Exploration drilling in Q2 2020 targeting 18bcf worth £1.02/sh unrisked21 May 2021 13:50
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.
http://www.helium-one.com/analyst-research/
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