"We easily see +100 helium wells online in Saskatchewan. We’d like to own the majority of those, build the process, and control the marketing." Andrew Davidson, 2020-11, Estevan Mercury.
Thanks to the SIMSA, the Saskatchewan Industry and Mining Suppliers Association for allowing our CEO Mr. Andrew Davidson to speak about helium at this event yesterday. SIMSA is dedicated to promoting Saskatchewan solutions for the global resource industry and we are grateful for the opportunity to share the message about the potential for Saskatchewan to become a player in the global helium markets.
Read on for the transcript of Andrew Davidson's comments.
Thanks Eric and thanks to SIMSA for inviting Royal Helium to speak with you all today. My name is Andrew Davidson and I'm the president and CEO of Royal Helium, a helium gas exploration and production company headquartered here in Saskatoon. we're quite pleased to be based here. All of our activities are in Saskatchewan. Our properties are all in Saskatchewan, our management team, and the lion's share of all of our contractors and service providers are based here in the province. We take a lot of pride in that. We're very Saskatchewan-focused and that's just because we live here, our properties are here, and we think that there's a unique opportunity to develop a new industry. That speaks to this first slide here. We titled this presentation “The New Addition to Saskatchewan Energy Industry Future” and we say that because we feel helium exploration and production is a natural dovetail into the energy production industry in the province. You'll see throughout this presentation that the process of exploring for and producing helium and the associated gases is functionally the same as oil and gas.
That to that end, I'll present a video here that sort of highlights some of these similarities.
“Hi, this is Andrew Davidson with Royal Helium. We are drilling our first helium well in the Climax district. Very few people know what helium is used for, but if you have a cell phone or if you've ever had an MRI or if you're interested at all in space travel or quantum computing or microchips or semiconductors then we're doing this for you. None of those industries exist without helium. Helium is in very short supply globally and very few jurisdictions have the ability to produce it. Saskatchewan is one of those jurisdictions, which is why we are here.”
That drill rig probably looked familiar to anyone who's involved in the oil and gas space and that's because that specific drill rig came to us from a Crescent Point drill site. it is, in fact, a standard oil and gas drilling rig. In our case, it's being used for helium. It's a conventional, super-single rig that is drilling down to great depths for us. It is identical to oil and gas drilling in virtually every way.
Why are we looking at helium? Why do people care about it? Very few people know about helium. Helium is actually one of the most abundant elements in the universe but quite rare on earth in economic quantities. It cannot be manufactured as it's a non-renewable resource, completely inert, does not react with anything, and does not combine with anything. It is formed through the natural decay of uranium and thorium down in the Precambrian basement and below, which is one of the reasons why it's in Saskatchewan. We'll get into that.
Helium is produced universally as a byproduct of natural gas production and specifically conventional natural gas production. That's important for a couple of reasons. Saskatchewan is in fact the only region currently on earth that drills primary helium wells, which means wells drilled where the target product is helium. It provides a number of advantages here in Saskatchewan. We'll get into the economics of it a bit later, but I first want to talk about why helium matters and who uses it? It's not just balloons, although it is still about 8% eight percent balloons in North America.
What I've got on screen here is a side-by-side comparison of the North American helium demand market in the Japanese helium demand market because these are important markets to compare and contrast. The US market, which is a proxy for the North American market in general, is dominated by health care and more specifically MRI machines. Helium is used in MRIs as a superconductor and a super coolant when the MRI is operational. It keeps the magnets that are spinning from melting, which is obviously pretty important. That's about 20% twenty percent of demand in North America: the MRI market. There are some other pulmonary medical tests that are using helium as well. Other major uses would be welding, laboratory research and specifically university laboratory research balloons that still account for about 8% eight percent. Then we get into the more interesting areas to me in high-tech industries, like high-tech manufacturing, fiber optics, electronics, etc. It's interesting to me because if we switch over to the Japanese market, we see that MRIs account for only 1% one percent of helium demand in Japan, whereas semiconductors and fiber optics account for 19% and 22% respectfully. That raises a question would be: Are they not doing many MRIs in Japan? The answer is no, they are doing lots of MRI in Japan -- they actually have more MRI machines per capita than anywhere else in the world. What’s happening is that helium is essential for high-tech industries and as high-tech manufacturing continues to ramp up production of smartphones, semiconductors, microchips, fiber optics, LCD screens, and other things, the demand for helium continues to rise.
Another note on the demand side is that neither of these charts include in any major way two new up-and-coming demand sources being rocketry and quantum computing. On the rocketry side, it's used extensively in every shuttle launch. Every satellite launch and anything that leaves the atmosphere involves helium as a coolant and as the purge gas in fuel tanks. Because of its inert nature, helium will not react and will not combust. In the quantum computing side, it's used as an industrial coolant. These are becoming two major sources of demand specifically in the US. The largest single customer for helium is in fact NASA.
On the supply side, we've seen a major shift over the last decade as to where helium comes from. Historically, the United States has dominated production and sales of helium from conventional natural gas wells in the southern US. It's important that I said conventional natural gas wells because helium is not produced in shale gas. Helium is not contained within shale. Shale is actually the caprock in many cases, so it does not permeate it. What's happened in the US is that it has not been able to recharge what they call their “Strategic Helium Reserve” and that reserve was responsible for as much as a third of global helium sales. The reserves started to decline in 2013 and were pulled off the market completely in 2018, which sent a real price and supply shock throughout the global helium market. There's been no increase in supply from the US since that time. It's left a gap between supply and demand, which is currently trying to be filled by jurisdictions like Qatar and Russia, who both have major helium production facilities at their LNG plants. Again, they are stripping helium out of conventional natural gas. All of this creates an opportunity for other jurisdictions within North America to really step in and become a major player in the North American market and in fact the western world helium markets and the best jurisdiction that we can find for that is Saskatchewan, for a number of reasons.
We envision Royal Helium and some of the other companies in the province that are operating like North American Helium or the Wilde Group really stepping up and playing a large role in securing helium supply for North America and the western world. Japan, specifically has approached on a few different occasions as a potential trade partner on helium. That supply-demand mismatch that we saw in the last two slides really leads to this slide, which is showing the pricing environment for helium. You can see a major spike in 2018 and also note that’s the last date where pricing is available because that is the last auction out of the strategic helium reserve in Amarillo, Texas that I spoke of earlier. The price more than doubled between 2017 and 2018 and there have been no subsequent auctions, so that's the end of publicly available price points.
The helium market operates on long-term contracts between producer and purchaser, so the pricing is not publicly available anywhere. Everything is anecdotal from conversations with participants, but the price has remained higher than $280 USD per MCF. Just a touch higher than natural gas around $2 USD per MCF these days.
We've heard prices on the spot market for helium as high as $15,000 USD for a tank of liquid helium. The price has gone a bit parabolic. We don't anticipate it staying that way as additional supplies from us and our competitors come to market, but we think that the resting point is above $280 dollars USD.
How do you find a helium deposit? Well, you start with jurisdiction. Helium, again, is only formed from the natural decay of uranium and thorium so you look to jurisdictions high that have high concentrations of uranium at depth. Saskatchewan jumps up to the front of the pack there with some of the highest concentrations in the world. Other places that boast similar geology are places like Wyoming, Kazakhstan, etc. That's where you start and then you get into traditional oil and gas exploration techniques.
We start with a detailed review of existing well logs from oil and gas wells that have been drilled in the province, looking for gas tests that returned a result for helium. That looks something like this slide. This is a modern well log from our Climax one well, in fact. It was drilled at the town of Climax here, spudded on January 6 of 2021. The logs look different in that these are very nice to look at -- they're very colorful. The ones we review are black and white and much older, but the data remains virtually the same. You start by looking for gas zones and potential reservoirs, and from there you move on to another age-old oil and gas exploration technique: seismic.
This is the seismic for our Climax project, or at least a portion of it. Here you're looking for four-way closures, same as you would in an oil and gas play. Those four-way closures are quite obviously present here on the Climax project, so that's a good indication that to the extent there is any gas at depth that's going to be trapped within that four-way closure.
Next, we have to look for a source and that source is shown through triaxial magnetics.
What triaxial magnetics shows is areas of basement uplift and the Precambrian basement that would imply an event that would allow the gas that is created at depth to leak out of the Precambrian basement and be accumulated in an overlying trap. We flew a helicopter-borne survey and then we matched the two together to look for areas of overlap between magnetic uplift and seismic closure. We found a significant area of crossover within our Climax field.
This is a zoomed-in version of that view. These are our seven initial drill targets at Climax. We drilled three of them now and we're testing them as we speak. There are four more defined currently and many more expected with the results of this drill program. This is a combination of the deep aeromagnetics and the seismic survey showing areas where it's likely that gas escaped the Precambrian basement and it's likely that it accumulated within a four-way closure trap. From there, we move on to drilling. The formations we drill into for helium are right above the Precambrian basement. We go right to the basement here about 2,600 meters down and below with our straight vertical wellbores.
On the screen now is an image of the geological column of Saskatchewan. A lot of the names you'll recognize as oil-bearing formations. When you have the presentation in front of you, you'll note here everything with a black dot in the chart on the left is a known oil and gas formation. Everything with a circle is a known natural gas formation. We're drilling down to the lowest level there at the Precambrian basement. Just above that is the Deadwood formation and that's our target zone. Although, what we found when we drilled is that there was actually helium present in many zones on the way down! We're having to test more than we anticipated.
At 2,600 meters, our wells are deep for oil and gas wells, but they're not deep compared to a geothermal well that Kirsten will tell you all about. We set our intermediate casing point down at 2,100 meters, which is below most productive oil and gas wells in this region, and we go further. We learned a lot in that drill program going through all the oil and gas zones and all the zones all the way down to the basement. Even testing the basement rocks themselves is a very interesting program. We go through all this effort because they're extremely economic wells. Provided that the gas is there as we expect it to be, these are wells that pay back the drilling capital in about six months and then have a production life in excess of 10 years.
What we show on the screen here is a typical decline curve for a purpose-drilled helium well in Saskatchewan. The red line on the chart is actually an account of all wellbores drilled for helium in Saskatchewan, specifically the Wilhelm pool up by Swift Current. That's where we build our production profile from to see how we think these wells will produce over time. This is what it looks like. It’s a relatively stable production rate over the first five years with the decline coming in after that. It is still an economic producer by the end of the 10-year period. And it has a payback period of six months, which essentially means you are looking at nine and a half years of profit. That's why we're doing all this -- it's very economical to produce.
And we benefit greatly from the government of Saskatchewan's very reasonable royalty rate on helium. Our total royalty rate is 4.25% on helium production. We have no oil and gas royalties, which is a very big advantage. If we were producing anywhere else in North America, we'd be producing in accordance with the natural gas well and paying north of 15% as a royalty on the volumes produced. Currently, we have an initial 10% advantage over anyone else, which is one of the reasons that puts Saskatchewan near the front of the line when it comes to economic helium production zones.
What we're showing on this map here is what we're calling the “Helium Fairway of Saskatchewan”.
This highlights the areas of pronounced Deadwood Formation in the shaded brownish area and shows the land holdings of ourselves in blue and the large holdings of North American Helium in green. Now, North American helium is a large private company based in Calgary. They are great neighbors. They've been very active. They've drilled 28 wells over the last number of years and they have five of which are in production now. They're in the process of building a permanent gas processing facility at their Battle Creek pool in the far southwest corner of Saskatchewan. We're focusing on the Climax region initially, which is just down the road from the Battle Creek pool. We'll look to contribute to the development of this area with these initial three wells and then build on that by drilling multiple wells afterwards, of course. Then, we'll move on to another land block and do the same thing there.
You'll note from our land holdings that we have distinct operating regions within our package. The Climax pool is where we've started. We're going to move over to the southeast after that and prove up a land package there. You'll note by looking at the screen that we are the only player with helium rights in the southeast, which I find terrifically interesting because the highest helium cuts recorded to date in Saskatchewan are actually in the southeast. We'll get into that in a moment. Our lands in the southwest account for roughly half of our land package, or about half a million acres of helium permits and leases. Climax is the one where we started, as I said. The cross-hatched area on Climax is the area covered by seismic and aeromagnetics. Those seven initial targets, which are likely to grow here in the next month or two, really only covers a third of that land package and that land package is about 50,000 hectares in size. We have an equivalent one just north by the town of Cadillac and just to the south at the near the town of Val Marie. We do have some land holdings up in the old Wilhelm pool by Swift Current as well. We intend to get to all of these in due course, proving each separate land package up as we go.
Over in the southeast, we are the only landholder of note. The Bengough land package near the town of Bengough is where we're going to go after we're done with Climax. We already have 3d seismic in place over the Bengough project and we'll be completing the aeromagnetics here in the spring and summer with a view to getting on the ground to start drilling in the fall. As I mentioned, the highest known concentrations of helium are located in this part of the province. It has not been developed or explored specifically for helium yet. We will be the first. The wells are a bit deeper here, in sort of the 2 800 meter depth down to the Precambrian basement. This is not terribly deep, globally speaking, but it is deep for Saskatchewan and you have to drill through the potash formation, which can provide some interesting drilling challenges. It's not new as it happens all the time and we will just be another one doing it. We are very excited about what we're going to find here in the southeast simply because we're at the frontier of it. Nobody else of any scale is operating in this area.
Those are the land packages that we hold. They combine for about a million acres in total of helium permits and rights that we have in the province, all of which we intend to work in a systematic basis with the view of becoming a major inert gas player in North America. We've got a great local team that's supporting us. The consultants from Saskatoon and Estevan and you name it are all locally helping us build this out as we go.
I'd be remiss if I didn't mention one of the more interesting things that we're doing. We've approached our land package as a helium project first and foremost, but it has the potential to be a multi-gas stream play. The helium production in Saskatchewan is associated principally with nitrogen and CO2 as the carrier gases, as opposed to methane. And both nitrogen and CO2 have very well-established markets, industrial gas markets. In fact, nitrogen is the largest industrial gas market in the world. With our partners at the Saskatchewan Research Council, we are reviewing the idea of developing a polygeneration facility in the province where we can pipe in all the gas that we produce from the formation and have it separated into distinct cash-generating units. Can we separate the nitrogen and monetize it, then separate the CO2 and monetize it, then still produce the main product as refined helium at the end? We think this presents a very interesting economic opportunity for wherever in the province we end up putting one. The ability to generate multiple streams of cash flow from multiple inert gases gives you shelter from specific industry shocks Nitrogen services principally the ag industry in Saskatchewan. CO2 is used extensively in the oil and gas industry and it's also used in fertilizer production and the food and beverage industry. As part of that project, we will also be reviewing liquefaction opportunities for helium.
Helium now travels out of Saskatchewan into the US as a gas, where it is then liquefied and sold to end customers. There are end uses for helium gas and liquid helium, but the trouble with helium is that it's a bit of an escape artist. It is one of the smallest molecules that exists and it will escape from virtually anything. Even in the compressed tubes that it travels in on the back of trucks, it will escape those tubes over time. Once it's converted into a liquid, you have the ability to store it for extended periods and in fact ship it for extended distances. There are no liquefaction facilities in Canada presently and the only jurisdiction currently where it would make any sense to put one is the province of Saskatchewan. We will be driving towards that as we prove up a reserve base here, which can complement or be complemented by the reserve base of North American Helium or the Wilde Group such that we can process gas here, liquefy it here, and move it around the world as opposed to sending it south of the border to liquefaction plants. We see that as a major opportunity for helium in Canada.
Helium was just added to the critical minerals list in Canada but we've heard nothing about export restrictions on it. Export restrictions do exist in the United States, which gives us an advantage of being able to ship anywhere we want, whereas the US cannot. We're firmly of the belief that if we have that advantage, we should firmly use it and look to secure a larger portion of the global helium market.
In summary, why is Saskatchewan the top jurisdiction for helium? It's here and there are a few places in the world where it's present in economic quantity. Saskatchewan is one of those few places where we have shallow decline that's associated with production here in Saskatchewan.
Another outlier in this space is the high commodity price. We cannot ignore prices of +$300 USD per MCF helium. These prices are phenomenally higher than natural gas or other inert gases. The economic opportunity is very large. The quick payback of capital is always important when making an investment decision. How fast do you get your money back? Well, in the helium industry it's six months. Six months from when you turn on the well, you'll be paid back for your capital.
Royal Helium has one of the largest helium land packages in North America. In fact, it's only exceeded by our neighbor’s North American Helium, which is a large private company. Royal really presents the only current public company opportunity to develop multi-well multi-pool upstream helium gas and inert gas opportunities with a million acres to develop. We've got more wells to drill than we are able to complete at this point. This presents multiple stage downstream opportunities and business opportunities for suppliers as well as we move towards constructing permanent facilities, building-out towards poly-generation facilities and liquefaction plants. Those are long-term capital projects that require the finest in engineering and in manufacturing and it is our view that you can find that all here in Saskatchewan. Until we get to that point we'll be using existing talent. We'll be using the oil and gas industry to the greatest extent possible as their equipment, infrastructure, and all of that transfers into the helium industry virtually seamlessly. It’s a great complement to that industry, which is prone to going through boom and bust periods.
The helium industry is much more of a steady state, it's not reliant on global geopolitics for example. There is no negative publicity associated with helium production because it's an inert gas. There's no greenhouse impact to its production. We really have an opportunity here to diversify our energy economy while supporting our energy economy at the same time. Royal Helium is a staunch supporter of the energy industry in Saskatchewan and are happy to provide gap employment opportunities to that industry in periods of downtime. We really believe that this is a long-term upside opportunity for Saskatchewan and its associated businesses that are involved in the natural resource space.
Again, my name is Andrew Davidson, CEO of Royal Helium. I invite you all to check our website www.royalheliumltd.com and if you have any future questions, just want to talk about it, or question me on why I like helium so much then please reach out to me at any time. Thank you!
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