The Helium One (LSE:HE1) share price is up nearly 15% today. The market has reacted positively to yesterday’s drilling progress update from the pure-play helium company. In short, Helium One has found helium in drilling mud at its first drill site in Tanzania. This bodes well for finding a commercially viable source of helium, although it is still early days.
More than balloon gas
Helium is uniquely suited to many applications and cannot be synthesized or manufactured. Most helium is produced as a by-product in natural gas developments. As it stands, if natural gas production starts to decline, so does helium production. Enter companies like Helium One that have the potential to produce helium from non-hydrocarbon sources.
Helium One has three project sites in Tanzania. The Rukwa project is the furthest along. Helium One already knew that it had helium on its sites in Tanzania when it licensed them for exploration, as it was bubbling up from the ground. But, that’s not enough to make a site commercially viable. Helium forms from radioactive decay in rocks. Because it is such a light gas, it can usually find its way to the surface and into the atmosphere. In the atmosphere, helium makes a beeline for space and is lost. But, if there is a layer of permeable sedimentary rock overlying radioactive rock to soak up the helium produced, and this is then capped with an impermeable layer, reservoirs of helium are formed.
In early May 2021, fresh seismic surveys revealed a site called Tai in the Rukwa project with a “faulted 3-way dip closure concurrent with a gravity high“, which hints at a helium reservoir. Yesterday, Helium One announced preliminary results from drilling at the Tai site. Drilling mud had 2.2% helium in it at a shallow depth. That does not make the site commercially viable, but it is encouraging. Drilling to greater depth is next, and wireline logging to obtain greater clarity on the potential reservoir. Two other wells are to be drilled at the site. In around three months, Helium One should have completed this exploratory drilling programme.
Helium One share price
Over half of the world’s helium supply comes from the US, which identified the element as critical back in the 60s. The US built large stockpiles of helium. Now those stocks are being run down, and if natural gas demand drops, then pure-play helium projects will become increasingly important. Most forecasts see demand increasing in line with global GDP.
I think the helium market will continue to be tight, and that would suggest helium prices, which are currently around $250 per thousand cubic feet — helium trades for about 100 times the price of natural gas — will be supported in the long term. If Helium One can establish a commercially viable operation in Tanzania, there is potentially a very profitable business there.
Although the drill results have increased the chances of success, there are still no proven helium reserves. There is also an issue with Tanzania being 141 out of 190 economies for ease of doing business, according to the World Bank. At this stage, Helium One shares are still highly speculative. However, I am happy to accept the risk, and I own Helium One shares in my Stocks and Shares ISA.