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Helium Wars: Why Are Tech Giants Fighting Over This Rare Gas?

Baystreet - Tue Aug 15, 2023
A daunting list of key industries the world over is now wondering where their future supplies of helium will come from.

What battery metals are to gigafactories, helium is to everything from scientific research, medical technology and high-tech manufacturing to space exploration and national defense.

None can survive without helium—a non-renewable natural resource typically recovered from natural gas deposits. Helium is unique among all elements because it can reach ultra-cold temperatures making possible everything from magnetic resonance imaging (MRIs) and semiconductors (which are now suffering from a supply shortage) to fiber optic telecommunications and even space exploration.

Multi-billion-dollar industries depend on this; yet, we have been in a state of helium shortage since 2016. And in 2022, the war in Ukraine effectively cut off helium supplies from Russia, a leading exporter with big expansion plans.

An energy crisis deprived industries of even more, with the world’s largest producers forced to abandon helium in favor of natural gas rationing.

Now, with North American industries now experiencing a supply squeeze and geopolitical risk putting other major suppliers out of reach, Avanti Helium Corp.’s (TSXV: AVN; OTC: ARGYF) two recent discoveries and first production planned for the first-quarter of next year, is a propitious development.

And with helium worth hundreds of times more than natural gas, the opportunity is overripe for energy-sector investors.

Two Helium Discoveries Amid a Supply Squeeze

These Montana-based helium discoveries are larger than expected, and have the potential to redraw the helium map in North America’s favor, expanding from Montana into Alberta, Canada.

In June last year, Avanti discovered 187 million cubic feet of net recoverable helium gas, based on a raw gas estimate of 17 billion cubic feet recoverable and net helium concentration of 1.1% at its WNG 11-22 well in the Greater Knappen Property in Montana.

Then, in January this year, Avanti expanded the pool with the second well flowing 20 million cubic feet per day, also at Greater Knappen. That flow rate and helium percentage was more than double Avanti’s initial expectations.

The two wells will be brought into production in the first quarter of next year.

All of this helium comes from the development of a single pool on the Greater Knappen property, and there are approximately 10 more pools to drill.

Avanti’s Greater Knappen property is an 82,000-acre opportunity for North America. With 100% interest in this prospective helium play, and1-2% helium in its discoveries. This gives Avanti a clear North American advantage.

Risk-Reduction with a Major Midstream Deal

Just days ago, Avanti (TSXV: AVN; OTC: ARGYF) signed an agreement with a veteran helium midstream company that already has over a dozen helium plants across North America. That is the biggest de-risking driver since Avanti’s two discoveries because it fast-tracks the commercialization of Avanti’s helium recovery plant with raw gas from its Sweetgrass helium pool. The plant is now set to begin operations in the first quarter of 2024.

The agreement with private company IACX gives Avanti even more experience, CAPEX power, supply-chain strength, and existing component inventory because IACX already operates over a dozen helium plants across North America.

The agreement calls for the construction, financing, and operations of a helium recovery plant that will process raw gas from Avanti’s Sweetgrass Helium pool in the Greater Knappen project. The plant is designed to initially process 10 million cubic feet per day of raw gas beginning in Q1 2024, with the option to ramp up to 15 million cubic feet per day.

The deal is also fee-based. For investors, that means it will primarily be paid out of operational cashflow from the plant, making it unnecessary for Avanti to do a major equity raise, which would dilute shares, or obtain high-interest debt.

Avanti will feed its raw gas to the new plant via pipeline. Once in the plant, the raw gas is concentrated into 98% pure “crude” helium. Because “crude” helium is still gaseous, it is transported further to a liquefaction plant where the chilling process removes the remaining nitrogen, leaving a helium purity of 99.999% - the market premium, and cools the helium to -269C, the temperature at which it liquifies.

All the steps of this process amount to ~$211/Mcf (thousand cubic feet) initially and declining to ~$163/Mcf by year three. Additional costs such as royalties and power are expected to total ~$70/Mcf or less. That means that the total operational costs of marketed liquid helium will be approximately $280-$230/Mcf over five years.

While last year, helium prices spiked because hopes for plentiful supply were dashed, selling for $500 Mcf all the way up to $1,000/Mcf depending on purity and grade, prices remain opaque and vary from deal to deal.
Some insight comes from the recent contract announced by Royal Helium in early July. That contract was for $625/Mcf, without trucking and liquefaction. With trucking and liquefaction, that would make the gross price ~$750/Mcf. Using these numbers, we can arrive at a potential netback for Avanti of $470-$520/Mcf.

With the new helium recovery unit initially producing 10 MMcfd (million cubic feet per day) and ramping up in an estimated nine months to 15MMcfd, this could potentially position Avanti to earn as much as $14.9 million annually, using a netback of $500/Mcf. When it ramps up, the earnings could shoot up to as much as $22 million or more annually.

Beacon Securities, which has initiated coverage of Avanti, forecasts the company to generate $22.5 million of EBITDA in 2024.

Beacon also expects Avanti to resume exploration drilling on the Greater Knappen project once it is generating EBITDA early next year, with additional expectations that new drilling will lead to another helium recovery plant by the third quarter of 2025, with EBITDA then possibly nearing the $40 million mark.

What Beacon is now looking for in the news flow is a forward movement on Avanti’s plans to finance the pipeline for the Sweetgrass site as well as an independent offtake agreement—both of which Beacon expects to hear about in the coming months.

Beacon referred to Avanti’s (TSXV: AVN; OTC: ARGYF) midstream agreement with IACX as “a major de-risking step in AVN’s path to production of liquified helium that should receive a price of US$750/mcf or more”. Beacon’s forecast is that AVN is trading at an EV/EBIDTA multiple of 2.4x for next year, and only 0.9x for 2025. “With a compelling macro backdrop in the critical helium sector, we believe that multiple should be much higher”. Beacon Securities maintains its $2.25 price target for AVN.

A Critical Junction for American Helium

Prior to 2016, helium supplies were not a concern. The U.S. was stockpiling helium as a matter of national interest beginning in the 1960s, at the height of the Cold War. That strategic supply of helium was stored at the Federal Helium Reserve in Amarillo, Texas, with controlled pricing.

Nearly half of the U.S. supply of helium came from this reserve. That reserve is dwindling, and earlier this month, the Bureau of Land Management (BLM) announced that all the assets of the federal helium system would be auctioned off for sale in November. To offset this lost domestic supply of helium, a pure play exploration industry is developing.

The helium land grab is in full force, as explorers search for new sources of helium in commercial quantities. That means fields with high helium contents. Montana and Canada’s Saskatchewan province are two major venues for this, as Avanti has already discovered.

This also means that helium explorers need to have significant natural gas exploration and production experience. The Avanti team has exactly this, in one of the largest oil and gas discoveries in North American history: Canada’s Montney Shale. Avanti CEO Chris Bakker played a significant role in the Montney’s development on behalf of giant Encana.

Now, with the global helium market set to hit nearly $6.5 billion in just three years, Avanti is a clear industry leader with two discoveries, much more to explore, and a midstream deal to get its first helium recovery unit up and running by the beginning of next year.

Other companies to keep an eye on:

Air Products and Chemicals, Inc. (NYSE: APD) is an industrial gas titan with a diverse portfolio of products that serve various sectors from food processing to semiconductors. Their expertise in handling and delivering specialty gases makes them a key player in the realm of helium distribution. As we advance technologically, helium's role in cooling, healthcare, and electronics becomes even more vital.

he company's expansive global network enables it to deliver helium to industries across continents. Its state-of-the-art storage and delivery solutions ensure that the gas reaches its destination in the purest form, maintaining its efficacy. For APD, it's not just about supplying a gas; it's about supporting the innovations that this gas powers.

Given the growing demand for helium and the company's pioneering efforts in its safe and efficient transportation, APD promises to be a major stakeholder in the helium-centric future. Investors with an eye on industries that hinge on helium should consider APD as a solid investment avenue with a track record of reliability and innovation.

Linde PLC (NYSE: LIN) is more than just a gas provider; it's a global leader in making our modern lives possible. From healthcare to clean energy, Linde's solutions have an expansive reach, and their ventures into the helium sector stand testament to their forward-thinking approach.

Helium, as a resource, is not just about balloons. It's instrumental in MRI scanners, semiconductor manufacturing, and even space exploration. Recognizing this, Linde has invested heavily in ensuring a steady supply chain, even as global helium reserves become harder to source. Their commitment to sustainability ensures that helium extraction doesn't compromise environmental standards.

With Linde's emphasis on research, sustainability, and efficient distribution, they are poised to become indispensable in a world increasingly reliant on helium. Investors keen on backing a company that's both ethically responsible and strategically positioned for the future should seriously consider Linde PLC.

Exxon Mobil Corporation (NYSE: XOM) is synonymous with energy leadership. For decades, Exxon has shaped global energy trends, and their vast network and resources place them in a unique position to navigate emerging market shifts, like the increasing importance of helium.

While not their primary focus, helium extraction is an extension of Exxon's expertise in the natural gas sector. As helium reserves become scarcer, the capability to efficiently extract it from natural gas becomes a valuable asset. Exxon's extensive research and development facilities are also constantly exploring efficient extraction techniques, ensuring they remain ahead of the curve.

For investors, Exxon represents more than just oil. With the growing demand for helium, Exxon's existing infrastructure and R&D capabilities place it in a strong position to leverage this burgeoning market. Their reputation for innovation combined with stability makes them a promising choice for those looking at long-term growth.

Chevron Corporation (NYSE: CVX) is a name that resonates with energy expertise. From upstream exploration to downstream sales, their operations span the complete energy cycle. Chevron's prowess in natural gas extraction and refining offers an indirect avenue to the helium sector. Given that helium is often extracted alongside natural gas, Chevron's extensive infrastructure could provide a significant edge in capitalizing on helium opportunities.

While oil remains their mainstay, Chevron's vast natural gas operations open the doors to the world of helium. Their geoscientists, with an intricate understanding of underground reservoir dynamics, are perfectly poised to optimize helium extraction. As the demand curve for helium tilts upward, Chevron's robust infrastructure could make them a significant contributor to the global supply.

For the discerning investor, Chevron offers a blend of stability and the potential to pivot. As the helium narrative unfolds globally, Chevron's adaptability and vast resources offer a promise of both growth and resilience.

Baker Hughes Company (NASDAQ: BKR) epitomizes excellence in oilfield services. It has consistently demonstrated an ability to evolve, ensuring they stay relevant amidst changing energy landscapes. This adaptability makes them a name to watch in the helium sector.

With the technology to handle complex drilling and extraction projects, Baker Hughes is well-equipped to tap into the helium market. As helium often coexists with natural gas, their expertise in the latter could seamlessly translate to a focus on the former. Their reputation for harnessing technology to maximize extraction efficiency might just make them a dark horse in the helium race.

For investors, Baker Hughes offers the allure of potential. Their technological prowess combined with a history of adapting to market needs suggests they could be a significant player in addressing the growing helium demand. The company's capacity for innovation and strategic moves make it a compelling consideration for future-forward portfolios.

Schlumberger Limited (NYSE: SLB) dominates the oilfield services landscape with its unparalleled technical expertise and global outreach. Schlumberger’s vast experience in the energy sector, especially in natural gas exploration, offers potential synergies with the helium market. As helium becomes more central to industries ranging from healthcare to space exploration, Schlumberger’s capabilities could be harnessed to optimize its extraction and processing.

Investors should keep a close watch on Schlumberger’s strategic moves, especially as the company is known for leveraging opportunities in emerging markets. With helium’s significance set to grow, Schlumberger offers an investment avenue with both stability and growth potential.

Suncor Energy Inc. (TSX: SU) is a titan in the Canadian energy industry, with a significant focus on oil sands production. Its integrated approach, along with a commitment to sustainability, sets them apart. As the global emphasis shifts to resources like helium, Suncor's comprehensive infrastructure might just be its ace card.

Being heavily involved in natural gas, Suncor is no stranger to the intricacies of gas extraction and processing. As the helium narrative gains traction, Suncor's experience in gas operations positions them as a potential leader in this niche market. Their commitment to research and sustainable operations can be a crucial advantage in harnessing helium responsibly.

Investors scouting for opportunities in emerging resource markets should keep a keen eye on Suncor. Their established infrastructure, combined with a forward-thinking approach, can make them a formidable force in the helium sector. With a track record of resilience and growth, Suncor promises potential returns for the long haul.

Imperial Oil Limited (TSX: IMO) holds a commanding position in Canada's integrated oil landscape. Their expertise doesn't just lie in oil but extends to a wide range of energy solutions, including natural gas.

As helium often coexists with natural gas deposits, Imperial Oil's expansive operations in the gas sector hint at potential intersections with the helium market. As helium's global significance grows, companies with extensive natural gas experience could pivot to meet this demand.

Investors should be keenly observant of Imperial Oil's strategic ventures, as their technical know-how combined with market responsiveness could lead to valuable returns in the helium sector.

Canadian Natural Resources Limited (TSX: CNQ) is recognized for its comprehensive approach to oil and gas exploration and production. Their diversified asset base, spanning from oil sands to natural gas, positions them favorably in the broader energy landscape.

Given the association between natural gas deposits and helium, CNQ’s operational expertise might make it a dark horse in the helium race. As industries increasingly rely on helium for diverse applications, CNQ's infrastructure and capabilities could be strategically channeled towards this growing demand. Investors eyeing the evolving helium market should closely monitor CNQ's developments, as their vast resource base and adaptability could spell significant growth opportunities.

By. Michael Kern

Provided Content: Content provided by Baystreet. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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