Mr. Scot Evans reports
RECONAFRICA RESPONDS TO SHORT SELLER'S BIASED AND FALSE SHORT REPORT
Reconnaissance Energy Africa Ltd. has provided the real facts in response to falsehoods and distortions from a recent short-seller's report.
Short-seller's false claims about Reconnaissance Energy
The short-seller report published on June 24, 2021, which falsely claims that no petroleum exists in the Kavango basin completely ignores prominent geoscientists with decades of international experience, who have all verified that Reconnaissance Energy's data clearly confirm a working petroleum system. The short-seller has no geological expertise itself, has not seen any data whatsoever and its financial bias is clear -- it admits that it has shorted the stock of Reconnaissance Energy.
Reconnaissance Energy's exploration strategy is logical, in line with best industry practices and specifically tailored to the geology of northeastern Namibia and northwestern Botswana
1) Reconnaissance Energy was the first to recognize the deep Kavango basin as a distinct geological feature. Reconnaissance Energy purchased aeromagnetic survey data which the government of Namibia had commissioned and had these data processed by Earthfield Technology, based in Houston, Tex., one of the world's leading specialists in quantitative analysis of magnetic and gravity data. Earthfield's analysis yielded detailed, three-dimensional images of the basement surface of the Kavango basin and further defined it as geophysically separate from the Owambo basin to the west. A new view of the regional geology resulted in the Kavango rift play that Reconnaissance Energy is pursuing.
2) Reconnaissance Energy worked to first establish the existence of a working petroleum system. In basins which have existing wells and production, a logical next step is to acquire seismic data to identify potential reservoirs. However, there are no wells in the Kavango basin; the nearest well is the ST-1 well drilled in the 1960s in the Owambo basin, 375 kilometres (km) west of the company's 6-2 well. Seismic data are useful to define possible reservoirs, but they cannot establish whether hydrocarbons are present or whether there is a working petroleum system comprising source rock, maturation, migration, reservoir rock and cap/seal. In these circumstances, the logical approach is to drill stratigraphic test wells to establish whether oil and gas has been generated in the basin and to understand the sedimentology. Once the presence of a working petroleum system has been proven, seismic can then identify structure and potential reservoirs, leveraging the sedimentology data from the stratigraphic tests. Stratigraphic tests have been used for generations in many locations around the world to do just this.
This logical strategy for initial exploration work in the Kavango basin is provided for in the petroleum agreement governing the Kavango basin blocks and confirmed by Namibia's Ministry of Mines and Energy and Reconnaissance Energy's industry partner, Namcor, the Namibian state oil company.
3) Results from the of initial stratigraphic test wells confirms a working petroleum system. With the approval of the Ministry of Mines and Energy, Reconnaissance Energy and Namcor have recently drilled the 6-2 stratigraphic test well and are currently drilling ahead on the 6-1 stratigraphic test well following a short maintenance break. This second well is anticipated to reach its total planned depth of 3,800 metres (m) (12,500 feet) in the first week of July.
As reported on April 15, 2021, the mud/well sample log, conducted by Horizon Well Logging Inc., of the 6-2 well provides over 200 metres (over 660 feet) of light oil and natural gas indicators/shows over three discrete intervals in a stacked sequence of reservoir and source rock. Extraction of oil from these samples and subsequent fingerprinting for key characteristics of the liquids support an active petroleum system with multiple source intervals.
As reported on June 3 and June 24, 2021, the 6-1 well has so far encountered 343 metres (1,125 feet) of oil and gas indicators/shows, further confirming an active petroleum system in the Kavango basin.
The following statement was provided today by Namcor, Reconnaissance Energy's joint venture partner in the Kavango basin in Namibia:
"Namcor, as a joint venture partner with ReconAfrica in PEL 73, hereby support the ongoing drilling activities which was initially approved through technical advisory meeting between the parties to the petroleum agreement.
"Namcor has confidence in the geological results released by ReconAfrica during the ongoing drilling campaign which has proved the presence of a petroleum system in the Kavango basin.
"We understand the hydrocarbon potential of the Kavango basin, hence our collaboration with ReconAfrica, an international company with the technical and financial capabilities to unlock the discovery of commercially viable hydrocarbon reserves."
Dr. Ansgar Wanke, PhD (geology), former head of geology department, University of Namibia:
"I have been supervising and managing the well site geology of both stratigraphic test wells, namely ST 6-2 and ST 6-1. There, I have been closely working with the mudloggers and observed cuttings and core material, as well as well-site gas readings and liquid hydrocarbon indicators, such as fluorescence cuts. In fact, at both wells I could see and smell petroleum directly. I am thrilled to have witnessed clear indicators of a working petroleum system in the Kavango basin."
Dr. James Granath, PhD (structural geology), a director of Reconnaissance Energy:
"In the Middle East, the immense productivity in Saudi Arabia, Iraq and Iran, especially the Zagros belt, are based on multiple stacked source rocks and various kinds of reservoirs, including carbonates, which are involved in many types of traps. This is not to say that Kavango is the same as the Middle East, but some structures there -- the Zagros in particular -- are similar to what we suspect we have drilled into in the Kavango sedimentary basin. The 6-2 and 6-1 wells are stratigraphic tests, science wells if you like, but the data from the wells, including hydrocarbon, shows have hinted at something very interesting and they emphatically scream the imperative to follow through on a comprehensive exploration program. These wells suggest there is commercial potential in the basin. It took 30 wells in offshore Norway to get to this point, we've been lucky enough to do it in the first two."
4) Reconnaissance Energy and Namcor are now pursuing commercial potential of the Kavango basin. The next logical step in an exploration program is to acquire seismic data to expand the understanding of the Kavango basin and assess its commercial potential. With the approval of the Ministry of Mines and Energy, Reconnaissance Energy and Namcor will conduct an initial 450-kilometre low-impact two-dimensional (2-D) seismic acquisition program in the Kavango basin. Following a formal tender process, Reconnaissance Energy hired Polaris Seismic International, Canada's leading international seismic contractor, for a program costing less than $10,000 (U.S.) per kilometre (km). Subject to permitting, seismic operations are scheduled to commence in mid-July. Part of this program will connect the 6-1 and 6-2 stratigraphic test wells (which are 16 km apart) and, when combined with a vertical seismic profile planned for those wells, will provide a clearer picture of the commercial potential of the central portion of the Kavango basin.
Reconnaissance Energy and its joint venture partner, Namcor, will be seeking ministry approval for the drilling of additional wells in the Namibian portion of the Kavango basin and the acquisition of additional seismic. These joint activities will be undertaken following ministry approval and permitting/licensing, beginning in the second half of 2021. Reconnaissance Energy presently has $63-million in cash reserves, which are available to support its continued exploration work in Namibia and Botswana. The company anticipates this will be sufficient to conduct an initial evaluation of all five subbasins in the Kavango sedimentary basin.
The petroleum agreement
The petroleum agreement for the Namibian portion of the Kavango basin contemplates relinquishment of 75 per cent of the licensed area, but excluded from this relinquishment are any areas which are subject to an application for the declaration of a petroleum field, which comprises the block with a discovery of commercial interest. Reconnaissance Energy and Namcor are currently in the first renewal period of PEL 73 and this period can be extended by application and ministry approval to the end of January, 2023. A second renewal period will follow which adds two additional years for exploration operations and can also be extended by application for another year. Accordingly, it is reasonable to anticipate that, upon application and approval, exploration in the Namibian portion of the Kavango basin can continue until the end of January, 2026. Consequently, Reconnaissance Energy is confident that there is sufficient time to fully evaluate the entire Kavango basin in Namibia and make production licence applications for declaration of any petroleum fields which are established as the program develops.
Reconnaissance Energy's exploration licence for the Botswana portion of the Kavango basin has three years remaining in the current exploration period and renewals can extend the exploration period until 2034. No relinquishment obligation is defined for the Botswana exploration licence.
Petroleum fields discovered in Namibia and Botswana will be entitled to a petroleum production licence for a 25-year term, renewable for up to an additional 10 years in Namibia and 20 years in Botswana.
The facts versus short-seller's distortions
The portion of the short-seller's report that addresses the topics described above is riddled with inaccuracies. It displays an ignorance of the geology of southern Africa in general and Namibia in particular. The results of the 6-2 and 6-1 stratigraphic test wells are misrepresented by the short-seller, suggesting there is no oil, when in fact results from both wells were much more successful than anticipated and firmly prove the presence of a working petroleum system. It overstates seismic acquisition costs by over 500 per cent. It has misrepresented the relinquishment provisions of the petroleum agreement. Incredibly, it suggests that Reconnaissance Energy is nearly bankrupt, when in fact Reconnaissance Energy has over $63-million of cash reserves, access to additional funds through capital markets and joint venture optionality to pursue its operations.
The short-seller either lacks the knowledge and experience to assess these matters or is intentionally distorting the publicly disclosed facts, or both.
Other short-seller fabrications and distortions
The short-seller report is littered with falsehoods on a variety of other topics. For the most part, these are repetitions from earlier publications that Reconnaissance Energy has previously addressed and debunked.
The company re-emphasize what has been stated previously: Reconnaissance Energy directors and officers have consistently been net buyers of Reconnaissance Energy stock. In the past 12 months, according to SEDI, current officers and directors of Reconnaissance Energy have purchased 985,289 shares for a cost of $793,428 and have only sold 112,206 shares for gross proceeds of $744,661, retaining 4,383,289 shares with a current market value of over $48-million. Companies operating any sort of pump-and-dump scheme would surely have sold significantly more shares than the officers and directors of Reconnaissance Energy where the company's stock has risen 1,326 per cent in the past 12 months. Clearly, directors and officers of Reconnaissance Energy are committed to the long-term viability and success of the company.
Despite the actions of short-sellers and their enablers, Reconnaissance Energy and its joint venture partner, Namcor, will proceed with their plans to explore for this potentially major energy source for Namibia and Botswana in the Kavango area, in an environmentally and socially respectful manner and for the benefit of all.
About Reconnaissance Energy Africa Ltd.
Reconnaissance Energy is a Canadian oil and gas company engaged in the opening of the newly discovered deep Kavango sedimentary basin, in the Kalahari Desert of northeastern Namibia and northwestern Botswana, where the company holds petroleum licences comprising approximately 8.5 million contiguous acres. In all aspects of its operations, Reconnaissance Energy is committed to minimal disturbances in line with international best standards and will implement environmental and social best practices in all of its project areas.
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