- The price of Reconnaissance Energy Africa stock (OTCQX:RECAF;TSXV:RECO) has been stuck in a downward spiral since allegations of corruption were reported in 2021, making my forecast a decidedly negative one over the next few years
- In the bullish camp, the company benefits from governmental support and early indications of a massive resource
- In the bearish camp, allegedly nefarious dealings with the government and inflated promotional coverage make the company look like a smoke-and-mirrors affair
- Reconnaissance Energy Africa stock (OTCQX:RECAF;TSXV:RECO) is down by more than 92 per cent from its all-time-high, but has grown by 284.21 per cent since inception in 2019
The price of Reconnaissance Energy Africa stock (OTCQX:RECAF;TSXV:RECO) has been stuck in a downward spiral since allegations of corruption were reported in 2021, making my forecast a decidedly negative one over the next few years.
The potentially grave shareholder repercussions to these claims, which concern misleading statements and government impropriety, have sent RECAF shares tumbling by over 92 per cent from their all-time-high of US$9.89 in July 2021. Shares are currently trading at US$0.73 per share, officially entering penny stock territory.
In my view, two lines of argument represent the key drivers behind RECAF stock’s ultimate trajectory:
The bullish price forecast for RECAF stock
The most important factors behind RECAF stock’s upside potential are 1) the Namibian government’s approval of its main project in the Kavango Basin – which boasts an oil resource estimated in the billions of barrels, and a new exploration license until 2026 across its 6.3 million acres near the Okavango Delta, home to one of the richest arrays of wildlife on the planet; and 2) the prospectivity of its land, which has been shown to contain hydrocarbon gas liquids, and benefits from a third-party assessment of 22.4 trillion cubic feet (TCF) of undiscovered gas initially-in-place in the basin’s Damara Fold Belt. The company is also well-funded to conduct new exploration, having recently closed a C$7.5 million financing.
Despite shares’ aforementioned fall, the fact they remain up by 284.21 per cent since inception makes them an attractive asset, and a viable currency for the continued realization of the Kavango Basin’s active petroleum system.
The bearish price forecast for RECAF stock
On the other hand, given reports of a lack of community consultation on Kavango Basin exploration, the ongoing RCMP probe into ReconAfrica’s operations, and an investigation by the Namibian parliament that found fraud and permitting violations within the company’s ranks, a strong argument can be made for being pessimistic about RECAF stock moving forward.
My case for a negative RECAF stock price forecast is only strengthened by:
- Growing environmental and communal opposition to development of the Kavango Basin, locally and internationally. Management’s estimate of 120 billion barrels of oil (bbls) on company property would emit about 25 per cent of the planet’s yearly global emissions once consumed
- World-renown geologists such as Harvard’s Paul Hoffman expressing skepticism at the 120 billion bbls figure
- Various class-action lawsuits filed on behalf of stockholders
- The International Energy Agency’s declaration that the world no longer requires new major oil or gas extraction projects, with demand set to peak before the end of 2030
Analysts are also broadly negative on the stock, citing potential liquidity issues and questionable data supporting the value of the company’s assets. Positive takes on the company are worryingly concentrated in publications such as OilPrice.com and Value the Markets, which are at the centre of a complaint submitted to the SEC in 2021 about ReconAfrica’s dubious stock promotion activities.
While emerging market countries have a greater dependency on fossil fuels, which is a tailwind for ReconAfrica shareholders, swirling suspicions of wrongdoing remain an undiversifiable risk.
A cautionary conclusion
Even though the prospect of tens of billions of dollars in oil and gas revenue has kept investors committed since inception, as well as incentivized with a 2.8x return to date, ReconAfrica’s enthusiasm about its land package feels too shadowy for capital you aren’t willing to lose in its entirety.
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