Is Namibia Emerging As The Most Exciting Oil Story Of The Year
FN Media Group Presents Oilprice.com Market Commentary
Jul 09, 2021, 08:00 ET
LONDON, July 9, 2021 /PRNewswire/ -- A small Canadian oil explorer may have shocked the industry this year when it published initial results that pointed to the potential of a giant oil discovery in Namibia's Kavango Basin. Now, as our anticipation builds over the next drill results, this small Canadian driller looks to be attracting attention from around the globe. Mentioned in today's commentary includes: Exxon (NYSE:XOM), Eni (NYSE:E), Halliburton (NYSE:HAL), Pioneer Natural Resources (NYSE:PXD), Enterprise Products Partners (NYSE:EPD).
In April, Reconnaissance Energy Africa (RECO.V) (RECAF) announced early findings from the first of their initial 3-well drill program in Namibia's 6.3-million-acre Kavango Basin. It came as a surprise to many of us: Results indicated signs of a working petroleum system after only the first test drill.
On June 3rd, investors got another surprise when RECO announced further indication of a working petroleum system in the shallow section of its second well. Now, we're waiting for an announcement about the completion of the second drill to 12,500 feet, which we think should be any day now.
Previous projections have compared the possible numbers with some of the largest oil discoveries in the world in recent years, like the Midland Basin in West Texas. And Daniel Jarvie, an industry recognized geochemist and source rock expert, thinks that the play is "pretty much a no-brainer. It will be productive and I'm expecting high-quality oil."
He's estimated the basin generated a potential billions of barrels of oil—conservatively. And he's not the only industry known scientist involved in this play.
Recognized geologist Bill Cathey was another early bird.
Cathey—whose clients have included supermajors such as ExxonMobil, ConocoPhillips, and Chevron—performed the entire magnetic survey interpretation of the Kavango Basin for ReconAfrica and was very clear in saying: "Nowhere in the world is there a sedimentary basin this deep that does not produce commercial hydrocarbons."
How Big Could This Potentially Be?
With the drilling of their first test well in an initial 3-well program, ReconAfrica has had to rely primarily on some encouraging survey data to guide them in their exploration work . The results so far, however, are reported to have well exceeded their expectations. In samples from the first well, ReconAfrica encountered clear evidence that ReconAfrica is sitting on a working petroleum system in the Kavango Basin.
Sample log results from the first (6-2) stratigraphic test well (6-2) provided over 200 meters of light oil and natural gas indicators over three discrete intervals in a stacked sequence of reservoir and source rock. Oil was then extracted from these samples and the results supported an active petroleum system with multiple source intervals.
The second stratigraphic test well (6-1) has so far encountered 343 meters of oil and gas indicators just at the shallow level, further confirming an active petroleum system in Kavango. The well is now set to reach its full depth (12,500 feet) in the first part of this month, following a short break for maintenance, which has now been concluded, with drilling having resumed last week.
"These wells suggest there is commercial potential in the basin," Recon Africa director Dr. James Granath, PhD Structural Geology, said in a recent statement. "It took 30 wells in offshore Norway to get to this point, we've been lucky enough to do it in the first two."
Is This Namibia's Time to Shine?
Namibia's never produced a barrel of oil in its history, so ReconAfrica's (RECO.V) (RECAF) work here could put it on the global oil map for the first time, and in a very big way.
One of ReconAfrica's first moves as it began trying to prove up Kavango's commercial potential was to drill water wells for the people of Kavango, and that's only one part of its reported $10-million ESG commitment to the country and the region, $1 million of which has gone to Namibia's COVID-19 vaccine program.
The company says the aim of this play isn't unconventional, either, so the environmental impact questions are far less pressing. ReconAfrica has stated that it does not have any fracking permits and hasn't applied for any, putting that brief controversy to rest.
For Namibia, especially in an era with a strong focus on ESG, and with many eyes trained on efforts to avoid any more "resource curse" scenarios, there may be a lot at stake, and the local and national governments look to be fully on board.
"We are pleased with ReconAfrica's approach to working closely and in constant consultation with our office, the traditional leadership, local authority, and the community. This is only the beginning stages and we have already started to experience the positive economic and social impact of the project in our regions." Kavango East Governor, Bonifasius Wakudumo said.
What Happens Next?
Next, we anticipate lots of potentially exciting news for this small explorer sitting on what could be a supermajor-size exploration play at the final frontier of onshore oil that includes not only the 6.3 million acres of Namibia's portion of the Kavango basin but also 2.2 million acres in Botswana.
In a matter of days, we expect to hear the results of the completed second drill to 12,500 feet. And now, 2D seismic is reported to be kicking off, with approval just granted by the Government of Namibia. That will help ReconAfrica determine where to drill to commercialize this basin in the next campaign.
By the end of July, the company reports they plan to have started the seismic acquisition program, which they expect will help them target the most promising areas to drill for their next round.
If those results are positive and the project progresses, ReconAfrica (RECO.V) (RECAF) has a right to a 25-year production sharing contract, and they may seek to enter into potential JV negotiations, and that's what we think could send this exploration play over the edge.
Other companies looking to capitalize on rising oil prices:
Exxon (NYSE:XOM) is a large multinational corporation headquartered in Irving, Texas. Exxon Corporation engages in the exploration and production of crude oil and natural gas around the world. With its headquarters being located in Dallas, Texas and with operations all over the globe, Exxon has been able to create an empire that has lasted for over 100 years.
While Exxon is one of the world's top oil producers, it isn't ignoring the reality of the market. It has made major moves in its commitment to reduce its emissions. It claims to have about one-fifth of the world's total carbon capture capacity. The company captures about 7 million tons per year of carbon.
Eni (NYSE:E) 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.
The oil major described 2020 as a "year of war", regarding the energy crisis experienced in the face of COVID-1. But it may be too soon to see the issues faced last year as a thing of the past. Eni is committing to lower the price of oil at which the company breaks even going into 2021, as a means of tackling the uncertainty of the oil economy in the coming months. Francesco Gattei, CFO at Eni\, stated that "Volatility is growing every year.", highlighting the need to be prepared for the energy demand of the future. In fact, Eni has now set out a plan to lower its greenhouse gas emissions by 80% by 2050, leveraging natural gas as a major tool in its arsenal.
Halliburton (NYSE:HAL) is one of the largest oilfield services companies in the world. The company has secured its place as a giant in the oil and gas industry. But it didn't happen overnight. The oilfield services sector is highly competitive and ripe with innovation. In order to stay ahead, companies must be on the absolute cutting edge of technology. And that's exactly what Halliburton has done. And recently, Halliburton increased the heat for its competition. Partnering with Microsoft, Halliburton has become one of the most exciting "tech" plays in the industry.
This partnership is significant. Microsoft, a leader in the tech world, is looking to bring machine learning, augmented reality, and the Industrial Internet of Things to the oil and gas industry, and Halliburton is welcoming the new take on the resource realm with open arms.
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. As a leader in the Permian, Pioneer is also making major waves in its commitment to cut back flaring in the region. In fact, Pioneer consistently flares a smaller percentage of its production than the basin average. The average flaring rate for oil producers in the Permian is 3.7%, according to GaffneyCline, yet Pioneer's average is just 0.8%.
Despite its commitment to the Permian, however, CEO Scott Sheffield isn't particularly bullish on the region in the short term. "I never anticipate growing above 5% under any conditions," Sheffield also 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.
Enterprise Products Partners (NYSE:EPD) is a leading provider of innovative solutions for the global energy industry. We partner with some of the world's most renowned companies and provide them with integrity, expertise, and innovation in all aspects of their business including: exploration, production, refining, transmission & distribution. Enterprise has been around since 1928 when it first started as an oil pipeline company in Tulsa Oklahoma.
Enterprise is the top transporter of natural gas liquids (NGLs) and also owns the most NGL fractionation capacity in the United States, as well as dock space for exports. Enterprise Products is the largest midstream MLP in the country. Enterprise has clearly read the signs of the times and has begun to work with partners to scale back its project backlog. In the past, EP was able to weather the normal industry headwinds thanks to robust cash coverage and manageable leverage. Unfortunately, Covid-19 has been anything but your average downturn, and EP has been forced to seriously cut back on Capex.
By. Jason Cantle
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