## ReconAfrica’s Oil Promises: From Hype to Lawsuits and Settlement
ReconAfrica, an oil exploration company, burst onto the scene in 2019, captivating investors with bold claims of a potential “billions of barrels” of oil in Namibia’s environmentally sensitive Kavango Basin. The company’s stock soared, fueled by optimistic projections. However, a series of events unfolded that cast a shadow on ReconAfrica’s initial promise, culminating in a major legal settlement.
Initially, ReconAfrica planned to use hydraulic fracturing, or “fracking”, to extract oil and gas from the Kavango Basin. This ambitious strategy, though, faced an immediate hurdle: the Namibian government, concerned about the environmental impact and lack of previous experience with fracking, had not issued any licenses for such operations. Despite this setback, ReconAfrica continued to promote its potential, highlighting access to vast oil reserves and lucrative profit opportunities. This optimistic messaging propelled the company’s stock to a staggering increase of over 1800% from early 2020 to mid-2021.
The Namibian government’s stance on fracking, however, became a turning point for ReconAfrica. In September 2020, the government explicitly stated that no licenses for unconventional resource development, including fracking, had ever been granted in Namibia. Faced with this reality, ReconAfrica shifted gears, abandoning its fracking plans and focusing on conventional oil exploration, though the company’s executives left the possibility of future fracking open.
Moving forward, ReconAfrica employed a strategic public relations approach that emphasized “partnerships” with Namibia’s state oil company, NAMCOR, and highlighted local community benefits, such as job creation. This strategy, however, was seen by some as a means to deflect questions about the company’s true intentions with fracking. For instance, when confronted about fracking at a community meeting, a ReconAfrica spokesperson sidestepped the question, stating that she wouldn’t be around at the time any fracking might potentially take place.
In April 2021, ReconAfrica announced its initial test well findings in collaboration with Namibia’s Ministry of Mines and Energy. The company proclaimed “clear evidence of a working petroleum system” with over 200 meters of oil and gas indicators. This news was met with enthusiasm by the market, driving ReconAfrica’s stock up by an impressive 143.7% over three trading sessions.
However, the rosy picture began to crumble in June 2021, when Viceroy Research published its findings. Their investigation revealed inconsistencies in ReconAfrica’s claims. The report quoted Namibia’s Petroleum Commissioner, Maggy Shino, who stated that fracking was not authorized in Namibia. Viceroy’s analysis further identified crucial omissions in ReconAfrica’s initial disclosures, including technical details like mud logs, drill depths, and intercept depths, which are standard information in drilling updates. Viceroy also cast doubt on ReconAfrica’s geological claims, suggesting that the rocks in key zones were older than stated, and that the well ultimately lacked any areas suitable for oil or gas production.
Following Viceroy’s revelations, ReconAfrica’s stock price plummeted by a staggering 58%, dropping from a high of $11.23 per share to just $4.65 by September 2021. The scandal even caught the attention of US regulators, who expressed concerns about the potential environmental harm and policy conflicts. Adding to the turmoil, ReconAfrica executives sold off substantial shares of the company’s stock before the negative news became public, fueling further investor distrust.
In the aftermath of the controversy, investors filed multiple lawsuits against ReconAfrica, accusing the company of misleading them with overly optimistic projections and causing them significant financial losses. The lawsuits also highlighted concerns about ReconAfrica’s environmental impact and its treatment of local communities, specifically its failure to consult residents impacted by its operations, a violation of Namibian law.
To resolve the lawsuits, ReconAfrica reached a CAD $14.5 million settlement, covering both US and Canadian investors. This settlement allows investors who were affected by ReconAfrica’s actions to file a claim and potentially recover some of their losses.
Despite the legal challenges and controversies, ReconAfrica continues to operate in Namibia. In June 2024, the company drilled its first Naingopo exploration well, targeting around 163 million barrels of unrisked oil resources. ReconAfrica is also actively pursuing joint ventures to strengthen its exploration efforts. The company has highlighted positive community feedback, claiming to employ over 1,350 local workers and establishing 36 water wells that benefit over 10,000 people.
With the class-action lawsuits settled, ReconAfrica’s stock is showing signs of recovery. A recent public share offering of CAD $17.25 million demonstrates renewed investor interest in the company. However, the question remains whether ReconAfrica can truly deliver on its promises and regain the trust of its investors after its tumultuous journey.
