This is a good time to be a helium producer. Demand for the element (in gaseous form) — which is used in industries as diverse as medicine (cools the magnets in MRIs), aerospace, semiconductor and fiber optic cable manufacturing, high speed internet, and much more — continues to rise. ResearchandMarkets.com has forecast that the global helium market will reach US$18.18 billion in 2025, growing at a compound annual growth rate of 11.5%.
Supply, on the other hand, has fallen. The U.S. government, through the Bureau of Land Management, was once a major seller, but it is now dismantling the Federal Helium Reserve and removing itself from the marketplace.
Not surprisingly, prices have skyrocketed.
In 2018, the U.S. government sold helium for $119 per thousand cubic feet (Mcf) and now, according to some estimates, the price has increased as much as five-fold.
Outside of the U.S., the countries with the largest helium reserves are Qatar, Algeria, Russia, Canada, and China.
Russia has been ramping up its helium production, but even before its invasion of Ukraine, there were issues. At its Amur gas processing facility, a fire last October and an explosion and fire in January have resulted in production being offline for at least six months.
Throw in the fact that helium is difficult to transport and store, North American users of helium are seeking not only geopolitically stable sources, but also regional suppliers — and one promising source is Canada.
Calgary-based Imperial Helium Corp. (IHC:TSX.V; IMPHF:OTCQB) is developing helium resources on its Steveville property, a 95-square-mile property in southern Alberta, that was the site of a spectacular blowout in 1940 (which proved the reservoir characteristics were conducive to helium development).
At Steveville, Imperial has honed in on a promising zone into which it has drilled three wells. The first well, Steveville 1, is an appraisal well and defined the down-dip edge of the geological structure. In the second well at Steveville-2, the company tested the upper zone (aka the "Blow-Out Zone"), and found helium at a concentration of 0.43% (helium concentrations of at least 0.3% are believed to be economic), and has estimated a production rate of 5 to 8 million cubic feet (mmcf) of gas per day for three years before the well begins to decline.
Steveville-3 was drilled in December 2021, and the company discovered a new zone (called "Sub-Salt Zone"), underlaying the existing Blow-Out Zone, and is running production tests on that lower zone.
Imperial CEO David Johnson told Streetwise Reports, "The new zone is very encouraging; it has a helium concentration of 0.51%, which is about 19% more than we found in the zone that's overlaying it. It has different concentrations of other gases, and it doesn't have any CO2 in it, which is great from both an environmental and reduced processing cost perspective."
“Our development plan contemplates drilling many more wells over time and generating levels of cash flow that can support internally funded growth.”
—Imperial Chief Executive Officer David Johnson
The company expects to release production test data any day now for the lower Sub-Salt Zone.
"Our initial development of the field has started with two wells," Johnson explained. "At the first well, Steveville-2, we had our first production test on the upper Blow-Out-Zone. And now that we have the Steveville-3 well and we've gotten some production from it, we are confident that this will be our second producing well."
The company plans to production test those zones it hasn't yet tested, including the lower Sub-Salt Zone in well 2 and the upper Blow-Out Zone in well 3. "Once we have done that, we hope to have proven that each of the Blow-Out Zone and the Sub-Salt Zone reservoirs are independently in communication between the wells 2 and 3, and we will be able to produce both reservoirs with the two existing wells," Johnson said.
"Our model is to have two wells delivering 10 million cubic feet a day of raw gas, producing 40 thousand cubic feet a day of helium, and we think we have that from one zone in each of the two wells. But after we complete our production testing, we may determine the best way to proceed is to have a higher rate of production from both zones in both wells; as this would get more helium to the surface faster," he said.
The company will make a decision on the size of the processing facility after it finishes the production testing. "It takes nine months to a year to get a plant up and running," Johnson explained. Western Canada, having produced oil and gas for 50 years, has the "infrastructure and technical expertise to bring things onstream quickly."
Imperial plans to produce helium that is 99.999% purity, or 5-9 in the local jargon. "We're choosing to produce at 5-9 because about 70% of the uses of helium require 5-9, so there's a higher margin for it," Johnson noted.
He explained that the price of helium is like a black box. "We all knew the price of helium when the Bureau of Land Management was selling it, but now that the public auctions are no longer there, and pricing is negotiated behind closed doors, it is challenging to find prices."
There is a huge variation in helium prices. At the low end, raw helium gases may sell for US$200/mcf, while 5-9 helium bottled for scuba tank uses might sell for US$2,000/mcf. Tanks at party stores for blowing up balloons might come to the equivalent of US$3,000/mcf, and that would be raw helium.
“While helium prices are very opaque, using an estimate for raw helium of upwards from $US300 with an anticipated production of 40-60 mcf per day, translates into a revenue ranging between US$4 million and US$6 million a year from only two wells. Our development plan contemplates drilling many more wells over time and generating levels of cash flow that can support internally funded growth,” continued Johnson.
In addition to the area of Steveville that Imperial is actively exploring, it also is looking at other opportunities on its large land package.
And the company is also searching out other areas.
"There are other opportunities around us that we're looking to acquire and move forward on as well," Johnson said. "What we've learned has led us to look elsewhere, and we're encouraged by what we see."
Imperial Helium has approximately 88 million shares outstanding and 137 million fully diluted. It has traded within the range of CA$0.15 and CA$0.46 over the past 52 weeks.
Disclosures:
1) Patrice Fusillo compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She owns, or members of her immediate household or family own, securities of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
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