Georgina Energy - Game Changing Helium & Hydrogen
Georgina Energy is an energy company offering investors exposure to an increasingly supply-constrained commodity, helium. Helium is an important industrial gas with applications in medical, industrial and technology industries (details on p2-4). There is a limited global supply of helium, with growing demand and no direct substitute available. The imbalance of supply and demand is becoming increasingly acute, and the US Government has placed restrictions on exports to conserve supplies for domestic use.
Rare Opportunity in Helium
Georgina Energy has been working on two new projects, Hussar and Mt Winter since March 2020. Both projects have a combined 2U (best estimate) prospective resource estimate of 303 BCFG of helium, 308bn cubic feet (BCF) of hydrogen and 2.97 trillion of cubic feet of gas equivalent (TCFGE) of hydrocarbons.
This has an in-situ value of around US$107 billion according to the company and is very large compared to estimated volumes/2U prospective resources of its junior helium peer group. To advance the company’s two new projects, Georgina Energy is also in the process of making new strategic board appointments, a non-executive chair and an independent non-executive director.
Hussar Project
Georgina Energy owns 100% of the Hussar Project that lies within the Officer Basin in Western Australia. The project consists of 47 blocks totalling 3,574km2 covered by a state agreement act or SPA (0036) granted in September 2021.
The property includes a previously existing natural gas exploration well sited on a 200 square km seismically defined structural closure that offers a potential initial route for re-entry to undertake new exploration of deeper subsalt reservoirs.
Independent consultants have identified net attributable 2U prospective resources of 155 BCF of helium & 173 BCF of hydrogen, as well as 1.7 TCF of gaseous hydrocarbons.
On completion of the initial work programme, Georgina Energy plans to convert the SPA into an exploration permit (EP) to tap the hydrogen, helium and natural gas. The company is targeting conversion of the SPA in September 2022.
Mt Winter Project
Georgina Energy is earning up to a 90% interest in the Mt Winter Project through a farm-in with Mosman Oil & Gas. The Mt Winter Project EP (155) is located in the Amadeus Basin, Northern Territory, Australia.
Gas samples from the Amadeus Basin have yielded helium concentrations of 4-9%, which is very high compared to other global sources. Independent consultants have identified 2U prospective resources of 148 BCF of helium, 135 BCF hydrogen and 1.2 TCF of natural gas.
Georgina Energy is planning an initial programme of seismic surveys, and then plans to re-enter, and/or sidetrack the existing well to develop the hydrogen, helium and natural gas.
Carbon-neutral
The company is also assessing the potential of using some natural gas to power a gas separation plant with all CO2 being sequestered in salt caverns providing the capabilities of carbon-neutral “blue” production of all products.
Two Helium Projects Located in Australia
Value to shareholders
Given the lack of economic studies at either the Hussar or the Mt Winter Projects we have opted for a peer group based valuation that uses the current market valuations of listed helium focused exploration and development companies and the scale of their landholding.
Based on this we assign a base case valuation of £36.3 million for Georgina Energy, but given the large scale of the 2U prospective resource at the project, compared to its peer group, it would be justifiable to assign an upside valuation that is an order of magnitude higher. We argue that Georgina Energy offers investors attractive exposure to the ongoing supply squeeze in global helium.
Grey or Blue Hydrogen
Hydrogen is classified using colour terminology based on the way it is produced, but that has nothing to do with the colour of the gas itself.
Grey hydrogen is the most common form of hydrogen production, and it is created from natural gas, or methane, using steam methane reformation. Importantly no greenhouse gases that are made in the production process are captured, so it is not an environmentally friendly product.
Green hydrogen makes up a small percentage of the overall hydrogen because production is expensive. It is the one form of hydrogen with no harmful greenhouse gas emissions. Green hydrogen is made using renewable energy sources, such as solar or wind power, to electrolyse water.
Blue hydrogen sits in between grey and green hydrogen and is considered low-carbon hydrogen. It is produced from natural gas, using a process called steam reforming, which brings together natural gas and heated water in the form of steam. During the production process, carbon dioxide is produced as a by-product but is captured and stored via carbon capture and storage.
Initially, Georgina Energy will produce both hydrogen and helium as a mix of gases with nitrogen and hydrocarbons. It is expected that a large proportion of the hydrocarbons would be used as an energy source for the extraction of hydrogen, making this product initially a grey hydrogen.
Longer-term, the company plans to use the sandstone host rock that underlies significant thicknesses of salt to capture any carbon dioxide produced during hydrogen extraction and store it in solution mined salt caverns. Solution mined salt caverns are increasingly being used for carbon capture in the United States and Europe. In the future, Georgina Energy has the opportunity to move towards the production of low-carbon blue hydrogen.
The salt caverns also offer the company the opportunity to store the gases produced in the vast volumes in solution-mined salt caverns, located in proximity to the point of extraction and separation, almost indefinitely. As both helium and hydrogen are notoriously difficult to store this could be an important factor in the product logistics chain.
The Helium Market
Helium is an essential industrial gas, with numerous critical applications. These include (percentages from the US Geological Survey):
- MRI scanners — 30% of global demand. In medical magnetic resonance imaging (MRI) scanners, liquid helium is used to cool the super-conducting coils. There are no currently used alternatives to helium, and the demand for these devices continues to grow strongly, particularly in emerging markets such as India and China.
- Lifting gas — 17% of demand. Helium is used in lighter-than-air systems such as aerostats for weather monitoring. Hydrogen can be used as an alternative, but its flammability is prohibitive for many applications.
- Analytical & Laboratory — 14%. For example, helium is used as an inert 'carrier' in gas chromatography.
- Welding — 9%. Prevents hot metals from reacting with elements in the air.
- Others — Engineering and science 6%, Semiconductor manufacture 5%, Leak detection 5%, Hard drive & Tech 14%. For many of these applications, the substitution of helium with other gases is difficult. For example, in engineering the use of helium as a coolant in space rockets is designed-in for these craft, meaning that a substitute may be theoretically available, but the cost is prohibitive.
- The use of helium as a cooling medium in the latest design generation of pebble-bed nuclear reactors as well as nuclear as well as applications in cooling the latest generation of rocket engines in planned hypersonic aircraft and missiles may also represent additional markets.
The following chart illustrates these applications as a proportion of total helium consumption globally.
High tech, fast growing applications across diverse industries
Helium usages
Source: US Geological Survey
Helium is, therefore, an important industrial gas and is difficult/impossible to substitute in many applications; however, the global supply of helium is limited, and some major existing supply sources are becoming depleted. Evidence of a supply squeeze includes:
- The most recent global auction of helium set a price of 28 cents per cubic foot, an increase of 135% over the previous year.
- The US government has imposed a blanket restriction on the export of helium, to conserve supplies for domestic use. The US is currently the world's biggest producer.
- The American Medical Association has proposed that the US government should go further, by restricting the use of helium by application even within the domestic market, to protect medical applications.
The following chart shows the growing imbalance of global supply versus demand for helium, according to the US Geological Survey.
Current sources of supply systematically unable to keep up with demand
Helium - supply versus demand
Source: US Geological Survey
Other than via successful exploration and development, there is no obvious solution for finding a major additional source of helium.
The following chart shows the current production of helium by geography.
Helium production by geography
Source: Helium One
Qatar unable to raise production, USA experiencing depletion
Qatar produces helium as a by-product, from very low concentrations within natural gas. There is no way of 'squeezing out' more helium from these sources. The position is similar for Algeria and Russia.
The USA, by contrast, has some sources of more highly concentrated helium (>3%) that can be exploited specifically as helium projects; however, these are the exact sources that are becoming depleted in the US Geological Survey projections.
The following chart shows the price of helium.
We have used three data sources:
Amarillo:
The US Bureau of Land Management held annual auctions at Amarillo Texas, for helium from the strategic helium reserve, up until 2019. Auctions ended because the reserve is almost depleted, with the last remaining reserves to be sold by private sale. The exhaustion of the US helium reserve has been a very significant event for the global helium market, contributing to the price spike in 2018-2019.
China:
We have used data from China for 2019-2020. There is also Chinese data available back to 2016, and this correlates quite closely with the Amarillo data, so we believe it is reasonable to conjoin the two data sources.
Our estimate:
There is no data available yet for the end of 2020 or for 2021 year to date; however, reports in trade journals suggest that prices have bottomed and begun to recover.
Helium price
Source: Proactive Research, various sources
Drivers of the supply squeeze remain in place
The price has been on an upward trend for a decade. In 2018-2019 the price spiked significantly. We attribute this price move to:
- Diminishing incremental supply from the US
- Demand growth from high-tech applications, especially medical
- Some degree of risk premium around Qatari supply, based on geopolitical tensions
We believe that an overall upward price trend is a reasonable expectation for the next decade.
Where does Georgina Energy fit into the helium market
Helium extraction projects fall into two categories (and a spectrum of projects in between):
- Predominantly natural gas liquefied natural gas (LNG) extraction industry, with helium as a by-product, occurring at typical concentrations of 0.3% of less
- Naturally occurring gaseous hydrocarbon reservoirs, with helium concentrations of 3.0% or higher, often found in subsalt reservoirs due to the excellent sealing qualities of deep saline sequences forming a plastic relatively impermeable barrier to the upward migration of helium.
The following diagram shows some major helium projects globally.
Selected major helium producers
Source: Georgina Energy and industry sources *Levels as yet unconfirmed
We have highlighted in red two helium programmes – the Georgina Energy projects in Australia, and the Helium One development in Tanzania. These are two of the leading helium primary plays in development in the world today.
The two Georgina Energy projects have combined 2U prospective resource estimate of 303 BCF of helium and have the potential to become a globally important source of helium.
The two projects
Georgina Energy has two projects underway that offer strong potential for commercial helium development — the Hussar Project, located in the Officer Basin Formation, Western Australia, and the Mt Winter Project, located in the Amadeus Basin Formation, Northern Territory.
Both of these lie within a wider formation called the Centralian Superbasin, which hosts one of the most promising formation sequences globally in terms of the necessary ingredients for helium to be formed and retained.
Terrestrial helium formation occurs predominantly via the radioactive decay of elements such as uranium. Helium itself is not radioactive and cannot become radioactive. If an impervious “sealing” layer exists above the uranium, usually a layer of salt, then helium can collect within gas deposits beneath this salt layer.
The following diagram illustrates this concept. Salt becomes plastic with increasing depth, so much so that it will prevent the upward migration of very mobile helium (and hydrocarbon) gas similarly to a self-sealing fuel tank found in some fighter aircraft.
Wherever drilled to sufficient depth and/or interpreted by seismic and other geophysical methods the Centralian Superbasin incorporating the Officer and Amadeus Basin features a thick Neoproterozoic salt sealing horizon over a clastic hydrocarbon and helium reservoir.
Formation of helium deposits
Source: Proactive Research
Strong evidence for helium presence, based on geology and on historical drilling
These key elements are present in both of the Georgina Energy projects. Furthermore, past drilling at two sites within the Amadeus Basin (same basin as Mt Winter) has revealed helium concentrations of 6-9%, far higher than most other helium sources which are currently being exploited globally.
SPA HUSSAR
Within the Officer Basin in Western Australia, through its wholly-owned subsidiary Westmarket Oil & Gas, Georgina Energy holds the Hussar Project. The property contains the Hussar 1 well which was drilled in 1982, but did not go below the Townsend sub-salt horizon, which contains the potential helium.
Via re-entry and deepening, the existing well offers a potential initial route for new deeper subsalt exploration. Mapped seismic closure of the targeted subsalt horizon is some 200 square km or 50,000 acres.
Potential for helium, hydrocarbons, and hydrogen at Hussar
Independent consultants have identified 2U prospective resources of:
- 155 BCF of helium
- 173 BCF of hydrogen
- 1.7 TCF of gaseous hydrocarbons
Georgina Energy intends, on completing its work programme, to convert the SPA at Hussar to an exploration permit to develop the licence and to focus on the helium potential.
Mt Winter
In the Amadeus Basin in the Northern Territory, Westmarket Oil & Gas (100% owned subsidiary) holds a Farm-in with Mosman Oil & Gas to earn up to 90% interest, with management control, in the Mt Winter Project that covers an area of c. 230,000 acres. A pre-existing well has been drilled to a depth of 2,650m but has not yet been extended deep enough to penetrate the sub-salt helium horizon.
Potential for helium, hydrocarbons, and hydrogen at Mt Winter
Independent consultants have identified 2U prospective resources of:
- 148 BCF of helium
- 135 BCF of hydrogen
- 1.2 TCF of gaseous hydrocarbons
Georgina Energy has an initial programme to complete seismic studies and then re-enter and deepen the existing well to develop the subsalt helium (and potentially hydrogen) resources.
Commercialisation
Both properties are situated within reach of existing infrastructure which could help support the route to commercialisation. The following map illustrates the locations.
Locations of Hussar and Mt Winter
Source: Georgina Energy
Good geographic location - infrastructure, labour, supportive state governments
A potential roadmap for commercialisation is summarised as follows :
- Helium would be refined in a gas separation plant on-site, to A grade liquid helium of at least 99.995% purity. This requires relatively modest on-site infrastructure using co-produced gaseous hydrocarbons as an energy source for the helium extraction and liquefaction plant. We believe that the modular helium plant could potentially be financed by the customer in any off-take agreement.
- The refined helium can then be trucked by road and/or rail in cryogenic containers to port or other distribution centres.
The potential helium reserves exist in association with natural gas, which would be marketed separately from the helium. In the case of a modest to medium-sized gas reserve, the natural gas separated from the helium would be used for onsite power generation. In a larger find, natural gas would be sold into the market, which could be achieved, for example, by a connection to the pipeline network.
The Northern Territory, in particular, has some additional advantages as a location:
- Local availability of specialised labour
- Local presence of underused or unused equipment
- Potential to benefit from development incentives from the state government.
The board of directors
The management team that will deliver on this strategy brings a breadth of experience across the commercial, technical and financial aspects of the business. The following summarises some of the key personnel.
Peter Bradley, proposed non-executive chair
Bradley is a corporate lawyer with around 35 years' experience advising on corporate transactions including capital raising and mergers and acquisitions on private and public markets. He has advised company boards from start-ups to some of the world's largest listed companies. He has practised extensively in both Europe and Asia, both as a partner in City firms and in-house. He is also the non-executive chair-elect of another listed company.
Anthony Hamilton, managing director/CEO
Hamilton is a managing partner of Westmarket Capital PLC, and is a Fellow of the Institute of Directors in London. He is an accountant by profession with over 35 years of experience, from investment advisory to oil & gas, exploration and production of gold, diamonds, base metals and property development.
He was previously CEO of an oil & gas company in South Texas, USA, raising US$55mln for the refurbishment and re-establishment of operations producing 28,000mln cubic feed per day of gas running both onshore and offshore operations.
Mark Wallace, executive finance director
Wallace is a managing partner of Westmarket Capital PLC, and holds a Bachelor of Economics and Accounting. He is a Chartered Accountant and has over 25 years of expertise in the global financial markets having held positions with firms including Standard Chartered Capital Markets, Cantor Fitzgerald and Credit Lyonnais in London and NatWest Capital Markets in Sydney.
He has significant experience and expertise in funding for the development of production and operational assets across numerous commodities and extensive knowledge of the off-take markets.
John Heugh, technical director
Heugh has extensive experience in oil and gas exploration management, geology, including well site geology, project generation, operations geology and engineering support. He was the founding director and managing director for 15 years of Central Petroleum Ltd (ASX:CTP)., the biggest acreage holder in Australia of prime petroleum exploration and appraisal ground (70 million acres). He also has extensive helium exploration and target identification expertise.
He was previously founding director and executive vice-chair of PetroAfrique Oil & Gas Ltd, and founding director and executive chair of Gryphon Mining & Energy Melanesia Pty Ltd, raising over US$100 million for exploration, initial development and discovery.
Heugh has orchestrated over $500 million of joint venture expenditure potential, and discovered over one trillion tons of coal, a 300 km2 tight gas sand prospect, and generated the first horizontal well onshore in Australia, delivering commercial oil to the surface. He also pioneered the promotion of unconventional (shale gas and oil) in Australia in 2007.
Potential non-executive director
Georgina Energy and its advisors are currently completing the appointment of another Independent Non-Executive Director.
Potential value
It is too early to produce a definitive valuation for Georgina Energy's two helium projects; however, based on the current market valuations of a peer group of three other junior helium explorers and developers, with similar scale land packages, we can assess the average market value for every acre of prospective landholding (US$50).
While this is a crude and rudimentary valuation, given the company's current development stage it gives investors the opportunity to see how Georgina Energy fits within its peer group before a more definitive valuation can be made as the project advances and economic studies are produced.
Our base case valuation based on Georgina Energy's 976,313.4 acre ground holding is £36.3 million.
It is important to note that there is considerable upside potential for this valuation. Taking into account the average market cap per 2U prospective resources of two of the companies with large helium deposits, Helium One and Renergen, we would get an upside valuation of £382 million based on Georgina Energy's very large 2U prospective resource of 303 BCF and not taking into account the hydrogen and hydrocarbon potential.
Conclusion
We believe that Georgina Energy offers investors a unique opportunity to gain exposure to the ongoing helium supply squeeze as well as the potential to exploit naturally occurring hydrogen resources as a valuable adjunct. The business plan offers strong profitability, modest capital requirement, and a fast transition to positive cash flow. We argue that investors stand to benefit from substantial valuation upside if commercial volumes of helium are confirmed.