National Post (National Edition)
Helium hub achieves lift off
Drilling starts in Saskatchewan
CALGARY • In a corner of Saskatchewan where drillers had previously spudded wells for oil and gas extraction, investors are pouring money into a previously untapped resource that emits no carbon and could diversify the province's economy.
“There's a fair amount of capital out there that understands the technology, understands drilling, understands all of that but is a little nervous about the oil and gas space,” said Andrew Davidson, president and CEO of Royal Helium Ltd., a TSX-Venture exchange listed company that last year raised $7.5 million to drill three wells near Climax, Sask.
The company finished drilling the last of those three wells on Tuesday, in an area that is quietly becoming a hub for helium production in Canada and the centre of an emerging industry to feed an increasingly undersupplied U.S. market.
“We've been generating some attention from those (energy investors) and have been able to demonstrate that anything you understand about the oil and gas sector is exactly the same in the helium sector — there is not one difference in how you drill these wells,” Davidson said.
Shares in the Saskatoon-based company are up 1,100 per cent in the past year, rising from 5 cents each to 60 cents on Tuesday, slipping a penny on Wednesday.
The North American helium market has been upended in recent years after a 2013 law required the U.S. government to sell off its strategic helium reserve, which it has been maintaining in Amarillo, Texas since the 1920s. The U.S. government is set to sell its last remaining helium stores by September and the drain on that supply has turned the country into a net importer of the inert gas, which doesn't combust and is used in MRI machines, to cool super conductors and as a purge gas for rocket ships.
“Initially, the uptake on what we were doing was slow. Explaining to people that helium was not about balloons. It took a little bit of education in the investment community,” Davidson said.
Now a small set of investors that previously focused on oil and gas are eyeing an opportunity in a gas currently fetching a high price, and firms like Royal Helium and its competitors are scaling up drilling plans in the region.
There is no spot market for helium and its pricing is not transparent, but Davidson said helium prices have risen from US$84 per thousand cubic feet in 2012 to US$280 per mcf and was briefly up even higher over the past year.
Not far from Royal Helium's three wells in the southwest corner of Saskatchewan, Calgary-based North American Helium Inc. plans to drill 15 wells targeting helium deposits this year after the privately held company produced its first helium from the area in July 2020.
Last year, North American Helium raised $39 million for the construction of its second helium purification plant in the area, designed to process 160 thousand cubic feet per day of purified helium, which would make it the largest facility of its kind in Canada.
Similarly, Richmond, Va.based Weil Group is currently producing small volumes of helium in both Alberta and Saskatchewan and operates a helium purification plant in southern Saskatchewan, where it reactivated old wells drilled in the 1960s and repurposed the wells to produce helium. The company bills itself as the first commercial-scale producer of helium in Saskatchewan.
The drilling programs represent a significant uptick in helium interest on the Prairies. In the past five years, only two existing oil and gas wells in Alberta have been converted to produce helium, according to the Alberta Energy Regulator. The province's first helium well was drilled in 2018 but only began producing significant amounts in April 2020.
The Alberta government hopes that drilling for helium will help laid-off oilfield workers get back to work and also open up a new stream of non-renewable resource revenue for the province, which continues to rely on oil and gas royalties. The province introduced a royalty rate of 4.25 per cent for helium production in April 2020.
“Developing untapped resources — such as helium — further diversifies our energy sector, as Alberta is well-positioned to help meet increasing global demand,” said Jennifer Henshaw, spokesperson for Alberta's Associate Minister of Natural Gas Dale Nally.
Henshaw said the province doesn't have data yet on how much it earned in helium revenues.
Across the border in Saskatchewan, where multiple wells have already been drilled and dozens more are planned, the nascent industry is outpacing Alberta. Royal Helium's Davidson said that if the test results from the firm's first three wells are successful, the company plans to begin a continuous drilling program in the area and has identified up to 60 drilling locations.
Soon, Davidson expects the oil and gas industry, with all the skills to produce helium, to take an interest in the market.