Speaking to Oilprice.com, Jay Park, CEO of Recon, said he and his team immediately recognized the vast potential of the basin and obtained licenses from the Namibian government.
The company now holds the entire Kavango Basin in Namibia under Petroleum Exploration License 73. ReconAfrica owns 90% interest in Petroleum Exploration License 73, while Namibia's state-owned oil company, National Petroleum Corporation of Namibia holds the remaining 10%.
Drilling to Start in June
Earlier this month, Recon Africa entered into a binding Asset Purchase Agreement with Houston-based Henderson for the acquisition of a Crown 750 drilling rig for $1.8 million, and the Kavango Basin will have its first drill bit hit the ground in June this year.
Recon has a 4-year exploration license leading to a 25-year production license starting when it has made a commercial discovery.
Sproule - a tier 1 resource assessment company - estimated that Kavango has a potential 12 billion barrels of oil or 119 trillion cubic feet of natural gas. That’s for the shale and doesn’t count any conventional potential.
Why Namibia?
There are several very important reasons why ReconAfrica has zoomed in on Namibia.
Many otherwise high-potential states in Africa have struggled with their petroleum regimes. These countries tend to create regimes that are too complex and heavily taxed. They also fail to give investors the assurances they need.
“Investors want to be confident that when they make a discovery, it will turn into money,” says Park. “While Africa is the place to go for resources, many of its regimes don’t meet the desired investment objectives, for example through inadequate environmental policies.”
ReconAfrica filtered through various countries and Namibia came out very high for all of these targets--a balance of great resource potential, investor-friendly fiscal terms and a good, stable and legal regime.
“A geologist might point out that Saudi Arabia has the best rock formations on earth, but you can’t get a license grant from the state there. Libya is likely to have a great shale resource, but taxation experts would point out that the state taxes oil and gas at over 90%, so shale would become an impossible proposition,” Park notes.
The Kavango Basin has similar geology, and it’s also been shown to have the same depositional environment as Shell’s Whitehill Permian shale play, part of the Karoo Supergroup in South Africa.
If the giant Karoo Basin in South Africa is a shale windfall, the Kavango Basin in Namibia is its likely extension, according to geologists.
And while it’s pretty unheard of for a company this small to have a basin this big, Bill Cathey, go-to geophysicist for the supermajors, has weighed in as well.
When Recon brought the magnetic survey data from Namibia’s Kavango Basin to Cathey, Cathey said the data showed a 30,000-foot sedimentary basin. He also said that a basin this deep, everywhere else in the world, produces commercial hydrocarbons. That’s when Recon’s senior management dropped everything to scoop up the basin, says Park.
But Recon Africa isn’t the only party interested in Africa’s potential as a new frontier.
Exxon (NYSE:XOM) recently acquired additional 7 million net acres from the Namibian government for a block extending from the shoreline to about 135 miles offshore in water depths up to 13,000 feet, with exploration activities to begin by the end of this year.
What Exxon’s banking on is that Namibia, which once fit together with Brazil, shares the same geology as Brazil’s pre-salt bonanza basins, Santos and Campos, which have already proved enormously resource-rich, according to Deloitte.
Likewise, French oil giant Total SA (NYSE:TOT) is ready to launch a three-well drilling campaign that includes one of the deepest wells ever drilled in Africa--two wells in Angola and one in Namibia. Even Qatar Petroleum is farming into Total’s Namibia blocks, while Shell (NYSE:RDS.S) is delineating a deep-water wildcat prospect offshore Namibia that it will spud this year. Shell is a veteran in the African oil and gas game. The company began drilling in the region in the 1950s, and now has assets in over 20 countries across the continent. Though it has sold off a number of assets in the region in recent years due to unfavorable regimes, it continues to maintain a strong presence in South Africa and Namibia.
Though there are a number of exciting hotspots popping up across Africa, it’s also important to pay attention to oil companies taking big risks on little-known exploratory projects.
Take Total, for example. It recently announced a major oil discovery offshore Suriname with its partner, Apache (NYSE:APA). Apache’s agreement with Total included $100 million upfront payment and expenses incurred in exploration. The find was a major boon for both Total and Apache, especially considering there had not previously made any commercially viable oil discoveries. The find is doubly beneficial for Suriname, which could be a significant turning point for the small country’s economy.
Though it’s not entirely off the beaten path, Egypt has also captured the attention of Big Oil in recent years. Just last month, in fact, the country awarded Chevron (NYSE:CVX) and Shell key exploration blocks in the red-hot Red Sea. The blocks cover a total area of around 10,000 sq km and carry combined minimum investment of $326 million, Egypt’s petroleum ministry said, adding that potential investment would rise to "several billion dollars" if discoveries were made.
Other companies to watch as the exploration and production industry ramps up:
Husky Energy Inc (TSX:HSE): This integrated oil and gas company out of Western Canada lives up to its name, fierce and driven for success. It’s already got a presence in some of the most well-known oil regions on the planet, but it hasn’t stopped there. It’s even positioned itself in Europe, Africa and as remote as the South China Sea.
Suncor Energy (TSX:SU): As one of the biggest names in energy, Suncor has adopted a number of high tech solutions for finding, pumping, storing, and delivering its resources.
While its primarily based out of North America, its assets in Africa and the Middle East should not be ignored. Though the oil downturn has weighed on the company’s share price this year, many analysts are pointing to a turnaround, from which Suncor is likely to benefit.
Tourmaline Oil Corp (TSX:TOU) is another Canadian resource producer focusing on exploration, production, development and acquisition within Western Canadian Sedimentary Basin. The company is in possession of an extensive undeveloped land position with long-term growth opportunities and a large multi-year drilling inventory.
Tourmaline’s strong leadership make the company a promising pick for investors looking to take advantage of the tremendous Canadian oil opportunities which are due for a strong rebound as oil prices inch higher.
Imperial Oil (TSX:IMO) still has some of the lowest cost producing oil sands in Canada and that is going to pay off as oil prices continue to rise and new tech breakthroughs bring breakeven prices even lower.
The management is well known for being conservative, but that certainly shouldn’t put investors off in a time when recovery is the buzzword of the day and consistency is sure to be rewarded.
Gibson Energy (TSX:GEI): has a long history in Canada’s oil and gas game. Established in 1953, Gibson knows the industry inside and out. The company has a diverse portfolio which includes transportation, storage, processing, marketing and distribution of oil, condensates, oilfield waste, refined products and natural gas.
With Gibson’s huge array of assets and its multi-platform sales strategies, investors look to Gibson with confidence.
By. Charles Kennedy
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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, 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, 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 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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