Mendell Helium PLC (AQSE:MDH) has recently provided operational updates on the activities and developments of M3 Helium Corp. (“M3 Helium”) in Kansas, USA. Mendell Helium holds an option to acquire M3 Helium, a helium producer with interests in nine wells. The article delves into the progress of each well, funding interests, and strategies to maximize production and cost-efficiency, with a particular focus on the Nilson and Rost wells. Despite these developments, there is no certainty that Mendell Helium will exercise its option to acquire M3 Helium.
Nilson Well Production
Steady Increase in Production
Production at the Nilson well has been steadily increasing, currently delivering 127 Mcf/day of gas, which is processed at the Jayhawk plant by Scout Energy Partners. This production rate places Nilson among the top 1% of producing wells in the Hugoton field. The production level of Nilson well has proven pivotal, demonstrating the well’s helium composition of 0.6%, which translates to a monthly revenue of approximately $10,000 when accounting for both helium and natural gas liquids. This consistent yield not only highlights the potential of M3 Helium’s operations but also signifies the promising future of gas extraction endeavors in the region.
The inflated production volumes at the Nilson well have evidently showcased M3 Helium’s operational proficiency and the effectiveness of its extraction techniques. The presence of Scout Energy Partners and their contributions to the processing at Jayhawk have proven advantageous, ensuring that the gas is effectively handled and prepared for sale. This collaboration has permitted M3 Helium to focus on refining operations and leveraging Scout Energy’s expertise. The resulting gas yields from Nilson not only bode well financially but also position M3 Helium as a potentially significant player in the local energy sector.
Financial Implications
The booming success of the Nilson well has painted an optimistic picture for future endeavors, attracting significant local interest. Local oil and gas entities have taken note, underscoring the financial implications tied to this surge in production. M3 Helium’s farm-in agreement with Scout Energy allows for the application of innovative, yet proven, techniques to further develop new wells in Hugoton. This has triggered a wave of expressions of interest from three local oil and gas companies keen on exploring potential funding arrangements.
With a steady eye on fostering growth without diluting ownership, M3 Helium recognizes the importance of these potential funding opportunities. Among these local companies, two are eager to collaborate on new, similarly productive “Nilson-type” wells. On the other hand, the third company focuses directly on making the Rost well operational. Each of these potential collaborations could introduce non-dilutive funding pathways, a strategic move that holds the promise of exponential growth while maintaining shareholder value. This balanced approach to funding amplifies the company’s ability to push forward with innovative development techniques and expansive exploration initiatives.
Funding Interest
Local Partnerships
Two companies are interested in collaborating on new “Nilson-type” wells, while the third focuses on aiding in bringing the Rost well into production. These possibilities could offer non-dilutive funding opportunities, which are crucial for M3 Helium’s growth and development. The farm-in agreement with Scout Energy has been a crucial guiding force, setting the stage for such collaborative efforts aimed at improving newly established operations. The historical success associated with the Nilson well has laid a fertile ground for future endeavors and brought significant attention from these local enterprises.
Additionally, the collaboration reveals the local industry’s confidence in M3 Helium’s operational strategies and extraction methods. This support is significant as it highlights the commendable strides made by M3 in maximizing the potential of their wells while forging strong partnerships. The proposed partnerships align seamlessly with the company’s objective of expanding its operational base in Hugoton, focusing on both immediate and long-term goals. These collaborations will facilitate faster development cycles, access to essential resources, and an uninterrupted flow of operations at newly developed sites such as the Nilson and Rost wells.
Deferred Payment Terms
Moreover, the introduction of deferred payment terms by a proactive fracking contractor has presented an advantageous financial opportunity for M3 Helium. This arrangement could provide M3 Helium with the financial flexibility needed to pursue its ambitious plans without immediate financial strain. Deferred payments allow the company to allocate its resources more strategically toward projects that promise high returns or immediate results. By postponing certain costs, M3 Helium can bridge the gap between upfront financial obligations and ongoing revenue generation cycles.
This development is a testament to the confidence service providers have concerning M3 Helium’s potential to achieve substantial returns. Deferred payment terms can significantly alleviate financial pressures, enhancing the company’s capability to invest in scalable solutions without restricting cash flow. The financial agility afforded by such partnerships ensures that M3 Helium can maintain its momentum in well development and extraction processes, propelling the company forward at an accelerated pace. This financial flexibility promotes sustained growth and enables the company to swiftly respond to unexpected challenges or explore new opportunities as they arise.
Rost Well
Preparations for Production
Preparations for bringing the Rost well into production include strategies for water hauling and potential production flow rates. Initial evaluations suggest that the well might require the hauling of 800-1,000 barrels of water daily. This significant logistical requirement is integral to ensuring that the well operates effectively without undue interruptions. Additionally, repurposing nearby former oil wells as disposal wells poses an economical solution. If viable, these converted disposal wells boast a remarkably short payback period of approximately four months, reducing associated operational costs significantly.
These preparations indicate a robust strategic approach by M3 Helium, aimed at mitigating environmental impact while optimizing production efficiency. By leveraging existing infrastructure, M3 Helium demonstrates a keen understanding of logistical efficiencies that can substantially reduce operational costs. This approach not only conserves financial resources but also aligns with sustainable practices prevalent in the industry. Combining engineering ingenuity with strategic planning, M3 Helium is positioning the Rost well for optimal performance in a competitive industry landscape.
Projected Production and Revenue
M3 Helium anticipates that Rost’s production could exceed previous estimates, potentially reaching 250 Mcf/day, resulting in monthly revenues exceeding $100,000. This projected output marks a significant increase from prior recorded rates of 47 Mcf/day and is less than one-tenth of the well’s maximum tested production rate of 2,900 Mcf/day. Such optimistic projections underscore the expansive potential locked within the Rost well. If actualized, this higher production capacity not only amplifies immediate financial returns but also ensures sustained revenue streams.
The estimated costs for bringing Rost into production are pegged at approximately $400,000, covering essential elements such as the disposal well setup, pump and compressor installation, and integration of a Pressure-Swing Adsorption (PSA) modular processing unit for onsite helium purification. Efforts to identify and implement potential cost and time savings, such as examining nearby former oil wells, are indicative of strategic planning that prioritizes efficiency and resourcefulness. By exploring avenues for reducing expenses, M3 Helium positions itself to achieve substantial savings, with potential reductions in costs exceeding $100,000.
Transaction Update
Reverse Takeover Requirements
The exercise of the option to acquire M3 Helium would constitute a reverse takeover under AQSE Rule 3.6, necessitating the publication of an admission document. Significant preparatory tasks include drafting a competent person’s report (CPR) on M3 Helium’s assets and auditing historical financial information (HFI). The CPR process is currently nearing completion, and the HFI aligns with Mendell Helium’s IFRS accounting policies. Meeting these regulatory requirements is crucial for ensuring a smooth transition, should Mendell Helium decide to proceed with the acquisition.
Adhering to these procedural requirements not only fulfills mandatory guidelines but also serves as a foundation for establishing credibility and transparency in the eyes of stakeholders. The objective assessment provided by the CPR offers a detailed understanding of M3 Helium’s assets, ensuring informed decision-making processes. Additionally, the thorough auditing of historical financial information assures potential investors and partners of the operational and financial health of the company. By setting such meticulous standards, Mendell Helium ensures that all bases are covered and that risks are significantly mitigated.
Discretionary Option Exercise
Mendell Helium emphasizes that there are no immediate plans to exercise the option until the publication of the admission document. Nonetheless, the directors retain the discretion to exercise the option based on the evolving operational landscape. This flexibility allows Mendell Helium to adapt to real-time developments, making strategic decisions that align with their long-term vision. Holding the option keeps avenues open for potential restructuring or collaborative ventures that may arise in the future.
This cautious optimism ensures that every strategic move is well-anchored in the current market context while retaining flexibility for future re-alignments. By steering clear of premature commitments, Mendell Helium retains its strategic advantage, ensuring that any eventual decisions are made from a position of strength and knowledge. This calculated approach allows the company to manage its assets effectively, safeguarding stakeholder interests while paving the way for potential growth and expansion when the moment is ripe.
Strategic Priority and Future Plans
Focus on Rost Well
In the immediate term, the focus is bringing the Rost well into production due to its high productive potential despite it being smaller in scale compared to Hugoton. Successful production at Rost could cover much of Mendell Helium’s and M3 Helium’s overheads, allowing M3 Helium to concentrate efforts on developing new wells in Hugoton. The anticipated revenue streams from Rost would provide the necessary financial cushion to support ongoing and future projects, bridging financial gaps effectively.
This strategic prioritization ensures that resources are funneled into projects promising high yield returns, achieving financial sustainability. Achieving consistent production at Rost would establish a stable revenue base, reducing dependency on external funding sources. M3 Helium’s capacity to generate sufficient income to manage its operational overheads signifies a milestone in achieving self-sufficiency.
Confidence in Operations
Mendell Helium PLC (AQSE:MDH) has recently shared updates on the operations and progress of M3 Helium Corp. (“M3 Helium”) situated in Kansas, USA. Mendell Helium currently holds an option to acquire M3 Helium, which is a helium producer with stakes in nine wells. The report provides detailed information on the advancement of each well, funding interests, and methods to improve production efficiency and cost-effectiveness, with a significant emphasis on the Nilson and Rost wells. However, despite these positive developments and strategic endeavors, there remains no certainty that Mendell Helium will actually go ahead and exercise its option to acquire M3 Helium. The strategic goal of Mendell Helium includes potentially boosting supply capabilities to meet growing demands. This update also indicates the company’s intention to keep stakeholders informed about any relevant changes. The future direction of Mendell Helium’s acquisition plans remains uncertain, emphasizing the company’s cautious and strategic approach in considering the potential acquisition of M3 Helium.
