Reconnaissance Energy (Africa) Ltd V.RECO

This is a good read ... a cut and paste

[Bpultra]

In the interest of full transparency and openness, I want to put forth the following disclaimer:

I have been a shareholder of ReconAfrica since October 2020, after discovering the stock the previous month. I have never once interacted with anyone from the company (i.e., emailed investor relations) and what follows is an objective response to the claims made by Viceroy and Fraser Perring.

This response will be long but thorough. Viceroy’s publication is 32 pages long and thus a 1-2 paragraph response would be insufficient in scope. Unlike Viceroy’s claims and allegations, I will attempt to avoid any ad hominem attacks, misinformed conjecture, or misleading speculation.

 

To believe Viceroy’s claims, you would also have to believe all of the following:

1. Craig Steinke supposedly hatched this elaborate pump and dump scheme when he assembled the company and team in 2013, licensed the land in 2014, and shelved the project until oil prices recovered, all to lie in wait for 2020/2021. All the while paying land lease fees to the Namibian government.

2. To have a “dump” there must be a “pump.” Originally, ReconAfrica announced they would not be releasing any well results until they were finished with the first 3 wells. Then, on April 13, 2021, Immanuel Mulunga (Managing Director of NAMCOR) appeared on The Evening Review from Namibian Sun and said of ReconAfrica “I believe an announcement will probably be made this week as to the initial exploration results there” (his statement can be found around minute 19:10). Two days later, on April 15, 2021, ReconAfrica and the Ministry of Mines and Energy announced that a working petroleum system had been confirmed. No pump and dump would have originally planned a one-time information release as that wouldn’t have provided the “pump”.

3. This short report made no mention of Dan Jarvie, his credentials, or long history and reputation in this industry. For those unfamiliar with Dan Jarvie, on ResearchGate he has 86 publications to his name and has been cited over 7,000 times. He was an adjunct professor at Texas Christian University from 2006 to 2015, a visiting scientist at the Institut Francais du Petrole in France from 2009 to 2010, and has been the President of Worldwide Geochemistry since 2008. He was also the Chief Geochemist of EOG Resources, America’s largest shale producer with a market cap of $51.15 billion.It also references Bill Cathey only once, in passing. Here is what Viceroy omitted about Cathey’s background: he has been a geophysicist since the 1980s and has been the Chief Geophysicist of Earthfield Technology, LLC since 1990 (he was the company’s Vice President from 1990 to 2011 and President since 2011). He has done work for every major oil and gas company and large independent throughout his career. He was responsible for interpreting the aeromagnetic data that first alerted Craig Steinke to the presence of the Kavango Basin in 2013/2014. Cathey also received special permission from his company to invest in ReconAfrica, something Earthfield Technology typically does not allow.Viceroy also makes no mention of Nick Steinsberger, ReconAfrica’s Senior Vice President of Drilling. Those who have read The Frackers by Gregory Zuckerman or The New Map by Daniel Yergin will be familiar with Steinsberger’s background. While working at Mitchell Energy in the late-1990s, Steinsberger was responsible for perfecting “slick water fracturing” in the Barnett Shale in Texas, one of America’s largest onshore gas fields. Steinsberger is arguably one of technicians most responsible for the shale revolution that has led America to become a net exporter of petroleum again for the first time in decades. Viceroy also only mentions Scot Evans, ReconAfrica’s CEO, in passing. Evans is a former VP of Halliburton and a former ExxonMobil geologist. Anyone familiar with ReconAfrica’s history will know that the background and technical skill of these men is a critical componentof the story. For Viceroy to completely omit them from its 32-page publication should tell you all you need to know about Viceroy’s motives.

4. No pump and dump scheme would be sending samples to four well-established, respected and completely independent third-party labs for analysis. Samples have been sent to Schlumberger, Geomark Research, Netherland Sewell and Associates, and CoreLabs.

5. There is not a pump and dump scheme in the world that would’ve disclosed that the drill was being taken offline for maintenance as ReconAfrica did on June 24, 2021. Announcing maintenance was required would not positively impact the share price, which is the intent of a pump and dump.

6. There is no reason to have set this “scheme” up in both Namibia and Botswana. That would incur vast additional expenses, expected environmental scrutiny, and the pointless need for increased logistical support. Including Botswana would needlessly complicate a pump and dump scheme by involving a second jurisdiction, bureaucracy, and oversight regime. Why would ReconAfrica further complicate their operations by exposing themselves to additional scrutiny if theywere corrupt?

7. There has been virtually no recent selling of insider stock. If you’re going to pump you had better dump and there has been virtually none of that occurring. Viceroy points to the selling of between 4,700 and 35,000 shares by insiders in April and May 2021;keep in mind, these people’s compensation plans entitle them to hundreds of thousands of options in the event of success. The sale of a few thousand shares here and there can hardly be characterized as a “dump”, but nonetheless all these transactions are public. Viceroy also alleges that ReconAfrica’s management “quietly pre-emptively issued themselves tens-of-millions worth of stock options exercisable as low as CAD 0.51.” It is hard to substantiate the claim that these options were “quietly” issued when they were accompanied by press releases—such as the one on January 6, 2021—that explicitly state how many options were issued and at what price. Keep in mind, this is all spelled out in ReconAfrica’s compensation and stock option plan, which was recently approved at the June 2021 shareholders’ meeting.

8. How many elaborate schemes donate millions of dollars in aid support like ReconAfrica has committed to? Potable freshwater wells, Covid relief and locally sourced hiring.

9. There was virtually no information in that report that wasn’t already known and easily accessible on the internet. The vast majority of “gotcha” information was based on speculative opinion and ‘half-truths’.

10. You can immediately ignore 99% of what was written by just understanding the author clearly states that everything in the “report” is entirely based on opinion and that he currently has a short position on this stock. That alone disqualifies this report. The author tells you right away there is zero objectivity contained within.

11. It doesn’t take Sherlock Holmes to realize that journalists, environmentalists, lawfirms, and this report have “mysteriously” come out of the woodwork in a flood over the last 30 days. Clearly there is a concerted effort to impact this stock because speculative investors thought this was going to be an easy to manipulate commodity stock. ReconAfrica announced it had confirmed a working petroleum system in April 2021, months before anyone expected. According to shortdata.ca, ReconAfrica has the largest short position of the TSX Venture exchange (30.9 million shares as of June 16,2021).

12. A five-minute Google search about Viceroy and its author/authors will tell you all you need to know about the legitimacy of this “report”. Fraud, deception, plagiarism, lawsuits, short selling, and market manipulation...and more.

13. Mining, mineral, and oil commodity stocks are some of the most easily and heavily shorted stocks, particularly in Canada. Due to their speculative nature, upfront capital costs, delayed cash flow, and typically low successrate, unscrupulous shorters pick them because they are easy to short. In this case they might have made a miscalculation and are getting desperate with this flood of bogus, biased and outright misleading reporting and press in the last 30 days.

14. A cursory glance at ReconAfrica and its team’s professional history should tell you most of what you need to know in comparison to the author of this report. The suggestion that Craig Steinke had failed enterprises in the past means nothing in the oil exploration industry; that’s par for the course and is representative of nothing. Simply meant to cause more fear and doubt, nothing else. Do you think Exxon, Total, BP, or any of the majors finds success with every one of their exploration plays?

15. They say they have recordings. If they wanted to expose fraud, they would just release them. On June 24th, Fraser Perring tweeted “Tomorrow I personally play interviews with Namibian officials that blow holes in Recon_Africa’s story and bullshit. Viceroyresearch will not tolerate lies about our research. $RECO are IMO border line bankrupt!” The following day, Perring tweeted “We at viceroyresearch saved our recordings & transcript until after Recon_Africa responds. Only fair *emoji* that pump & dumps don’t get carried away again. We like to make sure they’re accountable & we know they are already busy with regulators. $RECO. Then a few tasty surprises!”What altruistic researchers who purport to be motivated by the need to “merely warn investors of the misleading claims” of ReconAfrica (as Perring later tweeted) would play cutesy with supposedly damning recordings of Namibian officials discussing ReconAfrica? Would it not be in the public interest for them to release their tapes rather than play games? If exposing fraud was Viceroy’s true intent, they would have just released the tapes without any theatrics.Also, Perring states that he thinks ReconAfrica is borderline bankrupt. According to their Q1 2021 financials, they have CAD$36 million cash on-hand as of March 31,2021. This does not include the CAD$41 million raised in the company’s May 2021 bought deal. In a May 2021 interview with James Stafford, Craig Steinke stated that, after the three-well program and 2D seismic survey, ReconAfica will have roughly $50 million remaining in its treasury.Furthermore, what “borderline bankrupt” company would commit CAD$10 million to ESG projects and an additional USD$1 million to COVID relief? Much of Viceroy and Perring’s claims about ReconAfrica could be categorized as ‘half-truths’ or misleading innuendo, but this is one claim that can be completely and unquestionably refuted. ReconAfrica is simply not “borderline bankrupt”.

16. This elaborate “scheme” would require the Namibian government and its national oil company NAMCOR to be active and willing participants. It would also require an intense amount of secrecy within the Namibian government and dishonesty to the public. After all, Minister of Mines and Energy Thomas Alweendo stated on April 15th that “the results of the well confirming a big potential for a very valuable resource... we can now confidently confirm Namibia is endowed with an active onshore petroleum basin.” Furthermore, Kavango East Governor Bonifasius Wakudumo released a statement in support of ReconAfrica on May 28, 2021 and Kavango West Governor Sirkka Ausiku commented “Thank you #ReconAfrica for your support at the time when the country is battling the 3rd wave of COVID-19 pandemic” on ReconAfrica’s June 21, 2021 tweet announcing its USD$1 million donation for COVID relief.

17. You also have to believe that as this “scheme” unfolded, every single industry professional that was attracted to ReconAfrica–such as Diana McQueen, ReconAfrica’s SVP of Corporate Communications and the former Minister of Energy for Alberta–couldn’t recognize the “scheme” or chose to become a willing participant in it That really strains credulity.

18. ReconAfrica is a silver-level sponsor of the Africa E&P Summit and Exhibition, to beheld September 22-23, 2021 in London. Other sponsors include ExxonMobil, Shell, BP, and CNOOC. Maggy Shino, Namibia’s Petroleum Commissioner, and Scot Evans, ReconAfrica’s CEO, will both be speaking at the event, alongside a VP from Total, the President & CEO of Africa Oil Corp., and other O&G professionals. Does this remotely resemble the behavior of a pump and dump scheme?

In conclusion, shareholders of ReconAfrica can listen to one of two sources: the team behind ReconAfrica, whose biographies and backgrounds are readily available and span decades, or Fraser Perring, a failed former UK social worker who was disbarred for “misconduct and dishonesty”, his two 27-year-old Australian associates, “one of whom has a background incorporate restructuring, and the other has no known professional background”, and Viceroy, their organization which has been accused of plagiarizingits report on South African retailer Steinhoff from a report published by a hedge fund six months earlier (source). Keep in mind, Viceroy and Fraser Perring have openly acknowledged that they have a short position on ReconAfrica, indicating that they have a vested interest in ReconAfrica’s failure.
https://www.reddit.com/r/ReconAfrica/comments/o8pb44/dd_response_to_viceroys_report/