ReconAfrica's (TSX-V: RECO) Craig Steinke on the World-Renown ReconAfrica Technical Team & the Unprecedented Opportunity at the Kavango Basin in Namibia

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is Craig Steinke of ReconAfrica (TSX-V: RECO)(OTC: RECAF). Craig, first off, thank you for taking the time today. I would love for you to share with the audience because it's interesting to me, you're not on the board, you're not a part directly of the management team, but you are absolutely a critical part of ReconAfrica, which to me is one of the most, if not the most, exciting energy plays in the space. A bit of background first. How is your day going, Craig?

Craig Steinke: Very well, thanks. And thanks for the opportunity. I love talking about ReconAfrica.

Gerardo Del Real: Well, there's a lot to talk about. Your corporate presentation, and we'll make sure to put a link to it, calls the opportunity, “unprecedented.” I think that's well put. You've put together an entire basin, you control an entire basin. I want to get to that and the opportunity. 

But tell me, how did you get involved with the company and how are you able to pull off controlling an entire basin?

Craig Steinke: Well, Gerardo, how did I get involved in the company? Back in 2013 – after we sold a company called Realm, Ian Telfer and I – I acquired a data set from IHS Markit. It was their first worldwide source rock or shale study. Apparently I was their second customer. So I bought it quickly, hired four bright international geologists and then a source rock expert, Dan Jarvie, who was one of the former Mitchell Energy guys who really cracked the code on liberating gas from the shales at the Barnett at the turn of the century. 

We went around the world looking for interesting source rocks because even if you're looking for a conventional play, Gerardo, it starts with the source rock. It's got to come from somewhere, and the shales are the source rock is the kitchen. That's where all the organic material is cooked, and then it expels part of the oil and gas into more permeable zones. But you've got to start with the source rocks.

We went around the world looking for interesting source rocks. As you can imagine, that's a long story. It's a big world. But the short story is, we wound up in northeast Namibia and we didn't have a lot of subsurface data – we love Namibia from an operational, fiscal terms perspective – or anything. Above surface it's a fantastic country to work in. But below the surface, at that time, we didn't have a lot of data. 

But we had one well, it's called the ST1 well, it's in our presentation, and it was drilled by Etosha Petroleum in 1964. The importance of that well, Gerardo, it was drilled in the shallow part of the basin, but they drilled through 620 feet of Permian shales. So we knew we had our source rock and we just felt that as you go to the east of the ST1 well towards Botswana, more on a hunch, we felt that the basin got deeper.

I started to lease the land. This is back in 2014, and while I was at the Ministry, Gerardo, they explained to me, they said, "By the way, our government has flown an Arrow Magnetic Survey over your lands and nobody's ever acquired it." Consequently nobody's ever interpreted it. He said, "Do you want to buy it?" I bought it immediately. 

We sent the data to probably the most renowned geophysicist in the world for the interpretation of this data, Bill Cathey, the CEO of Earth Fields Technology in Houston. Bill does all of Chevron's new basin work around the world. Client list is Exxon, Shell, Conoco, Occidental, et cetera. Bill came back to us in 6 weeks and said, "Guys, first of all, this is the best quality data I had ever worked with outside of the U.S. and Canada." He said, "We've accurately mapped the basement floor." He said, "You guys have discovered a new sedimentary basin. This thing is 30,000 feet deep." His point is, "I've been all over the world, I knew every sedimentary basin in the world." He said, "Every basin of this depth produces commercial levels of hydrocarbons."

Gerardo, the takeaway from the basement depth is that a deep basin versus a shallow basin, say 10,000 feet, a deep basin at 30,000 feet gives you this big, big, thick package of sedimentary rocks to choose from. In every basin in the world with that thick a package of sedimentary rock or 30,000 feet deep, somewhere in that package of sedimentary rock you're going to find the right combination of pressure and heat to cook the organic material in the shales and create liquid hydrocarbons. It's about that simple. 

Anyway, the point here is how did I get involved? How did the little company wind up controlling an entire sedimentary basin, which is aerially larger than the Eagle Ford, where over a hundred companies own the rights? How do we get involved? Nobody knew it was there. This defined serendipity, hard work and good luck is how I look at it. But nobody knew it was there. It's a major-size play and a little company owns the whole thing. Unprecedented.

Gerardo Del Real: Not to cut you off there, Craig, but you mentioned Bill. I think it's important to know it's one thing for Gerardo, for me, to say this is an exciting play. I think it's well put in the presentation, one of the highest impact leverage play in this space right now, but Bill has nearly three decades of experience, if I'm not mistaken, and has clients that include the Chevrons, the Exxon Mobil's, the Conoco Phillips. 

I want to make sure that people understand that when Bill says nowhere in the world is there a sedimentary basin this deep that does not produce hydrocarbons, that's a heck of an endorsement, which brings me to my next question. 

Not only do you have 8.75 million acres of conventional and unconventional potential plays, you've put together a team that frankly justifies the market cap, even if you didn't have an asset in place with this type of potential. Can you talk about the team that you were able to put together?

Craig Steinke: Yes, absolutely. Of course, we know that's a critical component of any successful company. We've got Scot Evans, former VP of Halliburton, former ExxonMobil geologist, been all over the world. His point is that since he's joined us and understands the play – and has been actually very important to bringing a lot of the recent data together – his point is that this is onshore the most important exploration play in the world right now. So you've got guys like Scott Evans speaking that confidently about what we're doing. 

Nick Steinberger just joined us. If there's any one technical person that you could point to that is responsible for liberating hydrocarbons from the shales, it's Nick Steinberger. He's the guy working for Mitchell Energy at the turn of the century who cracked the code. He figured out how to apply slick water frac on the shales to commercialize shales. There's five books written about this guy. He just joined us.

We've got Dan Jarvie, source rock expert. He was EOG's Chief Geochemist, and one of the Mitchell Energy guys. These guys are all successful. They don't have to work. They're coming to ReconAfrica because you only get to discover a new sedimentary basin once in your life, and ReconAfrica is it. So, just from a technical standpoint, we're being able to attract some of the top people in the industry. 

And going back to Bill Cathey, Gerardo, he not only says nowhere in the world is there a sedimentary basin this deep that does not produce hydrocarbons, Bill will openly admit that he's never put money into a client play before, with the exception of ReconAfrica, he's written two checks in two private placements that we've done. He's putting his money where his mouth is.

Gerardo Del Real: Let's talk about the share structure and the market cap in just a second, because I love when management and large shareholders have skin in the game. I believe insiders own over 30%, but you mentioned Mitchell Energy. Again, just for some context for those not familiar, Mitchell Energy, I believe was sold for over $3 billion back in 2002. Is that correct, Craig?

Craig Steinke: Yeah, to Devon.

Gerardo Del Real: Correct. You got it, you got it. Again, that's the type of upside potentially that we're looking at here. Market cap, you have approximately I want to say 71.5 million shares outstanding, 105 million fully diluted. Current share price is approximately $0.80, the last time I checked a few minutes ago, with a market cap of around $57 million Canadian, well structured. 

Let's talk about the second half. It's absolutely critical and this isn't going to take years to play out. We're going to know relatively soon, Craig, whether or not we have a tiger by the tail per se. Can we talk about some of the catalysts that we have upcoming?

Craig Steinke: Absolutely, Gerardo. Thank you. Importantly, just to give you a little history, because we did something that's somewhat unusual, particularly for a junior oil and gas company. I was talking to Precision Drilling, the big international drilling companies last summer, about drilling the first three wells into the Kavango Basin, because our goal is to establish an active petroleum system. 

I soon realized that we could buy our own rig, drill the three wells, and own the rig at the end of the day for about 40% of what Precision was quoting us to drill these three wells. So the answer was simple. Last fall, we looked at about eight, nine rigs and we landed on the Crown 750. It's a 1000 horse rig, goes down to 12,000 feet and it's being acclimated for drilling in the Kalahari Desert right now in Houston with the expectation of it being on a ship in September, on or before the first or second week of September, landed in Namibia the middle of October for an early November start.

Gerardo Del Real: Excellent, incredible.

Craig Steinke: Because, Gerardo, when we drill down into the shales, into the source, the  Permian petroleum system, so that'll be conventional and unconventional, but we get the data which we're confident we're going to. Because if we didn't, it would be in conflict with every other basin of this depth in the world. Once we get the data, I think that that's when the market will radically revalue this company.

Gerardo Del Real: Again, we're talking radically like approximately $10 an acre U.S. right now to over $850 per acre, that type of radically. Is that accurate?

Craig Steinke: Well, it seems like a big lift in valuation, I know. But if you look around – and we put that chart together that conveys that point – that that's about the average. When you move from the trend stage to the developed stage, that's your average price per acre. Even if it's half of that, it's a tremendous lift in valuation.

Gerardo Del Real: Absolutely. I think another point when we talk about the team and the quality of it is, frankly, not to date myself, but the Rolodex, right? The contact list. This is the type of team that is able to secure a major partner if you're able to demonstrate successfully that you're onto what you think you're onto. 

Can we talk about what it looks like – obviously aside from everybody celebrating – if you're able to demonstrate successfully what you're looking to do? How do you advance that stage of project moving forward? Do you look potentially for a partner? Because this is massive, Craig. This is a massive, massive project.

Craig Steinke: Well, that's one of the outstanding characteristics of ReconAfrica and Namibia. Namibia has some of the best fiscal terms in the world, a 5% royalty. Do you know how much more valuable a barrel of oil is in Namibia versus 25% royalty in Texas? It's huge because that's coming right off the top. 

Namibia is absolutely open for business and who's responded? The majors have responded. You now have playing the two offshore basins in Namibia, ExxonMobil, Total, Shell, et cetera. They're all there. They like the geology in Namibia. They like the fiscal terms and they like the fact that it's a stable government. They follow a rule of law. It's a former German colony. It's got excellent infrastructure. Namibia is one of the hotspots in the world right now. 

So point is, once we drill up, we prove up an active petroleum system in the Permian petroleum system, we've got the data. That's when we can sit down with Exxon, Total, et cetera, because this is a majors size play. We're confident we'll be able to cut a deal with them. It's not like we have to talk them into coming to a new country. They're already there. They already like it. And they want to expand their position. Who wouldn't with a 5% royalty?

Gerardo Del Real: Absolutely. Obviously, for those that are not familiar with Namibia and have not done business there, having those types of companies, majors that vet the way that majors vet, the quality, the diligence that goes into it has to be a big, big, big endorsement for the stability and how favorable the conditions are there. I know, frankly, Craig, I've done a bit of research and work, you looked all over the place. 

It wasn't like you just bumped into this in Namibia and said, "Hey, this is a great piece of land. Let me go ahead and stake as many millions of acres as I possibly can.” You looked quite a bit before settling on this, correct?

Craig Steinke: Correct. We literally went around the world, looking at all basins around the world. We had a list of 22 separate criteria and about half of them, 11, was above ground. You can find the biggest prize, but you have to be able to commercially produce it. You need a stable government with the right fiscal terms to allow you to be profitable. Again, above ground, Namibia ticked all the boxes and still does. It just gets better.

Gerardo Del Real: Excellent. Well, there's a lot to like here, I'm looking forward to chatting again. Is there anything else that you'd like to add? You've got the team. You've got, obviously, a heck of an asset and a market cap that justifies on the team alone, I could justify that type of market cap. If you were coming out with the shell and you said, this is a group that I've put together, it would be attractive from that standpoint. But being what it is, I think it's worth due diligence. 

I think everybody should have a look. We'll make sure to put a link to the corporate presentation, which is extremely well done by the way. I want to thank you for your time, Craig. Is there anything else that you'd like to add?

Craig Steinke: No, I think you've hit all the high points, Gerardo. It was a great interview and I appreciate it very much. My parting comment is that Namibia is the place to be right now in the oil and gas sector. And we're there. We own the whole basin.

Gerardo Del Real: Well said, well said. Craig, thanks again for your time. We'll chat again soon, okay?

Craig Steinke: Thanks, Gerardo.