Helix Exploration: Drilling Two Large-Scale Exploration Helium Projects in Montana by September

• Helix Exploration is drilling two large-scale, low-risk helium exploration projects in Montana, with drilling starting in Q3 2024 and production targeted before the end of 2025.
• The company is drilling at Ingamar, twinning and deepening a historical well that discovered non-flammable gas, which was never assayed for helium.
• Helium demand is growing due to its use in technology and medical applications, with prices increasing 20% annually over the last decade.
• The company aims to determine helium grade and flow rates through drilling and testing, with results expected by the end of September 2024.
• Helix Exploration raised $9.5 million in an oversubscribed IPO in April, with the two-well drilling program budgeted at $4.1 million.

In an era where technology permeates every aspect of our lives, from smartphones to MRI machines, the demand for helium - a critical component in many high-tech applications - continues to surge. Helix Exploration, a company at the forefront of helium exploration, is positioning itself to capitalise on this growing market. With two large-scale, low-risk helium exploration projects in Montana, Helix is on the cusp of potentially tapping into a valuable resource that's essential for our modern way of life.

The Helium Market: A Critical Resource in Short Supply

Helium, often associated with party balloons, plays a far more crucial role in our technological landscape. It's an essential element in various industries, including healthcare, aerospace, and electronics manufacturing. As David Minchin, Chairman of Helix Exploration, explains:

"Helium is a technology commodity; it's not an energy commodity. It's not a transition; it is a technology for the high-tech lifestyle we live now. For instance, every hospital with an MRI scanner needs to use helium, and every microchip you use in your laptops, your phones, and your systems is manufactured in a helium environment."

This increasing demand and limited new supply sources have led to a significant price increase. Minchin notes:

"We're seeing  a 20% price increase year-on-year for the last decade."

This trend has pushed bulk spot prices from $100 per mcf (thousand cubic feet) to $500, with some buyers, such as the US Defense Logistics Agency, paying over $1,000 per mcf.

Interview with Chairman, David Minchin

Helix Exploration's Montana Projects

Helix Exploration is focusing its efforts on two helium exploration projects in Montana. The company is preparing to drill in Q3 2024, to bring these projects into production before the end of 2025. This aggressive timeline is possible due to helium exploration and production, which can move from discovery to cash flow more rapidly than traditional oil and gas projects.

The Ingomar Project: Building on Historical Data

The company's first drilling target is at the Ingomar project, where they are twinning and deepening a historical well known as Hillison 1. This well, drilled many years ago, discovered a significant amount of non-flammable gas but was never assayed for helium. Minchin explains the significance:

"The Hillison 1 well, you might remember, was drilled a long time ago. It discovered 195 feet of non-flammable gas in the Amsden formation, which was flow tested at decent flow rates. It was assayed at about 80% nitrogen but never for helium."

This historical data provides Helix with a strong starting point. They're not wildly speculating but following up on known gas discoveries in an area now recognized for its helium potential.

Drilling Program & Expected Results

Helix's drilling program is designed to test multiple reservoir targets, including the Amsden, Charles, and Flathead formations. The Flathead formation, in particular, is the primary helium producer along the entire Montana helium fairway.

The company expects to have results from its drilling and testing program by the end of September 2024. These results will be crucial in determining the commercial viability of the project. As Minchin states:

"We're going to do an extended well flow test, a 30-day flow test. We're doing that straight after drilling because we just mobilized equipment from down the road. So we'll have all the results in terms of the commerciality of the project before the end of September."

Financial Position & Capital Efficiency

Helix Exploration is well-funded for its current exploration program. The company raised $9.5 million in an oversubscribed IPO in April, with the two-well drilling program budgeted at $4.1 million. This leaves the company with significant funds for further development work and potential production setup.

The capital efficiency of helium projects is noteworthy. Minchin suggests that a capital investment of around $19 million could yield an NPV (Net Present Value) of over $300 million, assuming a 1.5% helium concentration. This high return on investment is due to the high value of helium and the relatively straightforward production process.

Path to Production

If Helix's exploration efforts are successful, the path to production could be relatively quick. The company plans to use a pressure swing absorption plant with a capacity of 10,000 mcf daily. This plant would process the gas from 3-4 wells, producing high-grade compressed helium ready for transport.

Montana's strategic location between the East and West coasts of the United States provides logistical advantages for distribution. Minchin notes:

"In Montana, you're ideally situated between the East and West Coast, so you can truck it anywhere in the United States in just a few days."

While the potential rewards are significant, investors should know the risks involved. The primary uncertainties lie in the upcoming drilling results. The key factors that will determine the project's success are:

• Helium grade: Anything above 0.5% is considered commercial, with the company's base case analysis using 1.5%.
• Flow rates: This will determine how many wells are needed to feed the processing plant.
• Size of the deposit: This influences the project's longevity.
• Gas composition: This affects the complexity and cost of the processing plant.

Minchin acknowledges these uncertainties:

"I suppose the risks are in the next three to four weeks when we've got the bit turning, and that's when you're going to give us the answer: what is the grade, what is the flow rate, and that will inform directly what the economics of the project are."

Market Potential & Industry Trends

The helium market is experiencing strong tailwinds due to increasing demand from various high-tech industries. The growth of AI, the Internet of Things, and the trend of onshoring high-tech manufacturing to the United States contribute to increased helium demand. Minchin highlights this trend:

"We're seeing increasing demand in the United States, and that's another reason why Montana is an excellent place to operate and explore for helium."

Moreover, the traditional sources of helium as a byproduct of large-scale LNG operations are not keeping pace with demand growth. This supply-demand imbalance creates an opportunity for dedicated helium exploration and production companies like Helix Exploration.

Helix Exploration represents an intriguing opportunity in the helium exploration space. With its projects in Montana, the company is well-positioned to capitalise on potentially growing demand for this critical gas. The upcoming drilling results, expected by the end of September 2024, will be crucial in determining the company's future prospects.

While risks remain, particularly around the grade and flow rates of helium that will be discovered, the potential rewards are significant. The company's well-funded position, the efficiency of helium production, and the strong market dynamics make Helix Exploration a company worth watching for investors interested in the critical materials sector.

As always, potential investors should conduct their due diligence and consider their risk tolerance before making any investment decisions.

The Investment Thesis for Helix Exploration

• High-demand commodity: Helium is crucial for various high-tech applications, with demand outstripping supply.
• Strategic location: Montana projects are well-situated for distribution across the United States.
• Low-risk exploration: Building on historical data reduces exploration risk.
• Rapid path to production: If successful, production could begin by end of 2025.
• Capital efficiency: Relatively low capital requirements compared to potential returns.
• Strong financial position: Well-funded for the current exploration program.
• Near-term catalysts: Drilling results are expected by the end of September 2024.
• Experienced management: Team with a track record in resource exploration and development.
• Favourable market dynamics: 20% annual price increases for helium over the past decade.

Helix Exploration presents an opportunity to invest in the critical helium market, with near-term catalysts that could significantly impact the company's value. The upcoming drilling results will be crucial in determining the project's viability. While risks exist, the potential rewards are substantial, given helium's high demand and price. Investors should closely monitor the company's progress, particularly the drilling results expected by the end of September 2024. As with any early-stage resource company, thorough due diligence and understanding risks are essential.

Macro Thematic Analysis

The helium exploration and production sector is positioned at the intersection of several significant macro trends. Firstly, the increasing digitalisation of the global economy drives demand for helium, which is critical in producing semiconductors, fibre optics, and other high-tech components. The growth of artificial intelligence, the Internet of Things, and quantum computing further amplifies this demand.

Secondly, geopolitical factors are influencing the helium market. With traditional helium sources concentrated in a few countries, there's a growing push for supply diversification. The United States, in particular, is keen to secure domestic helium sources to support its high-tech manufacturing sector.

Thirdly, the on-shoring or re-shoring manufacturing trend, especially in critical technologies, boosts demand for helium in developed countries. This trend, accelerated by recent global supply chain disruptions, is likely to continue, supporting demand for helium in countries like the United States.

Lastly, the global focus on transitioning to a low-carbon economy indirectly benefits the helium sector. While helium is not a "green" commodity, its critical role in technologies that enable the energy transition (such as nuclear power and certain renewable energy technologies) makes it an essential resource in the push for sustainability.

These macro trends create a favourable environment for helium exploration companies like Helix Exploration. However, investors should also consider potential risks, such as technological advancements that could reduce helium demand or the discovery of new, large-scale helium sources that could impact prices.

The best quote summarising the opportunity comes from David Minchin:

"Helium is a technology commodity; it's not an energy commodity. It's not transition, it is technology for the high-tech lifestyle we live now."

This succinctly captures the critical role of helium in our modern, technology-driven world and underscores the potential opportunity for investors.