A transformational rise up for Mosman Oil and Gas Ltd ?
“…Small cap investors interested in taking a stake in one of the world’s more unusual commodities should watch developments carefully as MSMN works to get its helium venture off the ground….”
Mosman Oil and Gas Limited (AIM:MSMN), an exploration, development and production company with a suite of producing interests in the US has added an intriguing dimension to its portfolio over the past year through the development of significant helium and hydrogen prospects in Australia.
MSMN has one granted exploration permit and an application for another in the Amadeus Basin in Central Australia, which already hosts several helium and hydrogen projects, including the producing Mereenie, Palm Valley and Surprise fields, and a joint venture led by ASX-listed Central Petroleum Limited situated adjacent to MSMN’s interests. A recent update published by Central Petroleum estimated a prospective resource of 4.8 bcf helium and 56.7 bcc of naturally-occurring hydrogen.
A new venture – a new company?
MSMN’s wholly-owned, granted permit, EP-145 is focused on a 30km long anticline hosting Ordovician through to Neoproterozoic stratigraphy open at various levels. The geology is proximate to the nearby Mereenie oil and gas field, which produces from the Ordovician Pacoota Sandstone unit. MSMN has estimated prospective helium resources of 0.3 bcf (low estimate), 26.4 bcf (best estimate), and 229 (high estimate), and respective hydrogen resources of 0.24, 26.4. and 275 bcf. Total gas is estimated at 12, 440 and 2,290 bcf. A Sacred Site Clearance Certificate has been granted by Australia’s Central Land Council.
A permit application for the company’s other central Australian project, EPA-155, is subject to a farm-out the completion of Native Title negotiations. The project will proceed conditional on successful efforts by the identified joint venture partner to raise capital.
Earlier this month MSMN announced plans to spin out its Australian assets into a separate stock market listing, scheduled for Q4 this year. David Minchin, former CEO of Tanzania-focused helium venture Helium One is helping to lead preparations for the listing. MSMN ‘is progressing positive commercial negotiations on potential future helium production offtake arrangements in respect of EP-145, with two Chinese based companies’. The company’s team in Alice Springs has held meetings with the Australian government and other parties to advance the two projects.
Increased oil and gas production in the US
In addition to defining its helium and hydrogen prospects MSMN has recorded positive progress across a cluster of producing oil and gas interests in the US, notably the Cinnabar Project in Tyler County, Texas, in which the company holds a 75pc working interest. Development drilling at Cinnabar over the past year spudded production at the Cinnabar-1 well late last year. Gas infrastructure has been upgraded to secure connection to commercial gas pipelines. Technical work is underway planning further development, which is ‘expected to take several months to complete’. A potential full-field development of the 352 acre field, which is subject to funding, would seed five further development wells, one drilled this year, two next year, and two more in 2025. It also assumes well recompletions as appropriate to produce separate production zones.
An updated independent Reserve Report for the Cinnabar Project, based on development drilling of and production from the Cinnabar-1 well, and prepared on the basis of a potential full-field development of the Project, stated Total Proved Reserves of 1,581,000 gross boe, up 78pc on the previous estimate of 887,000. The company extended Cinnabar’s scope last month, securing 120 acres adjacent to the main project, in which it will have a 78pc working interest. A preferred drilling location within the new lease has been identified. Funding will be considered as part of the company’s ongoing corporate review.
Cinnabar’s production helped MSMN record positive results for the half year to 31 December 2022, net production of 13,170 boe securing a 26pc increase in revenue to $936,187 ($745,790 in 2021), and an increase in gross profit of 50pc to $283,003 ($188,487 in 2021). The cost of investment in Cinnabar’s development contributed to a net loss of $665,096 (H1 22: $498,940). But a Q3 production update for the three months ended 31 March 2023 indicated that production continues on an upwards vector, recording a 93pc increase in net production over the previous quarter, up to 11,960 (circa 133 boepd) boe from 6,212 boe (circa 67 boepd), comprising 9,908 barrels of oil and 11,902 MMBtu of gas.
Beyond Cinnabar the update noted progress at other US fields, including Stanley, where MSMN has a 34.85pc to 38.5pc interest, which benefitted from gas infrastructure and workovers undertaken to optimise production. Rates of up to 300 bopd were achieved before aggregate daily gross production stabilised at around 154 bopd.
Helium supply shocks
With its projected Australian venture MSMN is targeting a helium market that has been disrupted by a series of supply shocks. The gas is valuable for the exceptional qualities that make it essential for many of today’s most advanced technologies. As well as being extremely light, it is colourless, odourless, and inert, one of the ‘noble’ gases that does not react with other substances. It has the lowest boiling point of any element, only changing from a liquid to a gas at a temperature close to absolute zero. In the popular imagination it is best known for powering airships, as a breathing gas for deep sea divers, and, of course, for inflating balloons. But it is also essential for a wide range of cryogenic, scientific and manufacturing processes. These and other specialist applications make helium one of the world’s most critical commodities, powering a global market estimated to be worth more than $6bn a year.
But like other critical commodities such as lithium, cobalt, and vanadium, helium supply is limited to a few key producers. The industry has been rocked by sanctions imposed after the outbreak of war in Ukraine – Russia is a major supplier – and the winding down of supplies from the US government’s Bureau of Land Management. The facility was shut for months last year, sending the US selling price to $600 per thousand cubic feet, more than double the price in 2019.
MSMN has undertaken two recent placings, raising £800,000 in October and another £300,000 last month. As at 31 March 2023 the company had cash of circa AUD$682,000. Though production is being ramped up in the US it is clear MSMN needs the market’s assistance to develop its eye-catching helium and hydrogen prospect. The company’s share price has enjoyed a modest rise over the past month, up 15pc to 0.07p at the time of writing, bringing its market cap to £5.7m. Small cap investors interested in taking a stake in one of the world’s more unusual commodities should watch developments carefully as MSMN works to get its helium venture off the ground.