HELI.V CORMARK COVERAGE THIS YEARCORMARK SECURITIES . 2022 COVERAGE
First Helium Inc. (HELI - TSXV) Increasing Target As Oil Cash Flow De-Risks Exploration Financing Unless otherwise denoted, all figures shown in C$ Event: On Wednesday morning, First Helium announced test results from its 4-29 exploration well at Worsley. Impact: While likely to be produced at a lower rate than the 1-30 light oil discovery, HELI's 4-29 well is slated to come onstream very shortly into an extraordinarily strong oil price environment. At current oil prices, we estimate that run-rate, annualized cash flow from the two oil wells at Worsley could be approaching $20 MM, substantially reducing external financing requirements to accelerate exploration. Commentary: Upon completion of testing operations, First Helium's 4-29 exploration well flowed 467 B/ d of ~350 degree API light oil from the Leduc Formation, representing an oil cut of 67% over a test period of 48 hours on a minimal drawdown. First Helium is preparing to bring the 4-29 well into production in early Q2/22. With a total drill and complete cost of $2.2 MM, at current oil prices we estimate that 4-29 should pay out in around four months. Given the ~33% water cut in 4-29, we believe that the well will be placed onstream at a rate well below the initial test rate. Still, the near-term cash flow from HELI’s two light oil wells at Worsley will be considerable in the current oil price environment and will allow the company to accelerate the exploration and development of helium gas over the company's 79,000 acres of land along the Worsley fairway, with the next location likely to start drilling in late Q2 or early Q3. First Helium also intends to drill an exploration well in Southern Alberta later this year, chasing the same play concept as other helium explorecos (including privately held THOR Resources). Our new risked NPV estimate incorporates what we believe is a conservative EUR assumption for the two oil wells at Worsley (with the discounted cash flow forecast based on C$80/B oil), the NPV of the 15-25 natural gas + helium well, plus an expanded inventory of exploration locations at Worsley. We would note that we have not yet incorporated an estimate for the potential value of Southern Alberta, though we see the 276k acre package as offering significant exploration upside and that a successful well here should help re-calibrate
HELI's valuation relative to some helium exploreco peers. Investment Conclusion: With a robust source of cash flow, discovered helium in its 15-25 Worsley well and a vast array of exploration opportunities at Worsley and in Southern Alberta, we are reiterating our Buy recommendation on First Helium and moving our NPV-based target up to $2.00 from $0.65 previousl