ReconAfrica’s first test well drill site, in northeast Namibia
The B.C.-based energy junior has come from nowhere to a billion-dollar valuation
The stock: Myth: there are no explorers and producers of oil and gas based in B.C. Also a myth: nobody’s made any money in the sector since oil prices tanked in 2014. Take Vancouver-based Reconnaissance Energy Africa (TSXV:RECO), which came from penny-stock oblivion six months ago to a share price pushing $8 and a billion-dollar-plus market cap. Most of that excitement has come in the past month.
The drivers: ReconAfrica, which has no revenue to date, has been exploring for oil in the Kavango Sedimentary Basin of northeast Namibia and western Botswana. Though both relatively stable countries, they’ve been under the radar of Big Oil until recently.
Geological work so far hints at a very large and accessible resource beneath the company’s Namibian licences, but investors await proof from three wells being drilled this year. The first provided “clear evidence of a working conventional petroleum system,” ReconAfrica said in a release on April 15. A few days later, it announced an all-share takeover of Renaissance Oil Corp. (TSXV:ROE), another Vancouver junior oil and gas outfit (that makes two!) with exploration leases in the Kavango.
Environmentalists are concerned about energy extraction so close to the Okavango Delta, a uniquely abundant wildlife oasis in the middle of a the Kalahari Desert, but ReconAfrica has tried to reassure them, promising a small operational footprint, use of water-based drilling fluids and no fracking.
Now you may believe that the age of fossil fuels is coming to an end, and you may well be right. But RECO is not a buy-and-hold stock for the long haul— it’s more of a retro thrill ride for those disappointed by bitcoin’s recent pullback. The next few months will likely make or break the venture.
Map of ReconAfrica’s licences in the Kavango Basin
Word on the street: Following the initial drill results, “ReconAfrica has, in our view, significantly enhanced the risk/reward profile, even after the rally in the share price,” according to analysts Christopher Jones and Cameron Price of Haywood Securities. “The investment proposition remains, as we see it, one of the most interesting and compelling opportunities in the energy sector.”
Coming and going: Fortuna Silver Mines (TSX:FVI) announced a consensual takeover of Toronto-based Roxgold (TSX:ROXG) on April 26, marking the Vancouver company’s entry into both gold production and some high-risk but low-cost locations in Africa. At the closing of the cash-and-shares transaction, expected in late June or early July, Roxgold shareholders will own 35.7 percent of the combined business.