Reconnaissance Energy: 8-2 Well Disappointing; Growth Catalysts Ahead (RECAF)


On November 9th, Reconnaissance Energy Africa (OTCQX:RECAF) (TSXV:RECO:CA) – the oil and gas company that is exploring for hydrocarbons in Northeast Namibia and Northwest Botswana – filed a material change report where it announced the long-awaited results of the 8-2 exploration well. The results were not comforting, and the stock plunged by 46% in a single day. In this article, I will provide an overview of the well result and I will provide my investment advice on the stock.

If you have never heard of Reconnaissance Energy Africa (also known as ReconAfrica) before, you can have a look at my first article on the company where I provided a deep description of the company’s operations.

Stock performance

Looking at the stock price chart of the last year of trading, one can immediately notice that ReconAfrica is a stock characterized by strong volatility since the stock price movements are mostly motivated by expectations of exploration wells results and forecasts of hydrocarbon discovery.

ReconAfrica is currently trading at $1.55/share, equivalent to a market cap of $311M. The stock is down 71% year-to-date and 68% year-on-year. The 52-week maximum is $5.97/share, recorded on January 12th, 2022, while the 52-week minimum is $1.41/share and was recorded on November 9th after ReconAfrica announced the results of the 8-2 well.

Data by YCharts

8-2 well results

The 8-2 well, also known as Makandina, was spud towards the end of June 2022 and reached the total depth on August 15th, but the press release with results was published only some days ago, on November 9th. The fact that the company took more than usual to announce results could have already been interpreted as a sign of suboptimal results. The well confirmed the presence of a petroleum system and encountered intervals with gas and (methane) gas liquids (ethane, propane and butane). The well might be considered a success from a geological point of view, however, economic accumulations of oil and gas were not found.

There were high expectations around the 8-2 well but the announced results were obviously disappointing, and the stock plunged by 46% in the hours after the press release only to re-gain 19% the following day. My personal view is that the market overreacted: it is worth reminding that Makandina was only the 3rd well drilled by ReconAfrica in a huge basin with several other targets already identified. In addition, the well was able to generate further helpful geological information that is now being analyzed

Catalyst Ahead

Despite the negative 8-2 well results, ReconAfrica is already moving ahead with other drilling targets and additional activities. In the next months, there will be many catalysts to monitor that could drive the stock price:

  • 5-1 well: ReconAfrica has already started preparations for drilling the 5-1 well with spudding expected for mid-December 2022. However, the fact that the company is still building the access road and the drilling pad makes me think that there could potentially be some delays. The purpose of the 5-1 well is to penetrate an extended Karoo stratigraphy with source rock, trapping intervals and a reservoir.
  • seismic: during 2021 and the first half of 2022, ReconAfrica carried out two seismic acquisition programs that covered 497 and 761 linear kilometers respectively. These data are all in the phase of being analyzed with the integrated interpretation that is being finalized: the two seismic campaigns were helpful for identifying additional leads and drilling targets thus expanding the company portfolio. Moreover, ReconAfrica obtained all the authorizations for acquiring an additional 1500 km of 2D seismic data: this program is expected to begin in November and continue until H1-2023.
  • JV partners: in September 2022, ReconAfrica hired Alvarez & Marsal and Hannam & Partners to start the process of seeking one or more partners willing to create a JV with ReconAfrica with the purpose to accelerate exploration activities. The VDR was opened in Q3-2022 and results of the process are expected for the first half of 2023.

Environmental issues

In my previous article about ReconAfrica, I mentioned my concerns about environmental activist protests that could slow down ReconAfrica’s operations. Despite the Namibian Government seems to be supporting ReconAfrica with the High Court of Namibia that, in August 2022, dismissed some charges against the company, the local population does not give up. During the COP27, ReconAfrica was at the center of some discussion with a former Anglican Bishop of Namibia that spoke with BBC calling ReconAfrica’s project a sin. Moreover, a Botswana activist from the River San people, a local tribe that lives close to the Okavango River, explained that the local population does not want the project to happen. Despite the Namibia and Botswana government seems not to care about all these statements, I believe that the “activism” risk cannot be completely overlooked.


Overall, despite the disappointing 8-2 well results, I believe that the market overreacted, and the current stock price reduction can represent a good entry point for investors. ReconAfrica is not a stock that can provide high returns in a short period, rather it requires patience and a long-term investment approach since exploration activities in such a huge area require time. In the next months, there could be many events that could drive the price up including the 5-1 well result, the seismic interpretation report and potential partners that could join forces with ReconAfrica.

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