August has been a difficult month for Helium One Global (LSE: HE1) shareholders. The HE1 share price has crashed on two separate occasions, falling by around 65% in total over the month.
The latest slump came on Thursday morning, when the company said it had ended its drilling campaign after its second well had failed to find any gas. However, Helium One says the data gathered has defined “a working helium system” in the Rukwa Basin. I’ve been reviewing the latest news to see if I want to take a small punt on this speculative situation.
What went wrong?
Helium One has been drilling for helium in Tanzania’s Rukwa Basin. Today’s drilling results reveal that the company’s second well — Tai-2 — has been completed “without identifying helium gas”.
This follows the disappointment of the initial Tai-1 well, which confirmed “the presence of a working helium system” but was not able to identify any free gas within the target Karoo Formation.
Chief executive David Minchin is putting a positive spin on the situation. He says that although the drilling campaign failed to flow any gas to the surface, it’s produced “significant information”. Mr Minchin says this has enabled Helium One to define “a two-track exploration route to develop Rukwa”.
The company’s progress so far has disappointed the market. But I think the HE1 share price could still bounce back. It’s worth remembering the stock is still up by 100% on one year ago — early investors are still in profit and may stick with the business.
New plans
Helium One says that this year’s drilling programme has identified a working helium system, with “seal, reservoir and trapping geometries”. The company now plans to carry out some additional seismic surveying to gather additional information about the Top Karoo formation. It’s hoped these will help the company to design a deep drilling programme for 2022.
Alongside this, management is also hoping to carry out additional work to understand the shallow traps identified by the Tai-2 well. Helium One believes these could potentially offer “a low-cost route to explore and develop a helium gas deposit”.
Management clearly believes the Rukwa Basin still has significant potential. Fortunately, the company still has £10m of cash on hand to fund further work.
HE1 share price: big upside potential?
Helium One has no revenue and no proven commercial reserves. Drilling results so far have been disappointing and there’s no guarantee things will improve. With a speculative stock like this, I’d only invest money I would be happy to lose.
However, I can see some potential here. If the company’s assessment of the Rukwa Basin is accurate, then it could be a commercial resource with the potential to replace ageing helium supplies elsewhere.
I expect that Helium One will issue some positive updates on seismic surveying and 2022 drilling plans over the coming month or so. In my view, Helium One shares could make modest gains in September as investors hope to catch the stock before a rebound.
However, I’m concerned that any increase in the HE1 share price could be short lived. Even if future good progress is made, my sums suggest the company will need to sell new shares to raise cash to fund drilling in 2022, diluting existing shareholders.
On balance, this situation is too risky for me. I won’t be investing.