What has for three months now been touted as an oil boom in the Okavango Delta has been revealed to be little more than a stockmarket scam, targeting mostly Canadian investors.
The company at the centre of it all is ReconAfrica – or RECO, a junior oil and gas explorer that was founded in 2015 and reverse-listed onto the Toronto Stock Exchange in early 2019. RECO is engaged in oil and gas exploration in northern Namibia but so far, has fallen short of any meaningful commercial discovery. Late last year, the company hijacked a whole news cycle when it announced that it had discovered huge sums of oil in an environmentally sensitive part of both Botswana and Namibia. In the Botswana parliament, there was at least one taker, Okavango MP Kenny Kapinga, who said that the discovery would be good for the long-suffering people of the Okavango. Indeed, while the Okavango Delta is home to the most scenic flora and fauna and hosts half of Hollywood, the money from all that beauty ends up overseas.
The story of another source of income in the Delta is beginning to unravel in quite dramatic ways. On delving deeper, an investigation by the National Geographic, The Globe and Mail, and The Namibian, discovered that RECO has actually not done any of the work it claimed to have done.
RECO itself commissioned an external reserves auditor, Sproule, to prepare a prospective resources report on license areas in Namibia and Botswana. Sproule points out that there is no real data supporting the existence of huge sums of oil: “It is a purely conceptual model based on potential analogues in other countries, or even other continents.” Sproule’s assignation of commercial success to RECO’s operations is just 3.3 percent and is merely inflated by their assumption of unconventional exploration. Penny stock junior explorers in Canada report 30 percent chances of commercial success and contingent resources.
RECO actually has no plans to carry out its so-called “exploration” of the Kavango Basin. The investigative team believes that two wells that it has drilled so far have been unsuccessful because they were drilled “solely to fulfil lease requirements.” Besides, the data the company currently is at an extremely early stage of basin evaluation and not sufficient for drilling exploratory wells.
“Effectively, RECO has integrated surface geology analysis, geochemical sniffing, and aeromagnetic data to indicate the possibilityof a basin that might justifyreal oil and gas exploration. The company has presented no information that could be used for well-based oil and gas exploration. Effectively RECO has integrated surface geology analysis, geochemical sniffing, and aeromagnetic data to indicate the possibilityof a basin that might justifyreal oil and gas exploration.”
Apparently, a lot more is required. Aeromagnetic data is the first step in exploration. The next step, which occurs before drilling, is to acquire a 2D seismic analysis in a grid over areas with the most interest. Industry experts consulted by Viceroy Research estimated a requirement of between 5,000 – 15,000km2 of 2D seismic analysis for RECO’s 24,341km2 stake, which would take several years to acquire and process. RECO just acquired 450km2.
Of the two wells drilled so far, both have come up dry and RECO’s announcements have left out key information including: any mention of mud logs, which are records of the drilling unit, subsurface geology and oil and gas encountered; and any mention of drill depth and any mention of hydrocarbon intercept depth.
“We find RECO’s omission of any mud log data to be a tacit admission of failure as these are easily readable and most companies include mentions of mud logs in their drilling updates. RECO’s prospectus laid out a budget for “mudlogging and communications” for both wells but have not mentioned them since.”
RECO has picked and chosen what it wants the world to know about its Okavango adventure as part of raising capital. It has launched a marketing glitz in which it seeks to refashion itself as the “previously unrecognized Karoo basin.” This analogy equates the Okavango Delta to the legend of the Lower Ecca Group in South Africa.
The investigators also found the following: “The company’s share price has risen 1,600 percent in the past 12 months due to a concerted campaign of paid stock promotion and opaque press releases aimed at unsophisticated investors. The management team behind RECO have a colorful history including bribery, environmental damages and systemic overselling of early-stage oil and gas prospects. RECO checks every box in the SEC’s guidelines as to what constitutes an oil and gas scam, and in addition to these red flags we believe there is a near-zero chance of commercial success. The two wells drilled so far have been unsuccessful – we believe drilled solely to fulfil lease requirements.”
The rise in RECO’s share price has been accompanied by several shill pieces either commissioned by RECO or written by parties with a clear conflict of interest. These campaigns are clearly aimed at unsophisticated investors unfamiliar with oil and gas exploration. RECO has spent, at least, in the high 6-digit figures promoting their stock through YouTubers and other unlicensed stock promoters. These include a FINRA-sanctioned broker who purports to measure the total percentage of shares sold short in order to engineer a short squeeze. This is not actually possible, and just a smokescreen to hide a paid-for shill.
On the surface, Botswana doesn’t appear to be way in too deep like Namibia but it really is. RECO’s acquisition of its Botswana stake and Renaissance Energy was an insider transaction which enriched major shareholder Craig Steinke. Steinke formed a Botswana JV with RECO, only to sell a 50 percent stake option to Renaissance. RECO later acquired Renaissance to reclaim that option leading to a CAD15m windfall for Steinke at current prices. Regarding the company’s Botswana lease, no exploratory work has been done whatsoever.
It would seem that the RECO’s chairperson, Jay Park, understands the business language spoken in Africa. Park has been implicated in the bribery of officials at previous exploration venturesin Chad, Tunisia and Somalia. To be clear, there have been no reports of money exchanging hands in the Okavango deal but one very shady character has been associated with it. The involvement of a Namibian businessman called Knowledge Katti has raised serious ethical questions. Katti, a deep-pocketed man who is not afraid to show it, has bragged about “working magic” with politicians in order to get things done.