Pulsar Helium Inc. (TSX-V: PLSR): Flow test results delayed by 6-10 weeks
• During flow testing activities on the Jetstream #1 and Jetstream #2 wells, it was discovered that drilling fines (rock dust) created by the air drilling method (that pulverizes the rock) were present within fractures and partially coating the wellbore wall. As a result, the flow rate was constrained and the wells need to be cleaned-up before the flow tests can restart.• The generation of drilling fines is a frequent outcome of air drilling, a widely utilized method in numerous shale plays across various U.S. states, including Ohio, Pennsylvania, Kentucky, New Mexico, Colorado, West Virginia.
• Preliminary clean-up on both wells to mobilise the drilling fines, delivered improved stable flow results (+10%), demonstrating that the drilling fines are mobile and can be removed. We note that the well head pressure at both wells responded vey quickly when the wells were shut-in. This is important as this highlights that even with the restrictions, the wellbore is still in contact with the reservoir.
• The drilling fines have been submitted to a laboratory for analysis. It is anticipated that they will be removed using coiled tubing. The results of the wells tests are now expected to be available within 6-10 weeks. This timeline includes one week for clean-up operations and two weeks per test.
• We re-iterate our target price of £0.85 per share. Our unrisked NAV for the contingent plus prospective helium is £1.72 per share plus £0.74 per share for the CO2 resources (Pmean in both cases).
Further reflections on air drilling and fines
We are encouraged by the initial flow rate at Jetstream #1 achieved in February 2024. Wellbore coating with rock dust was not an issue at the time during because most of the well was drilled with traditional liquid-based mud. This confirms the view the new flow rates reflect a mechanical constraint rather than a reservoir issue. In other US basins, the risk of drilling fines clogging fractures is sometimes addressed with mist drilling (rather than air drilling)
Valuation
Assuming a flow rate of 0.75 mmcf/d and helium concentration of 12.5%, Jetstream #1 could generate revenue of ~US$22 mm (@US$650/mcf for helium) during the first year of production (with no decline). This indicates very strong project economics given that a development well should cost
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