Mendell Helium: considering the helium play
A different kind of investment
Good Afternoon Team.
I wanted to take a few minutes to talk about Mendell Helium before it comes back to the AQSE. Readers will know I like Helix Exploration, Pulsar and Predator as helium plays - but all three are to an extent reliant on binary events.
Helix has Ingomar and Rudyard.
Pulsar has Jetstream #1 and Tunu.
Predator has MOU5 (and other interests).
The bottom line for all three is that their trajectories are dependent on whether targeted drilling delivers the goods - and despite the decent CoS - you are at the mercy of the drill bit.
This is what exploration is all about - and investors looking to 10x their money love a good exploration story - I certainly do!
Mendell is different in that rather than trying to hit the jackpot at one or two wells, it’s carefully swallowing up dozens of smaller producing wells, with lower grades but which are already productive.
Of course, there’s also a higher risk sweetener in there - but this may make the company a decent complement to the risk plays.
Progress update
Last Monday, we got a decent update on what’s going on - and the company also presented at the AQUIS showcase this week to a decent reception.
The basic premise is that Mendell (as of late June) has an option to acquire M3 Helium, a Kansas-based producer of helium which holds an interest in nine wells. While the company makes clear there is ‘no certainty’ the option will be exercised, it’s looking more likely by the day.
For context, M3 boasts three business areas, any one of which could transform Mendell’s fortunes:
Farm in to 252 square miles of Scout Energy Partners' Hugoton acreage
5.1% helium in its high pressure Rost 1-26 well
‘Big frack’ at the Nilson well producing rising flow rates
Farm-in Agreement with Scout Energy - Hugoton Field
M3 Helium has entered a farm-in agreement with Scout Energy over 161,280 acres in the Hugoton field.
Agreement includes a minimum drilling target of 25 wells, with potential for 100-200 wells.
Production from new wells will go to Scout Energy's gathering system and the Jayhawk processing facility.
Offtake agreement includes a fixed helium price with an annual CPI-based escalator until the end of 2029.
Partnership includes discounted royalties and operating expenses; no payments required from M3 Helium until drilling starts or March 31, 2025.
Agreement includes a right of first refusal on any other farm-outs in Scout’s 1 million Kansas acres.
Rost 1-26 Well in Fort Dodge
Helium content tested at 5.1% by Shamrock Gas Analysis in July 2024.
Pressure test by Thurmond-McGlothlin measured 302.7 psi with a flow rate of 47,100 cubic feet per day.
Installation of Pressure-Swing Adsorption unit began in September 2024 to purify helium onsite.
Estimated water hauling need of 800-1,000 barrels/day; M3 plans to use a nearby old well for water disposal.
Potential flow rates from the Rost well are expected to exceed initial estimates.
Revenue capabilities at various production levels (at $300/Mcf helium price):
50 Mcf/day: $275,400 annually
750 Mcf/day: $4,131,000 annually
Nilson Well ‘Big Frack’
M3 Helium completed a large frack on the Nilson well, funded by local investors and a contractor for $170,000 for a 25% interest.
Frack involved 210,126 gallons of gelled water and 128,500 pounds of sand.
Post-frack, production increased steadily by about 1 Mcf/day.
Analogous frack from Amoco in 1992 serves as a potential production guide, with an estimated 8-month peak period.
Revenue capabilities at varying production levels (at $350/Mcf helium price, plus $0.75/Mcf for NGLs):
50 Mcf/day: $51,300 annually
300 Mcf/day: $307,800 annually
The Nilson well's performance provides insights for developing other wells in the region, enhancing the value of the Scout Energy farm-in area.
CEO comments
Nick Tulloch enthuses:
‘the results have significantly exceeded our expectations. Alongside the farm in with Scout Energy, which provides an immediate and cost-effective path to scale the M3 Helium business, the exceptional performance of the flagship Rost well could potentially become a significant contributor to M3 Helium's cashflow in the coming months.
"Meanwhile M3 Helium's innovative larger frack at the Nilson well has provided ample evidence to support further use of this technique to stimulate increased production in Hugoton wells, something that could prove to be a crucially important factor as M3 Helium develops its farm in programme.
"M3 Helium is fortunate to have several advantages - the Hugoton location puts the company in prime production territory, it has access to infrastructure through Scout's Energy's gathering system to facilitate rapid monetisation of production, a fee payment structure geared to drilling activities and a farm in agreement along with the right of first refusal over any other Scout Energy farm outs that provides a platform through which the company can exponentially scale up its operations.’
The bottom line
I’ve considered the current operating wells before - and the new agreement with Scout over Hugoton should provide bread and butter revenue.
Rost is the potential big payday given the >$4 million annual revenue potential in a very best case scenario - though Nilson is also a nice potential earner.
Given Mendell will likely come back to market with a relatively small valuation, it may be worth your consideration.
Success at any of these three could be transformative.