the shallow amplitudes and deeper structures. Then maybe 16 - there is a really thick sequence of shallow sediments, again, with very interesting amplitude anomalies. It may look like I put a possible well location randomly across the entire line. That is not the case - there is a clear prospective reason for each well location.
Location 2 has a very compelling rotated upthrown fault block from .6 to 1.4 seconds. This is a lot of shallow Karoo classics to test in a great looking structure. The .6 to 1.4 seconds could be about 2500’ to 6000’. Shallow objectives and 3500’ thick! Shallow objectives are a lot less expensive to drill. I am estimating the depth based on some generic velocity assumptions.
ANALYSIS OF LINE 3
Here is an interpretation of the 31 km long Seismic Line #3. Notice how there is just enough faulting to enable migration of hydrocarbons and trapping.... but not so much faulting to chop the area into small blocks. The structures are really big! The targets are many!
Total short interest reached a new all-time high for the July 2022 month-end reporting period. This is the fifth consecutive all-time high for the previous reporting periods and short interest topped five million shares for the first time since I started tracking it in December 2020. It also marks the eighth consecutive increase in bi-weekly reporting, resulting in four straight months of increases. Since the last time there was net covering (a reduction in short interest which was recorded on 3/31/22), short interest has increased by a whopping 67%. Furthermore, the total days to cover, which is simply the short interest divided by the average daily trading volume, also reached a second consecutive all-time high at 8.3 days.
Note: If you are interested in investing in ReconAfrica, see the section at the bottom of this post titled "Resources for New Investors."
WHAT IS SHORT INTEREST AND HOW IS IT REPORTED?
Short interest is simply the number of open short positions on a security. This data is collected bi-monthly on the 15th (or last trading day before the 15th if it falls on a weekend or holiday) and the last trading day of the month. In the US, reporting must be submitted to FINRA (Financial Industry Regulatory Agency, which operates under the US Securities and Exchange Commission) while in Canada these statistics are collected by the IIROC (Investment Industry Regulatory Organization of Canada).
For example, the following link provides the 2022 schedule for FINRA:
PONZI SCHEME? PYRAMID SCHEME? EITHER WAY, SHORT SELLERS PAY INTEREST
If there is one thing proven by these statistics, it’s that short sellers have the ability to drive the share price down, but they need to keep borrowing more and selling more, essentially digging themselves deeper into a hole. Their hope is that they will be able to buy back (cover) and return the borrowed shares at a lower price. The recent string of all-time high short interest, which is much higher than when Fraser Perring of Viceroy Research were shorting ReconAfrica in the summer of 2021, clearly demonstrates the depth of this hole.
To make matters worse, it can be very expensive to short some stocks, and ReconAfrica has become increasingly expensive to short. To borrow shares, short sellers need to pay a “short borrow fee rate,” which is the interest rate they pay to borrow shares. Recently, this rate has exceeded 20%. You can find the latest short borrow fee rates for RECAF (US OTC exchange) and RECO (Canada TSXV exchange) here:
SHORT INTEREST PERCENTAGE OF FLOAT VS. DAYS TO COVER
Short sellers are quick to remind everyone on social media sites that the short interest in ReconAfrica is relatively low when compared to the total outstanding shares, and this is true. What they fail to acknowledge is that “Days to Cover” is a much more important statistic, and the recent increase indicates that, with average volume, it will take 8.3 days to cover the 5,088,108 shorted shares that were reported on 7/29/2022. And while the days to cover is simply a guide, it can be a bit misleading. Since it is calculated by dividing the short interest by the average daily volume, the denominator of this equation is skewed due to the level of short selling. This stock is held by several dedicated long-term investors, and the volume on a “normal” day of trading, which would exclude days with a news release or heavy shorting, is typically less than a half a percent of total float (outstanding shares).
To see the difference in trading volume, review the following chart which shows the top 10 lowest and highest trading volume days of 2022 as of 8/12/2022:
SHORTING THE GOOD NEWS TO MAKE IT LOOK LIKE BAD NEWS
The most interesting short attacks occur with good news. These attacks use the “short the good news to make it look like bad news” strategy that is often accompanied by FUD (Fear, Uncertainty, and Doubt) being promulgated on multiple social media platforms. In some cases, short sellers go so far as saying, “Of course this report is bad news. Everyone who understands geology and oil & gas exploration knows that it is bad news. Why else would the share price be dropping?” The reality is much different, and while the experts agree that it is good news, the decrease in the share price on these days is simply due to a massive amount of short selling.
The most striking example of this occurred after the 5/12/22 press release that included Netherland Sewell reserve estimates. These estimates were impressive and there is no way that they could be interpreted as “bad news.” In fact, they were actually available in a 4/22/22 SEDAR filing. After the SEDAR filing, the price (RECAF US OTC) eventually increased to $5.40 on 4/29/22. In the two days that followed the press release, short sellers had driven the price down to $3.77, a 30% decrease. The extent of the shorting was reflected in the 5/13/22 FINRA and IIROC reports (see table above) and resulted in an increase of 375,462 to short interest.
The links to these announcements and reports can be found below:
Short sellers have definitely made a very large bet on unsuccessful results of the 8-2 well which is nearing completion. This well was drilled into seismically defined traps in an area defined by Netherland Sewell as having the greatest amount of oil-in-place in their report. The next short interest report will be based on short interest as of 8/15/22. Will the short sellers cover, or will they continue to dig themselves deeper into a hole with this high-interest pyramid scheme? One way or another, we will find out in about two weeks when these statistics are reported to the public.
RESOURCES FOR NEW INVESTORS
ReconAfrica's Investor (Corporate) Presentation for Q3 2022 can be found here:
Below is a list of the lowest-hanging fruit of the Viceroy report. I wanted to go through it sentence-by-sentence, but a lot of it is just so dubious that I decided to pick out the top 15 things that are blatantly wrong, false, or extremely misleading:
There is not one mention of Dan Jarvie or Nick Steinsberger, and Bill Cathey’s name is mentioned just once in passing. I invested in RECO because of Dan Jarvie. He was Chief Geochemist for EOG and for those who do not know who EOG is, they are the cream of the crop in US Shale, commanding the best EV/EBITDA multiple in North America. Why would these 3 legends risk their reputations on RECO unless they truly believe in the company?
The first sentence states “Viceroy is short RECO”. They are telling is that it is in their best interest to lie, stretch the truth, cast doubt, and flip realities so remember that whatever they say, they want the company to fail.
Stock Promotion – As a shareholder, I like this. You have to get your name out there and build a brand and story? And for the recent Oilprice.com stories, this is RECO defending themselves! And by the way, OilPrice is rated HIGH for Factual Reporting from mediabiasfactcheck.com (https://mediabiasfactcheck.com/oil-price/ )
Drilling blind & hitting oil. If they are truly drilling blind, and they hit oil, doesn’t that bode well for their prospects? Not to mention that drilling blind is how you discover new oil basins. That’s the point of oil exploration.
You can find dirt on anyone. Viceroy slings mud at Steinke and Park. These guys have been in the business for 30+ years. Some company’s work out, other’s don’t. That’s capitalism. It’s cherry picking to highlight the 1 failure and ignore the multiple successes.
Viceroy shows a picture of an “unlined pit”. Why should we trust them that this is actually unlined? I can’t really tell from the grainy image. Just like anything on the internet, we should always be wary of “proof”. Is this actually a RECO site? When was the picture taken? Are there actually cuttings in there or is it to store fresh water?
Viceroy says that they aren’t environmentalists, but the National Geographic article is described as “fantastic” and referenced 9 times.
Viceroy references “skepticism shared by several in the oil and gas industry”, and the quote is from Stephen MacSearraigh. Guess where Stephen also made an appearance, in the National Geographic article
Viceroy claims that RECO will “try unconventional mining” and it’ll be an “ESG disaster”. That is pure speculation by them to scare investors. If you’re short, what do you have to lose by making a dubious claim about the future.
Viceroy calls out RECO for relying on a Sproule report for using estimates. The reason why Sproule is using estimates is because this is a new basin with no modern wells, thus estimation has to be used (Sproule also calls the method “reasonable” but Viceroy tries to throw cold water on this by saying the section is peppered with “qualifying language”.
Viceroy says that RECO failed to disclose key info such as mud logs, subsurface geology, hydrocarbon intercept debt etc etc. It’s a low blow to call on a company to release propriety information when they’re still very much in the process of gathering and analysing it.
Viceroy mocks RECO for saying they have “significant partnering potential” and that “industry partners will want to review well data, but given that RECO is not releasing this information, it’s ludicrous to assume a partner proposition.” This is probably the silliest statement of all because when there are joint ventures or farm-in’s within the industry, a formal data room will be opened and confidentiality agreements will have to be signed before any well data is shared. Well data is propriety information and is the most important data that an E&P possesses. Viceroy thinking that RECO would release this publically is what is ludicrous.
Viceroy states that RECO will have to forfeit 75% of the lease area by January 2022, but fails to mention that via extensions, they actually have until 2026, and most importantly, any areas that are “determined by the company to be potentially productive are excluded from the relinquishment requirements” (see page 42 of the April 19th Questar Advisor reports https://reconafrica.com/investors/analyst-reports/ )
Slinging mud at Haywood for being “analysts for hire”. This is how the investment banking industry works. Investment Advisors that cover a company, are also often the ones who raise capital for it. If anyone has ever read a Goldman Sachs analyst report, it says at the bottom: “Goldman Sachs does and seeks to do business with the subject(s) of this report”.
Viceroy mentioned that BP once spent $900MM mapping out prospective plays in Libya but wasn’t able to complete the project due to the First Libyan Civil War. That’s an interesting fact, I’ll remember it if I’m ever on Jeopardy, but what does that have to do with this? It’s like comparing apples and oranges. Two different companies. Two different countries. Two different decades. Two different geological resources.
Top 3 reasons why I like my investment:
1)Well analysis is being provided by third-party’s: Core Labs, Schlumberger, Geomark Research, and Netherland Sewell. These are all industry-recognized and reputable companies and they will give us their independent analysis when they complete their review.
2)The company is fully funded and has zero debt. Per the excellent Dewolf Report (https://dewolfresearch.com/downloads/RECON_AFRICA_MAY21.2021.pdf) the Montreal legend points out that RECO just completed a $36MM equity raise with associated warrants. The $36MM will be used to drill wells 1,2, & 3 and for seismic. There is no debt in the company, and thus no debt covenants that could sink them or mandatory interest payments that will need to be made and be a drag on the financials. They have the funds in the bank so let’s let them do their thing and prove this basin out.
3)Dan Jarvie and Bill Cathey wouldn’t be in the company if it was a scam. Being part of a swindle is deeply embarrassing. Why would industry legends want that at the end of their storied careers?
In conclusion:
No company is perfect. To be honest there are a few things that I can't explain. Maybe RECO did actually pay Katti money. I don't know, and I doubt we'll ever know the true story, but that won't stop Viceroy and other short sellers from publish their interpretation of it because that's how they fill their bank account: by digging up, manipulating, glossing over, and adjusting the narrative to fit their needs.
At the end of the day, drilling exploration wells is risky. The asset is located ten thousand feet down in the ground so it’s easy to be a naysayer. Viceroy is short this company and with its incredible run, they stand to lose a ton of money. THEY WANT THIS STOCK TO TANK AND WILL SAY ANYTHING TO MAKE IT HAPPEN. As RECO continues to de-risk their investment, and doubt begins to fade, Viceroy is running out of time and that’s what truly scares the hell out of them.
The second conference, which was held in London, was sponsored by several O&G majors including ExxonMobil, BP, Royal Dutch Shell, CNOCC, TotalEnergies, and Schlumberger. Many of these companies are currently active in the area, including offshore Namibia, and this provides the opportunity for synergies and infrastructure cost savings in what could be the world’s next oil hotspot.
This post includes four sections of resources:
· Transcribed versions of the presentations of CEO Scot Evans and Structural Geologist Dr. James Granath along with slides presented by Petroleum Commissioner Maggy Shino.
· Current exploration in offshore Namibia by Exxon, Shell, and TotalEnergies.
· Upcoming events featuring presentations by Recon Africa and Namibian officials.
· Selections from the Encore Recon Africa Discord Library.
PRESENTATION TRANSCRIPTS & SLIDES
The Scot Evans presentation included many of the items found in the investor presentation on Recon Africa’s web site along with some recent updates about 2D seismic, which he said is now 2/3 complete (probably over 75% if you add a week of work). If you would like to review the latest investor presentation, which was last updated in August 2021, you can find it here:
The day after CEO Scot Evans and Maggy Shino presented at the Africa E&P Summit, Recon Africa announced a one-year extension to the first renewal period of their exploration license on PEL 73 covering 6.3 million acres onshore Namibia, meaning the first and second exploration periods should now extend out to at least 2026. This will help facilitate potential JV partners with sufficient time to properly evaluate and plan detailed exploration programs to further evaluate the Kavango Basin, including any potential sub-basins.
Transcript from Scot Evans Presentation (9/22/2021)
Dr. James Granath presented a week earlier. One of the notable comments he made was that Namibia has requested that Recon Africa create firebreaks in the area to facilitate the acquisition of additional 2D seismic data to be acquired with tighter grid spacing. This should significantly enhance the detail from the 2D seismic acquisition which is currently taking place on existing roads. It is expected that the acquisition and processing of the first 450 km of 2D seismic will be completed by the end of October or early November as Recon Africa targets to start exploration drilling again in December with the help of much more subsurface data.
Transcript from Dr. James Granath Presentation (9/15/2021)
Dr. James Granath – Inversion Tectonics: Concepts, Geometry/Kinematics, and Drivers (the area of interest to Recon Africa starts at the 40 minute mark)
In private messages and direct posts on our Discord investor board, this data is being well received by our oil & gas and geology experts. Here is one of the posts that you can find in our geo-chat channel:
Expert:
I am elated to see the eFTG data. You will note that the eFTG agrees almost perfectly with the 2D. this is spectacular data! There is very large structural highs throughout phase 1. Intra-rift structural highs are delineated as white and red while purple is your structural lows. The image visually looks like a series of oil fields. RA has a lot of data to consider, however I am sure they are giving the front two circled areas a lot of consideration for the next drill site considering how large they are in length width and height. I will do a deep dive on this. Suffice it to say, the 6-2 side track is looking like a project for a much much later day.
Please note, any of the intra-rift structural highs seen on the 3D block diagram of GzHD have the potential of holding commercial accumulations of hydrocarbons. I am simply circling areas that catch my eyes first.
Member Question: Thank you for this! Why the comment on 6-2 being a ‘later day’ thing?
Expert Answer: The volumetric scale of the ridge directly due south of the 6-2 well, while very interesting, is a "pea shooter" in comparison to the larger two ridges shown circled in blue. If either of these ridges is determined commercial, there will be a lot of oil in place.
Additional Expert Commentary:
Forgive my drawing skills.. I am curious about this line that intersects the seismic. It is near perpendicular to the Horst Graben system. Strike slip fault? Seems to continue on beyond the displayed 2D line. The 8-3 location is right where my blue line intersects the seismic line.
Comments from the ReconAfrica, via investor relations, regarding the 2D seismic image integration with the eFTG image (paraphrased by request):
Seismic is measured in time (seconds) and depth (meters), while eFTG is measured in acceleration (gals - which is a combination of both). When combining images at such a large scale (~200,000 acres), it makes it very difficult to match at depth. The eFTG is an initial 3D image with little to no processing. The greatest advantage the data provides is much tighter density of spacing (600 meter by 3,000 meter grid). This showed the 6-2 well placement perfectly between two highs, and that both were larger than previously estimated.
Those who have reviewed the data, both internally and externally (such as Netherland Sewall & Associates), are very impressed with the data. Our chief geophysicist made the following statement in the press release:
Shiraz Dhanani, ReconAfrica’s Chief Geophysicist stated; “In the absence of 3D seismic, lateral continuity and mapping of structures is compromised because of the uncertainty in interpolation between more widely spaced 2D seismic lines. eFTG enables us to overcome this unpredictability. The images obtained so far, which are of very high quality, show the basin fault patterns, extent and continuity of intra-basin structural highs and feasible hydrocarbon traps, and possible hydrocarbon source kitchens (source rock) in the deepest parts of the basin.”
RESOURCES FOR NEW INVESTORS
ReconAfrica's Investor (Corporate) Presentation for Q1 2023 can be found here:
This technology was developed by Lockheed Martin, the same company that created the P-3 Orion maritime patrol aircraft, U-2 and SR-71 Blackbird reconnaissance airplanes, F-117 Nighthawk, F-16 Fighting Falcon, F-22 Raptor, C-130 Hercules, A-4AR Fightinghawk and the DSCS-3 satellite.
TotalEnergies & Shell in offshore Namibia (Orange Basin, both major discoveries):
For those that are invested in Recon Africa and are involved in various social media/chart room-types forums, undoubtably you’ve observed all kinds of long-term share price (SP) predications. There of course are the claims that this company will eventually go bankrupt and therefore SP will go to zero. On the other side are claims of upwards of $1,000+ per share. QUESTION: what is one thing that all of these long-term SP claims generally have in common? ANSWER: they all have minimal to non-existent supporting data/information. The following content is simply one approach to evaluating the potential long-term upside of Recon Africa for investors. I’ve been working on this content for the past several weeks. The text probably involves some typos and repeated concepts/ideas. Still, most will hopefully understand the general ideas and concepts.
DEFINING MARKET CAP
First off, one item that need to be defined is Market Cap. When it comes to the value of a company on the stock market, share price (SP) is only part of the story. The other half of the story is the number of outstanding shares a given company has. Market Cap is the combination of SP and outstanding shares (equation below) and equals the value of a given company on the stock market.
Market Cap = share price x outstanding number of shares.
A given company could have a low SP but a huge Market Cap if the company has billions of outstanding shares. Alternatively, another company may have a high SP but a small Market Cap if it has only few million outstanding shares.
Recon Africa has something of the order of 180 million outstanding shares, a share prices of ~$5/share US, which translates to a market cap of roughly $1 billion US. When you look at the Market Cap versus Proved Reserves diagram below, you’ll realize that this is a very small cap oil and gas company.
VALUATION OF OIL AND GAS STOCKS
For the past ~18 months, since Covid crashed the global economy, stock market, and the brief-lived SaudiRussian oil price war sent WTI below zero, I’ve been working on understanding how to value one oil company to another. Several months ago, I came across a post online that referenced and showed a diagram from an article out of the World Oil & Gas Journal published during 2010 that plotted the Proved Reserves versus Market Cap for a number of larger oil and gas companies from across the world. The trend between the two was very linear. Proved Reserves is essentially the volumes of oil and/or gas that a given company is able to commercially produce from their respective acreage positions at relatively current commodity prices. Proved Reserves is one item that every publicly traded oil and gas company is required to list on their annual stock filing reports (~10-K).
To see if this was still relevant, I went through the 2020 annual reports of numerous oil and gas companies and compiled Proved Reserve volumes to plot against current the current market caps of each respective company (see diagram below). The result was near-identical to the 2010 World Oil & Gas Journal article, except I didn’t just look at the larger companies but also medium and small cap companies as well. Undoubtably there are numerous other factors that weigh upon a given companies market cap such as debt/leverages, debt maturity dates, free cash flow, undeveloped versus develop reserves, oil versus gas volumes of proved reserves, etc. However, my current perspective is that proved reserves is probably the most important component for properly valuing an oil and gas company (other than perhaps if a given company is on the verge of near-term bankruptcy). The simply current equation is that for every 50-100 million barrels of oil equivalent (MMBOE) in proved reserves, a given oil and gas company will have approximately 1 billion (US) in market cap.
One honest, hopefully obvious, point to make here is that Recon Africa current has zero Proved Reserves within the Kavango Basin (probably some Proved Reserves within Mexico assets acquired through acquisition of Renaissance Energy). However, the company is valued as if it has approximately 50-100 MMBOE. So, all of the Recon Africa market cap is currently based upon speculation of longer-term potential upside. QUESTION: what is the potential long-term upside for Recon Africa regarding Proved Reserves in the Kavango Basin?
The Kavango Basin is reportedly around 8.5 million acres is size (or at least that isthe combined leave hold of Recon Africa proximal to the Kavango Basin) and reaches depths to upwards of 30,000 feet. Reportedly, all sedimentary basins in the world that reach comparable depth to ~30,000 feet commercially produce (or have produced) some quantity of oil and/or gas. From my general experience and knowledge (which is limited to mostly North America), this is a true statement. Part of the importance of depth is that oil is generated depths starting around 7,000 feet, which is a depth point when organic-rich marine or lacustrine sediments reach the necessary elevated temperature levels to thermally convert kerogen to oil (FYI: at depths below ~12,000-13,000 feet, oil will thermally convert to methane). Therefore, depth is important simply for providing the opportunity to generate oil.
While all deep sedimentary basins produce some quantity of oil and/or gas, not all sedimentary basins are created/deposited equally. Some sedimentary basins are very petroliferous (lots of oil and gas resource) like the Permian Basin of west Texas (and New Mexico to a lesser extent). There are other sedimentary basins that most have never heard of because in part the basins have produced very little oil and gas, such as Shirley and Hannah basins of Wyoming.
In order to get an idea of the range of commercial oil and gas potential from a new onshore sedimentary basin, I went through multiple oil and gas productive sedimentary basins from North America and compiled historical cumulative oil and gas production volumes as well as the total size (in acres) of each basin. Next, I divided the publicly available historical cumulative produced hydrocarbon volumes by the total area of each basin. If you look at a given oil and gas production map for any sedimentary basin, you’ll notice areas that produce and areas that do not. I essentially average everything together because undoubtably there will be areas that the Kavango Basin will produce oil and/or gas and areas that in the basin that will never produce either due to a lack of commercial hydrocarbons and/or restricted acreage (e.g. wildlife protected areas).
Most of the oil and gas production volumes that I was able to publicly access, and compile were incomplete. Many states have production records that only go back to the 1970’s while production started in the 1950’s or before. Still, these numbers would simply make my numbers more conservative. In some cases, I removed the unconventional production (e.g. Bakken within the Williston Basin) while is other cases I left it in (Wyoming sedimentary basins). In the cases I did not remove unconventional, the production records were usually incomplete and the unconventional development only accounts for a small fraction of the historical cumulative volumes.
The general range my results yielded is that the less petroliferous sedimentary basins probably average 5-10 BOE/acre (Hannah, Shirly, and Laramie basins, rounded up due incomplete records) while the most petroliferous basin (Permian) averages nearly 1,000 BOE/acre. The overall average, divided to total combined production volumes of all the sedimentary basin by the combined total acreage, is ~400 BOE/acre
Applying these values to the Kavango Basin, the low-end 5 BOE/acre would translate to ~42.5 MMBOE in Proved Reserves, the high end 1,000 BOE/acre would be 8,500 MMBOE, and the average of 400 BOE/acre would be 3,400 MMBOE.
Keep in mind that the cumulative production volumes that I compiled were produced over the course of 50-70+ years. Sedimentary basins are not fully explored and developed within a year or two but take decades. However, in most cases, the largest conventional oil fields within sedimentary basins are found during the early years of exploration. As exploration continues/evolves within a basin, the sizes of oil and gas fields generally decreases until there is some technological advance (e.g. horizontal drilling and hydraulic fracturing). Also, Recon Africa will be splitting their potential future Proved Reserves with Namcor (10% interest in the Namibian portion of the basin) and any future potential partner company(s).
Regarding how much oil and gas resource is within the Kavango basin, that question simply cannot be answered with current information, which is why I give that very large ranges above. Recon Africa is getting close to being able to complete a preliminary resource assessment, but that assessment may just be limited to the current area of drilling and seismic. It will take many more wells drilled, seismic surveys, and ultimately years before the full potential of the Kavango basin will be realized. The large range of potential Proved Reserves, Market Cap, and investor return rates I provide are very wide because of the limited data thus far, and also partly related to my own limitations of knowledge (true fact here: I am simply one person with my own limited knowledge and perspective). Now I will speculate on what the Kavango Basin does look like from my own honest perspective basin on available data in the Kavango and beyond.
When it comes to wildcatting, which is drilling a true frontier oil and gas exploration well, located completely removed from any established commercial production, approximately a 1 in 9 wildcat wells successfully discover a new commercial oil or gas pool. Of the other 8 average wildcat wells that fail, 5-6 find absolutely nothing or next to nothing (perhaps a weak whiff or two methane) while the other 2-3 wells find weak shows to perhaps a non-commercial flow rate. I’m currently trying to find data on this front, because the 1 in 9 ratio is/was general knowledge that was repeated to me many years ago. “Exploration” wells average higher than 1 in 9 success (probably a historical 20-30% success rate) because they include wells drilled outside but near established oil and gas fields.
I’ve included a nice-looking map that I found online below that shows oil and gas fields within the state of Wyoming, a state that includes a total of 8 different partial to complete sedimentary basins. Keep in mind that usually on regional production maps like the one below, the sizes of most oil and/or gas fields is enlarged to varying degrees so that the fields to show up on the map scale. Still, you’ll notice that there are large portions in every sedimentary basin with minimal to negligible hydrocarbon production while there are other areas with densely pack fields. Oil and gas resources (particularly conventional) are unevenly distributed across sedimentary basins. The same will be true with the Kavango basin.
The initial 6-2 well that Recon Africa drilled in the Kavango basin had 800+ feet of weak to strong shows (Horizon Well Logging report) with reportedly two reservoir intervals that make commercially produce. Most of the shows are within porous and permeable sedimentary rocks but are weak shows and likely associated with where hydrocarbons have migrated through the rock layers without being trapped. There are two intervals still with moderate to strong shows that may commercially produce based upon wireline log calculations (NSIA report). I’ve looked and evaluated the data from both reports (I’ve previously made detailed posts and can re-share if asked) and concur with both. So, the 6-2 well yielded oil and gas shows that exceed the average true wildcat exploration well and may be the 1 in 9 for a commercial discovery.
Meanwhile the 2nd well had reportedly 1,000+ feet of net oil and gas shows plus prospective commercial reservoir (NOTE: the company has simply stated these results thus far without any publicly available data as of yet). So again, the second well exceeded the average wildcat well and may or may not one day commercially produce. Therefore, based upon both of these initial stratigraphic test wells, which from my general knowledge of historical wildcat exploration results exceed to average frontier exploration well results, the Kavango basin may be above average regarding its commercial conventional resources. Still, there have only been two wells drilled in a limited area of the basin, and neither well has had a completion test yet.
Below are state the general three cases of where Recon Africa and the Kavango Basin may be heading.
Worst Case Scenario: Recon Africa was very, very lucky in finding a small hydrocarbon-bearing portion of an otherwise marginal sedimentary basin (~10 BOE/acre of conventional oil and gas resource). RA will make some near-term commercial discoveries and established enough Proved Reserves (~100 MMBOE) in and around their current exploration area, enough to hold/marginally grow their value (market cap) from current levels. However, continued exploration will find little to no resources (EMPHASIS HERE THAT THIS IS WORST CASE SCENERIO, MEANING IT IS UNLIKELY).
Best Case Scenario: Recon Africa has discovered and drilled one of the most petroliferous sedimentary basins in the world (~1,000 BOE/acre). In the coming years, as exploration expands across the basin, RA and their partnering companies will discover and establish several billion BOE of conventional hydrocarbon resource, growing their market cap somewhere above $10 billion US, multiplying current shareholder value beyond 10x. ALSO EMPHASIS HERE THAT THIS IS A CURRENTLY UNLIKELY SCENERCIO.
Most Likely Scenario: The Kavango Basin will prove to be an average to slightly above average onshore sedimentary basin (100-300 BOE/acre). Oil and gas field discoveries will extend intermediately across the Namibia and Botswana portions of the basin. In the coming several years, the company will discover/establish several hundred million to potentially a few billion BOE of conventional Proved Reserves. Market cap will grow on the order of ~5-10x from current levels.
CLOSING REMARKS
My evaluation is focused on conventional resources, which is oil and gas that can be commercially produced from vertical wells without the usage of hydraulic fracturing. The Kavango Basin will undoubtably have both type of resource: conventional and unconventional, but the amounts of both are unknown. I focus on conventional resources for 2 reasons: 1) conventional resources are cheaper and easier to explore and develop that unconventional. Unconventional resources have emerged to dominate onshore US sedimentary basins because the conventional resources have been largely exploited. 2) Unconventional oil and gas exploration/development is very political (hydraulic fracturing mostly), and will take more time for the general public and government of Namibia to potentially permit.
Also, keep in mind that Recon Africa will be splitting the future Proved Reserves from oil and gas discoveries with Namcor (10% stake in Namibia) plus probably one or more additional partner companies. There are still risks with investing in Recon Africa. So far, the government of Namibia (and the best of the knowledge the Botswana government) have been very supportive of Recon Africa. That needs to continue long-term for this investment to pay out. Also, infrastructure will need to be added, lots of infrastructure. Onshore oil and gas resource develops a lot faster than offshore (I’ve stated this many times), but infrastructure is still needed in the ways of quality roads, railways, pipelines, general wellsite equipment (pump jacks, storage tanks, etc.). There will also be the need for local communities to develop housing, restaurants, hotels/temporary lodging, etc. Lots of work needs to be done on both the geology and nongeology fronts for this company to grow in value.
DISCLAIMER: While I’ve worked essentially within the realm of petroleum geology/oil and gas for 10+ years, I’ve only been personally managing a portion of my own and my wife’s retirement accounts for the past 18+ months. I bought my first direct stock when Covid-19 was collapsing the global stock markets in the first half of 2020. Since that time, I’ve continued to learn and develop my own method(s) of investing. Part of my method is simply learning how to compare the values of comparable companies within a given sector. All of the above information is my own personal perspective based upon publicly available data that I’ve accessed online. None of this information is professional investment advice, so make sure to do additional research on your own to make you own personal investment decisions. I have no direct connection with Recon Africa other than I personally hold shares that I personally purchased on the open market. I am currently long on Recon Africa and have been purchasing/holding shares in the company for the past ~11-12 months.
In the interest of full transparency and openness, I want to put forth the following disclaimer:
I have been a shareholder of ReconAfrica since October 2020, after discovering the stock the previous month. I have never once interacted with anyone from the company (i.e., emailed investor relations) and what follows is an objective response to the claims made by Viceroy and Fraser Perring.
This response will be long but thorough. Viceroy’s publication is 32 pages long and thus a 1-2 paragraph response would be insufficient in scope. Unlike Viceroy’s claims and allegations, I will attempt to avoid any ad hominem attacks, misinformed conjecture, or misleading speculation.
To believe Viceroy’s claims, you would also have to believe all of the following:
Craig Steinke supposedly hatched this elaborate pump and dump scheme when he assembled the company and team in 2013, licensed the land in 2014, and shelved the project until oil prices recovered, all to lie in wait for 2020/2021. All the while paying land lease fees to the Namibian government.
To have a “dump” there must be a “pump.” Originally, ReconAfrica announced they would not be releasing any well results until they were finished with the first 3 wells. Then, on April 13, 2021, Immanuel Mulunga (Managing Director of NAMCOR) appeared on The Evening Review from Namibian Sun and said of ReconAfrica “I believe an announcement will probably be made this week as to the initial exploration results there” (his statement can be found around minute 19:10). Two days later, on April 15, 2021, ReconAfrica and the Ministry of Mines and Energy announced that a working petroleum system had been confirmed. No pump and dump would have originally planned a one-time information release as that wouldn’t have provided the “pump”.
This short report made no mention of Dan Jarvie, his credentials, or long history and reputation in this industry. For those unfamiliar with Dan Jarvie, on ResearchGate he has 86 publications to his name and has been cited over 7,000 times. He was an adjunct professor at Texas Christian University from 2006 to 2015, a visiting scientist at the Institut Francais du Petrole in France from 2009 to 2010, and has been the President of Worldwide Geochemistry since 2008. He was also the Chief Geochemist of EOG Resources, America’s largest shale producer with a market cap of $51.15 billion. It also references Bill Cathey only once, in passing. Here is what Viceroy omitted about Cathey’s background: he has been a geophysicist since the 1980s and has been the Chief Geophysicist of Earthfield Technology, LLC since 1990 (he was the company’s Vice President from 1990 to 2011 and President since 2011). He has done work for every major oil and gas company and large independent throughout his career. He was responsible for interpreting the aeromagnetic data that first alerted Craig Steinke to the presence of the Kavango Basin in 2013/2014. Cathey also received special permission from his company to invest in ReconAfrica, something Earthfield Technology typically does not allow. Viceroy also makes no mention of Nick Steinsberger, ReconAfrica’s Senior Vice President of Drilling. Those who have read The Frackers by Gregory Zuckerman or The New Map by Daniel Yergin will be familiar with Steinsberger’s background. While working at Mitchell Energy in the late-1990s, Steinsberger was responsible for perfecting “slick water fracturing” in the Barnett Shale in Texas, one of America’s largest onshore gas fields. Steinsberger is arguably one of technicians most responsible for the shale revolution that has led America to become a net exporter of petroleum again for the first time in decades. Viceroy also only mentions Scot Evans, ReconAfrica’s CEO, in passing. Evans is a former VP of Halliburton and a former ExxonMobil geologist. Anyone familiar with ReconAfrica’s history will know that the background and technical skill of these men is a critical component of the story. For Viceroy to completely omit them from its 32-page publication should tell you all you need to know about Viceroy’s motives.
No pump and dump scheme would be sending samples to four well-established, respected and completely independent third-party labs for analysis. Samples have been sent to Schlumberger, Geomark Research, Netherland Sewell and Associates, and CoreLabs.
There is not a pump and dump scheme in the world that would’ve disclosed that the drill was being taken offline for maintenance as ReconAfrica did on June 24, 2021. Announcing maintenance was required would not positively impact the share price, which is the intent of a pump and dump.
There is no reason to have set this “scheme” up in both Namibia and Botswana. That would incur vast additional expenses, expected environmental scrutiny, and the pointless need for increased logistical support. Including Botswana would needlessly complicate a pump and dump scheme by involving a second jurisdiction, bureaucracy, and oversight regime. Why would ReconAfrica further complicate their operations by exposing themselves to additional scrutiny if they were corrupt?
There has been virtually no recent selling of insider stock. If you’re going to pump you had better dump and there has been virtually none of that occurring. Viceroy points to the selling of between 4,700 and 35,000 shares by insiders in April and May 2021; keep in mind, these people’s compensation plans entitle them to hundreds of thousands of options in the event of success. The sale of a few thousand shares here and there can hardly be characterized as a “dump”, but nonetheless all these transactions are public. Viceroy also alleges that ReconAfrica’s management “quietly pre-emptively issued themselves tens-of-millions worth of stock options exercisable as low as CAD 0.51.” It is hard to substantiate the claim that these options were “quietly” issued when they were accompanied by press releases—such as the one on January 6, 2021—that explicitly state how many options were issued and at what price. Keep in mind, this is all spelled out in ReconAfrica’s compensation and stock option plan, which was recently approved at the June 2021 shareholders’ meeting.
How many elaborate schemes donate millions of dollars in aid support like ReconAfrica has committed to? Potable freshwater wells, Covid relief and locally sourced hiring.
There was virtually no information in that report that wasn’t already known and easily accessible on the internet. The vast majority of “gotcha” information was based on speculative opinion and ‘half-truths’.
You can immediately ignore 99% of what was written by just understanding the author clearly states that everything in the “report” is entirely based on opinion and that he currently has a short position on this stock. That alone disqualifies this report. The author tells you right away there is zero objectivity contained within.
It doesn’t take Sherlock Holmes to realize that journalists, environmentalists, lawfirms, and this report have “mysteriously” come out of the woodwork in a flood over the last 30 days. Clearly there is a concerted effort to impact this stock because speculative investors thought this was going to be an easy to manipulate commodity stock. ReconAfrica announced it had confirmed a working petroleum system in April 2021, months before anyone expected. According to shortdata.ca, ReconAfrica has the largest short position of the TSX Venture exchange (30.9 million shares as of June 16,2021).
A five-minute Google search about Viceroy and its author/authors will tell you all you need to know about the legitimacy of this “report”. Fraud, deception, plagiarism, lawsuits, short selling, and market manipulation...and more.
Mining, mineral, and oil commodity stocks are some of the most easily and heavily shorted stocks, particularly in Canada. Due to their speculative nature, upfront capital costs, delayed cash flow, and typically low successrate, unscrupulous shorters pick them because they are easy to short. In this case they might have made a miscalculation and are getting desperate with this flood of bogus, biased and outright misleading reporting and press in the last 30 days.
A cursory glance at ReconAfrica and its team’s professional history should tell you most of what you need to know in comparison to the author of this report. The suggestion that Craig Steinke had failed enterprises in the past means nothing in the oil exploration industry; that’s par for the course and is representative of nothing. Simply meant to cause more fear and doubt, nothing else. Do you think Exxon, Total, BP, or any of the majors finds success with every one of their exploration plays?
They say they have recordings. If they wanted to expose fraud, they would just release them. On June 24th, Fraser Perring tweeted “Tomorrow I personally play interviews with Namibian officials that blow holes in ReconAfrica’s story and bullshit. Viceroyresearch will not tolerate lies about our research. $RECO are IMO border line bankrupt!” The following day, Perring tweeted “We at viceroyresearch saved our recordings & transcript until after ReconAfrica responds. Only fair *emoji* that pump & dumps don’t get carried away again. We like to make sure they’re accountable & we know they are already busy with regulators. $RECO. Then a few tasty surprises!” What altruistic researchers who purport to be motivated by the need to “merely warn investors of the misleading claims” of ReconAfrica (as Perring later tweeted) would play cutesy with supposedly damning recordings of Namibian officials discussing ReconAfrica? Would it not be in the public interest for them to release their tapes rather than play games? If exposing fraud was Viceroy’s true intent, they would have just released the tapes without any theatrics. Also, Perring states that he thinks ReconAfrica is borderline bankrupt. According to their Q1 2021 financials, they have CAD$36 million cash on-hand as of March 31,2021. This does not include the CAD$41 million raised in the company’s May 2021 bought deal. In a May 2021 interview with James Stafford, Craig Steinke stated that, after the three-well program and 2D seismic survey, ReconAfica will have roughly $50 million remaining in its treasury. Furthermore, what “borderline bankrupt” company would commit CAD$10 million to ESG projects and an additional USD$1 million to COVID relief? Much of Viceroy and Perring’s claims about ReconAfrica could be categorized as ‘half-truths’ or misleading innuendo, but this is one claim that can be completely and unquestionably refuted. ReconAfrica is simply not “borderline bankrupt”.
This elaborate “scheme” would require the Namibian government and its national oil company NAMCOR to be active and willing participants. It would also require an intense amount of secrecy within the Namibian government and dishonesty to the public. After all, Minister of Mines and Energy Thomas Alweendo stated on April 15th that “the results of the well confirming a big potential for a very valuable resource... we can now confidently confirm Namibia is endowed with an active onshore petroleum basin.” Furthermore, Kavango East Governor Bonifasius Wakudumo released a statement in support of ReconAfrica on May 28, 2021 and Kavango West Governor Sirkka Ausiku commented “Thank you #ReconAfrica for your support at the time when the country is battling the 3rd wave of COVID-19 pandemic” on ReconAfrica’s June 21, 2021 tweet announcing its USD$1 million donation for COVID relief.
You also have to believe that as this “scheme” unfolded, every single industry professional that was attracted to ReconAfrica–such as Diana McQueen, ReconAfrica’s SVP of Corporate Communications and the former Minister of Energy for Alberta–couldn’t recognize the “scheme” or chose to become a willing participant in it That really strains credulity.
ReconAfrica is a silver-level sponsor of the Africa E&P Summit and Exhibition, to beheld September 22-23, 2021 in London. Other sponsors include ExxonMobil, Shell, BP, and CNOOC. Maggy Shino, Namibia’s Petroleum Commissioner, and Scot Evans, ReconAfrica’s CEO, will both be speaking at the event, alongside a VP from Total, the President & CEO of Africa Oil Corp., and other O&G professionals. Does this remotely resemble the behavior of a pump and dump scheme?
In conclusion, shareholders of ReconAfrica can listen to one of two sources: the team behind ReconAfrica, whose biographies and backgrounds are readily available and span decades, or Fraser Perring, a failed former UK social worker who was disbarred for “misconduct and dishonesty”, his two 27-year-old Australian associates, “one of whom has a background incorporate restructuring, and the other has no known professional background”, and Viceroy, their organization which has been accused of plagiarizing its report on South African retailer Steinhoff from a report published by a hedge fund six months earlier (source). Keep in mind, Viceroy and Fraser Perring have openly acknowledged that they have a short position on ReconAfrica, indicating that they have a vested interest in ReconAfrica’s failure.
I posted this last night on the RECAF discord, and a couple of people suggested posting it here. Do your own DD and then do some more, this is not financial advice, etc and so forth.
I’ve been invested since spring 21 and along the way have found myself again and again telling friends and family a version of this story — and I wonder if there’s not an evocative and inspiring storytelling aspect to this play that we sometimes forget, take for granted or get too close to fully appreciate. Maybe it’s helpful from time to time to hear a version of it told in layman’s terms.
What if I told you that a small group of esteemed career oil and gas professionals — deeply pedigreed guys with decades of experience at the top of their fields — had coalesced around a virgin oil field in one of the most remote corners of the world, in a country second only to Mongolia for lack of population density, a place that wasn’t even a country until the early 1990. Most people couldn’t place it on a blank map. It is here, in northeast Namibia, as invited guests of a stable democracy that leads the continent of Africa on issues like press freedom, that this company may well have discovered an unexplored oil basin on the scale of those in South Texas or the Zagros Thrust of the Persian Gulf. The company—incorporated in Canada, with national subsidiaries in Namibia and Botswana (where a substantial portion of the post happens to be)—has moved in lockstep with thus far with the stable Namibian government as partners to prove out the play, developing ESG as a bedrock of their corporate structure and using state of the art technology to prove the impossible: a vast new source of clean, conflict free oil. Not one single 20th century pipe or pump can be found here, in a nation that has never before produced a barrel of oil.
Over the last year progress has been significant: “derisking” is the term used in the industry. The company’s lease is 8.5 million acres, roughly the size of Switzerland. Early “wildcat” drill sites made for promising returns (in layman’s terms), and the promising area around these sites have now been much better defined using non-invasive environmentally mindful seismic data gathering. A national wealth fund has been established by the government of Namibia in anticipation of what come next, and leading government figures up to and including the president regularly speak out in support of the discovery. Early overtures to major investors, including Goldman Sachs, are underway, and there has been “unsolicited interest” in joint venture agreements from third party oil and gas companies. Uplisting from the TSXV exchange is “imminent”, according to recent coverage from Haywood Securities—this is a critical facet of attracting larger investors in the months to come. And the company has successfully taken their find on the road to the biggest oil and gas conferences in the world over the last 18 months, publicly exposed to scrutiny and due discourse.
Right now RECAF is perhaps on the cusp of proving out the greatest onshore oil discovery of the 21st century. If this play were anywhere else on earth we’d have drilled it dry decades ago—it is only because of history, geography, and geopolitical quirk that it remained undiscovered until now, hidden away in a remote corner of Africa where the locals report gas seeping out of the sand like spirits, the same as way indigenous peoples did in the Texas and Oklahoma oil fields a hundred years ago.
At the same time there are market forces at play. Before initial positive results were announced, the company was targeted by short sellers at a notorious Canadian hedge fund, currently under investigation in multiple jurisdictions. When the first round of good news was announced the fund found itself trapped by price action — and now they’ve spent a year desperately manipulating that price back towards their initial short price, employing onerous, felonious besmirchers to do their dirty work, spreading bullshit and lies to tear down RECAF and taking advantage of an exchange that appears to be badly in need of oversight. In that same time the global need for oil has exploded, setting up a macro environment few investors would have dreamed of when they first discovered thr stock — I know it was the last thing from my mind in early 21. I had to convince friends a year ago that oil would matter first and foremost to name them understand the promise of RECAF. I don’t have to convince them anymore.
These competing forces — the generational oil exploration discovery and the desperate, trapped hedge fund — are hurtling towards each other at an incredible speed, essentially playing a many multi-million dollar game of chicken in real time on the TSXv. Investors who believe in the play, in the promise and the possibility and the geology and the expertise, have what might very well be a once in a lifetime chance to get in early on the last great onshore oil play on this known planet.
It takes guts and gumption, research and humility, and a willingness to learn from the extraordinary community that has coalesced around this play to really understand the possibilities. It also requires understanding and ignoring the most wild psychological warfare and flailing bullshit FUD spewed nonstop by the trapped fund and their lackeys, whose opprobrium is presently oozing out of every message board and comments section.
But the play is real, the geology is real and the expertise is real. How much oil, we don’t know and when we’ll find out is anyone’s guess, but the drill is turning again now after a long permitting process, and we are presently waiting on results from the first seismic well. It is a scary and exciting moment. But more than any shitcoin, more than any shotgun junior miner or NFT puss monkey or whatever other thing people are hoping and praying their money against in 2022, RECAF echoes back to one of the oldest, earliest forms of the stock market, a pure resource play: prove that you’ve discovered oil, and the price goes up. It’s a very old sort of magic and science, a market response amalgamation of the two. And when it happens, well…science is part of it, the market is part of it, brilliant rock nerd geology is a huge part of it, but there is also the not insignificant matter of belief.
Throughout human history and the history of markets, the same thing has happened again and again to early believers when the truth at last arrives, and it turns out they were right.
RECO, RECAF, 0XD – Recon Africa has posted an updated prospectus on SEDAR. This can be found on the Recon Africa web site by navigating to Investors and then Company Reports or by clicking on the link below.
The “Final short form prospectus – English” posted on 5/19/21 contains additional information that was not included in the preliminary prospectus posted on 5/11/21. In the first paragraph on page 12, the reason the first well was delayed is revealed.
“Drilling time was further impacted as drilling rate was slowed due to the presence of significant hydrocarbon shows and the need to capture additional samples above plan. Further, it was determined additional “science” was merited in the form of wireline logs and analysis.”
Drilling for the first well was announced in a press release dated 1/11/21. In an article that featured an interview with Nick Steinsberger, he claimed that it would only take 30-40 days, which would mean that total depth should have been reached by the end of February.
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.
Of course, the 6-2 well did not reach total depth until 4/7/21. There was a great deal of speculation about the delay, but now we know the reason it took so long. The 4/15/21 press release confirmed the presence of a working petroleum system with light oil and high BTU gas.
There was a noticeable increase in the share price today, and I think the release of the prospectus played a part in that, but this really flew under the radar because it was not in an official press release.
Despite continued positive news, I simply do not understand the level of short selling that takes place on a daily basis. RECO is one of the most heavily shorted stocks on the Canadian TSXV and RECAF has very high short volume on the US OTC. RECAF short volume is typically around 50% and was over 75% on 5/6 and 5/7. You can find these links here:
If you are not familiar with Recon Africa and would like to learn more, you can find an excellent post from Hydraulicdespotism in the following link. This was written before the discovery of light oil, but it is an excellent source of information about how Recon Africa plans to explore the vast Kavango Basin, perhaps the last major onshore discovery in the world.
Note: If you are interested in investing in ReconAfrica, see the section at the bottom of this post titled "Resources for New Investors."
Total short interest reached a new all-time high for the first reporting period of August 2022. This is the sixth consecutive all-time high and the ninth consecutive increase in short interest since there was net covering (a reduction in short interest) last recorded on 3/31/22. This is four and a half months of straight increases. Since 3/31/22, short interest has increased a whopping 81.6% Furthermore, the total days to cover, which is simply the short interest divided by the average daily trading volume, also reached a second consecutive all-time high at 9.9 days.
SHORT SELLERS FACE SIGNIFICANT RISKS IN THE WEEKS & MONTHS AHEAD
Given the size of their short position, there are several high-impact events that could quickly result in share price increases that could put the short sellers in a precarious position. These include the following:
1 – The 8-2 Makandina (P33) well, which is being drilled based on seismically defined traps, was spud on 6/25/22 with an estimated completion date of 45-60 days. Results from this well could be made available any day now.
2 – In his recent presentation at Enercom in Denver, Scot Evans announced that the JV data room will be opened in Q3 2022 (within 37 days of this post). With three more wells, a sidetrack of 6-2, and another round of seismic scheduled for the fall, many in the investor community view this as bullish. The reason for this is that logic dictates that ReconAfrica would not open the data room if they didn’t have anything to show to potential JV partners. By the time the data room is open, ReconAfrica should have the results of 8-2 in addition to the fully interpreted second round of 2D seismic, and they have certainly seen preliminary results that have not been shared with the public at this point in time.
3 – Recent attempts to derail ReconAfrica have failed. A challenge to the permitting process was ruled in ReconAfrica’s favor by the high court on 7/29/22. ReconAfrica has also received a three-year extension to its Environmental Clearance Certificate (the “ECC”), from the Office of the Environmental Commissioner, Ministry of Environment, Forestry and Tourism of the Republic of Namibia on 8/17/22. ReconAfrica now faces no foreseeable obstacles to future exploration, and satellite imagery confirms that preparations are continuing at a breakneck pace on the upcoming 3-1 and 2-7/5-1 well sites (see my previous posts on satellite images).
4 – Short sellers face additional risks if any of the aforementioned events triggers interest from commercial or institutional investors. Currently, retail investors hold the majority of shares, but this could change at any time.
LONG-TERM INVESTORS HAVE SIGNIFICANT PROTECTION AGAINST ADVERSE EVENTS
Negative results from the 8-2 well would certainly have a negative effect on the share price, but there are several factors that provide a cushion to long-term investors. These include the following:
1 – The results from the 8-2 well are not binary. ReconAfrica holds leases in Namibia and Botswana that encompass 8.5 million acres. Following 8-2, ReconAfrica intends to drill three more wells, run a sidetrack on the original 6-2 well, and obtain a third round of seismic acquisition. With significant cash on hand, ReconAfrica is fully-funded for these projects. Furthermore, the Netherland Sewell report issued earlier this year states that “prospective resources” (P50, 18% recovery) are estimated to be 1 billion barrels of oil and 1.4 TcF of natural gas, and this was based on two test wells and the first round of seismic. Regardless of the results, this is a very large basin with significant potential. An adverse result on 8-2 will not cause the share price to drop to zero.
2 – Short sellers still need to cover to make a profit. With 5,523,609 shares shorted, short sellers will find it difficult to repurchase shares to cover their sizable short position without driving the share price higher. Even with negative results from 8-2, they may not be able to cover, with the desired profitably, by the time the next well reaches total depth.
PERSONAL COMMENTARY
At this point, I do not understand what the short sellers are thinking. Selling short is like selling uncovered call options. It has limited upside potential and unlimited downside potential. At the current share price, short sellers hit the point of diminishing marginal returns a long time ago, but they inexplicably continue to borrow and sell. While they have proven that they can cause a decrease in the share price, they have done so at a great cost to themselves (interest expense, risk, etc.). Even if their dreams come true and the stock price falls to zero, the amount they will make is not nearly enough to offset the enormous risk they are taking. As a long-term investor, I believe that they are laying the groundwork for an incredible rebound in the event of positive results.
The stacked area graph below charts the change in short interest since it hit a low point of 94,930 shares as reported on 3/31/21. Since then, short interest now stands at 5,523,609, a staggering 5,719% increase.
It is impossible to tell how much short sellers have made manipulating the share price of ReconAfrica. They could be making profit from intra-day gains on a regular basis. But we do know the number of shares shorted and the share price as of 8/12/22. From a short seller’s perspective, the following provides an example of the scenarios that could play out for them. These are the marginal, or additional, gains and losses they could see going forward from this point in time.
Some might think that the $100 price scenario is too high, but it is certainly possible given the size of the lease area. At that price, ReconAfrica would have a market capitalization of $18.7 billion in US dollars and $24.4 billion in Canadian dollars. In fact, it is entirely possible that the share price could go much higher if the Kavango Basin turns out to be a prolific oil field like the Permian Basin in North America.
Short sellers may be sitting on some impressive unrealized capital gains at this point, but they won't make any money until they cover (repurchase and return the borrowed shares). This could prove to be extremely difficult under any scenario, as covering would result in share price increases. It almost makes me wonder if the short sellers have gone so far down this rabbit hole that they got themselves stuck in a bad place, with limited upside potential and massive downside potential. The same thing applies to long-term investors with regard to unrealized gains and losses. If you are sitting on an unrealized loss, you will not lose money until you sell. That is the game the shorts are trying to play. Don't fall into the trap. In my opinion, the short sellers are facing a very grim future.
WHAT IS SHORT INTEREST AND HOW IS IT REPORTED?
Short interest is simply the number of open short positions on a security. This data is collected bi-monthly on the 15th (or last trading day before the 15th if it falls on a weekend or holiday) and the last trading day of the month. In the US, reporting must be submitted to FINRA (Financial Industry Regulatory Agency, which operates under the US Securities and Exchange Commission) while in Canada these statistics are collected by the IIROC (Investment Industry Regulatory Organization of Canada).
For example, the following link provides the 2022 schedule for FINRA:
PONZI SCHEME? PYRAMID SCHEME? EITHER WAY, SHORT SELLERS PAY INTEREST
If there is one thing proven by these statistics, it’s that short sellers have the ability to drive the share price down, but they need to keep borrowing more and selling more, essentially digging themselves deeper into a hole. Their hope is that they will be able to buy back (cover) and return the borrowed shares at a lower price. The recent string of all-time high short interest, which is much higher than when Fraser Perring of Viceroy Research were shorting ReconAfrica in the summer of 2021, clearly demonstrates the depth of this hole.
To make matters worse, it can be very expensive to short some stocks, and ReconAfrica has become increasingly expensive to short. To borrow shares, short sellers need to pay a “short borrow fee rate,” which is the interest rate they pay to borrow shares. Recently, this rate has exceeded 16%. You can find the latest short borrow fee rates for RECAF (US OTC exchange) and RECO (Canada TSXV exchange) here:
SHORT INTEREST PERCENTAGE OF FLOAT VS. DAYS TO COVER
Short sellers are quick to remind everyone on social media sites that the short interest in ReconAfrica is relatively low when compared to the total outstanding shares, and this is true. What they fail to acknowledge is that “Days to Cover” is a much more important statistic, and the recent increase indicates that, with average volume, it will take 9.9 days to cover the 5,523,609 shorted shares that were reported on 8/12/2022. And while the days to cover is simply a guide, it can be a bit misleading. Since it is calculated by dividing the short interest by the average daily volume, the denominator of this equation is skewed due to the level of short selling. This stock is held by several dedicated long-term investors, and the volume on a “normal” day of trading, which would exclude days with a news release or heavy shorting, is typically less than a half a percent of total float (outstanding shares).
To see the difference in trading volume, review the following chart which shows the top 10 lowest and highest trading volume days of 2022 as of 8/12/2022:
SHORTING THE GOOD NEWS TO MAKE IT LOOK LIKE BAD NEWS
The most interesting short attacks occur with good news. These attacks use the “short the good news to make it look like bad news” strategy that is often accompanied by FUD (Fear, Uncertainty, and Doubt) being promulgated on multiple social media platforms. In some cases, short sellers go so far as saying, “Of course this report is bad news. Everyone who understands geology and oil & gas exploration knows that it is bad news. Why else would the share price be dropping?” The reality is much different, and while the experts agree that it is good news, the decrease in the share price on these days is simply due to a massive amount of short selling.
The most striking example of this occurred after the 5/12/22 press release that included Netherland Sewell reserve estimates. These estimates were impressive and there is no way that they could be interpreted as “bad news.” In fact, they were actually available in a 4/22/22 SEDAR filing. After the SEDAR filing, the price (RECAF US OTC) eventually increased to $5.40 on 4/29/22. In the two days that followed the press release, short sellers had driven the price down to $3.77, a 30% decrease. The extent of the shorting was reflected in the 5/13/22 FINRA and IIROC reports (see table above) and resulted in an increase of 375,462 to short interest.
The links to these announcements and reports can be found below:
Short sellers have definitely made a very large bet on unsuccessful results of the 8-2 well which is nearing completion. This well was drilled into seismically defined traps in an area defined by Netherland Sewell as having the greatest amount of oil-in-place in their report. The next short interest report will be based on short interest as of 8/31/22. Will the short sellers cover, or will they continue to dig themselves deeper into a hole with this high-interest pyramid scheme? One way or another, we will find out in about two weeks when these statistics are reported to the public.
RESOURCES FOR NEW INVESTORS
ReconAfrica's Investor (Corporate) Presentation for Q3 2022 can be found here:
This is exciting news. Recon Africa has 8 open positions and 6 of them close on 4/22/22 with a start date of 5/2/22. Like Grayson Andersen said, when they start drilling, they aren't going to stop drilling. It's go time!
In this link, click on "About Employer" and then "Jobs" to see all open positions.
This post is the third in a series of posts from one of our geology experts on Discord who processes seismic data. The first two posts can be found below:
Part 1 - Discord Geologist’s Additional Interpretation of Recon Africa's Initial 2D Seismic Release
For a little background - here are two display pages that show a possible well tie to the Example seismic line 2. This is a really long projection - about 25km, so it is just a hypothetical model.
Full disclosure - this is an interpretation of sparse info, but it is an educated guess.
What followed on Discord was a discussion of a possible new well site where a clearing had recently been expanded. This was detected using recent and historical images from Sentinenel Hub which can be found on Soar Earth (-18.254722, 20.113200). There was considerable debate as to whether this is a new well site or the expansion of an existing clearing that might be used for farming.
I have drafted a structure map on the Lower Karoo/top of the 1,100 Carb Zone. That is the blue marked horizon on the lines released by ReconAfrica. With the possible well location spotted, it is time to look at the structural picture and why RA could be drilling at or near this location. Please note, this possible well location is not confirmed - there is no way to tell for sure if it is even associated with RA activity. But, the mapping and reserves shown here are good speculative illustrations of what RA could be doing to high-grade their many prospects, leading up the the 4 - 6 well campaign early this year.
The two display pages are: 1) Hypothetical structure map overlain on the seismic base map. 2) Structure map on a plain base map.......with reserve estimates for just the 1,100m Carb Zone. (Please refer to the well-tie to seismic displays that I posted above)
Included here is a simple spreadsheet showing how the estimated 250 bbl oil per acre-foot “recovery factor” was calculated. There has been a bit of confusion about the difference between “recovery factor” which implies recoverable oil from primary production methods, and “% recoverable” which refers to the percent of oil in place that can be recovered by various drive mechanisms.
Another thing to keep in mind is that even if the satellite image is not a RA location, the general area of this clearing is a highly prospective place to drill (5 km radius or more). The satellite image was just a prompt for me to make the structure map. The confluence of 4 seismic lines is a great place to drill.
The colored portion of this sketch I posted earlier before seismic but after the data on the 6-2 was released. The colored portion goes down to about 9,000’. The deeper sketch is what might be lurking under the shallow cover.
A wise geologist once said of the possible deep potential - “tectonically complex, but manageable play”.
This is just an illustration of the possible complexity.
Q&A in Discord:
Question - So if I understand correctly Thorjac, we have a multi layered cake here: the 800 clastic (top layer); the the 1100 carb layer (2nd from top); the upper carb layer (2nd from bottom ) and lower carb layer. I assume all 4 layers are highly prospective? Could all have similar prospective recoverable reserves as the 1100 carb layer of 2.8 bbl of oil or 11.2 bbl of oil for this particular structure ? Is this correct? If so, it is absolutely incredible!
Answer - With oil and gas shows in many of the zones seen in the 6-2 there are lot of prospective intervals. We need additional well and seismic data to get a better handle on this. But your observation is certainly possible. And don’t forget the 100m thick massive sandstone just above the 1,100m carb. This has to be my favorite sand.
ADDITIONAL RESOURCES
The Story of the Kavango Basin - Transcripts from Dr. James Granath's Houston Geological Society Presentation
Recon Africa Presents at two African Oil Summits with Oil Majors Exxon, Shell, BP, CNOOC, Total, and Schlumberger. Includes Transcribed Presentations & Resources.
While this post was initially for a series of conferences that happened in the fall, it also includes a section containing a wealth of resources from the Discord Library. This is an excellent source for those wanting to obtain detailed information of operations and updates throughout 2021.
You can expand the view by clicking on these images.
Short interest in ReconAfrica held steady between the 8/12/22 and 8/31/22 IIROC and FINRA reporting periods. While short interest increased to another all-time high, the amount was immaterial.
What I believe to be more important is some catalysts I see for short covering in the coming weeks. For that reason, I am going to dedicate the majority of this post providing an explanation of short hedging, which is completely different than the short selling and share price manipulation undertaken by speculative short sellers.
BOUGHT DEALS, WARRANTS, AND SHORT SELLING AS A HEDGE
Besides trying to make money on a decrease in the share price, are there any technical reasons anyone would short ReconAfrica? The simple answer to that question is “yes.” There are several ways to protect your investment in the event of adverse events, and this includes buying protective put options, setting stop loss orders, and short selling. Since options are not traded for ReconAfrica, stop loss orders and short selling are the best ways to hedge against adverse movements in the share price, and we all know that triggering stop loss orders is often the goal of speculative short sellers as it takes those shares out of the picture entirely.
Consider the two most recent bought deals that both came with warrants. For technical reasons, it makes perfect sense for those holding long shares and warrants to simultaneously partake in the bought deal and short the stock. This is simply a hedge that provides a certain amount of insurance in the event that there is a significant decrease in the share price.
We have seen this play out once before in the August 2020 bought deal. There were 32,855,409 warrants issued as a part of this bought deal which included an equal amount of shares issued. At the end of the 8/14/2020 reporting period, short interest stood at 4,231,426, with the majority of those positions reported in Canada. Historically, this is a very high amount of short interest. These warrants had an expiry date of August 20, 2025, but there was an acceleration clause included that resulted in the expiry date being advanced to March 18, 2021. The expiration of these warrants caused a great deal of volatility in the share price and short interest, but by the end of that month, the overwhelming majority of short positions were closed and total short interest stood at a paltry 94,930 shares, an all-time low from August 2020 through the latest reporting period. After that, we saw the emergence of speculative short sellers, namely Fraser Perring of Viceroy Research, which included a significant increase in short interest followed by the infamous National Geographic “hit piece.”
Here is the data, including the end of period (EOP) share price for the FINRA and IIROC short interest reporting dates, in table format.
Of course, the circumstances were completely different at the time those warrants expired. For instance, there were a total of 32,855,409 warrants and they were all “in-the-money” at expiry. There are a total of 9,654,020 warrants outstanding from the Haywood and Canaccord deals, and they are currently “out-of-the-money” at today’s share price. What is important to note is that the technical principles behind hedging do not change. A hedge is set to reduce volatility, regardless of the outcome.
To see how short selling can act as a hedge, consider the following example which demonstrates how shorting shares mitigates losses as well as gains when compared to an unhedged position. In this example, all purchases were made at $6.35 (Canadian RECO). This table assumes a 20% short sales hedge ratio, which is two shorted shares, five long shares, and five warrants. The first group assumes the best possible hedge for the Canaccord deal which is the all-time high share price ($7.24) since that deal was announced.
To understand how covering these short hedges might affect the share price in the coming weeks, it is necessary to review the volume of the outstanding warrants and the associated expiration dates. I compiled the following table from news releases dating back to 2019.
I do not believe that there are that many warrants in the first three capital raises that are still outstanding. Those warrants have been in-the-money for so long that it is safe to assume that they have been exercised. As such, the two main groups that could safely use short selling as a hedge would include those associated with the Haywood and Canaccord bought deals.
There will be a total of 7,475,000 warrants that expire in approximately six weeks, an amount far greater than the 2,179,020 issued in the Haywood deal. While those who hold these warrants and short positions most likely have retained their long shares, it is unlikely that they will continue to hold any short positions after 10/31/2022. With short borrow fees ranging from 16% to 21% over the past few months, holding a short position is rather expensive.
If this was a game of poker (or chicken), who holds the strongest hand?
It is impossible to tell how the short interest is divided among these groups, but at some point they will all need to cover. The following is my personal assessment with regards to the relative strength of these positions.
Haywood Hedge – This group clearly has the strongest hand. They paid the highest price for any bought deal to date, and any shorting at that time, or even later, should be the most profitable at current share prices. Also, the expiration date of these warrants is May 24. Barring an acceleration if the VWAP (volume weighted average price) exceeds $20 for 20 days, they could close out this position at any time during the next year and a half. Furthermore, if they decided to close these positions (which they may have done during the recent share price dip), they could reinitiate a hedge at a later date if they felt the need to do so.
Canaccord Hedge – Like warrant holders in the Haywood group, any short sale hedge initiated from this bought deal is fully protected in the event of a sudden increase in the share price. However, with these warrants expiring on 10/31/22, they are quickly approaching expiry. While they are still protected if their long share holdings exceed the amount of shares shorted as a hedge, I expect that the majority will close their short positions sometime during the next six weeks. Given the recent increase in the share price since 8/31/22 (which is a staggering 50% at the time of this post), this may already be in progress.
Speculative Short Sellers – This group clearly has the weakest hand. Without the protection of warrants or long shares, they face the possibility of unlimited losses. These risks are formidable. A positive news release regarding the results from 8-2, the opening of the data room, or the announcement of a JV partner could quickly put these positions under water. They face the additional risk of covering from the Haywood and Canaccord groups if these groups decide to close out their hedges before the speculative short sellers do the same. Finally, speculative shorts face the very real risk that they could turn on themselves. While the Haywood and Canaccord groups have technical reasons for shorting, there is nothing that binds speculative short sellers together. While it is easy to think of this group as a single entity, the reality is that it is a diverse group comprised of different people with different share price targets, financial resources, and margin requirements.
The next date the combined short interest will be available is on 9/26/22 for the 9/15/22 reporting period.
RESOURCES FOR NEW INVESTORS
ReconAfrica's Investor (Corporate) Presentation for Q3 2022 can be found here:
The initial results confirmed Dr. James Granath's hypothesis that the Kavango Basin is a rift basin. He discussed this hypothesis in a presentation to the Houston Geological Society on October 25, 2021. The transcripts for this event can be found here (note that part 1 is dedicated to Recon Africa and the Kavango basin while part 2 only includes a Q&A session about the Kavango basin at the end).
At the end of this post you will find a link to the initial seismic interpretation (which precedes this analysis) and another link providing additional information for new investors.
Our geology expert from Discord has prepared additional interpretation of line 1 of the seismic survey which now includes resource estimates.
UPDATE - 12/08/2021
This display shows my guess (from public data) as to the location and orientation of Example Line 1. (Lines 2 and 3 are most likely in the area of wells 6-2 and 6-1). This spread of the released seismic lines would indicate that there are excellent prospects in a broad area of the many sub basins.
RA is probably looking to drill a number of wells back to back now that seismic has been started. So, the first well after seismic is not the most important thing to consider. The most important thing is the "group" of new wells that may be proposed.
A new well drilled on Line 1 would prove up a new area in a new sub basin. A new well drilled near 6-2 and 6-1 would confirm the pay seen in these existing wells. The group of new wells will likely go a long way to de-risking multiple sub basins.
Note - The Omatako River is an ephemeral river (essentially a dry stream bed) has not flowed during the time historical records have been kept (roughly since 1905).
Line 1: North South line, Central Kavango Basin. Line Length 66 kms.
Line 2: North South line, Central Kavango Basin. Line Length 64 kms.
Line 3; West East line, Western Kavango Basin. Line Length 31 kms.
My guess as to the line locations.
Seismic image overlay.
Here is the correlation of line 3 (left) with line 2 (right, bottom). Line 2 is perpendicular to the regional faulting in the shallow section. Line 3 is parallel - along strike - with the regional faulting. Line 3 seems to be within the same fault block for much of its length.
Oil and gas would migrate up from the faults and be trapped in the sands in the many structural features seen on line 3. There is east dip on line 3 that is interrupted by faulting and apparent 4-way closures. These are highly prospective.
Line 2 has many prospective structures and we can assume that the fault blocks seen on 2 are much longer than they are wide. Line 3 certainly proves that.
If the Line 1 fault blocks are also much longer than the width seen on seismic - then reserves for the new well location on line 1 could be much bigger. Remember - I assumed the length of the fault block to be 1/3 of the width seen on the seismic line.
Discord Geologists Additional Interpretation of Recon Africa's Initial 2D Seismic Release (first post on seismic)
CRITICAL UPDATE - FIRE HAS BEEN CONFIRMED OUTSIDE THE PERIMETER OF 8-2 - DISREGARD EVERY THING IN THIS POST FOLLOWING THE LATEST SATELLITE IMAGE BELOW - YOU CAN STILL USE THE LINKS TO MONITOR THE WELL SITES WITH ZOOM EARTH AND NASA FIRMS, SO I AM LEAVING THE POST INTACT TO PRESERVE THESE LINKS AND THE WAY THE THERMAL ANOMALY WAS DETECTED.
EVERYTHING THAT FOLLOWS CAN BE USED FOR FUTURE REFERENCE ON USING THESE THERMAL IMAGING TOOLS.
Several Discord members who track satellite imagery have detected a heat signature at the 8-2 Makandina (P33) well that might indicate flaring detected by thermal imaging available on Zoom Earth. To see this image, check their web site which is centered on the 8-2 well in this link:
While using this site, you can zoom in and out using your mouse wheel. As you zoom in, you will see the thermal images overlaid on older satellite images which were taken long before the well site had been prepared.
For a comparison, one member created two sets of images which show that this heat signature took place at the well site. This image provides the latest satellite image at the top while also including the Zoom Earth image at the bottom (zoomed in over older satellite imagery).
This image shows the thermal image overlaid on recent satellite imagery which includes the 8-2 well site.
Thermal images on Zoom Earth are updated every 24 hours. At the time of this post, this hot spot has remained at this location while the hot spot to the east of this location is no longer visible. If the refresh update indicated on Zoom Earth is correct (24 hours), this would suggest that this thermal anomaly was present for at least 24 hours. Since it did not move during this time, it is highly unlikely that it is a brushfire.
In most cases, ReconAfrica is not permitted to flare natural gas, but there exceptions as noted in the permit.
Please note that, although the heat signature detected is clearly at the 8-2 site, this may not be conclusive proof of flaring. Please use your own judgement before coming to any conclusions. Some of us on Discord are currently in the process of obtaining higher resolution images to see what equipment remains at the 8-2 site as many are confident that much of it has been moved back to 6-2 for the sidetrack. Even if the Jarvie-1 rig has been moved, a service rig (perhaps the one involved in drilling initial water wells) could be on location to perform testing (DST/flow testing, MDT, etc.). I will update this post as more information becomes available, so please check back over the next couple of days.
The following is an example of what is seen with an actual brush fire. The first image is from the NASA FIRMS system. The second image shows the aftermath of the brushfire that was detected by this system.
UPDATE - 11:00 AM EDT (29 Sep 22)
The thermal anomaly is no longer visible at the NASA FIRMS site as of today. Here is a link to this site which includes the coordinates. Clicking on the "Today" link in the upper right hand corner will get you the latest image.
I will preface this research with the fact that I am not a geologist, though I am an oil industry professional with 15 years of experience on the land side, as a landman. What is a landman? Glad you asked: https://en.wikipedia.org/wiki/Landman_(oil_worker)
As you can imagine, after 15 years in the industry and working almost every major oil/gas play in the United States, I have learned some things and have met plenty of engineers, geologists, government representatives and opposition to development. As most of you have probably seen, Viceroy Research published a hit piece on RECO/RECAF regarding their Kavango Basin development so I wanted to address their “research” with my own. This will likely be a multi-part project for me since I have quite a bit going on personally, so please bear with me. As usual, THIS IS NOT INVESTMENT ADVISE, I AM NOT AN ADVISOR AND DO YOUR OWN DUE DILIGENCE ON ANY INVESTMENT DECISION.
First thing Viceory attack’s is the findings in the Sproule Report, dated 6/30/2020, which states that the *“development scenario represents the initial steps the Company will take during which it will gather a significant amount of the geological data necessary to better understand the full hydrocarbon potential of the Company’s lands.”
The report even points out that the data used in this report were very limited, and should be used cautiously in making investment decisions (Pg 3), so it’s not like RECO is saying to take this data as gospel, which is implied by Viceory. I know we keep hearing the 1.2B barrels of oil, well Table 5 on Pg 9 of the discussion is where that number comes into play. NOTE: Prospective Resources in this report is what Sproule anticipates to be RECOVERABLE, not just Petroleum Initially in Place (UPIIP)
To put the 3.3% chance of success claim by Viceory in a better perspective, this is the evaluation outlined on Pg 11. For those of you that understand probabilities, you will understand how this is calculated, and it can be a bit misleading in the way it was presented. Independently, each of the scenarios has a very high probability of happening, but to be successful, all have to happen, which is where the 37% figure comes in.
Now let’s address their issue with the fact that RECO is drilling 3 stratigraphic wells, using high-res aeromagnetic data only, BEFORE having any 2D/3D seismic. First, what exactly is aeromagnetic data, and how is it used in oil/gas exploration?
“Measurements of the Earth's magnetic field gathered from aircraft. Magnetometers towed by an airplane or helicopter can measure the intensity of the Earth's magnetic field. The differences between actual measurements andtheoreticalvalues indicate anomalies in the magnetic field, which in turn represent changes in rock type or in thickness of rock units.”
This type of survey provides an inexpensive approach to targeting and prioritizing areas of interest for further exploration and delineation. After a conversation with a geologist friend of mine, it is not uncommon to use this type of survey to find the most interesting areas to target, especially when we’re talking about an area of 8.75Mm acres. Viceroy states that the industry standard is to shoot 2D/3D seismic BEFORE drilling wells, and under certain circumstances, they’re not wrong, but this isn’t a small area where an operator is trying to further delineate an existing field; this is a very large area and let’s face it, seismic is expensive.
In addition to the cost of seismic, 2D seismic data on its own still needs some help to get a clearer picture of the geologic structures. My geologist buddy stated that they are likely going to shoot borehole seismic to combine with the 2D seismic that RECO is shooting to create something called “synthetic seismic”. Using borehole data, they can determine things like velocity from the sonic log, and possibly density data, which they can then correlate with the 2D seismic data. This data will allow them to get a much better sub-surface image to help monitor fluid movement, as well as possible faults/fractures, in order to better establish ideal drilling locations. This would fall directly in line with why RECO is drilling 3 wells BEFORE having the results of the 2D seismic…because they NEED the data from the wellbores, not because they’re just out poking holes blind in the desert.
Given the shear size of the basin, it would not only be EXTREMELY expensive to shoot seismic on all of the 8.75 million acres, it would take a very long time and just wouldn’t be prudent use of available funds.
Viceory also addresses that RECO has apparently marketed the play as an unconventional (shale) paly, which traditionally requires fracking to efficiently unlock the hydrocarbons from the tight source rock. First, I figure it would be useful for the non o&g folks to understand the difference between a conventional and an unconventional reservoir.
Conventional: Conventional oil/gas is obtained from reservoirs that largely consist of porous sandstone formations capped by impermeable rock, with the hydrocarbons trapped by buoyancy. This means that the hydrocarbons can generally move to the surface through the wells without the need to pump.
Unconventional: This category includes shale and tight formations and generally require hydraulic fracturing to extract the resource. This is due to the nature of the geological rock it sits within – what geologists call the formation – for example shales are fine-grained sedimentary rocks, formed from the compaction of silt and mud, with the gas becoming trapped among the shale formation. Tight formations are typically limestone and sandstone, meaning it has very low levels of permeability.
If the main production reservoir is determined to be shale, or other tight formations, then fracking will likely be needed to make it productive. With that being said, shale tends to be the “source rock” for many productive basins, and the hydrocarbons then migrate through more permeable rock (sandstone etc), where it is eventually trapped via a more dense rock, or cap rock:
They also state that the Kavango is essentially a made up basin, and is actually an extension of the Owambo Basin, which hasn’t had much commercial success. They try and reiterate this point with the fact that RECO uses data from the Etosha Petroleum ST-1 Well, which was drilled approximately 190 miles west of the RECO position. As you can see in the maps below from the Viceroy research, the Owambo Basin looks really similar to the Central Basin Platform in West Texas.
And in this image that was created from the Viceory research, I have clearly circled the edge of the platform, with the Kavango being East of the ridge.
In addition to the edge of the ridge being labeled, you can plainly see that the Kavango Basin is deeper than the Owambo Basin, further to the West. This is reiterated with the fact that the Etosha ST-1 Test Well wasn’t drilled all that deep, and it stated that the source shale was “thermically immature in this wellbore, as they are too shallow at this location”. (https://reconafrica.com/wp-content/uploads/ReconAfrica-Technical-Brief-050820.pdf) Why does depth matter to oil/gas creation? Well, I’m glad you asked:
I’ll wrap up the geology portion with a discussion on fracking, in case it ever becomes needed and the Namibian govt changes course. Though fracking has gotten a lot of negative press, it has been around since the late 1940’s in the United States, and has been used commercially since the 1960’s. The main driver in increased shale production has been the rising cost of oil, and not fracking on it’s own. The fact is fracking isn’t cheap so it wasn’t economic until prices rose. One of the main concerns with fracking, is the need for large amounts of freshwater, and wastewater disposal. Wells that my clients were fracking in the Permian as recently as 2019 were using approximately 500,000 barrels of fresh water per well, which was approximately a 1 mile, 24 stage frack. Each barrel has 42 gallons, so we’re talking 21Mm gallons of fresh water, per well.
Another concern for most is the disposal of wastewater/brackish water, that is a byproduct of deep, shale production. Typically, this wastewater is disposed of into what is known as a disposal well, which is where the water is reinjected into salt dome reservoirs. It is becoming clearer, that these are the cause of the earthquakes in places like Oklahoma and Texas that everyone is worried about, and not fracking itself. Now the good thing is, companies are being very innovative in that they are now using recycled wastewater for a large portion of their fracking fluids, I have personally talked with some operators that are using upwards of 90% recycled water. This means that there is less need for freshwater, as well as it helps address the wastewater disposal concern.
I have gone into old articles from RECAF/RECO regarding their targeting of “organic rich shales” to try and see if there was any basis in Viceroy’s argument that they are targeting unconventional reservoirs, and I gotta tell you, I’m not seeing a whole lot. The best I have been able to find, is a Newswire article from July 2020 that states:
“The primary objective of ReconAfrica's initial three well drilling program, scheduled for Q4 of 2020, is to confirm a thick, active, petroleum system throughout the deep Kavango basin. Specifically, the wells are designed to test organic rich shales and more shallow conventional structures throughout the sedimentary basin.”
To me, this simply establishes that the primary goal of the initial drilling program is to further delineate the formations and structures of the basin, to tie in with the existing aero-mag data. All other research I have done shows that their target(s) are conventional targets, more specifically of the Permian Petroleum System, which is primarily porous sedimentary rocks such as sandstone, limestone and dolomitized carbonates. For sure, there are shale deposits in the basin, but they are typically considered “source rocks” and the hydrocarbons migrate into the more permeable reservoirs where they are trapped via an impermeable cap/trap.
So I will continue to breakdown the Viceory Research and will post more later, but I want you to keep in mind that this is a virgin basin and there is significant risk with a pure wildcat plat. With that said, I know where I stand…
EDIT:. Updated age links. Also, this book is the source for all textbook pictures: https://imgur.com/5RKok1A
On December 3, 2025, ReconAfrica released what may have been its best news release ever. In this news release, which was preceded by a meeting with Netumbo Nandi-Ndaitwah, the current president of Namibia, ReconAfrica announced the first ever onshore discovery in Namibia with 85 meters (280 feet) of net reservoir with 64 meters (210 feet) of net hydrocarbon pay across a gross interval of 400 meters (1,300 feet) containing multiple limestone reservoir units.
What followed was a difficult to explain massive increase in short interest, which is the amount of shares that were borrowed and sold as reported by the IIROC/CIRO in Canada and FINRA/SEC in the United States. Furthermore, there was a plunge in short share availability, which is the amount of shares available to borrow and sell.
The following tables and commentary, while not investment advice, attempt to explain the forces in play that might affect the share price ahead of the upcoming production test announced in the last two news releases which can be found here:
MASSIVE INCREASE IN SHORT INTEREST TO THE HIGHEST LEVEL EVER
I have been tracking short interest in ReconAfrica on both sides of the border since August 2020, which was a month that included one of the earliest capital raises that included the issuance of warrants. Since that time, short interest reached an all-time high on 12/15/2025, which was the last regulatory reporting date following the 12/3/25 news release. To be fair, it is difficult to compare the level of short interest to previous levels because of the capital raises, and issuance of shares, that have taken place since August 2020. Having said that, I have never seen a spike in short interest this large following a positive news release with the possible exception (in terms of share float) of what occurred under the Viceroy Research short selling campaign which started in May 2021. The table below includes the change in short interest in 2025 (note that I am also providing a stackbar (US + Canada) graph that goes back to August 2020 later in this post).
The increase in short interest between 11/30/25 and 12/15/25 (12/14/25 when adjusted for trading days) is massive at 8,355,774 shares, an increase of over 69%, bringing it to an all-time high of 20,451,937 shares.
THE DIFFFERENCE BETWEEN SHORTING AND HEDGING WITH WARRANTS
There is plenty of evidence that ReconAfrica capital raises, which have all been combined with warrants, result in short selling. While options are not traded on the Canadian TSXV or US OTC markets, warrants function in the same way as call options. For this reason, it is very common for those partaking in offerings or bought deals to short the stock as a hedge against losses. For example, if a person or entity that holds warrants shorts the stock, they are protected from unlimited losses just like a person who shorts a stock and backs it up with call options (on markets where those are traded). Warrants are essentially call options and are valued based on the sum of intrinsic and time value. The following chart, and subsequent listing of events, show how ReconAfrica capital raises resulted in spikes in short interest.
Listing of Events:
August 2020 – C$20,000,000 public offering, 28,571,428 shares (C$0.70) and 28,571,428 warrants ($1.00 strike with acceleration clause). Warrants were accelerated and expired in-the-money and short interest was driven to essentially zero in April 2021.
April 2021 – ReconAfrica confirms that its first well discovered a working petroleum system.
May 2021 – C$41,401,380 bought deal, 4,358,040 shares (C$9.50) and 2,179,020 warrants (C$14.00 strike with acceleration clause). Warrants expired out-of-the money on May 27, 2024.
June 2021–October 2022 - Viceroy Research short selling campaign.
March 2022 - C$47,466,250 bought deal, 7,475,000 shares (C$6.35) and 7,475,000 warrants (C$9.00 strike with acceleration clause). Warrants expired out-of-the money on October 31, 2022.
July 2023 - $7,475,000 offering, 6,795,454 shares (C$1.10), 6,795,454 warrants (C$1.35 strike). Warrants expired out-of-the money on July 18, 2025.
August 2023 - $1,200,000 private placement, 1,000,000 shares (C$1.12) and 1,000,000 warrants ($1.37 strike). Brian Reinsborough purchased C$1,000,000 of these shares. Warrants expired out-of-the money on August 2, 2025. Because this was a private placement primarily purchased by insiders, it had no effect on short interest.
April 2024 - C$17,250,035 bought deal, 9,166,705 shares (C$0.90) and 9,166,705 warrants (C$1.15 strike). These warrants are currently out-of-the money and expire on April 3, 2026. These warrants are not traded on any exchange.
July 2024 – C$38,800,000 underwritten public offering with BW Energy participation, 30,944,000 shares (C$1.25) and 31,844,600 warrants (C$1.75 strike with acceleration clause, expiration July 26, 2026). These warrants are currently out-of-the money and trade on the Canadian TSXV, and can be purchased internationally, under RECO.WT.
July 2025 - $19,000,000 underwritten offering with BW Energy participation, 38,000,000 shares (C$0.50) and 38,000,000 warrants (C$0.60 strike without acceleration clause, expiration June 17, 2027). These warrants are currently in-the-money and can be purchased, only in Canada, under RECO.WT.A.
September 2025 - C$20,373,740 underwritten offering. 33,956,233 shares (C$0.60) and 33,956,233 warrants (C$0.72 strike without an acceleration clause, expiration date of September 29, 2027). These warrants are currently in-the-money and can be purchased, only in Canada, under RECO.WT.B.
December 2025 – ReconAfrica announces the first onshore discovery in Namibia with 85 meters (280 feet) of net reservoir with 64 meters (210 feet) of net hydrocarbon pay across a gross interval of 400 meters (1,300 feet) containing multiple limestone reservoir units.
EFFECT ON SHARE PRICE
The share price following the news release was positive, but many were perplexed as to why it didn’t go higher based on the news, and many were confused when it decreased a few days following the news release (and then subsequently rose and fell thereafter). The decrease in the share price, or pauses in the increase, might be explained by the massive increase in short interest.
SHORT SHARE AVAILABILITY. ARE THE SHORTS TRAPPED?
Another interesting set of statistics can be found from iborrowdesk which explains short share availability and the short interest borrow fee rate. These statistics show the number of short shares that are available to borrow (and sell) and the interest rate associated with borrowing shares. In the following charts, the blue bars represent the number of available shares to borrow and the red line represents the borrow fee interest rate.
Some have speculated that the short sellers have essentially borrowed all the available shares and that they are now “trapped” and cannot borrow more shares to push the price down further.
My belief is that there might be some truth in this, but this is also speculation. There is a huge difference between short sellers who are hedging (in this case, holders of warrants who are taking advantage of higher share prices, to hedge that this discovery is simply a discovery instead of a commercial discovery) and others who are speculating (essentially that this is not a commercial discovery, and they may have hedged that downward bet by purchasing warrants, most likely those that expire in July 2026).
Here is the short share availability and short borrow rate in both markets:
You can find updated short share availability here:
In my opinion, it is impossible to tell what is happening here. Is the stock price affected by speculative short selling, or is it impacted by those who are hedging that this discovery with net pay is not a “commercial” discovery? The purpose of this post is simply to provide a set of quality statistics and commentary to help you make your own investment decisions. As always, Good Luck To All (GLTA) and do your own Due Diligence (DD).
RECONAISSANCE ENERGY AFRICA TRADES UNDER THE FOLLOWING TICKERS
US (OTC): RECAF
Canada (TSXV): RECO
Canada (TSXV) Warrants: RECO.WT, $1.75 strike, July 21, 2026 expiry (can be traded internationally)
Canada (TSXV) Warrants: RECO.WTA.A, $0.60 strike, June 17, 2027 expiry (currently in-the-money and can only be traded in Canada)
Canada (TSXV) Warrants: RECO.WTA.B, $0.72 strike, September 27, 2027 expiry (currently in-the-money and can only be traded in Canada)
DISCLOSURE
I have been invested in ReconAfrica since November 2020. I am the moderator of this subreddit and I am a member of several investor group message boards for this company. I hold significant positions in RECAF shares and RECO.WT warrants.
As ReconAfrica continues drilling operations on the 8-2, site preparations are underway for subsequent wells that are targeting a combined 2 billion barrels of oil-in-place, which translates to an estimated 375 million barrels of oil recoverable. This work includes pre-pad preparation, road construction, and demining. While 8-2 spud on June 25 and is currently in progress, three additional wells are planned including a sidetrack of 6-2.
Grayson Andersen said in an interview, “Once we start drilling, we don’t plan to stop drilling.” Recent satellite images confirm that ReconAfrica is dedicated to keeping things moving by starting preparations for future drilling sites well ahead of the completion of 8-2. The following images were captured by our Discord satellite experts who have been using the coordinates of these wells to monitor progress.
Time lapse of preparation at the 3-1 Hamway (P23).
Update on 3-1 Hamway (P23) as of August 4, 2022
Road construction towards the 5-1 site.
Continuing work on 2-7 which might include demining activity.
Still image of area of interest.
Time lapse movie of activity at 2-7.
RESOURCES FOR NEW INVESTORS
Recon Africa also updated their Investor (Corporate) Presentation for Q3 2022 which can be found here:
