FN Media Group Presents Oilprice.com Market Commentary
Worth 100x more than natural gas, the shale boom has taken on a new angle for exploration and production, with the critical level of helium supplies igniting a land rush that could determine the future of innovation itself. Mentioned in today's commentary includes: Nvidia (NASDAQ: NVDA), IBM Corporation (NYSE: IBM), Advanced Micro Devices (NASDAQ: AMD), Intel Corporation (NASDAQ: INTC), Taiwan Semiconductor Manufacturing Co. (NYSE: TSM).
The bulk of the world's helium reserves are found in natural gas fields, which means that these fields now have double the potential-and double the interest from a national security perspective. Non-renewable and irreplaceable, helium is a critical element in hard drives, supercomputing, scientific research, space travel, and even medical MRIs.
For North America, which until recently enjoyed a stable supply of helium through the Federal Helium Reserve in Amarillo, Texas, there is an opportunity for anyone who can bring helium back home.
Total Helium (TOH; TTLHF) the owner of a large helium play in the Kansas-Oklahoma panhandle has already started producing and enjoys a lucrative offtake agreement with one of the biggest members of the helium oligopoly"-the $160-billion behemoth, Linde Plc (LIN).
Total Helium's wildcatter team jumped on the helium prospects in the largest U.S. gas field before others saw the potential supply squeeze looming. First to market may be the biggest beneficiary of a helium boom. Right now, our pick is Total Helium.
The Wildcatters Surprising Everyone from Africa to North America
So far, Total Helium (TOH; TTLHF) has amassed approximately 115,000 acres of leases on hand at Hugoton, the largest gas field in the United States. Half of that acreage is in the form of farmout agreements with Scout Energy, one of the largest producers in the basin.
Total Helium, backed by Craig Steinke of Reconnaissance Energy Africa (Recon Africa), was up for the challenge. This wildcatter has a reputation for going where no one else is paying attention and drumming up big discoveries and even bigger opportunities. It was small-cap Recon Africa, after all, that went on a super-sized expedition to Namibia and came back with the discovery of a working petroleum system in the giant Kavango Basin.
Putting the right technology in the right place and right before a supply squeeze-that's Steinke's modus operandi.
Already Producing and Ready to Hit the Market
The estimate is that Total Helium (TOH; TTLHF) could produce over 27,000 Mcf from each well. After drilling and completing its first two wells by January this year, Total Helium has already started producing. On March 15th it geared up to hit the market with its first helium and one of its upside offerings-methane.
This helium is in the pipeline and will likely hit Linde's processing plant any day now, pending final processing agreements. And it was all done at costs that we think make Total Helium's margins quite attractive. Drilling completion costs come in at about $600,000, and the company's net from 300 Mcf could result in a payout in as little as 18 months. A payout over this short of a time period is unheard of in the shale industry.
Plans to Lock Up Loads of Helium Land
So what comes next? Since Hugoton is considered as one of the most important sources of helium in North America, Total Helium is looking to lock up as much land as possible in a planned expansion of up to 1.65-million-acres. That could give this tiny company up to 19X its current helium land position.
This quarter, they're planning to expand their developmental drilling and completion program, add more to the leasing campaign, and work out subsurface storage rights with giant Linde.
This isn't just about producing helium and getting it to market ... There's an innovative storage opportunity here, as well, and it offers potential upside that could add multiple layers to this play. They plan to turn Hugoton into the next major American reserve.
Total Helium (TOH; TTLHF) is collaborating with a multinational industrial gas company to establish underground Helium storage rivaling the successor of the U.S. Federal Helium Reserve. Total Helium will operate the facility with 50-50% ownership.
Helium storage is critical because this lightest of elements in the universe is non-renewable and once it is released into the air, it is lost in the atmosphere, forever. And it doesn't plan to just store helium, either ...It intends to store hydrogen, another of the universe's lightest elements. The hydrogen market is set to hit $300 billion by 2027, and storage here, too, will be critical in maintaining supply.
Qatar, Algeria, Australia ... and Kansas
For a tiny company like Total Helium to lock up a deal with a member of the helium oligopoly is the kind of offtake deal that usually takes years for junior companies to achieve.
Linde isn't just a helium supplier. It's much more than that. It enjoys a 40% global market share for helium, and it has operations on three continents, in Qatar, Algeria, Australia, and the United States. Its helium plant in Kansas is one of the biggest in the world.
Beyond what is to come for Total Helium in the form of what could be the most advantageous downstream agreement a junior helium company may ever seek, it's already locked in for over $2.2 million as a result, in both current and upcoming cash flow.
It also looks to have done wonders for Total Helium's capex: This junior has the advantage of not having to spend tens of millions of dollars building up infrastructure such as pipelines and processing plants.
America is desperate for home-grown helium, and Total Helium will deliver new supply, first.
Tech: The Industry Desperate For New Helium Supply
Taiwan Semiconductor Manufacturing Co. (TSM) has a lengthy history and has helped shape many technologies we rely on today. It's focus on high standards and its strive for excellence has led them into becoming one of Apple Inc.'s primary suppliers, helping assist Apple during a global semiconductor shortage. And a big part of the company's strong revenue.
Taiwan Semiconductor Manufacturing Co. is a key player to watch in both the helium shortage and the semiconductor shortage. As the world's largest chipmaker, it needs helium to survive. And with a semiconductor supply squeeze looming, it could stand to benefit big when Big Tech comes knocking.
Intel Corporation (INTC) is one of the world's most renowned chipmakers. It has been around since the late 1950's, when it was founded by Robert Noyce and Gordon Moore who first coined their portmanteau name- Integrated Electronics. Intel supplies processors for computer systems such as desktops laptop servers tablets mobile phones (including smartphones)and more; they also make motherboard chipsets that connect these devices together so you can use your processor effectively while having access to fast memory too. Considering that helium is a critical part of the semiconductor and computer chip manufacturing process, any outages or new discoveries could have an impact on chipmakers like Intel. Right now, revenue is strong, but any hiccups in the helium supply chain could weigh on production.
Advanced Micro Devices (AMD) is at the cutting edge of the world of computing and graphics. It founded over forty years ago with a single mission: to advance technology as fast it could be invented. Since then, they've become one of the most relied upon brands for processing power - both at home on your own PC or game console; but also when you need high performance computer systems that can process data quickly enough maybe even live video streaming where every millisecond counts.
Advanced Media Devices isn't just building home computers, either. AMD also is building CPUs to be used in massive data centers, the kind supporting the likes of Microsoft's Azure cloud-based workstations and desktops and much more. And its GPUs are providing the speed, security, and scalability to keep these data centers performing at the level needed to push modern tech into the future.
As AMD's biggest competitor, Nvidia (NVDA) is another company that develops graphics processing units, or GPUs. Nvidia are continually releasing new technologies to stay ahead of the competition and have an excellent reputation for quality. The company also manufactures processors that power many other devices such as automobiles, robots, and smartphones. These processors are often used for artificial intelligence systems like driverless cars or voice commands on mobile phones so we can expect Nvidia's technology to keep getting more advanced over time.
With more and more demand coming for semiconductors and new chip technology hitting the market, companies like Nvidia, AMD, Taiwan, Samsung and Intel are going to be some of the biggest benefactors. They're already well-known in the industry, and this could just be their time to really shine. But a looming helium shortage could present a number of complications for the booming tech giants.
IBM Corporation (IBM), or International Business Machines Corporations, is a United States-based technology company with a lengthy history of success. IBM specializes in developing and providing computer related products worldwide like the automated teller machine (ATM), magnetic stripe card and much, much more.
IBM isn't new to the semiconductor industry, either. In fact, it is pushing the boundaries of what semiconductors can achieve. And it wouldn't be possible without helium. The vast majority of chips are made with silicon which needs to go through an extensive process to create specific circuitry. Helium has several roles in this process.
By. Michael Kern
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This publication contains forward-looking information which is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ from those projected in the forward-looking statements. Forward looking statements in this publication include that helium prices continue to increase or remain at current levels; that helium will remain or grow in importance for future of many different technology applications; that Total Helium (the "Company") will be able to continue to successfully explore for and produce helium, methane and/or natural from its exploration properties and that the Company will be able to commercialize the production of any helium, methane and/or gas reserves found and recovered on its properties; that current technology, including the implementation of appropriate water disposal systems, will allow the Company to successfully explore and develop potential helium and/or gas reserves on the Company's properties; that the Company will achieve its anticipated return on investment on drilled wells; that the Company will be able to minimize the costs incurred during the exploration and development process; that the Company will be able to store any recovered helium in its agreement with Linde; that the Company and Linde will be able to develop a helium storage facility to replace the U.S. federal helium reserve; that the U.S. federal helium will be auctioned off to private investors; that the Company will generate ongoing cash flow from its deal with Linde; that the Company will expand its prospective helium land package as planned; and that management of the Company can leverage experience from other exploration projects to achieve success. These forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. Risks that could change or prevent these statements from coming to fruition include that helium prices may not increase in the future and may actually decrease for various reasons; that helium may be replaced with other resources such that its importance in technology applications may decrease in future; that the Company may fail to successfully continue its exploration and production of helium, methane and/or natural from its exploration properties or that the Company is unable to commercialize the production of any helium, methane and/or gas reserves found or recovered on its properties; that current technology may be inadequate or cost prohibitive for the Company to successfully explore and develop potential helium and/or gas reserves on the Company's properties; that the Company may not achieve a return on investment on drilled wells as anticipated or at all; that the Company's exploration and development efforts, if any, may be more costly than anticipated; that the Company may be unable to leverage its production agreement with Linde for the storage of any helium it recovers and the Company may be unable to develop a helium storage facility as anticipated or at all; that the Company may fail to generate cash flow from its deal with Linde; that the Company may be unable to deliver sufficient quantities of helium to Linde as required under the agreement and that the agreement with Linde may otherwise not be completed or otherwise fulfilled; that management of the Company may be unable to leverage any of its experience from other exploration projects; that the Company may be unable to secure any necessary financing to continue its operations; that the Company may be unable to expand its land package or that the additional area acquired may not contain any commercial helium reserves; that the Company may be unable to finance ongoing exploration and development efforts; and that the business of the Company may ultimately fail for various reasons. The forward-looking information contained herein is given as of the date hereof and we assume no responsibility to update or revise such information to reflect new events or circumstances, except as required by law.
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