Analysts at Crest Corporate Broking have valued Quantum Helium (QHE ) at 6.4p per share, as the Colorado-focussed helium developer gears up for a new fracking programme next month.
Quantum recently completed an extended production test on its Sagebrush1 well which demonstrated helium concentrations of 2.5%.
“The test also established strong reservoir connectivity and a rapid pressure recovery which are positive,” said the Crest analysts.
“However, consistent flowrates were not achieved. It is believed that effectiveness of the acid treatment of the reservoir was limited by the minerology and organic content of the reservoir. Working with IPT Well Solutions, a specialist completion company, Quantum will now look at a propped fracture stimulation programme. This is a relatively normal fracking operation that aims to create and maintain conductive fissures in the reservoir to help with flowrates. It is hoped that these fractures could extend beyond upper Leadville formation into deeper lower Leadville intervals.”
With this in mind, Quantum has now completed its detailed engineering and operational planning.
“It is now finalising the remaining technical and logistical arrangements with the frack expected to start in November,” continued Crest.
“It is hoped this will allow sustained flowrates which will be the next stage in moving this to a development.”
The broker commentary also highlighted five new drilling opportunities in and around the Quantum acreage.
“Of these there are two near-term oil targets and three larger helium and oil plays,” said Crest.
“The most advanced are the Little Ute SE and Yellow Jacket SE prospects which are located in the Sagebrush acreage. Permit to Drill applications are now underway. These are both Ismay oil plays and so should not have the problems seen at Sagebrush-1. Management is also looking at building up additional acreage in the area which is expected to add to the company’s prospect and lead inventory.”
Crest then moved on to the question of valuation.
“We derive a valuation for Quantum of 6.4p per share which is derived from a risked exploration net asset value using a conservative helium price US$500 per thousand cubic feet,” the broker said.
“Although there are now some risks with the lack of sustained flows in the Upper Leadville formation, there is no value in our target price for potential upside in the lower Leadville and from the oil discovered in the Sagebrush-1 EPT.”
View from Vox
It will be interesting to see how the fracking goes. Crest has said that it will review its valuation in light of the fracking results, and it’s quite likely that success could deliver a substantial fillip to the share price.