Helium: The next commodity to take off?

A Savanna Drilling rig set up in southwest Saskatchewan for Royal Helium.

Q&A with Royal Helium’s Andrew Davidson to discuss Canada’s ballooning helium industry.

Interview by John Bayko

CAODC members have been busy this past winter season with a variety of projects focused on new and emerging commodities like helium and hydrogen. Savanna Drilling recently put three of their rigs to work with Royal Helium based in Saskatchewan. To find out more about this interesting commodity and its various uses, CAODC’s John Bayko sat down with Royal Helium President & CEO Andrew Davidson. Davidson is a resource development professional with more than a decade of continued experience in moving quality projects from greenfield exploration to production across multiple commodity types. As founder of Royal Helium, Davidson is one of the most experienced helium exploration executives in Canada. Read our interview with him below.

JB: Tell us about your background and how you got started working on helium?

AD: I was raised in Saskatchewan and like most Saskatchewan people, I took a 10-year sabbatical to Calgary. I finished my schooling at University of Calgary and then worked at a local accounting firm, got my chartered accountant designation, started a family, and then moved back home. I’ve been here since 2007 and been in the business of developing natural resources since 2010. We focus on a lot of things, but oil and gas is one of the leading commodities that we’ve been after here during that time. Since 2016-2017, I have made a heavy shift towards helium development. It’s been a bit of a whirlwind as helium is a very misunderstood resource. People generally associate it with things like balloons and that’s about it. That’s fair because balloons do constitute part of the market, but it is a small and shrinking part of the market.

Helium uses extend far beyond helium balloons. Helium is a key component in manufacturing smartphones, computers, and MRI machines.
JB: From a drilling perspective, what types of formations typically hold helium in Saskatchewan?

AD: Helium is generally found right above the Precambrian Basement, in the Deadwood Sands Formation, and the Winnipeg Formation. That’s what we target. Savanna has been phenomenal to partner with on drilling these three wells. We’re halfway through our final well in this program as we speak. It’s about 2,600 meters down in Saskatchewan to get to the Precambrian Basement. We are drilling straight, vertical wells. We do use directional tools to keep them straight at that depth because it’s a long way to travel with a lot of potential vectoring off. We have a great group of services that are involved in this program, but the drilling is relatively straightforward.

JB: How do you extract, store, and transport helium?

AD: Producing it is functionally the same as producing natural gas. The gas at depth is under a high degree of pressure and it comes up on its own. Historically, most helium wells produced in Saskatchewan are choked back to keep the flow rate under control because they do generally flow very fast when you’re producing from +2,500 meters down. Once at the surface, it goes through a well and there are a bunch of different options for what you can do. What we’re going to do is run it through a series of membranes, which is a processing facility about the size of a SEACAN. You pipe the gas into that and it separates out larger molecules. With helium being the smallest molecule, it is going to be what’s left at the end of that membrane processing, so you have a refined or upgraded helium product out of the raw gas stream that you feed through.

In Saskatchewan, we’re unique in that the gas that comes up with helium is principally nitrogen as opposed to methane, which provides some pretty big advantages on the processing side. Running nitrogen through these membrane facilities is a very straightforward practice. Now, once we have passed the membrane processing, the helium is stored in pressurized tanks and basically hauled away.

The way that the helium market is now is such that every MCF of helium that’s produced is sold virtually instantly. There’s such a demand for it and such an under-supply that what happens in Saskatchewan, where helium has been produced since the 1960s, is that it gets produced and loaded into the pressurized vessels and driven away into the US. From there, it’s sold as either a gas or a liquid. There is a liquefaction plant in Wyoming, which is the closest one to Saskatchewan. After it gets liquefied, it can be sold around the world. Helium, as a liquid, can travel anywhere. As a gas, it has a relatively short runway because it will escape just about anything.

JB: Can you tell us a bit about the structure of helium commodity market?

AD: The helium market is an interesting one. It’s a very, very large market and it is extremely structured but what it lacks is a quoted market price. There’s no spot price for helium. It trades all on long-term contracts, generally with very large companies. Then they will take it, upgrade it, process it, and sell it to end-users. All the pricing built into the helium market is long-term contract pricing with three to five-year contract terms. Modeling a helium project from an economic standpoint presents a very interesting challenge because there’s no visible market price. We were the first public helium company in North America, so price transparency is going to begin with us as we have to report financial results. It will be easy to figure out what the market rate for helium is according to our filings over the long-term.

JB: When helium is produced, is it a byproduct from other extraction processes?

AD: Globally, it is produced exclusively as a byproduct of natural gas. Helium is formed from the natural decay of uranium and thorium. When you look to places that have high uranium content in ground rocks, Saskatchewan comes to the top of the list. Saskatchewan has a unique geological formation that traps helium below hydrocarbon zones down in the Deadwood and that’s how we end up producing it as a primary gas here with nitrogen as opposed to methane. There is helium associated with natural gas production, but that’s not what we’re targeting. We don’t own the oil and gas rights. Our wells are helium exclusively.

Everyone uses helium every day, you just don’t know it. If you have a mobile phone or an iPhone, then helium was used in the manufacturing of that device. Anyone who uses a computer — the microchip consumes helium in the manufacturing process. The biggest single industry segment that uses helium is the healthcare industry, where it’s used as a superconductor and industrial coolant in MRI machines. You cannot have an MRI without helium. And there’s no replacement product for it in any of these uses, so it is unique. It’s a completely inert element in that it will not react or bind with any other element on the periodic table. It has the lowest boiling point of any element on earth. It remains a liquid at absolute zero.
The more interesting markets to me and what piqued my interest when I looked into this back in 2016-17 was these futuristic industries, like high-tech manufacturing, that were growing at an immense rate and consuming helium at a growing rate. The other one is rocketry. The largest single customer in the US for helium is NASA. Every shuttle launch, every rocket launch — everything — consumes helium in that process.

And because it encompasses so many different segments of the economy, the risk on the demand side is exceptionally low. Demand is continuing to grow because there are more and more industries that use it and there is no replacement product. Nor is there a way to manufacture it in the lab in economic quantities. It’s a non-renewable resource that is growing in demand and that’s what’s really led us to the push into exploration for it here in the last five years or so.

JB: Is Saskatchewan the largest potential play for helium or are other areas relevant?

AD: We certainly think it’s the largest potential play for helium. It’s where virtually all helium production in Canada comes from now. There are good helium fields in Alberta, as well. The helium in Alberta is more associated with natural gas but it is certainly present there. It has been written that Saskatchewan has the fifth largest helium reserves in the world. I’m not sure that’s been proven in any way shape or form. I suppose we’ll have a part of proving that, but it’s a great industry to be involved with.

In times like these when we’ve seen the pain that the oil and gas sector has been going through for no good reason over the last number of years. This helium opportunity provides an outlet because all the services, all the drilling, and the completions are exactly the same as you would use in an oil and gas well. To the extent that we can offer a new line of business and a new line of drilling that uses that skill set, it’s a phenomenal opportunity for industry and one of the reasons that the Government of Saskatchewan has been so heavily behind developing this industry. It’s such an important addition or bolt-on to our existing oil and gas space. It is something that is less subject to global geopolitical risk in terms of pricing. It’s not subject to any environmental uproar because there’s nothing negative to the environment in the gas that we produce with nitrogen and helium, neither of which have a negative impact on anything.

JB: Our members are extremely happy that there are other opportunities for drilling wells! What’s next for you? Have you got a program in place or what are the next steps for Royal?

AD: We’re just winding up this drilling program that we started back in January. We were doing three wells and we’ve got about 500 meters to go on our last one. It’ll be another week or so before we get down where we have to go through our completion program, test all these wells, and test the helium concentrations to ensure that we have an economic quantity there. Then we’ll be looking to put those three on production as soon as we can. From there, we intend to drill out both infill drilling within our Climax land package we’re drilling now and then move to other parts of the province where we control about a million acres of helium rights in Saskatchewan, split evenly between the southwest and the southeast. We’re going to be quite active on the drilling side to prove up reserves over the next 12-24 months. If we are doing our job right, I really don’t see us slowing down anytime soon. A lot of wells can be drilled into a million acres!

JB: From a completion standpoint, what’s a service rig doing on a helium well?

AD: Same thing it’d be doing on natural gas well! We’ve identified potential productive zones varying depths off of wireline logs through the drilling process. We’ll go back in and we’ll start testing them from the bottom up. Basically, you run in and shoot your perforations through the casing then run gas tests on fluctuating intervals. Then do a gas collection at the top. The major part of it is to put the gas stream into a contained cylinder and send it off for analysis to see what the constituents of the gas are. From there, you shift over to production. It’s really the same process as natural gas. You check flow rate, porosity, permeability, recharge rates, and all these things.

JB: Great. Exciting times for sure! Where can people find out more information about Royal?

AD: Our website is www.royalheliumltd.com everything’s on there, including my contact information. Anyone who has questions or services they could offer can reach out to me at any time. I’m always available and love talking about helium. I enjoy spreading the word about this industry, which could be a great boon to Canada and Western Canada specifically as we’re inventing something new. It’s going to be an interesting couple of years in the future here for helium in general and Royal Helium specifically.

If you’re interested in learning more, check out our full interview with Andrew Davidson on the General Well Servicing CAODC Podcast at caodc.podbean.com. If you’d like to learn more about Royal Helium, please visit their website at https://royalheliumltd.com/.