Highlands Natural Resources Plc (LON:HNR) has provided investors with the executive summary of a new competent persons report for the Helios Two helium and gas project in Montana.
RPS Knowledge Reservoir was hired to produce the document, which details prospective resource estimates and an indicative valuation of US$341mln for the project.
It was highlighted that the gas play - which focusses 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%.
HNR 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 analogue cases. Examples can be seen in Oklahoma and Japan, it added.
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.
“RPS has found good evidence of Helium production and has a logical and coherent explanation for the Helium concentrations found as well as support for the fact that the sample in the area could well be representative over a wider area and maybe even pessimistic,” the company said.
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.
HNR’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.
The contractor, meanwhile, noted: “This value does not represent any form of market value for the asset and requires several critical events to occur to be achieved including discovery, appraisal, capital expenditure and a successful negotiation of the third-party midstream service contract.”
“This indicative success case valuation does not include specific economics for the Helium as it is not possible to estimate Capex and Opex requirements until the Helium percentage content has been confirmed as the scale of the processing and methodology for extraction will be critically dependent on this ratio.”
It added: “Helium is in increasing demand and could be a significant upside to the existing success case based on the methane project alone.”