Analysts have welcomed moves by Reconnaissance Energy Africa Ltd (TSX-V:RECO, OTCQX:RECAF) (ReconAfrica) to bolster its balance sheet and bring on strategic partner BW Energy to advance the development of Petroleum Exploration License (PEL 73) offshore Namibia, where the company has recently spudded the Naingopo exploration well.
On July 16, ReconAfrica unveiled a joint venture (JV) transaction with BW Energy that will help fund an expanded exploration program within PEL 73.
BW Energy can earn a 20% interest in PEL 73 for total potential consideration of US$141 million (C$192 million), including an initial equity investment of US$16 million (C$22 million). ReconAfrica will retain a 70% interest in and operatorship of PEL 73.
Analysts at Haywood Capital Markets welcomed the JV with BW Energy.
“We view the event as a positive as the collaboration provides both technical and financial resources that can shore up the path to accelerate the substantial development potential of the Kavango Basin,” they wrote in a note to clients.
“ReconAfrica has been working to execute a JV agreement for some time and we are pleased that the company was able to execute on a transaction that could see close to C$200 million of potential consideration that would fund the partnership to first production upon establishing commerciality.
“Moreover, we see the partnership as providing some third-party validation of the asset that, despite extensive sub-surface technical analysis is still in the early innings, and importantly retains solid upside for ReconAfrica shareholders on success.”
They see the stock as a high-risk/high-reward opportunity with visible catalysts.
“Should the team be successful in proving the presence of hydrocarbons and the economic viability of its resource, we believe the stock could be worth multiples of its current valuation which is illustrated in the difference between our estimates for risked and unrisked values,” analysts believe.
They upped their price target on ReconAfrica from C$1.10 per share, its current share price, to C$2.10 per share and upgraded it to ‘Buy’ from ‘Hold.’
“Our improved outlook is also driven by the company’s much-improved capitalization that can support a multi-well drilling program, combined with our growing confidence in the new management team,” they wrote.
“In addition, we believe the recent pullback in the shares makes for a more attractive entry point and we recommend accumulating shares ahead of testing multiple wells in 1Q25.”
Research Capital Corporation analysts highlighted that BW Energy’s involvement at PEL 73 not only brings technical expertise and operational support, potentially increasing the success rate of exploration, but it could also accelerate the timeline to commercial production and increase the overall value of the project.
“We believe the strategic partnership with BW Energy and equity offering significantly bolsters ReconAfrica’s financial position, providing additional capital for an extensive exploration program,” they wrote.
The analysts have a ‘Speculative Buy’ rating and a $2.30 price target on ReconAfrica.