Reconnaissance Energy Africa Ltd - RECAF stock

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OTC Symbol: RECAF | OTC Tier: OTCQX International | Related ticker symbols: TSXV:RECO

Introduction

Reconnaissance Energy Africa Ltd. (OTC: RECAF, TSXV: RECO) is a Canadian oil exploration company currently conducting exploration activities in the Kavanago basin, which is located in northeastern Namibia and northwestern Botswana. The company controls exploration rights for over 8 million acres in a sedimentary basin that they recently discovered.

Origin Story

In 2013 founder Craig Steinke acquired a source rock study dataset from IHS Market. Mr. Steinke hired four geologists and source rock expert Dan Jarvie to review the data and find potential oil and gas deposits. The data pointed to northeast Namibia. One well had been drilled (ST-1 by Etosha Petroleum) in that part of the country and, while there were not commercial quantities of oil, sourced rock was evident from the well results. Steinke's team believed that the basin could be deeper to the east of that well.

After leasing the land from the Namibia government, it was revealed that an aeromagnetic study of the area had been conducted which had never been interpreted. Mr. Steinke acquired the survey from the government and hired geophysicist Bill Cathey for interpretation. Mr. Cathey's analysis indicated a previously undiscovered sedimentary basin up to 30,000 feet deep. He noted that every basin of similar depth produces commercial hydrocarbons.

By discovering a new basin, Mr. Steinke's company was able to secure the rights to such a large area.

Drilling Equipment and Activities

Drilling Rig

In early 2020 ReconAfrica purchased a drilling rig and began a project to retrofit the rig for use in Namibia. The rig is capable of drilling conventional wells up to 13,000 feet deep. The decision to purchase a rig over hiring another company to manage drilling operations was based on the potential cost savings, as well as the ability to spend more time on each well in order to gather as much data as possible.

Drilling Programs

In January 2021 the company began a three well drilling program with the goal of proving a working petroleum system in this previously unexplored basin. The wells were planned to be 'stratigraphic' which means the intention was not to find commercial quantities of oil, rather, the goal was to learn about the geography and gather information to guide them in developing the basin.

The first well (called the 8-2 well) of a four well drilling program for 2022 was spud on June 25, 2022. This well has a planned depth of 2,800 meters (9,184 ft.) and was expected to take about 60 days to reach this targeted depth. The well was ultimately drilled to a total a depth of 2,056 meters and reached all geological targets. In addition, the company reports that the cost of the well was on budget. The drilling rig is expected to be moved to the next site (which has not been identified yet) by the end of September.

During a talk at the Namibia Mining Expo, Reconnaissance Energy Namibia General Manager Robert Mwanachilenga stated, "We've made discoveries of oil and gas in the Kavango basin. We've got oil which flow there." This statement caused quite a stir on internet forums, although the company has not verified this statement with an official news release.

Recon Africa announced results of the Makandina 8-2 well in November 2022 and, while further confirming the existence of an active petroleum system, the results did not show potential to produce commercial quanities of oil.

Naingopo

The Naingopo well was spud in July, 2024 in northeast Namibia and targets a potential163 million barrels of unrisked prospective oil resources or 843 billion cubic feet of unrisked prospective natural gas resources. This is the first well in the Damara Fold Belt which Netherland, Sewell & Associates Inc. indicated contains potential resources of 3.1 billion barrels of oil or 18 trillion cubic feet of natural gas in a report from March, 2024.

Fracing

Early investor presentations mentioned fracing, although the company has stated in later communications that they have no intention of fracing, they do not have an appropriate drilling rig, and they do not have the required permits. Current investor materials and operations updates clearly state that this is a 'conventional' play, meaning they believe they will be able to extract commercial quantities of oil through traditional oil wells.

Seismic Surveys and EFTG Survey

In early 2022 ReconAfrica completed 450km of 2D seismic acquisition, processing and interpretation. Preliminary results were made public in November 2021 and the company stated, "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". The results also indicated a clear distinction between the Kavango basin and the Owambo basin to the west. Company advisor Dr. Jim Granath stated, "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)".

An additional 761 km 2D seismic acquisition commenced in February 2022 and was completed in June 2022. The company has reported that the data is obtained is of high quality. A third round of seismic is currently being planned for later in 2022.

The first two phases of seismic ultimately covered 497 linear kilometers and 761 linear kilometers, respectively, with numerous additional leads discovered, including some in the Damara Fold Belt. An additional 1,500 kilometers of seismic was approved by the government, and commenced in Q4 2022. This round of seismic was completed in Q2 2023.

Recon Africa contracted with a company to conduct an airborne geophysical survey of 2,200 square kilomters, commonly referred to as EFTG. This type of survey is a cost efficient way of getting a three dimensional sub-surface image that is helpful in identifying potential traps and the best place to drill in those closures. Preliminary results were made public in June, 2023, and according to the company "show a high quality eFTG sub-surface image, with the rift bounding faults and other structural features delineated. In addition, the intra-rift highs and rift floors are well imaged." Along with the news release, a three dimensional image was published showing the detail provide by the survey.

Resource Report

Based on the two wells complete in 2021 as well as a 2D seismic survey later that year, reserves evaluator Netherland, Sewell & Associates was hired to prepare an oil and natural gas resource report. The report is as of December 31, 2021 estimates 5.3 billion barrels of oil in place, and indicates prospective unrisked light and medium crude oil of 999.0 million barrels as well as 1,422.9 billion cubic feet of conventional natural gas. Risked prospective resources are estimated to be 73.5 million barrels of light and medium crude oil, and 32.4 billion cubic feet of conventional natural gas. In regard to the potentially recoverable reserves, the company stated, "A prospective resource is an estimate of what may be recovered if a discovery is made and developed, but not all exploration projects will result in discoveries, and not all discoveries will be developed." It is expected that additional seismic surveys and information from future wells will increase these estimates.

Joint Ventures and Partnerships

ReconAfrica has made it known that ultimately the company will seek a joint venture or farm out arrangement with a large oil company. This has been mentioned in company presentations, although the timeframe has shifted. Most recently, the target date for opening the data room has been Q3, 2022 and it seems like the company is on track to do so with the engagement of the firms Alvarez & Marsal and Hannam & Partners to assist with the joint venture process. Alvarez & Marsal an energy consulting firm expected to manage the data room. Hannam & Partners is an investment bank specializing in energy and natural resources. According to ReconAfrica, "Hannam & Partners will play the leading role in consolidating current interest from potential partners as well as leveraging their international energy relationships to secure additional interest from potential strategic joint venture partners."

BW Energy

Recon Africa signed a joint venture agreement in July, 2024. BW Energy will received a 20% interest in the Nambia lease and participate in two wells as well as a 3D seismic program. BW will also have an option to participate in two wells in the Rift Basin. BW will support the exploration program with an investment of $16 million in shares and warrants of Recon Africa. Additional financial support is based on milestones.

Renaissance Oil Corp.

Reconnaissance Energy Africa has finalized a deal to sell its operations in Mexico to Chame Energy Corporation. Chame Energy Corporation has agreed to acquire all the currently issued and outstanding shares of Renaissance Oil Corp., which is a wholly-owned subsidiary of Reconnaissance Energy Africa. RenCan, along with its subsidiaries, holds all of the company's assets in Mexico. This agreement becomes effective on October 25, 2023, and the agreed-upon purchase price for the transaction is set at US$7,500,000. As part of the agreement, Chame will take on all the debts of RenCan and its subsidiaries, as well as assume responsibility for all current and future liabilities associated with RenCan and its subsidiaries.

The Team

ReconAfrica has assembled a team of highly experienced experts in management, operations and technical knowledge.

Technical Team

Bill Cathey, Geophysicist

• President and Chief Geoscientist of Earthfield Technology
• Over 25 years of potential fields interpretation experience
• Clients include Chevron, ExxonMobil, ConocoPhillips
• Authored or co-authored numerous articles about magnetic and gravity analysis

Dr. James Granath, Geoscience Advisor

• Holds his PhD in Geology from Monash University in Australia, and a BS and MS from of University of Illinois at Champaign‑Urbana
• Highly knowledgeable in African petroleum exploration
• Expert in seismic interpretation and integration with structural analysis, fracture analysis, regional synthesis, and prospect and play evaluation
• Spent 18 years with Conoco Inc. in research, international exploration, and new ventures
• Advised many companies on structural geology and tectonics as applied to exploration problems
• Worked on projects in 40 countries around the world
• Has taught geology at State University of New York in Stony Brook since 1976

Dr. Ansgar Wanke, Geologist

• Over 20 years of experience in various fields including regional mapping, geochemistry, hydro- and engineering geology, sedimentology and seismic stratigraphy
• Joined the University of Namibia geology department in 2008 and headed the department from 2012 to 2015

Directors and Officers

Craig Steinke, Executive Chairman

• Founder of ReconAfrica
• 25 years of experience in identifying, successfully developing and financing oil and natural gas exploration and production projects

Mark Gerlitz, Lead Director

Mark Gerlitz, Lead Director

• Principal of Canadian-based MonteLago Consulting
• 20 years experience advising States, national energy companies and international energy companies
• Expertise includes financing, strategic planning, mergers and acquisitions, joint ventures, partnerships, farm-ins and other business combinations, energy marketing sales, as well as environmental, social and governance matters

Dr. Joseph R. Davis, Director

Dr. Joseph R. Davis, Director

• 40 years of experience as an oil and gas geologist
• Led the technical team in the discovery of the Kavango basin in 2013
• PhD in Geology from the University of Texas

Brian Reinsborough – President and Chief Executive Officer

• 35 years of successful oil and gas exploration and production experience
• Worked for Venari Resources, Mobil Oil, Nexen, Warburg Pincus (Executive-In-Residence)
• Discovered over 2 billion of barrels of oil equivalent over the course of his career
• Raised over $2.0 billion of private equity financing

Nick Steinsberger, SVP, Drilling & Completions

• 32 years in petroleum engineering, drilling and completions, and production
• While with Mitchell Energy, Nick was promoted to Completion Manager for  and was
• Responsible for completing the first 25 horizontal wells ever completed in the Barnett Fields (Texas) in 1995, and based on this success Devon Energy acquired Mitchell Energy for $3.1 billion
• Supervised over 1,500 well programs in North America

Environment, Social & Governance (ESG)

ReconAfrica has developed and follows an approach to ESG that is based on international best practices, and they have dedicated C$10 million to ESG initiatives in Namibia. As part of this program, 22 community water wells have been completed. Goals of the company's program include:

• Regulatory compliance and proactively working with regulatory bodies
• Stakeholder engagement and collaboration
• Protecting the environment and wildlife
• A carbon-neutral program that supports Net Zero goals
• Creating socioeconomic opportunities for the people of Namibia
• Positive environmental, economic and social outcomes

The Environmental Clearance Certificate was extended through August 25, 2025 by the Ministry of Environment, Forestry and Tourism. According to the company, "The ECC authorizes ReconAfrica, to continue drilling stratigraphic test wells, to depths, approved by Ministry of Mines and Energy and NAMCOR as well as completing a sidetrack of the Company’s first well, Kawe 6-2, in the Kavango Basin."

Early Studies and Analysis

Sproule Report

ReconAfrica hired Sproule to prepare an assessment of the best estimate prospective oil and gas resources, which was completed in June 2020. Data was provided to Sproule by ReconAfrica and included conceptual study, interpreted aeromagnetic data, analogous well log, presentations. The unrisked best estimate for Namibia and Botwawana block is 1,256 million barrels of light oil and 54,108 billion cubic feet of gas. Risked best estimate is 110 million barrels of light oil and 4,761 billion cubic feet of gas. Sproule estimated an overall chance of development of 37%.

Haywood

Investment firm Haywood Securities has issued reports and updates beginning in late 2020. Using the Sproule report estimates for light oil, Haywood arrives at an unrisked price (value to ReconAfrica) per barrel of C$6.39 and a risked per share price of C$12.50 (based on 27% chance of commercialization and approximately 182 million shares outstanding).

Environmental Activist Opposition

As is common with oil exploration, opposition from environmentalists has been ongoing since early in the planning and permitting process. One former geologist has been a vocal critic of drilling in the Kavango basin. Matt Totten Jr. (not to be confused with his father, Matt Totten Sr.) has written about and posted videos citing his concerns. Mr. Totten's background shows that he was a geologist, although his experience seems to be limited to a junior position for just a few years. He readily admits to having no specific knowledge of the Kavango basin or the data that ReconAfrica has gathered.

Legal Issues and Stock Manipulation Allegations

Viceroy Research

In multiple so-called 'research reports' issued by short seller Fraser Perring and his firm Viceroy Research, which were published starting in June 2021, many claims were made about ReconAfrica's business practices, ethics, stock promotion and exploration activities. One such claim was that ReconAfrica "has a near-zero chance of finding any asset of value in their exploration site, and an even lower chance to capitalize on any find".

It is worth noting that Fraser Perring's integrity has come into question. On September 8, 2021 the Financial Sector Conduct Authority (FSCA) fined Viceroy Research and its partners, Mr Aiden Lau, Mr Fraser John Perring and Mr Gabriel Bernarde fifty million Rand (approximately $3.5 million) for publishing "false, misleading or deceptive statements, promises or forecasts regarding material facts about Capitec, which they ought reasonably to have known were not true. Further, notwithstanding being made aware that what they had published was false, they failed to publish full and frank corrections". The FSCA also states that Viceroy had a profit sharing agreement with client with a short position. While this action was not related to ReconAfrica, it may provide some insight into the business practices of Viceroy Research and the overall validity of their reports. One report on Fraser Perring's business practices and reputation states, "as revealed by a seven-month investigation by the Southern Investigative Reporting Foundation, Perring is a charlatan of the first order, with a brazen multiyear record of personal and professional deceit".

Lawsuits

In a press release dated February 4, 2022 it was announced that the company "and certain of its current and former officers, directors and third-party contractors have been named as defendants in two almost identical purported class action lawsuits filed by Company shareholders in the United States District Court in Brooklyn, New York. The lawsuits were filed in the wake of a third, almost identical lawsuit identified by the Company in an October 28, 2021, press release and subsequently voluntarily dismissed by that plaintiff on November 9, 2021. The pending lawsuits have been consolidated by the court, which appointed a lead plaintiff and lead counsel to represent the purported class members." The company stated in a press release, "ReconAfrica will undertake vigorous action to defend itself against any such claims." There are rumors that Anson Funds (see Stock Manipulation Allegations) coordinated with one or more law firms to initiate potential class action lawsuits as part of a 'short and distort' campaign.

A complaint filed with the High Court of Namibia in July 2022 sought to force the suspension of drilling activities based on challenges to the company's Environmental Compliance Certificate. The complaint was swiftly dismissed by the court and the complainants were ordered to pay ReconAfrica's legal fees.

Settlement

A settlement was agreed to in 2024 for both the U.S. and Canadian class acrion lawsuits.

Stock Manipulation Allegations

Rumors of massive short selling have abounded, although, as with most OTC traded stocks, it is difficult to ascertain how true these rumors are. One website claims to have evidence of a coordinated short attack lead by the asset management firm Anson Funds and its Chief Investment Officer Moez Kassam. Further, it is claimed that the lawsuits, Viceroy Research reports, and articles in the Globe and Mail are all part of Kassam's campaign. There is no indication of who runs the website and what their interest in, or connection to, Recon Africa is. Lending credence to the accusations against Anson Funds is the fact that the firm has been subpoenaed in a U.S. Justice Department inquiry into short sellers tactics.