Tuesday, December 07, 2021

Why Helium Could Be The Hottest Commodity Play Of 2022


Editor OilPrice.com
Mon, December 6, 2021

Helium is already 100x more expensive than natural gas—even with skyrocketing oil and gas prices.

And the helium land rush is on in full force.

It’s made easier by the fact that the bulk of helium comes from natural gas fields, and what investors should be paying attention to now is the largest conventional gas field in the United States.

This is where we could find the biggest potential beneficiary of a helium shortage that will dictate the future of everything from supercomputing and space travel to MRIs and medical research across the board.

Helium plays in general are strong bets because we no longer have a federal reserve of helium—as of this year—and we’re looking at an extremely tight supply picture coupled with fast-growing high-tech demand.

But Total Helium (TSX.V:TOH) is the furthest along and its advantages are clear …

It has a helium play in the biggest conventional natural gas field in the United States, Hugoton, in the Kansas-Oklahoma panhandle.

The company reports it already has a deal with a member of the helium oligopoly—Linde (NYSE:LIN), one of the biggest downstream companies in the sector.

And it’s got superb sponsorship: Behind Total Helium is Craig Steinke, the founder of Reconnaissance Africa, the bold junior explorer taking on the giant Kavango Basin in Namibia and Botswana, with an estimated potential of 120 billion boe.

Here are 5 reasons we plan to keep a very close eye on Total Helium (TSX.V:TOH) right now:

#1 The Biggest Helium Play in North America

Discovered in 1922, the Hugoton natural gas field isn’t just the largest in the United States—it’s reportedly the largest conventional gas play in all of North America.

It has a potential 75 trillion cubic feet of recoverable natural gas.

And it’s not only the historical center of conventional natural gas production—it's a helium behemoth that’s already produced approximately 300 BCF of helium.

Now, Total Helium is expanding this massive field, armed with new technology and a market that will be starving for more helium supplies.

So far, Total Helium has approximately 86,000 acres of leases on hand at Hugoton—about 46,000 in leases and about 40,000 in farmout agreements with Scout Energy, one of the largest producers in the basin.

And the leasing campaign is still ongoing. The end game here is said to be a 1.65 million-acre extension.


And Total Helium’s extension area is said to have proven concentrations of helium:


Total Helium (TSX.V:TOH) is targeting 70 billion cubic feet of helium here, along with 8.5 trillion cubic feet of produced gas, enriched with liquids.

They estimate that the average well they drill could be able to produce over 27,000 Mcf of helium.

At today’s natural gas and helium prices, we think this is a play that’s hard to beat, and there’s even more upside here when we consider the methane potential …

So why hasn’t Hugoton been on the mainstream radar in recent years?

In the previous century, this was a monster gas producer for the United States. But a lack of technology kept us from realizing its full, continued potential. And then the shale boom hit. The advent of fracking—even though exorbitantly expensive and environmentally questionable—took all attention away from the technology to recover Hugoton’s remaining gas riches.

A key issue was water.


While the rest of the world was distracted by unconventional oil and gas, Steinke—a long-time wildcatter—found a different niche: proven reservoirs with high water concentrations. This is what Hugoton is. And without the right technology, it can be just as challenging as fracking.

But that technology now exists, and while the world has remained distracted … Steinke has not.

Steinke and his team are experienced in this kind of reservoir. Now, in Hugoton, they have a significant injection zone for the additional volumes of water that get produced. Hugoton was a problem earlier on because no one had the right technology to be able to handle the water. Total Helium does. Water disposal is an important part of the economic equation here.

This is a natural gas, methane, and helium play, and with the right water disposal system, which is said to have been already secured, it should be easy to get at.

Geological storage studies have already been completed and engineering studies are underway.

Everything appears to be lined up for this play and the critical infrastructure is in place, with a massive pipeline network.

#2 Soaring Gas Prices as First Wells Are Spudded

Total Helium (TSX.V:TOH) started drilling its first well, Boltz 35B, on November 14th. The process includes installing a 3-phase power for operating a submersible pump, building a pipeline connection to sell produced gases, and establishing disposal lines for connecting the well to the existing salt-water disposal well.

In December, they intend to start testing, completion, and production at Boltz 35B.

This one is moving fast, and the news flow from now through the end of the year could be extremely defining for this exciting new stock.

All the more so when the company’s projected return on investment for a single well is 877%.


* RPS Competent Person Report –P50 Case

Total Helium says it will also be keeping costs down by paying their farmout partner, Scout Energy, 15 cents per barrel for disposal, which is a very nominal fee—even when you have agreed to sell Linde 10,000 Mcf of helium per month at $212 per Mcf—the discounted price until Linde recoups its investment. Anything beyond that 10,000 Mcf will could go at market price for up to $500 per Mcf. And even at $212/Mcf, it’s profitable.

And we think there is plenty of additional upside here, as well.

Total Helium’s total prospect area is approximately 1.65 million acres, representing a 19x growth opportunity.

There’s even more upside in the potential to competitively bid up excess helium, which is selling for anywhere between $300/Mcf to $600/Mcf. That excess helium alone has a potential for a 1.8x growth scenario for Total Helium.

Finally, the company’s helium storage JV with Linde has ongoing revenue potential.

#3 Total Helium Has Critical Partnership & Sponsorship

A partnership with a huge multinational industrial gas company makes this opportunity a rare one for a junior player.

Linde (NYSE:LIN) is a $160-billion-market-cap major that provides atmospheric gases to customers in multiple trillion-dollar industries, from petroleum refining, aerospace, electronics, and healthcare to manufacturing, food and beverage, chemicals and water treatment industries.

This isn’t just any partnership deal. Total Helium (TSX.V:TOH) and Linde have a JV deal that may see them create the only alternative helium storage facility to the U.S. federal helium reserve in the entire world. The U.S. federal helium is planned to be auctioned off to private investors.

This partnership deal also looks like an ideal setup for generating cash flow for Total Helium. The company has already received $950,000 in the form of an upfront payment from Linde. And they’re set to receive another $950,000 as they spud their first wells.

They also have a $360,000 consulting contract with Linde for establishing underground helium storage facilities, with 50/50% ownership deal.

So far, Total Helium has generated over $2.2 million in current and upcoming cash flows from its partnership with Linde.

The deal with Linde isn’t the only thing that sets Total Helium apart. This is a level of sponsorship we don’t often see in a small-cap play like this.

The man behind Total Helium, Craig Steinke, is also behind the most exciting oil play we’ve seen in a decade, at least—Recon Africa’s Kavango Basin with an estimated potential of up to 120 billion boe. Steinke is great at making moves on huge hidden, or forgotten gems and swooping in to acquire big plays that are usually reserved for supergiants.

Now, Steinke is aiming to do something similar with Total Helium (TSX.V:TOH), as the bit hits the ground in North America’s largest conventional natural gas field.

Except that now, it’s about a basket of high-priced gases, including helium and methane …

#4 North America is Desperate for Home-Grown Helium

Helium is extremely lightweight, non-reactive, and can liquify at extremely low temperatures. It’s also completely non-renewable. In other words, there is nothing that can replace it.

The Bureau of Land Management (BLM) first jumped on helium in WWI, feeding technology that sent helium balloons to bomb our adversaries. Since then, helium has been considered a strategic gas held in a federal reserve. During the Cold War, helium was used for cooling the tips of missiles.

Now, helium is a key to our supercomputing power. A key to big data. Our hard drives are now “helium drives”. Fiber-optic telecommunications might be impossible without helium. So may medical research, and even MRIs. A NASA space shuttle requires 1 million cubic feet of helium just during the launch countdown.

Linde bought much of its past helium from the BLM, but now they have to look elsewhere. That search has taken them as far away as Russia and Qatar, but transporting helium that far is a risk because it is not bound to the earth by gravity and can leak away. Industrial Gas Companies have been paying a premium to Russia and Qatar for helium, so a sizable North American option is not only ideal—it’s vital.

#5 Bottom Line: Impressive ‘Helium Enhanced’ Economics

Natural gas is trading at just under $5 right now. And that’s about $2 more than the norm in recent years. Helium still blows it away at up to $500/Mcf.

And now that the BLM is out of business, North America could find itself facing a helium shortage.

One of the most innovative wildcatters on the natural resources scene has scooped up tens of thousands acres of leases for the largest natural gas field in North America, and a venue that serves as the epicenter of American helium.

Unique water disposal technology could make this one of the most profitable helium producers out there, which is exactly why they’ve attracted giant Linde as a JV partner with a helium offtake deal.

Both Total Helium (TSX.V:TOH) management and Linde have significant skin in this game which could provide a serious boost in investor confidence.

And they’ve just spudded their first well, with completion targeted for this December. We’re looking at a fast-moving play with world-class helium potential and a management team of world-renowned wildcatting fame. The clock is ticking on this one and it goes way beyond party balloons.

Other companies looking to capitalize on the alternative resource space:

Air Products & Chemicals (NYSE:APD) has been at the forefront of global hydrogen production for years. They recognize that this clean alternative fuel can help make an impactful dent in boosting our country's green energy initiatives as well as reducing carbon emissions across industries by decreasing reliance on fossil fuels like coal and petroleum products, etc., which Air Product’s own extensive experience with helping others achieve sustainability goals through chemical innovation will bring about even more progress than before

Air Products and Chemicals has well over 60 years of experience producing hydrogen, and more than two decades designing fueling stations. It’s SmartFuel stations have been deployed across the globe and support a number of different unique and interesting transportation applications. The fully-integrated stations include compression, storage and dispensing systems that have proven to be safe and reliable for its customers. Though Air Products has been around for some time, the $66 billion company has had a particularly strong year in 2021 thanks to the growing interest in Hydrogen applications.

Dow Chemical Company (NYSE:DOW) is an American multinational chemical corporation headquartered in Midland, Michigan with over a century in operation. This company has been called "the chemical companies' chemical company" as its sales are to other industries rather than directly to end-use consumers and it employs around 54 thousand people worldwide. Along with being one of the three largest producers of chemicals in the world, they also make plastics, agricultural products and more.

George Kehler, Dow’s commercial manager for Fuels and Energy, notes, “One of Dow’s options to develop a diverse portfolio to power our facilities is to produce energy off the grid through cogeneration, as well as having renewables become an increasingly more important part of the mix”

Dow is also teaming up with GM to produce hydrogen for fuel cells and reduce their reliance on natural gas. Dow produces chemicals that help the environment as well as plastics, which can be used in everyday items like water bottles or cell phones; but now they're looking into something more than just a single product line! In addition to reducing costs by using another company's resource (hydrogen), this partnership will also provide clean energy while making it easier - these two companies are committed not only toward improving our technological future...but extending it so we never run out!

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