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London – August 3, 2021 – Kavango Basin oil exploration is lighting up again with a series of big announcements on Friday by the junior explorer behind what we consider is the most exciting onshore play in a decade.   Mentioned in today’s commentary includes:  Exxon (NYSE:XOM), TotalEnergies (NYSE:TTE), Eni (NYSE:E), Petrobras (NYSE:PBR), ConocoPhillips Company (NYSE:COP), Pioneer Natural Resources (NYSE:PXD).

After stunning markets with two consecutive confirmations of an active petroleum system in Namibia’s giant Kavango Basin, Reconnaissance Energy Africa (RECO, RECAF) has now initiated an ambitious 450-kilometer 2D seismic acquisition, expects to release more comprehensive results from their first well next week, and launched an impressive community water well drilling program for Namibia.

In a July 30^th press release, Recon Africa and its Namibian state-run partner NAMCOR, launched the first-ever 2D seismic program in the 6.3-million-acre Kavango Basin, following successes with the drilling of two stratigraphic wells—both of which confirmed an active conventional petroleum system.

The Company reports that a 450-kilometer seismic program is designed to delineate potential traps and hydrocarbon reservoirs. Importantly, 95% of the seismic program will be conducted on existing roads over 10 seismic lines. For the past week, Recon Africa—working with Canada’s most established  seismic provider Polaris Geophysical – has been testing the first line before moving into full acquisition mode.

The entire 450-km seismic acquisition is scheduled to be concluded by the end of October. And that–along with Vertical Seismic Profiles (VSPs) being prepared right now to connect the first two stratigraphic test wells (6-1 and 6-2)—will be used to guide the next round of drilling before the end of this year.

RECO has already completed multiple logging runs and taken 86 sidewall cores in the 6-1 well. Next, it will run and cement casing to isolate the prospective hydrocarbon-bearing zones and run the VSP to total depth to tie both wells into the wider 2D seismic program.

Shareholders have also been anticipating additional results from the first test well, and we expect they won’t be disappointed: RECO plans to release those results in the next week, right after they submit them to NAMCOR and the Namibian Ministry of Mines and Energy.

On the ESG front, it doesn’t get much better than this, with Recon Africa (RECO, RECAF)  working closely with the national and local governments in ways desired to immediately improve living conditions for Kavango residents. Namibia, which has never produced a barrel of oil in its history, has a lot to look forward to, including a series of new water wells for communities that haven’t had any nearby access due to lack of resources for drilling.

That was one of RECO’s first moves in its host country. On July 30^th, Recon Africa launched its expanded water well drilling program, working together with the Ministry of Agriculture, Water and Land Reform, as well as with local Kavango governors.

Earlier on in the exploration process, Recon Africa drilled four community water wells. On Friday, it announced drilling on its expanded, 20-water-well program, with 8 initial locations selected and bidding among local water well drilling companies already concluded. Drilling of the first 8 wells—all to be solar powered–will begin next week and will be completed during the second week of August for a cost of CAD$355,000.

The junior explorer is also not operating in an ESG vacuum when it comes to its seismic acquisition. Polaris—a world-class seismic company and the oldest in Canada—brings low-environmental-impact seismic acquisition to the table with Polaris Explorer 860 tractors. These highly advanced seismic acquisition tractors operate at an extremely low frequency to protect wildlife communications.

From here on out, we expect the news flow on Kavango to be heavy—and increasingly exciting, especially for those who got in on the ground floor on what could potentially end up being the last major onshore oil play in the world.

Short-sellers have failed to bring this stock down, and they’ve run out of time to cover—a situation that has led short sellers to arrange massive, organized social media and other campaigns against Recon Africa. That is to be expected when a junior company stakes its claims on a supermajor-size basin that has world-class geologists jumping on board over what they have seen. But it’s been an uphill battle for short sellers, given that two renowned geoscientists—Bill Cathey and Daniel Jarvie—have staked their reputations on this one. Cathey finding it would be very surprising to not hit big oil, and Jarvie estimating the basin has generated billions of barrels of oil.

This fully funded 4-well drilling campaign is the highlight of the exploration summer, and initiating the huge 2D seismic acquisition is a major step. This week, we think investors can gear up to be impressed (and rewarded) again, with additional results from the first well, for which Recon Africa (RECO, RECAF) has already confirmed an active petroleum system.

It’s going well for this most-talked-about junior explorer, and it’s all uphill for short sellers desperate to avoid losing by camping out on what we consider the wrong side of oil exploration history.

Other companies looking to capitalize on rising oil prices:

TotalEnergies (NYSE:TTE) is one of the world’s most impressive -and progressive- energy companies. And for good reason. The company is one of the most diversified and forward-thinking oil majors in the business. TotalEnergies is distinctly aware of the needs that are not being met by a significant portion of the world’s growing population, it is also hyper-aware of the growing threat of climate change. This good news for investors who often worry about how local entities are impacted when global energy giants move into their countries.

From oil and gas to renewables and beyond, TotalEnergies is setting itself up nicely for the long term. And thanks to its diversification, it has outperformed other pure oil majors. It is also staying ahead of the looming climate crisis by boosting its renewable assets.  And it has a stellar ESG record, as well. From diversity and societal progression and workplace safety to its commitment to reducing its own carbon footprint, the near-100-year-old energy giant is checking all the right boxes for investors.

Eni (NYSE:E) is another company to watch as resource prices inch higher, especially natural gas. It is a global energy company that was established in 1959. They have grown into one of the top 10 natural gas producers and are ranked #2 for production and reserves. Eni has operations around the world, with their headquarters located in Rome, Italy.

In addition to its natural gas push, Eni is also jumping on the green hydrogen bandwagon. In fact, in December, the Italian oil major announced a partnership with Entel to produce hydrogen using electrolyzers powered by renewable energy. “Our goal is to accelerate the reduction of our carbon footprint by implementing the best applicable low carbon solution, either green or blue, to reduce our direct emissions as well as switching to bio products to supply our clients,” Eni’s chief executive officer (CEO), Claudio Descalzi, said in a statement.

While the U.S. shale patch and companies making big claims about the energy transition capture most headlines, investors are largely ignoring one of the oil industry’s most exciting frontiers, Brazil. And one company, in particular is taking the lead. Petrobras (NYSE:PBR) is focused on developing its pre-salt operations. And it’s easy to see why. Those upstream projects being approved for development must have a breakeven price of $35 per Brent or less. Brazil’s national oil company has budgeted capital spending for exploration and production activities of $46.5 billion from 2021 to 2025.

Clearly, while the pandemic has hit Brazil’s oil industry causing production to fall because of savage budget cuts and well shut-ins, it appears to have done no material long-term damage.  Demand for Petrobras’ low sulfur content fuel is firm and will grow because of the global push to significantly reduce emissions, which will ultimately make Petrobras even more valuable over time.

ConocoPhillips Company (NYSE:COP), as the largest pure-play upstream oil company, has performed relatively well in this depressed market, generating ample free cash flow and returning a good chunk of it to shareholders.  Unlike many of its peers who continued to expand aggressively during the shale boom, COP has taken several steps to lower costs and fortify its balance sheet leading to one of the best cash positions in the oil patch.

ConocoPhillips has been gradually offloading non-core assets, including the sale of its North Sea oil and gas assets for $2.7B and the planned sale of its Australian assets for $1.4B. Its asset portfolio, however, remains healthy. Conoco has been particularly bullish on oil demand outlook in 2021, and it was one of the few companies which did not partake in the mass-layoffs seen in the industry last year. In addition, Conoco has also seen a fairly decent about of insiders buying into its stock, which is a good sign.

Energy enthusiasts should not ignore the shale patch, either. Pioneer Natural Resources (NYSE:PXD) is an independent oil and gas exploration and production company with a diversified portfolio of high quality assets in the United States. The company’s operations are concentrated primarily in two areas: West Texas, where it has developed one of the most significant unconventional resource plays in North America, the Eagle Ford shale; and Southern California, where it has assembled a large position onshore Los Angeles basin. Pioneer Natural Resources was founded in 1954 by Ross Shaw who had long been involved with land leasing for drilling purposes. With his son James as president, they drilled their first well near Big Lake, Texas.

CEO Scott Sheffield isn’t particularly bullish on the Permian in the short term. “I never anticipate growing above 5% under any conditions,” Sheffield said. “Even if oil went to $100 a barrel and the world was short of supply.” The shale major CEO explained this was because the service costs associated with adding more drilling rigs would undermine profit margins.

By. Tom Kool

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Forward-Looking Statements. Statements contained in this document that are not historical facts are forward-looking statements that involve various risks and uncertainty affecting the business of Recon. All estimates and statements with respect to Recon’s operations, its plans and projections, timing of drilling, other exploration and results, size of potential oil reserves, comparisons to other oil producing fields, oil prices, recoverable oil, production targets, production and other operating costs and likelihood of oil recoverability are forward-looking statements under applicable securities laws and necessarily involve risks and uncertainties including, without limitation: risks associated with oil and gas exploration, including drilling and other exploration activities, timing of reports, development, exploitation and production, geological risks, marketing and transportation, availability of adequate funding, volatility of commodity prices, imprecision of reserve and resource estimates, environmental risks, competition from other producers, government regulation, dates of commencement of production and changes in the regulatory and taxation environment. Actual results may vary materially from the information provided in this document, and there is no representation that the actual results realized in the future will be the same in whole or in part as those presented herein. Other factors that could cause actual results to differ from those contained in the forward-looking statements are also set forth in filings that Recon and its technical analysts have made. We undertake no obligation, except as otherwise required by law, to update these forward-looking statements except as required by law.

Exploration for hydrocarbons is a highly speculative venture necessarily involving substantial risk. Recon’s future success will depend on its ability to develop its current properties and on its ability to discover resources that are capable of commercial production. However, there is no assurance that Recon’s future exploration and development efforts will result in the discovery or development of commercial accumulations of oil and natural gas. In addition, even if hydrocarbons are discovered, the costs of extracting and delivering the hydrocarbons to market and variations in the market price may render uneconomic any discovered deposit. Geological conditions are variable and unpredictable. Even if production is commenced from a well, the quantity of hydrocarbons produced inevitably will decline over time, and production may be adversely affected or may have to be terminated altogether if Recon encounters unforeseen geological conditions. Adverse climatic conditions at such properties may also hinder Recon’s ability to carry on exploration or production activities continuously throughout any given year.

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