Bertrand Godfroid/iStock via Getty Images

Bertrand Godfroid/iStock via Getty Images

Less than a week ago, Reconnaissance Energy Africa (OTCQX:RECAF) - also known as ReconAfrica - released its Q1-2022 financial results. In this article, I will analyze the key events that characterized the company in the last three months, and I will provide a review of the earnings report.

For those of you who are not familiar with ReconAfrica, you can have a look at my previous article where I provided an overview of the company and its exploration activities.

The stock is currently trading at $4.00/share, equivalent to a market cap of about $0.8bn, and it is down 17% year-to-date and down 40% year-on-year. The 52-week maximum is $10.97/share (June 23rd, 2021) while the 52-week minimum is $3.66/share, reached on November 1st, 2021.

In 2021, ReconAfrica carried out a first drilling campaign on the Kavango Basin (6-2 and 6-1 wells) and completed the first phase of the 2D seismic data collection which resulted in approximately 500km of 2D information. Between Q4-2021 and Q1-2022 all the information was analyzed and allowed ReconAfrica to establish three different groups of hydrocarbon plays:

In addition, ReconAfrica has identified four drilling prospects that will be the target of the next drilling campaign (the prospect locations can be seen in the below image highlighted with a black dot).

Site 33, in the Kavango East area, will be the first well to be drilled and the infrastructure is currently being put in place with the spud date expected to be in late June 2022. After Site 33, ReconAfrica should continue the drilling activity with Site 23, in the Kavango West region.

This announcement is of extreme importance because it means that the company's investments and efforts are going in the right direction with tangible and actionable results being obtained.

In addition to working on the drilling campaign, in the last couple of months, ReconAfrica has been carrying out the second phase of the 2D seismic targeting almost 800km of additional data. The collection process should be completed before the end of June with the following months used for data analysis.

In May 2022, ReconAfrica released the first independent prospective resource report for some leads in the Kavango Basin. In particular, the third-party evaluation has been carried out by Netherland, Sewell & Associates and it has a perimeter of 35 leads in northeast Namibia (exploration license number 73) that have been analyzed based on data collected with the 2D seismic and the 6-2 / 6-1 wells.

As of year-end 2021, the best net non-risked estimate is 854 Mboe of light/medium oil and 1.3 trillion cubic feet of conventional natural gas. Looking at the risked figures, prospective volumes are 59.7 Mboe (7% of unrisked volumes) of oil and 26.3 Bcf of gas (2% of unrisked volumes).

This report is quite useful since it provides an external confirmation of the already-forecasted Kavango Basin potential.

Looking at the financial results, in Q1-2022, ReconAfrica reported $6.4M in revenues that, after considering royalties of $5.4M, amounted to $1.2M. It might be worth remembering that, in addition to the African assets, ReconAfrica also owns some minor stakes in the Chiapas Blocks and in the Amatitlan oil field in Mexico: indeed, the Q1-2022 revenues were generated by production from the Mexican Mundo Nuevo and Malva blocks.

Expenses for the quarter were $8.3M with G&A and share-based payments being the largest items (about $3.6M each). Overall, the company reported a net loss of $10.6M.

Investments in exploration activities were $3.4M, about half of the CapEx of the same quarter of the previous year. From the cash flow statement, one can also notice the presence of proceeds from the issuance of shares for a total of $48.7M: indeed, on March 1st,2022, ReconAfrica completed a deal financing of 7.4M shares.

The recent events have shown that ReconAfrica is moving in the right direction with a properly defined strategy and a good execution capability. In my opinion, this is a very important fact that justifies investing in ReconAfrica despite the stock having some strong fluctuations. In addition, the third-party report confirms all the potential of the 35 leads in the Kavango Basin.

However, there is also a potential obstacle that should not be overlooked when talking about ReconAfrica. I am referring to some environmental movements that could have an impact on the drilling schedule and on future developments. I already mentioned this aspect in my previous article when I highlighted that the local population had already started some protests against drilling in the area but now, it seems that even larger pro-environment organizations have raised questions on ReconAfrica activities. Less than a week ago, Greenpeace published a blog post in which it explains why the Okavango Delta should be saved from oil colonialism. For the time being, we can only wait and see how things will play out and hope that ReconAfrica's activities can be performed smoothly and, of course, in the most sustainable way possible.

In the next months, the results of the 2D seismic and of the Site 33 well will act as catalysts driving the stock price.

This article was written by

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.