Renergen hit 'surprise' helium - here's why that's such a big deal

This week, ASX small cap Renergen announced it had a helium “surprise” at its P12 well, which was set to be plugged and abandoned.

It’s been almost a decade since the last round of helium hype in 2013 when America legislated moves to sell all its federal reserve assets by September 2021.

After that date the Bureau of Land Management (BLM) will transfer any remaining assets to the General Services Administration (GSA) who will continue the disposal process – and will allow Federal in-kind users access to helium until September 30, 2022.

But the fact remains that new sources will be needed in the near term.

Helium is a vital, irreplaceable commodity for modern technologies, not just for balloons – even though the lack of parties during the pandemic last year accounted for a 10% drop in global demand.

It’s used for space exploration, rocketry, high level science, and in the medical industry for MRI machines.

And according to Edison Investment Research, climate targets will have a profound impact on supply in the next decade, with >95% of helium currently produced as a by-product of gas or LNG production.

Basically, new helium production forms are needed otherwise a wind-down of traditional gas fields (by 2050) will destroy the supply.

“We see significant opportunity for pure-play helium producers during this period,” Edison said.

Edison also reckons there is an oversupply looming, with mega-gas/liquefied natural gas (LNG) projects in Qatar (Ras Laffan) and Russia (Amur) expected to come online in the mid-2020s which could see the start of a significant loosening of the market.

“By 2026, these two countries alone could add 3.8bcf/year to global supply, causing >20% oversupply out to 2030, based on 2% pa demand projections.”

But the security of this supply presents an issue – and an opportunity.

“It is concerning that by the late 2020s, 75% of global helium supply will come from Qatar, Russia and Algeria (up from 50% in 2020),” Edison said.

Some customers may be willing to pay a premium to secure supply of helium from outside of these three countries, because they’re worried that history could repeat itself.

In 2017, multiple Arab states closed their borders to Qatar, disrupting helium production and transportation for several weeks, and affecting 30% of global supply, until alternative supply routes were established.

“Russia is the biggest unknown; its Amur facility, which should come online over four stages from 2022, will see its share rise from 2% today to more than 25% from 2025,” Edison said.

“Disruption to Qatari or Russian supply sources could see a period of market tightness even under our 2% pa demand growth profile; thus, we believe that some industrial gas companies might be prepared to pay a premium to secure supply of helium from outside of these three countries.”

Renergen and the ASX small cap helium stocks

Renergen Limited (ASX:RLT)

ASX listed Renergen is one helium player that could be set to benefit from supply concerns.

“In March, South African helium producer Renergen signed a 10-year take or pay (conditional) contract for substantial volumes from its phase 2 helium production, which is scheduled to commence in 2024,” Edison noted.

The company’s helium-rich Virginia gas project boasts an average concentration of 3.9 per cent, with stage one of the project expected to produce about 350kg of liquid helium and 50 tons of LNG a day.

Renergen has also confirmed offtake agreements with Linde Global Helium for up to 24,000 mcf per year as well as gas sales agreements with companies like Megabus, Anheuser-Busch and Black Knight Logistics.

And just this week the company announced it had a helium surprise at its P12 well, which it previously advised would be plugged and abandoned.

The well commenced flowing gas (at low rates) in the days following rig release and the flow rate has increased. It’s currently shifting more than 30,000 standard cubic feet per day with the measured helium concentration in the gas stream at 1.9%.

Lost circulation material (LCM) is commonly used to temporarily seal any fractures intersected when drilling and allow water laden with drill cutting to circulate back to the surface and it usually dries and shrinks when drilling is complete. But in the case of P12, it took the LCM over a week to shrink enough to allow gas to flow to surface.

“The significance of this discovery cannot be overstated,” CEO Stefano Marani said.

“Whilst drilling the well was risky with a low conviction of success, the team did its homework and we decided to drill the well to confirm if this fault is gas-bearing, and more importantly whether it contains helium.”

The first stage of the project will connect existing wells to a new gas pipeline, with the construction of its new helium and LNG plant imminent.

Blue Star Helium (ASX:BNL)

Another Aussie stock that could potentially benefit is Blue Star Helium.

In June the company increased its unrisked prospective helium resource in the Galactica, Pegasus, Argo, Enterprise and Galileo prospects by 39 per cent to 13.4Bcf after it was awarded an additional 32,858 acres of prospective ground.

The new leases were awarded by the US Bureau of Land Management through its December 2020 auction, taking its total leasehold up to 173,000 net acres (237,000 gross acres).

Notably, the Galactica and Pegasus prospects are all within the Lyons Helium Play Fairway that was proven by the Model Dome helium field that produced gas with grades of up to 8 per cent helium. They’re also on trend with the Govt Cynthia True #1 well that flow-tested 8.8 per cent helium.

Blue Star looks to be on track to receive the final permit to drill the Enterprise 16-1 well during the third quarter of 2021 and expects to apply for two new wells in the near term as part of its with its rolling permitting strategy.

Global Oil & Gas (ASX:GLV)

Australia produces around 3% of the world’s supply of helium from the Bayu-Undan gasfield offshore where helium is 0.1-0.3% of the raw feed gas to the LNG plant – but the field is in decline and there’s an opportunity for Australian players like Global Oil & Gas to potentially replace the helium supply.

The company announced plans yesterday to commence its helium and hydrogen survey over its exploration permit 127 in the Northern Territory.

A spectroscopy study in June identified helium and hydrogen hotspots with elevated helium and hydrogen indicators across the licence area.

A number of target locations have been identified and will be tested in the field using portable helium gas detection on both soil gas samples, and gas present above faults.

The in-field geochemical survey is expected to commence on or about the 29th July 2021, with all the equipment calibrated and being prepared for delivery to site.

The results of the spectroscopy study will be combined with the in-field geochemistry sampling survey – in addition to existing 2D seismic data and surface geology to high grade target areas – for a seismic acquisition program planned in late 2022.