It’s always rewarding when an educated, well-researched prediction becomes a reality. Just this past week, this came to fruition regarding our research on Reconnaissance Energy Africa Ltd. (CANADA: RECO) (U.S.: RECAF) (EUROPE: 0XD).
Back in January, we touched upon the oil industry. Talking about a new oil play in 2021 (while we are in the midst of an EV boom) may seem out of place so please, allow us to refresh you on what we found.
This company has prime access (to the tune of 90%) to the geographical region of Namibia, a previously unexplored, resource-rich area of Africa. This region contains one of the few conventional oil supplies left in the world.
Conventional oil, you say?
That means oil that is drilled using a traditional oil well. An easy, cost-efficient method of extraction which has become nearly impossible unless you’re in the middle east. Methods outside of this are what make up the “unconventional oil” industry. That industry isn’t doing too well, since unconventional is often frowned upon due to fracking, and other disruptive processes. Not to mention it’s priced anywhere from 2-6x higher than standard conventional oil products.
So, what happens when you come across conventional oil, a commodity that has for the most part been dried up?
A whole lot of interest, and demand.
Let’s not forget, electric vehicles are made up of around 50% plastic, and what’s one of the main ingredients in plastic?
You guessed it. Oil.
Now that you’re refreshed on details, you may be wondering what happened with Reconnaissance Energy Africa since we started looking at them.
Please, allow us.
Are You Ready?
RECO was sitting at about a C$400 million market cap when we first took a dive into the company. Just a month prior it was around half of that value, already showing promising growth but making us wary of an inflated valuation.
Due to strong fundamentals and good forward-looking potential, the company and its share price comfortably settled as Q1 rolled by.
Just at the end of last week, we saw RECO explode, bursting through the 10-figure mark as it became a billion–dollar company. Even after a perfectly reasonable pullback from its astronomical $10.40/share high, the stock settled at $8.12/share at market close April 20th, 2021, with a market cap of ~C$1,200,000,000.
Was this due to people gradually getting ahold of our January 16th coverage of RECO?
We wish.
Here is what really happened:
Drills Gone Well
We‘ll spare you much of the jargon used to describe the technical aspects of an oil drill. Simply, put, the oil company drilled for evidence of oil, and they found it. A lot of it.
It’s called the 6-2 well. Taking place within the Kavango Basin, (a basin is an enclosed water area, where there’s potential to find fossil fuels) the first of a three-well drilling program has very much delivered. What was once previously untouched ground is now showing clear signs that a working conventional petroleum system is evident.
Over 660 feet into the earth, there were natural oil and gas indicators, over 3 layered intervals. Oil reservoirs stacked atop source rocks, stacked atop oil reservoirs, stacked atop source rocks… you get the point. This is music to any oil company’s ears.
–What is a source rock? A necessary element of a working petroleum system, a source rock is a type of rock that either generates, or has the potential to generate, hydrocarbons.
–What is a hydrocarbon? A hydrocarbon is an organic chemical compound that form the basis of crude oil, natural gas, and other important energy sources.
Not only is this good news to shareholders, but to the locals of Namibia as well.
Hon. Thomas Alweendo, Namibian Minister of Mines and Energy stated, “This is a great period 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.”
Disclaimer: We own shares of Reconnaissance Africa Ltd.