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ReconAfrica faces rising costs as Kavango West 1X Well moves forward

by Editor
August 27, 2025
in Magazine
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ReconAfrica has drilled beyond 2,400m at Naingopo well in Kavango Basin
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Reconnaissance Energy Africa Ltd. (ReconAfrica) has reported higher-than-expected costs for its Namibian drilling programme, reflecting the technical and financial pressures of opening a new petroleum frontier.

In its second-quarter financial statement and Management’s Discussion and Analysis for the period ended June 30, 2025, the company confirmed that it has shifted its focus to the Kavango West 1X well, identified as the most suitable location in the Damara Fold Belt following fresh geological interpretation.

The decision was made after reviewing logs from the Naingopo well and reinterpreting seismic data covering Naingopo and Kambundu.

According to the filing, total drilling expenditures reached C$18.3 million (N$247.5 million), driven primarily by the Naingopo campaign.

In addition, ReconAfrica spent approximately C$3.5 million (N$47.2 million) on road and site preparation for Kambundu before ultimately changing its drilling locations.

Additional mobilisation and demobilisation costs included the removal of rigs from Naingopo, as well as maintenance and preparations for the new Kavango West 1X site.

Geology and geophysics work, along with seismic planning, accounted for a further C$248,000 (N$3.35 million) during the quarter, while C$3.2 million (N$43.5 million) was directed to working capital.

The company acknowledged that delays in the Naingopo drilling programme pushed costs beyond budget.

Slower penetration rates in the deeper Mulden formation, tight hole conditions during casing setting, and the procurement of replacement rig parts all contributed to the overruns.

ReconAfrica stated that the July 2024 equity offering provided sufficient capital to fund the Naingopo well; however, additional funds were required to advance drilling at Kavango West 1X.

This shortfall was addressed through the June 2025 equity raise. However, the company warned that the majority of those proceeds would be consumed by current drilling operations, leaving little for other working capital needs.

ReconAfrica’s joint venture partner, BW Energy, contributed C$22 million (N$297 million) under the original investment agreement to fund Naingopo and Kavango West 1X.

However, the filings state that no further contributions are expected from BW Energy at this stage. ReconAfrica emphasised that additional financing—either debt or equity—will be required to sustain working capital, fund future seismic surveys, and pursue new wells beyond the current programme.

The company confirmed its decommissioning liabilities in Namibia stand at C$1.3 million (N$17.6 million) as of June 30, 2025, with C$700,000 (N$9.5 million) expected to be spent within 12 months and the balance of C$600,000 (N$8.1 million) due over the following two to three years.

ReconAfrica also outlined the obligations under its Second Renewal Exploration Period for PEL 73, approved by the Ministry of Mines and Energy in October 2023.

The terms require the acquisition of additional subsurface data through either 500 km of 2D seismic or 1,200 km² of eFTG surveys, in conjunction with the drilling of one well.

The company stated that its expenditure in the First Renewal Period exceeded the minimum US$10 million requirement by more than US$60 million, which regulators have allowed to be carried forward to offset future obligations.

As a result, there is no minimum expenditure requirement for the current renewal period, although the company must still complete seismic or equivalent exploration work.

While ReconAfrica has already satisfied its drilling obligation through the Naingopo well, it chose to prioritise the Kavango West 1X campaign over the planned 3D seismic programme, which is now deferred to 2026, depending on the results.

The company may request that the drilling of Kavango West 1X be recognised as a substitute for the seismic requirement, though this would require approval.

Beyond drilling, ReconAfrica highlighted its environmental, social and governance (ESG) commitments. As of June 30, 2025, it had spent approximately C$4.6 million (N$62.1 million) of a targeted C$10 million ESG investment programme.

Initiatives include the drilling of 36 solar-powered community water wells in Kavango East and Kavango West, contributions to Namibia’s COVID-19 vaccine rollout and medical equipment supply, and support for wildlife research.

The company has funded education and scholarships for students, including 10 STEAM-focused scholarships and training for nursing students from the San communities.

ReconAfrica maintains ongoing engagements with communities, traditional authorities, and local government representatives, reporting over 2,300 stakeholder interactions to date.

Local participation has been another emphasis. The company stated that it has partnered with over 550 Namibian businesses across various sectors, including logistics, construction, drilling, and camp management services, while creating more than 2,500 short- and long-term positions for Namibian workers.

Although the filing does not provide a single consolidated figure for local supplier and payroll spending, the company noted that a significant portion of its drilling and site preparation costs flowed directly to Namibian contractors.

Based on expenditure patterns, between 20 and 30 per cent of the C$22–25 million (N$297–338 million) spent in the quarter likely went to local businesses and employees, suggesting payments in the range of C$4.5–7.5 million (N$60–100 million). This is in addition to the confirmed ESG spend of C$4.6 million (approximately N$62.1 million), which was entirely based in Namibia.

Looking ahead, ReconAfrica cautioned that financing remains a critical issue. The company has historically relied on equity sales to raise capital, noting that its ability to continue exploration at the planned pace depends on investor confidence and the availability of funds in international markets. Without additional financing, some programmes may be postponed or revised.

In its filings, ReconAfrica reiterated that if commerciality is achieved in the Damara Fold Belt, additional funding could be unlocked under its agreement with BW Energy.

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