Analyst Research

2021 drilling programme derisked Rukwa’s helium potential with Phase 2 Exploration to come

Tai drilling campaign has provided several positive data points

Helium One’s share price has fallen heavily after reporting in August that the Tai drilling campaign failed to make a commercial helium discovery, the major reason for which was due to issues with the rig rather than the geology. Given this was the first helium exploration well in a large frontier basin in which it holds 3,500sqkm of acreage, there were plenty of reasons to be positive and encouragement for future exploration. In particular, HE1 has proved that there is an active working helium system in the basin with multiple helium shows, reservoir seal and trap over multiple horizons with charge and the data confirming the presence of a thick seal, removing one of the key pre-drill risks. A helium show in this virgin basin is highly significant as it proved the existence of helium in the subsurface for the first time. Management has been prudent with its spending, opting for a low cost rig but ultimately that proved an issue when attempting to test the deeper targets.

Helium market remains tight and corporate activity at high levels

The helium market has tightened up recently in 2021 with several plant outages such as in Algeria and with the shut-in of the BLM storage facility in the US for safety reasons. In terms of new capacity Russia’s Amur plant seems unlikely to have any impact in 2021 given delays and Qatar’s new capacity is likely to only ramp up slowly. Helium pricing into the key import markets remains healthy with pricing well above our conservative long-term assumption of US$250/mcf which we use for modelling. Investor appetite for helium companies has been strong in 2021 with strong share price performance, several capital raises and new companies coming to market.

Phase 2 exploration: 2D seismic, geophysical investigation and shallow drilling

Despite the curtailment of the current drilling campaign, there remains several catalysts for the stock. There is a two-pronged approach focusing on shallow and deep targets. Near-term there is the potential to use simple geophysical techniques (magneto telluric, ground penetration radar, conductivity surveys), which could identify gas in situ in the shallow Lake Bed structural and stratigraphic traps, where high-grade helium shows have been encountered. This could lead to a shallow drilling campaign with a low-cost water rig (at a cost of just ~US$50-100k per well) drilling between 10-20 wells initially to around 200m. HE1 has ~40bcf of unrisked prospective resources in shallow targets. HE1 is looking to mobilise a 2D seismic survey to better image under the top seal in the main Karoo target formation with the intention of getting started ahead of the wet season. We estimate a cost of around US$1-2mm and this should help with HE1’s well placement for the deeper targets next year. HE1 is likely to bring in a bigger rig to drill some of the Karoo targets around end-April 2022 with the wells likely to cost ~US$3-5mm each. We also expect HE1 to carry out seismic on its other acreage in Eyasi and Balangida in 2022.

Valuation: maintaining our risked NAV of 25p/sh

Although the drilling campaign was negative for sentiment with the lack of a discovery, we believe that there were clear positives that came out of the drilling campaign to derisk future exploration including helium shows, a thick seal and good quality reservoir. Indeed, it is rare for a frontier basin to see commercial success with the first well and the exploration potential remains substantial, hence we are maintaining our 25p/sh risked NAV. Management has exercised strong cost control over its drilling campaign and its cash burn rate remains low with G&A of ~US$100k per month. With the low-cost exploration planned for the rest of 2021, the company remains fully funded. It has ~US$14mm in cash, which means it could also drill a deeper well next year or it could look to farm-down to fund a more material campaign. A simple way to look at the current valuation is that based on our NPV12 of ~US$60/mcf, HE1’s EV of ~US$65mm is pricing in 1bcf of helium being discovered, relative to its unrisked prospective resource of 138bcf. Our risked NAV of 25p/sh is the equivalent of a ~5bcf helium discovery once fully derisked.

Please click on the below link to read more:

Helium One Global | 2021 drilling programme derisked Rukwa’s helium potential with Phase 2 Exploration to come

Tai-1 exploration well: demonstrates an active and working helium system in the basin

Completion of drilling Tai-1A Exploration Well

Helium One today announced the completion of drilling of the Tai-1A exploration well, its maiden well in the Rukwa Basin, which was spudded on
12th June. A major objective of the well was achieved, in that it identified helium shows within all three target formations, including five helium show intervals identified in the primary Karoo targets, as well as secondary targets in the Lake Bed and Red Sandstone Formations. The well was also able to demonstrate the presence of a thick seal in the uppermost Karoo, and that the reservoir had good potential with porosity levels of 15-20% but in thinly bedded sands. This helium show was identified in thinly bedded (1-3m) sands within the upper Karoo claystone sequence, and above the better developed, thicker sandstone units of the Karoo Formation. Petrophysical analysis presented no clear indications of free gas within this helium show. However, the main reservoir targets with thicker, better developed sands in the deeper Karoo were not able to be logged due to poor and deteriorating hole conditions. Therefore it was not possible to assess the helium gas-bearing potential of the deeper, thicker, reservoir intervals with demonstrated helium shows. The results of Tai- 1A are being evaluated and incorporated into HE1’s ongoing exploration strategy, which may include redrilling of Tai to test identified targets.

HE1 has demonstrated an active working helium system in the Rukwa basin

HE1 has partially de-risked the potential for a commercial helium discovery with just one well in a huge basin in which it holds 3,500sqkm of acreage. Having encountered multiple helium shows demonstrates that the subsurface system is working, combined with petrophysical analysis confirming the presence of a seal and demonstrating good reservoir potential, capable of storing and trapping helium in this basin. Helium shows are a key indicator in a basin that has never been drilled for helium before, and is the first direct evidence of subsurface primary helium in the African continent. A helium show in a virgin basin is highly significant as for the first time it proves the existence of helium in the subsurface. Also, only a relatively small volume of helium is required for commercial production as it is a high value gas.

Forward drilling plan still to be formulated: possible test of shallow targets

HE1 is still in the process of formulating its forward drilling plans. There is the potential for HE1 to test some of the shallower prospectivity that showed up at Tai with the existing rig in the near term. The rig used by HE1 was a low-cost rig that drills slimline wells, which enabled HE1 to gather a large amount of data to de-risk the play at a total cost of only ~US$2mm despite the longer than expected time to complete the well. However, for future wells in the basin targeting the key deeper Karoo play it may make sense to bring in a rig capable of drilling wider diameter holes to avoid the issues encountered in this well. HE1 is amply funded given the £10mm raised in April on top of the existing funds that were sufficient to cover its initial three-well planned drilling programme.

Valuation: maintaining our risked NAV of 25p/sh

Helium One’s share price is down sharply today given the market’s disappointment in not being able to prove up a commercial discovery and high expectations going into the well. However, we are keeping our risked NAV unchanged at 25p/sh given the inconclusive result on Tai and the potential to come back and redrill the prospect. We only carry 4p/sh in risked value for Tai, which is worth 31p/sh unrisked. On an unrisked basis, we have a NAV of £1.33/sh or ~10x upside. Further to this are the follow-on prospects that are not included in our NAV and its other exploration areas. A US$50/mcf increase in the helium price would increase our risked NAV by 6p/sh and unrisked by 33p/sh.

Please click on the below link to read more:

Helium One Global | Tai-1 exploration well: demonstrates an active and working helium system in the basin

Tai-1 exploration well: confirmed presence of helium trapped at shallow depth

Tai-1 exploration well: interim drilling update. Worth 31p/sh unrisked

Helium One announced an update on Monday on the drilling of the Tai prospect at its Rukwa Project in Tanzania. The Tai-1 well was spudded on 12th June and, on 19th June, at a depth of 70.5 metres, a helium show of 2.2% concentration was detected in the drilling mud. This show was encountered over an interval of 4-6 metres, below a 20m thick sealing shale sequence. This helium-bearing interval was encountered earlier than expected in the secondary target Lake Bed Formation. The upper section of the Lake Bed Formation is comprised of poorly consolidated fluvial-deltaic sands. The unconsolidated nature of these shallow reservoirs means it is not possible to perform a drill stem test on any pay zone in this interval as the side wall of the well may collapse during testing. There have been no hydrocarbons detected to date.

Encouraging to have encountered a helium show

We see the key takeaways, so far, as Helium One having encountered a helium show that demonstrates that the subsurface system is working and that reservoir, seal and trap are capable of storing helium in this basin. This is a key indicator in a basin that has never been drilled for helium before and is the first direct evidence of subsurface primary helium in the African continent. The grade of helium encountered in the show could be commercial, as standalone helium production is possible with <1% concentration. However, grades identified in helium shows are not representative of in-situ grades and at present it is too early to read too much into the percentage encountered. The tools used to measure the helium had been lab calibrated but had not yet been calibrated in the field, therefore the actual grade at the collar could be higher or lower than reported. More importantly helium concentration is likely to have been diluted from the point of drilling to when the show was recorded at surface, therefore, there remains the potential for significantly higher helium concentrations to be encountered.

Helium show: a meaningful proof of concept

We think it is important to distinguish between a helium show in this basin and an oil and gas show when drilling a hydrocarbon exploration well. A helium show in a virgin basin is highly significant as for the first time it proves the existence of helium in the subsurface. Also, only a relatively small volume of helium is required for commercial production as it is a high value gas. We think that it is relevant that the helium show was directly below a shale sequence as it demonstrates that the helium is being trapped by traditional siliciclastic sediments which are found throughout the Rukwa sedimentary sequence.

Next steps for the exploration well: further drilling, logging and then testing

The well is likely to take around three weeks to reach total depth in the Basement. It will drill down to the base of the Lake Bed Formation at a depth of 400m, and will then continue into the Red Sandstone Group and the Karoo Group. The Karoo is the primary reservoir target and is expected to contain stacked reservoir and seal units which will be more consolidated due to the age and depth of these sediments. If helium is present, it will be possible to perform drill stem tests on this interval and recover undiluted helium samples for grade analysis. We see the potential for Helium One to release further details of helium shows being encountered over the coming weeks if they are significantly larger than the first helium show. We would expect details from logging data to be released with pay zones being identified and potentially drill stem testing details at the end of hole.

Valuation: ~6x upside on an unrisked basis

We are keeping our risked NAV is unchanged at 25p/sh for now as we await further detail on Tai, however we only carry 4p/sh in risked value for Tai, which is worth 31p/sh unrisked. On an unrisked basis, we have a NAV of £1.33/sh or ~6x upside. Further to this are the follow-on prospects that are not included in our NAV and its other exploration areas. A US$50/mcf increase in the helium price would increase our risked NAV by 6p/sh and unrisked by 33p/sh.

Please click on the below link to read more:

Helium One Global | Tai-1 exploration well: confirmed presence of helium trapped at shallow depth

Hannam & Partners: Updating our NAV on higher risked resource

Increasing our risked NAV to 25p/sh on lower risking and extra prospect

We have updated our NAV to incorporate an additional prospect, Tai, which Helium One now intends to drill as its first prospect in early July. We have also doubled the exploration chance of success on the prospects to 21% on average and we have lowered our discount rate to 12% from 14% to factor in a lower cost of capital for helium companies relative to oil and gas companies given the investor appetite for the sector and the higher percentage of debt funding at the development stage. We have also updated our USD/GBP exchange rate to $1.40 from $1.35, which has an offsetting negative impact. In aggregate this leads to an increase in our risked NAV to 25p/sh from 11p/sh previously.

Encouraging results from Helium One’s 2D seismic campaign

HE1 completed an extended 200km 2D seismic shoot in early May, which focussed on areas of known prospectivity to provide greater clarity over subsurface structures, which HE1 believed to have the highest chances of successfully discovering helium. This modern seismic data is of a higher quality than earlier work, resulting in a better understanding of the subsurface and reassessment of geological risk across its portfolio. The company has not updated the chance of success on the prospects; however, we believe that the chance of success will have increased and as a result we have doubled the chance of success used by the reserves consultants. Initial data interpretation has upgraded and expanded the Tai prospect, which was poorly defined on legacy seismic data, but now clearly demonstrates a faulted 3-way dip closure concurrent with a gravity high. We assume a 6bcf prospect (in line with the average of the other planned prospects), which we see as worth 39p/sh unrisked.

Updates to global helium supply and demand data: bullish data points

We have updated our global supply outlook to factor in recent data and news flow. The USGS reported that US helium production (the world’s largest supplier) was down 10% last year and helium supply out of the BLM storage was down 38% – in total US helium supply was 2.7bcf/d (-17% y/y). US helium exports fell 5%. Supply out of La Barge in the US fell by 8.5% versus 2018 to 1.3bcf/d. Algerian supplies into Europe were down 30% y/y in 2020, on the back of lower gas production. In terms of new capacity Russia’s Amur plant seems unlikely to have any impact in 2021 given delays and Qatar’s new capacity is likely to only ramp up slowly. The US BLM volumes are likely to be down sharply again this year with potential reservoir issues being flagged up also at the Cliffside field used for storage. Import data from early 2021 shows demand is picking up in Europe and Asia.

Market developments: strong stock performance and robust helium pricing

Listed helium companies soared in value over 2020. This trend has continued in 2021 with strong performance from companies such as Desert Mountain Energy (+194% ytd), Avanti Energy (+490%), Renergen (+74%) and Royal Helium (+41%) – Helium One is up 198% year to date. There have been several capital raises by helium focused companies also and three more companies coming to market in Canada: Global Helium, Imperial Helium and Royal Helium. This demonstrates the strong market appetite for helium investment, with Helium One the only listed helium company in the UK. Looking at updated pricing and volume data suggests that helium prices have remaining robust into 2021. Data from Asia implies helium import pricing of >US$300/mcf from Qatar.

Valuation: ~6x upside on an unrisked basis

In our base case scenario, we use a helium price of US$250/mcf long-term flat from 2021 and a 12% discount rate from 1/1/2021. Our risked NAV is 25p/sh, which implies 25% upside from the current share price. On an unrisked basis, we have a NAV of £1.33/sh or ~6x upside. Further to this are the follow-on prospects that are not included in our NAV and its other exploration areas. A US$50/mcf increase in the helium price would increase our risked NAV by 6p/sh and unrisked by 33p/sh.

Please click on the below link to read more:

Helium One Global | Updating our NAV on higher risked resource

Hannam & Partners: Oversubscribed equity raise will allow acceleration of development on exploration success

Helium One raises £10mm in placement to potentially accelerate development

Helium One last week raised £10mm in a significantly oversubscribed placing at 10p/sh. The main reason for the raise was to put the funds in place for HE1 to move quickly in the event of a discovery with its upcoming 3 well drilling campaign. This will save time and money on the appraisal and development planning process. Exploration drilling is expected to commence in around a month’s time. As a result of the raise, we have factored in a derisking of the commercialisation of the project and have increased our chance of commercialisation to 85% from 75%. Over all this offsets the dilution from the raise so our risked NAV remains unchanged at 11p/sh.

Rukwa project has the potential to be a material helium producer

Helium One’s key asset is its Tanzanian licence, Rukwa, which is a globally unique large-scale, high-grade, primary helium project. Most helium is produced as a by-product in large gas developments but Rukwa is one of very few helium projects that could be produced from non-hydrocarbon sources. To put it in context each of the wells is targeting the equivalent of around a year’s global helium demand. The total prospect inventory is 138bcf unrisked (P50), the largest primary helium resource in the world. HE1 has a first mover advantage in Tanzania, with attractive fiscal terms for helium extraction and low exploration drilling costs.

Exploration drilling in Q2 2020 targeting 18bcf worth £1.02/sh unrisked

HE1 intends to drill three exploration wells (on the Kasuku, Itumbula and Mbuni prospects) within the Rukwa licence in Q2’21. Each well should take a month to drill but helium shows in the mudlogs could be reportable prior to hole completion. We carry 34p/sh of unrisked and 3p/sh of risked value on average for each well. A substantial part of the overall risking relates to the “play” risk, which is the same for all prospects. Therefore, if one well is successful, it would derisk HE1’s other targets. We estimate that it could double the overall chance of success for the other prospects.

Helium market investment dynamics versus oil & gas

Helium has several unique properties that make it an essential element for many industries, which cannot be synthesised or manufactured, and with no substitutes. There has been a shortage of helium in recent years leading to a significant increase in prices. Helium is an extremely highly-valued commodity with a price around 100x that of natural gas, meaning even small amounts or low concentrations can be highly economic. Given the smaller footprint of a helium development, a standalone helium production facility can be developed quicker and much more cost effectively than a conventional greenfield oil and gas discovery that would normally take five-plus years and potentially cost billions of dollars to develop. A concentrated market also confers a competitive advantage to the current participants. HE1 expects to produce helium from resources that do not have associated hydrocarbon accumulations, allowing HE1 to produce carbon emission-free helium, unlike most of the global supply that is a by-product of natural gas operations. Listed helium companies have soared in value over the last year, in stark contrast to oil and gas companies.

Valuation: >7x upside on an unrisked basis; peers +650% in 2020

In our base case scenario, we use a helium price of US$250/mcf long-term flat from 2021 and a 14% discount rate from 1/1/2021. Our risked NAV is 11p/sh, which implies 5% upside from the current share price. On an unrisked basis, we have a NAV of £0.88/sh or >7x upside. Further to this are the follow-on prospects that are not included in our NAV and its other exploration areas. Helium focused E&P companies, especially those akin to Helium One that focus on primary helium have seen their shares rise by >650% in 2020, demonstrating the market’s interest in the helium sector. Also a US$50/mcf increase in the helium price would increase our risked NAV by 2p/sh.

Please click on the below link to read more:

Helium One Global | Oversubscribed equity raise will allow acceleration of development on exploration success

Hannam & Partners: Commencement of seismic acquisition on the Rukwa licence

Following the mobilisation of the seismic crew in mid-February, Helium One has commenced seismic data acquisition with mobilisation of vibroseis trucks and geophones to its Rukwa Project (100%) in Tanzania. 150km of infill 2D seismic will be shot targeting multiple trapping styles and will define the optimal well locations to be drilled in Q2’21. This should provide greater clarity on the subsurface and help to reduce the exploration risk. It is targeting shallow trap structures identified from the interpretation of historic seismic and recent gravity gradient data. It is also positive to see that Helium One has further strengthened its management team by adding Lorna Blaisse as Principal Geologist, who has 15 years’ experience, managing exploration campaigns across Africa, including working with similar rift basin geology to Tanzania.

Rukwa project has the potential to be a material helium producer

Helium One’s key asset is its Tanzanian licence, Rukwa, which is a globally unique large-scale, high-grade, primary helium project. Most helium is produced as a by-product in large gas developments but Rukwa is one of very few helium projects that could be produced from non-hydrocarbon sources. To put it in context each of the wells is targeting the equivalent of around a year’s global helium demand. The total prospect inventory is 138bcf unrisked (P50), the largest primary helium resource in the world. HE1 has a first mover advantage in Tanzania, with attractive fiscal terms for helium extraction and low exploration drilling costs. It is also currently carrying out geochemical exploration at the Eyasi Project (Helium One 100%), evaluating historic seep locations as well as identifying potential new seep locations at the southern end of the project area.

Exploration drilling in Q2 2020 targeting 18bcf worth £1.02/sh unrisked

HE1 intends to drill three exploration wells (on the Kasuku, Itumbula and Mbuni prospects) within the Rukwa licence in Q2’21. Each well should take a month to drill but helium shows in the mudlogs could be reportable prior to hole completion. We carry 34p/sh of unrisked and 3p/sh of risked value on average for each well. A substantial part of the overall risking relates to the “play” risk, which is the same for all prospects. Therefore, if one well is successful, it would derisk HE1’s other targets. We estimate that it could double the overall chance of success for the other prospects.

Helium market investment dynamics versus oil & gas

Helium has several unique properties that make it an essential element for many industries, which cannot be synthesised or manufactured, and with no substitutes. There has been a shortage of helium in recent years leading to a significant increase in prices. Helium is an extremely highly-valued commodity with a price around 100x that of natural gas, meaning even small amounts or low concentrations can be highly economic. Given the smaller footprint of a helium development, a standalone helium production facility can be developed quicker and much more cost effectively than a conventional greenfield oil and gas discovery that would normally take five-plus years and potentially cost billions of dollars to develop. A concentrated market also confers a competitive advantage to the current participants. HE1 expects to produce helium from resources that do not have associated hydrocarbon accumulations, allowing HE1 to produce carbon emission-free helium, unlike most of the global supply that is a by-product of natural gas operations. Listed helium companies have soared in value over the last year, in stark contrast to oil and gas companies.

Valuation: almost 15x upside on an unrisked basis; peers +650% over last year

In our base case scenario, we use a helium price of US$250/mcf long-term flat from 2021 and a 14% discount rate from 1/1/2021. Our risked NAV is 11p/sh, which implies >50% upside from the current share price. On an unrisked basis, we have a NAV of £1.04/sh or almost 15x upside. Further to this are the follow-on prospects that are not included in our NAV and its other exploration areas. Helium focused E&P companies, especially those akin to Helium One that focus on primary helium have seen their shares rise by >650% in 2020, demonstrating the market’s interest in the helium sector.

Please click on the below link to read more:

Helium One Global | Seismic gathering commenced ahead of Q2 drilling

Hannam & Partners Initiation Note

Hannam & Partners Initiating coverage of Helium One with a risked NAV of 11p/sh (~50% upside) or a valuation: almost 15x upside on an unrisked basis; peers +650% over last year.

Initiation coverage with a risked NAV of 11p/sh (~50% upside)

Helium One Global Ltd (“Helium One”; ticker “HE1”) is a UK AIM-listed pure-play helium exploration company, with a first-mover advantage in developing helium assets in Tanzania. Founded in September 2015, its goal is to become a significant primary supplier of high-grade helium to industry. It owns exploration licences in three locations in Tanzania, where prospective resources have been identified with helium concentrations that are amongst the highest in the world. HE1 is the only listed company in the UK that enables investors to participate in the helium market. Having previously been a private company, HE1 raised an upsized GBP£6mm and amalgamated with Attis Oil and Gas in order to gain a London listing in early December 2020.

Helium market investment dynamics versus oil & gas

Alongside this report, we have also produced a comprehensive macro report on the helium sector. Helium has several unique properties that make it an essential element for many industries, which cannot be synthesised or manufactured, and with no substitutes. There has been a shortage of helium in recent years leading to a significant increase in prices. Helium is an extremely highly-valued commodity with a price around 100x that of natural gas, meaning even small amounts or low concentrations can be highly economic. Given the smaller footprint of a helium development, a standalone helium production facility can be developed quicker and much more cost effectively than a conventional greenfield oil and gas discovery that would normally take five-plus years and potentially cost billions of dollars to develop. A concentrated market also confers a competitive advantage to the current participants. HE1 expects to produce helium from resources that do not have associated hydrocarbon accumulations, allowing HE1 to produce carbon emission-free helium, unlike most of the global supply that is a by-product of natural gas operations. Listed helium companies have soared in value over the last year, in stark contrast to oil and gas companies.

Rukwa project has the potential to be a material helium producer

Helium One’s key asset is its Tanzanian licence, Rukwa, which is a globally unique large-scale, high-grade, primary helium project. Most helium is produced as a by-product in large gas developments but Rukwa is one of very few helium projects that could be produced from non-hydrocarbon sources. To put it in context each of the wells is targeting the equivalent of around a year’s global helium demand. The total prospect inventory is 138bcf unrisked (P50), the largest primary helium resource in the world. HE1 has a first mover advantage in Tanzania, with attractive fiscal terms for helium extraction and low exploration drilling costs.

Exploration drilling in Q2 2020 targeting 18bcf worth £1.02/sh unrisked

HE1 intends to drill three exploration wells (on the Kasuku, Itumbula and Mbuni prospects) within the Rukwa licence in Q2’21. Each well should take a month to drill but helium shows in the mudlogs could be reportable prior to hole completion. We carry 34p/sh of unrisked and 3p/sh of risked value on average for each well. A substantial part of the overall risking relates to the “play” risk, which is the same for all prospects. Therefore, if one well is successful, it would derisk HE1’s other targets. We estimate that it could double the overall chance of success for the other prospects.

Valuation: almost 15x upside on an unrisked basis; peers +650% over last year

In our base case scenario, we use a helium price of US$250/mcf long-term flat from 2021 and a 14% discount rate from 1/1/2021. Our risked NAV is 11p/sh, which implies ~50% upside from the current share price. On an unrisked basis, we have a NAV of £1.04/sh or almost 15x upside. Further to this are the follow-on prospects that are not included in our NAV and its other exploration areas. Helium focused E&P companies, especially those akin to Helium One that focus on primary helium have seen their shares rise by >650% over the last year, demonstrating the market’s interest in the helium sector.

Please click on the below links to read more:

Initiation of Coverage: Primary Helium Pure Play | Hannam And Partners

A super cool commodity | Hannam And Partners

finnCap commentary on Helium One upon its Admission to AIM

Please click on the below link to read more:

8 December 2020 – finnCap  – Helium One admission to AIM