FN Media Group Presents Oilprice.com Market Commentary
London – July 16, 2021 – Crude oil was already having a banner year amid a faster-than-expected recovery from the pandemic. Now, with an OPEC compromise in place, there will be no oil price war, volatility will settle down, and oil could—once again—become Wall Street’s No. 1 commodity. Mentioned in today’s commentary includes: Exxon (NYSE:XOM), TotalEnergies (NYSE:TTE), BP Plc. (NYSE:BP), Chevron (NYSE:CVX), Royal Dutch Shell Plc. (NYSE:RDS.A).
In mid-June, the ratio of bullish to bearish bets on oil in New York stood at an impressive 23 to 1. This compares with a ratio of 6 to 1 at the beginning of the year, according to the Wall Street Journal. Surging demand is beyond the expectations of many at this point, and that’s prompted a very bullish run on oil futures.
Last year, oil consumption dropped by a record 8.6 million barrels per day amid the pandemic lockdowns. This year, it is predicted to rebound by 5.4 million barrels per day, according to the International Energy Agency (IEA). Then, in 2022, consumption is estimated to rise by another 3.1 million bpd. By the end of 2022, then, oil demand could overtake supply and we’ll have a crunch on our hands. And it’s great news for oil stocks that can now open the taps, or—even better—make a big new discovery.
The Majors
With the current oil market setup, it’s the perfect time to buy Exxon (NYSE:XOM) on the dip. Exxon’s had a rough year in the board room, but that’s not necessarily a bad thing for investors. In fact, it might work in shareholders’ favor.
Activist investors have been pushing phenomenally hard on this supergiant. They want XOM to cut spending, increase shareholder returns and invest more heavily in renewable energy technology to get a head start on an inevitable future. It’s not moral. It’s about planning for a future of continued returns.
On top of that, BMO Capital analyst Phillip Jungwirth has now initiated coverage on XOM with a ‘Market Perform’ rating and a $69 price target. Why? Because this supergiant has benefitted from rising oil prices and boasts an upstream pipeline that really leads the market. Year-to-date, we’ve seen XOM shares gain over 53%. That’s 3X the gain of the S&P 500 Index overall.
A New Global Hotspot
ReconAfrica (RECO, RECAF) has surprised the markets in Namibia’s giant Kavango Basin—the final frontier of onshore oil. From January 1, 2021, to June 23, 2021, ReconAfrica gained over 580% in valuation. And it appears it came out of nowhere.
It also looks to have been a major target of what we believe are dubious short-selling campaigns and spoofing, but we think it’s held its ground against them all, precisely because it’s sitting on what some say could be the last big onshore conventional oil discovery the world will ever see. And not only that … it’s backed by veteran management and industry leading geologists and geochemists. It’s not a fly-by-night junior explorer. We think it’s the real deal and it was savvy enough to scoop up this entire, giant basin before anyone had time to blink.
First of all, Namibia’s Kavango Basin is a giant 6.3-million acres, and ReconAfrica has the license for the entire thing. Previous estimates on this basin compared it to some of the biggest oil discoveries in the world in recent years, including the Midland Basin in West Texas, home of the Permian Basin.
World-class geochemist Daniel Jarvie fully expects RECO’s Kavango play “will be productive”. He is “expecting high-quality oil” and calls this one “pretty much a no-brainer”.
More to the point, Jarvie—a renowned source rock expert–has estimated that the basin has generated billions of barrels of oil —conservatively. That’s why he’s veryexcited about this.
He’s not the only one, either. Bill Cathey—geologist to the supermajors—is also involved. He says nowhere in the world is there a sedimentary basin of this depth that has ever failed to produce commercial quantities of hydrocarbons.. We think that’s exactly what investors want to hear on this one.
Since RECO put the drill bit to the ground, the news flow has been wildly exciting, with reports of clear evidence of a working petroleum system on its maiden drill, and confirmation of a working petroleum system only part-way into its second drill.
The excitement is palpable, as ReconAfrica prepares to release the full results of its second drill, after investors already saw up to 580% returns on initial findings indicating the existence of an active petroleum system.
The timeline has been fast-paced, and RECO has already provided drilling results that indicate an active petroleum system in Kavango—twice.
In April RECO/RECAF announced early findings from the first of their initial 3-well drill program, indicating a working petroleum system after only the first test drill. On June 3rd, RECO announced further indication of a working petroleum system in the shallow section of its second well. Then on July 14th, RECO announced that it (along with its JV partner, NAMCOR, Namibia’s state oil company) had completed drilling in the second stratigraphic test well (6-1) to 12,500 feet.
In a matter of days, we hope to get results from that… The company reports the well is now being prepared for wireline logging and up to 50 sidewall cores will be taken to maximize hydrocarbon recovery. As soon as coring is completed, RECO will run a vertical seismic profile tool (VSP) to the total depth to tie in into the 2D seismic program, which is planned to begin before the end of this month—across the entire basin.
That means results could come out shortly. With each drill, ReconAfrica (RECO, RECAF) looks to significantly de-risk, and we think that’s what has short-sellers worried they will be losing a lot on this one.
Big Oil Is Making Moves
Royal Dutch Shell Plc. (NYSE:RDS.A) operates as an integrated oil, gas and chemicals company. Shell remains one of Big Oil’s least optimistic companies when it comes to the long-term oil and gas outlook. It’s no stranger to Africa’s oil boom, either. The Dutch oil giant began drilling in the region over 70 years ago, and now has energy assets in over 20 countries across the continent. Though it has sold off a number of its prized plays in the region in recent years, it continues to maintain a strong presence, especially in South Africa.
South Africa is key for Shell because the government has been significantly more stable than some of the other big bets on the continent. Moreover, the country has been very open to Shell in its projects. The company’s operations in South Africa include retail and commercial fuel, lubricant, chemical and manufacturing.
Chevron (NYSE:CVX) comes in just above Shell as the world’s second-largest oil and gas company by market cap. Chevron is also betting big on Africa, particularly Nigeria and Angola. The supermajor ranks among the top oil producers in the two African nations. Other areas on the continent where the company holds interests include Benin, Ghana, the Republic of Congo and Togo. Chevron also holds a 36.7 percent interest in the West African Gas Pipeline Company Limited, which supplies Nigerian natural gas to customers in the region.
Chevron is also betting big on Africa, particularly Nigeria and Angola. The supermajor ranks among the top oil producers in the two African nations. Other areas on the continent where the company holds interests include Benin, Ghana, the Republic of Congo and Togo.
We are still a long way from Beyond Petroleum. But chief executive Bernard Looney believes that we are only 30 years from a net-zero BP Plc. (NYSE:BP). He has promised that in September the company will lay out a more detailed plan that shows the path to that destination. But he has shown already that there is more to his commitment to net-zero than there was to Beyond Petroleum 20 years ago.
“Renewables and natural gas together account for the great majority of the growth in primary energy. In our evolving transition scenario, 85% of new energy is lower carbon,” Spencer Dale, BP group chief economist, said, commenting on the outlook to 2040.
TotalEnergies (NYSE:TTE) keeps a ‘big picture’ outlook across all of its projects. The company is distinctly aware of the needs that are not being met by a significant portion of the world’s growing population, it is also hyper-aware of the growing threat of climate change. This good news for investors who often worry about how local entities are impacted when global energy giants move into their countries.
From oil and gas to renewables and beyond, Total is setting itself up nicely for the long term. And thanks to its diversification, it has outperformed other pure oil majors. It is also staying ahead of the looming climate crisis by boosting its renewable assets. And it has a stellar ESG record, as well.
By. Jason Cantle
**IMPORTANT! BY READING OUR CONTENT YOU EXPLICITLY AGREE TO THE FOLLOWING. PLEASE READ CAREFULLY**
Forward-Looking Statements. Statements contained in this document that are not historical facts are forward-looking statements that involve various risks and uncertainty affecting the business of Recon. All estimates and statements with respect to Recon’s operations, its plans and projections, size of potential oil reserves, comparisons to other oil producing fields, oil prices, recoverable oil, production targets, production and other operating costs and likelihood of oil recoverability are forward-looking statements under applicable securities laws and necessarily involve risks and uncertainties including, without limitation: risks associated with oil and gas exploration, including drilling and other exploration activities, timing of reports, development, exploitation and production, geological risks, marketing and transportation, availability of adequate funding, volatility of commodity prices, imprecision of reserve and resource estimates, environmental risks, competition from other producers, government regulation, dates of commencement of production and changes in the regulatory and taxation environment. Actual results may vary materially from the information provided in this document, and there is no representation that the actual results realized in the future will be the same in whole or in part as those presented herein. Other factors that could cause actual results to differ from those contained in the forward-looking statements are also set forth in filings that Recon and its technical analysts have made. We undertake no obligation, except as otherwise required by law, to update these forward-looking statements except as required by law.
Exploration for hydrocarbons is a highly speculative venture necessarily involving substantial risk. Recon’s future success will depend on its ability to develop its current properties and on its ability to discover resources that are capable of commercial production. However, there is no assurance that Recon’s future exploration and development efforts will result in the discovery or development of commercial accumulations of oil and natural gas. In addition, even if hydrocarbons are discovered, the costs of extracting and delivering the hydrocarbons to market and variations in the market price may render uneconomic any discovered deposit. Geological conditions are variable and unpredictable. Even if production is commenced from a well, the quantity of hydrocarbons produced inevitably will decline over time, and production may be adversely affected or may have to be terminated altogether if Recon encounters unforeseen geological conditions. Adverse climatic conditions at such properties may also hinder Recon’s ability to carry on exploration or production activities continuously throughout any given year.
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