Dec 06, 2021 (Baystreet.ca via COMTEX) -- Since the dramatic discovery of superconductivity, no gas has been more critical to innovation and billion-dollar industries than helium. At the same time, no gas is threatened more than helium with a devastating lack of supply.
The helium land grab is now in full swing … and oil and gas executives are now shifting to the hunt for this most precious rarefied gas that fuels everything from rocket ships to computer chips.
It’s against this backdrop that early mover Avanti Energy Inc. ( TSX:AVN.V ; OTCMKTS:ARGYF ) is preparing to drill its first well in its initial three-well program in the Greater Knappen area that extends from Montana to Alberta, Canada--one of the best prospects for securing our future helium supplies.
Because we’re running out of helium to the point that innovation itself could come to a standstill, first movers on the new helium discovery scene are pinging major radar even as the land grab continues to increase in intensity.
Once Avanti starts drilling its first well in early December, the news may likely roll in at a fast clip because so much is at stake here. The Avanti management team expects to have results sometime early in the New Year.
With up to six-wells planned to be drilled in total from now through the second quarter of next year , investors could be looking at a steady stream of news as the state of Montana pins its hopes on a drilling program that could turn it into a major helium force for the national interest.
Here are 5 things investors should know ahead of Avanti Energy’s initial 3-well campaign:
Helium is a critical gas, and we’re running out of it
Since the height of the Cold War in the 1960s, the United States has been stockpiling helium as a strategic gas, controlling supply and pricing at a Federal Helium Reserve in Amarillo, Texas.
Why is helium so critical?
Because helium is unique among all elements for its ability to reach ultra-cold temperatures. That has made it the key to breakthrough discoveries in medicine, computer technology and space travel. It’s arguably the most important element from a national security standpoint. Helium is the backbone of several high-tech billion-dollar industries, 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 propulsion.
Why are we running out?
Helium is scarce, non-renewable and not bound to earth by gravity. Until recently, some 40% of U.S. helium supply came from the Federal Helium Reserve.
In the 1990s, the federal government decided that helium could be sold to private entities, with the revenue intended to pay off the reserve’s debt. In 2019, the Bureau of Land Management (BLM), which operated the reserve, held its last helium auction, fetching prices that were 135% higher year-on-year. Now, the facility is closed, and federal reserves have been depleted.
The helium supply situation has become so critical that the American Physical Society —the nation’s leading organization of physicists—is calling it a “liquid helium crisis” that threatens to bring innovation to a standstill. Scientists are abandoning research that requires liquid helium due to shortages, high prices and lack of purchasing power, and billion-dollar industries are at risk.
The race is now on for explorers to find new sources of helium in commercial quantity, and the place to look is gas fields, with Montana predicted to be one of the major sweet spots:
Avanti’s world-class team is descending on Montana--Fast
Avanti’s world-class team has moved so fast on this one that investors have barely been able to keep up with the news flow.
They signed a definitive agreement to acquire the helium rights to another ~50,000 acres of land in Montana on September 15 [th] , giving them a total of ~69,000 acres.
Since then, things have moved along at breakneck speed. Just a week later, Avanti Energy Inc. ( TSX:AVN.V ; OTCMKTS:ARGYF ) announced it had acquired 3D seismic data covering over 27 square miles that included several structural highs pinpointed as ideal for trapping helium. Instead of shooting new 3D seismic, Avanti moved at a face pace to acquire the license for this seismic from one of Canada’s biggest oil and gas producers. That saved both time and money.
Days later, on September 29 [th] , Avanti’s technical team outlined 17 initial drill targets in this core area. The drill targets all reside over closed structural highs that exhibit ~80m to >200m of relief and are highly prospective for helium.
Confidence was high not only because this is a world-class management team that’s done this before, but also because other wells surrounding Avanti’s land have high helium shows in multiple Devonian and Cambrian targets, with helium percentages of up to 2% and nitrogen percentages of up to 96%.
A week later, Avanti contracted T&S Drilling for its initial three-well drill program (out of up to six planed wells). The first three wells will target three separate pay zones: two in the Beaverhill Lake formation and one in the Basal Sandstone formation.
They’ll be spudding their first well in early December, and plan to finish up to six by April or May next year.
Results from the first well should come sometime early in the New Year. That likely means a continued steady stream of news from then through Q2 2022 with the up to six-well campaign.
Chris Bakker, Avanti’s CEO, noted in a November 9 press release that “management’s technical interpretation of just 7 of the 10 structures suggest an estimated unrisked and undiscovered resource potential of between 1.4 and 8.9 billion cubic feet of recoverable helium”.
How much exactly could 8.9 billion cubic feet of helium be worth?
It’s hard to put an exact number on it because helium isn’t traded like a commodity—yet. But it’s wildly more expensive than natural gas—even as natural gas prices soar to the $5 level. In fact, some have suggested that the unit price for helium (per thousand cubic feet) has increased by over 135% in just two years .
In 2019, when the BLM auctioned its helium, it went for an average of $280/Mcf. The highest price during that auction hit $337/Mcf.
This means Avanti Energy Inc. ( TSX:AVN.V ; OTCMKTS:ARGYF ) could be sitting on $2.5 billion in helium reserves on just this first property alone. That’s a huge potential pay off for a junior explorer with a current market cap of ~$70 million. If Avanti is able to execute, this junior helium play could be significantly undervalued.
This is a Management Narrative, All the Way
Finding commercial quantities of helium requires far more than a land grab. It requires oil and gas E&P expertise because most of the helium to be found will be in gas fields. More precisely, it requires giants in the field.
And Avanti’s team doesn’t just have an impressive track record of major discovery and development … it has a giant one.
The Montney is North America’s largest natural gas play, and Avanti CEO Chris Bakker and VP of Subsurface Genga Nadaraju were instrumental in its identification and development for the $10-billion market cap giant Encana (now Ovintiv).
While oil and gas executives on this level usually stick with the giants, the shift to hunting for helium produced opportunities that couldn’t be ignored, and shareholders are more than happy to have giant executives at the helm of this small E&P company.
The executive-level confidence in this play is so high that even the CEO has recently bought over $500,000 in stock at levels double where it is now. Bakker was buying up shares as high as $2.91 just in May. Now that drilling is launching, he’s buying again . That’s what investors like to see.