The party is just getting started at ReconAfrica

The best could be yet to come at ReconAfrica, after its first well indicated the presence of a working petroleum system in the Kavango Basin.

I was pleasantly surprised after Namibia-focused oil exploration hopeful ReconAfrica (CVE:RECO) soared just days after my initial write-up, on news of a successful drilling result from its first well. This took the market by surprise, as it was anticipated that Recon would release the results of all three wells in the current drilling programme in one press release. However, this could be very bullish, as I’ll endeavour to explain.

The well sample log for the 6-2 well provides over 200 metres of oil and natural gas indicators over three discrete intervals in a stacked sequence of reservoir and source rock.

Crucially, extraction of oil from these samples “supports an active petroleum system with multiple source intervals”. This was obviously music to the ears of investors who bid the stock up to highs of around C$10 at one point, versus around C$3.40 at the time of my write-up just days earlier. 

“These shows are indicative of migrated, thermogenic petroleum and occur over three different intervals in the 6-2 test well” explained Recon’s chief geologist, Dan Jarvie. “The intervals penetrated include highly porous, permeable sediments and marine source rocks as predicted, and extensive marine carbonate lithofacies. Mud gas results indicate a high BTU gas with the presence of light oil in numerous cutting samples. Based on these initial results, the components and processes for a working petroleum system are all present.”

This is hugely encouraging news and has gone some way towards de-risking the investment case. Moreover, the fact that Recon felt confident enough to announce this result before it drilled the other two wells suggests to me that management are quietly convinced that they have the real deal here. Here’s what Namibian Minister of Mines and Energy Tom Alweendo had to say: 

“This is great news for the people of Namibia, with the results of the well confirming a big potential for a very valuable energy resource for our country and therefore a significant development for Namibia onshore exploration efforts. The positive results of this well have provided us with the critical information required to unlock the country’s petroleum prospectivity and is the first step in the process of locating significant accumulations, we can now confidently confirm Namibia is endowed with an active onshore petroleum basin.”

Politicians do not make grand statements like this without good reason, for fear of looking silly further down the line. It appears they too are convinced by what ReconAfrica has uncovered in the Kavango basin. The game’s afoot, and it’s about to get a whole lot more interesting. 

The drilling rig has now been mobilised to the second drilling site, which aims to evaluate the indicators of the petroleum systems revealed in the first well in an area of maximum thickness. This is where we’ll get a better idea of the potential size of the basin and whether Dan Jarvie’s claims of a potential 120 billion barrels stand up to scrutiny. This is real moonshot territory, especially when you consider that Shell reported total reserves of 11.1 billion barrels at the end of 2019! 

I leave you with the comments of petroleum engineer Spencer Hohan on Yahoo:

“As a Petroleum Engineer of 40 years now, having spent a career with major oil companies, and smaller independents, it’s hard to emphasize how rare it is for something like this to be a ‘hit’ on the first penetration well drilled based primarily on a geomagnetic survey. This is astounding. If the second well shows anywhere near similar geophysical properties, and further confirms the basin structure, this could easily be worth more than a hundred times its current price. Sorry, shorts. You’d best cover today, or you are bankrupt. And it may be too late already.”

* James Faulkner holds shares in ReconAfrica.