With its substantial land position and tangible support from the provincial government of Saskatchewan, Royal Helium Ltd (TSX-V:RHC, OTCQB:RHCCF) is rapidly advancing from a pure explorer to a soon-to-be-producer of Grade A helium.
The company owns about a million acres of prospective helium rights in southern Saskatchewan and 60,000 acres in southeastern Alberta, two resource-rich provinces in Western Canada with a long history of successful exploration and development.
In July 2022, Royal Helium completed its acquisition of Alberta-based competitor Imperial Helium, a move that CEO and president Andrew Davidson said has increased the company’s project initial production by a factor of three.
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“We’re in the process of constructing our first helium processing facility based in Alberta that will produce about 15 million cubic feet per day of raw gas, leaving us with what’s called Grade A helium, 99.9% pure helium, that we will sell through our offtake agreement on the Saskatchewan side of the business,” Davidson told Proactive.
With construction imminent, Royal Helium expects to begin production at its Alberta processing facility in March or April 2023. The company will also be constructing two processing plants in Saskatchewan in 2023, which Davidson said are expected to begin commissioning in 3Q, 2023. Production is slated to follow in 4Q, adding another 10 million cubic feet of raw gas capacity to the company.
“Beyond that, it’s tough to project an upper limit of what we could produce given the sheer amount of ground we have left to develop,” Davidson said.
He highlighted that the company has drilled seven wells at its properties in the past 18 months, all of which successfully encountered economic grades of helium. “There is a lot of room to increase production from relatively small to relatively big in a short period of time,” Davidson said.
Western Canada's advantages
According to Royal Helium, extracting helium from wells in Saskatchewan and Alberta can be up to 90% less carbon intensive than helium extraction in other jurisdictions.
To extract helium from underground, Royal Helium’s process starts with drilling wells and uses technology traditionally seen in the oil and gas space, allowing for the simple transfer of knowledge, skills, and equipment to support the helium industry. “Once you’ve drilled a well that’s got a productive capacity, you simply tie it into a processing facility and flow the raw gas out of the wellhead into that facility,” he explained.
When it comes to processing, Royal Helium will use cryogenic separation, essentially liquifying the entire gas stream with the exception of helium due to it having the lowest freezing point of any gas, to be left with a purified helium product. “It is a very cost-effective approach and is not energy intensive,” Davidson commented.
This is where Western Canada’s advantage truly comes into play. Unlike in the rest of the world where helium is a byproduct of natural gas, in Saskatchewan and Alberta it is a byproduct of nitrogen.
“The gas stream that comes out of our target zones is essentially natural gas or methane-free,” Davidson explained. “There occasionally is carbon dioxide (CO2), but any CO2 we counter is captured, reinjected or sold. We release zero CO2 and zero methane into the atmosphere.”
Not only will the company reduce its environmental impact by capturing this CO2, but it plans to make money while doing it. Royal Helium’s Alberta operations are set to produce food-grade CO2, which the US Food and Drug Administration requires to achieve a 99.9% purity rating, that goes into products such as soda and beer, adding another revenue stream for the company.
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Davidson told Proactive there were many additional benefits for the company being based in Western Canada, including having a stable regulatory environment and easy access to skilled labor due to the similarities between helium extraction and the well-established oil and gas industry in the region.
“We don’t need to bring in workers or services to remote locations” he explained. “In Alberta, the nearest service town with everything we need to accomplish any task is less than 60 minutes away, and the same is true in Saskatchewan.”
Davidson also highlighted the supportive attitudes of the provincial governments within which Royal Helium operates toward the helium industry as a significant advantage. “The Saskatchewan government specifically has been so heavily behind supporting the development of the helium industry here to the point where I have never seen a level of support from the government quite like this,” he said.
“They’re actively pushing for the rapid large-scale development of helium resources here, and back that up with real incentive programs that help companies like ours move from idea through to actual producer and supplier, setting Saskatchewan up to become certainly the Canadian leader for helium production, if not the North American leader, in the coming years.”
Building a diverse customer base
From space exploration to technology and healthcare, Royal Helium has positioned itself to be able to supply a range of markets with helium as demand for a reliable supply of the gas is set to be robust.
In August 2022, the company entered into a long-term agreement with a North American space launch company for the supply of helium, with initial deliveries to commence in 2023.
Davidson said the company’s preferred business model is to sell helium directly to the end user instead of going through an industrial gas intermediary. However, with that being said, he noted that the company would be allocating some of its volumes to industrial gas providers of varying sizes, from regional providers up to global providers such as Air Products.
“We’re fairly agnostic over which industry,” he said. “We’re looking to build a book of customers that is spread out widely across different uses and different wholesalers.”
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Traditional helium uses, such as in coolants for magnets used in magnetic resonance imaging (MRI) machines for medical imaging or for leak detection and testing in aerosols, tires, refrigerators, fire extinguishers, and air conditioners present a 3% to 6% compound annual growth rate opportunity. Newer uses such as space exploration and semiconductors, on the other hand, could grow at an annual rate of more than 20%, according to Royal Helium.
Davidson said he expected to see phenomenal growth in demand for helium for microchips in semiconductor manufacturing in particular. “Then if you factor in other industries like server cooling and data centers, quantum computing, and even the emerging power industry of small modular reactors, the majority of those use helium as their cooling medium, this will be a large market,” he explained.
“These are areas of future growth that are not a pie in the sky: they are real demand sources that are going to come online in the very near future,” he continued.
According to Davidson, the future is just as bright on the supply side as it is on the demand side. While he noted Royal Helium wasn’t alone in trying to provide a stable, Western-world source of helium, he said there was no one company that would have the ability to flood the market.
“There’s going to be enough demand to go around for quite some time,” he explained. “That translates into continued rising prices, even once we get out of the Russian sanctions supply crisis that the world is seeing now.”
Contact the author at emily.jarvie@proactiveinvestors.com
Follow her on Twitter @emilyjjarvie