Highlands Natural Resources Plc (LON:HNR) has started drilling the first well at its Helios Two natural gas and helium prospect in southeast Montana.
Operations started on September 18, the group said, after a rapid permitting and approval process.
Chief executive Robert B. Price described it as a "significant milestone for Highlands".
"We will commence a de-watering process once the well and surface facilities are complete and will provide the market with additional updates including the results of coring, gas analysis, well completion, preliminary testing and de-watering operations in due course."
The aim of the first of two wells planned is to demonstrated the technical aspects of the project and affirm its long term economic potential.
A competent person's report from RPS Knowledge Reservoir, announced in June, gave an indicative valuation of US$341mln for the project.
Read - Highlands Natural Resources give details of Helios Two project assessment
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It highlighted that the gas play - which focuses on methane and helium in an area that in the past was deemed to contain too much water to be viable - would hinge on a proof of concept pilot for a co-production approach, though the geological chance of success was estimated at 80%.
Highlands has noted that co-production methods – where water is pumped to create a change in reservoir pressure, in turn making gas more mobile to gradually increase the gas-to-water ratio – have been successful in several cases such as Oklahoma and Japan.
Furthermore, the helium value is potentially significant. HNR noted that the gas, used in chemistry and medicine, was worth around US$100 per thousand cubic feet and could deliver “significant net-back economics”.
It highlighted that the project is believed to contain 0.36% helium, based on analysis of a prior drill stem test.
The Muddy Prospect, part of Helios Two, has been estimated to have between 341bn cubic feet and 1.2tln cubic feet of prospective methane resources, while for helium, the range was stated between 1.2bn and 4.4bn cubic feet.
Highland's working interest in the project equates to 83.33%, after royalties, and thus its stake amounts to 284bn to 1.02tln cubic feet of methane and 1bn to 3.7bn cubic feet of helium.
The report notes an unrisked P50 indicative success case valuation (before tax) of US$341mln.