IDEA FOR SMALL CAP: Helium One at likely turning point after drilling rig purchase

Start of July, helium one announced the purchase of a drilling platform.

The deal appears to be a game-changer for the company, and the market certainly thought so: Shares in Helium One rose nearly 100 percent (now 8.8 pence) on the news.

But that can only be a taste of things to come.

Owning the platform will allow Helium One to set its own terms when it comes to drilling the potential massive Rukwa project in Tanzania later this year.

Until now, rig availability has been tight and finding the right rig for the job has been even trickier.

“Everyone recognized the challenges we faced in Tanzania getting an oil and gas type rig,” says Lorna Blaisse, who was named CEO of the company in February.

Prior to her promotion, Blaisse was Helium One’s chief geologist, so perhaps she knew better than anyone what was at stake after the mixed results of the first round of drilling.

“We knew we would need a robust drilling rig for the second round of drilling,” she says.

“The sale of this installation came on our radar a few months ago and we acted quickly.”

Previously, Helium One had expressed its intention to begin another round of drilling by the end of the third quarter of this year, and the acquisition now sees that deadline met.

The drilling rig will be on site shortly and the Tai-C well is expected to be drilled in September.

Crucially, unlike the platform used in the previous campaign, this new platform is designed for use in the oil and gas industry.

The most obvious difference between this rig and a mining rig used before is that it is much more powerful.

The new Helium One drilling rig will drill the target reservoir section in a standard 8.5-inch hole, as opposed to the 3.5-inch hole drilled in the previous round of drilling. It is a larger rig with a top drive system and can therefore drill more efficiently.

The new platform is capable of drilling to depths between 2,000 meters and -2,400 meters, although the Tai prospect that Helium One is targeting is estimated to be around 1,200 meters.

The plan is to spend 30 days drilling, including logging and sampling in the borehole, then finalize and review the results.

Taken together, the results are probably much more convincing. That will be a nice contrast to the previous round of drilling, which continued for months as the company grappled with various issues related to the mining rig it was using.

“We expect a spud in September,” says Blaisse.

“First we have to man the platform, complete the civil work and prepare the well.”

That work includes improving access roads and placing a camp close to the well. But it won’t be long.

The company is fully funded for the planned well, following a £10m fundraising last December, and there may even be enough for a second well depending on the results.

“Essentially, we want to secure a discovery at Tai,” says Blaisse.

“The Tai-1/-1A well was very encouraging, although we were unable to reach our total depth, nor were we able to run a full set of logs by cable. We’ve had shows, but unless you have log data to determine pay zones, you can’t quantify your results.

It is expected that the drilling work will be much more definitive this time.

And if, as Blaisse hopes, Helium One makes a discovery, the potential scale is likely to be very significant.

At the end of May, a competent person estimated in a report that there could be as much as 2.8 billion cubic feet of helium in Tai alone, an amount equivalent to about half of current global demand.

There are other prospects in Rukwa as well, although Tai has been consistently identified as having the lowest geological risk and the greatest chance of success.

Nevertheless, the exciting prospect remains that there could be even more helium under license at Rukwa than even the competent person’s report modeled.

But one thing at a time.

The key is to master Tai-C and see how things develop from there.

If a discovery is made, investor interest is likely to be huge and the potential for a reassessment is very high.

After all, the global demand for helium is at an all-time high and Helium One is the main helium explorer in Tanzania. Almost all other helium produced is produced as a by-product of hydrocarbons.

And if a discovery is made, how long will it take to put it into production?

The answer is: not too long. Tanzania has been a fairly benign jurisdiction to operate in as far as Helium One is concerned, and the government is keen to secure a strategic position for the country as one of the major players in helium production.

Thus, changing the exploration license from Helium One to a production license is considered a relatively simple process.

Production, says Blaisse, could come as soon as 18 months after a discovery.

So this is a company that can grow very big very quickly. Watch this space.

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