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ReconAfrica will need to raise up to C$20m for Namibian drilling

By David Whitehouse
Posted on Friday, 24 January 2020 11:29, updated on Tuesday, 28 January 2020 05:34

A major oil find would help Namibia's President Hage Geingob arrest economic slowdown. Reuters/Siphiwe Sibeko

Changes to the auditors and chief financial officer, oil exploration in a country which has no proven reserves, no operating revenue and a share price that has surged 68% in the last month. What’s not to like about Reconnaissance Energy Africa?

The company, which trades on the Toronto Venture Exchange, plans onshore exploration in the Kavango sedimentary basin in north-eastern Namibia, in which it holds a 90% stake. There has never been a commercially viable oil find in the country, nor anything to suggest that production is about to start soon, CEO Jay Park told The Africa Report.

Former auditors Davidson & Company handed over to Deloitte in December, and Carlos Escribano took over as CFO on January 15. Escribano is more expert in oil and gas than his predecessor, Park said. Davidson is a “small, Vancouver-based” auditor while “we are now an international company”.

Park attributed the rise in the share price to the company’s media communications campaign this month. “The word is getting out.” ReconAfrica is investigating the possibility of seeking a listing on London’s Alternative Investment Market (AIM), or in Oslo, Park said.

The company changed its name from Lund Enterprises in August following a reverse takeover. It will drill its first well in Kavango in the summer and plans three wells this year, Park said.

  • The drilling will require the company to raise between C$10m ($7.6m) and C$20m from investors, he said.
  • That compares with the company’s current market value of C$49m.
  • The future fundraising is also on top of the C$2m which the company on 22 January said it will seek to raise by private placement to purchase the drilling rig.
  • Subscribers will pay (C$0.68) for a share in the company plus the right to buy a further share at C$1 at any time over the next five years.

The shares currently trade at C$0.76.  The terms of the current placement are structured to encourage investors to buy the stock in the hope that other investors will come in and push the price higher.

If that sounds familiar, it probably is.

Struggling economy

An oil find would boost Namibia’s faltering economy. According to a note from RMB Global Markets Research on 22 January, the country’s agricultural sector will need time to recover from drought. RMB expects the country’s economy to contract by 0.5% this year.

Major oil companies currently drilling offshore Namibia include Shell, Chevron, and Exxon Mobil. Geologists have argued that analysis of oil and condensates proves that the Orange Basin off Namibia has similar source rocks to its northern neighbours, as well as Brazil, making the prospect of Namibian oil production a realistic one.

ReconAfrica prefers to concentrate its efforts onshore as offshore favours the bigger players, Park said. He argues that the risks may be worth it.

  • Park says the current market valuation of his company’s exploration rights in Namibia is C$5 per acre, while a fair valuation based on reported transactions for comparable assets would be C$40.
  • A successful oil find, he says, would imply a valuation of about C$480 per acre.

The bottom line: An established oil major would be a safer play on Namibia’s hydrocarbon potential.

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