City farms out helium exploration but remains interested
By COLLIN GALLANT on May 15, 2020.
cgallant@medicinehatnews.com@CollinGallant The City of Medicine Hat has farmed out some of its helium-focused properties, the News has learned, but while it is an interested party, it is no longer actively exploring for the lucrative but elusive commodity. The news comes as the Alberta government has set a new royalty rate in the province, which the United Conservatives say will support “soaring interest” in the developing sector in Alberta. The city’s petroleum exploration company made headlines in early 2018 announcing a limited foray into the niche commodity market, and eventually drilled three wells before shelving it. One positive strike with low-concentrations was deemed uneconomic to pursue, while the city retained drilling permits. “The City of Medicine Hat is not currently exploring for helium but we remain involved in the commodity and remain interested in its commercial possibilities in Alberta and Saskatchewan,” wrote city energy division commissioner Brad Maynes. “(The city) welcomes the setting of a competitive royalty rate for helium production in the province. Helium is a complicated business with many factors but certainly a competitive royalty with Saskatchewan should bring more activity and investment to our province.” A “farm-out” essentially involves a commercial agreement with another producer to take over exploration activities in exchange for a share of potential profits. There are two or three substantial, private explorers active in southwest Saskatchewan where the long-established helium sector has seen a resurgence as global prices rise on fears of a shrinking supply. Prices for the inert element, used in high-tech and manufacturing applications, have doubled since 2017 to nearly US$300 per thousand cubic feet. On Wednesday, Alberta Energy announced a newly instituted royalty charged on helium production would be 4.25 per cent – a fraction of the natural gas royalty rate, which helium explorers feared would be used as a benchmark. “Removing this barrier unlocks the potential to develop helium deposits in southeastern Alberta and sets us up to take advantage of the close proximity to the United States, the world’s largest helium consumer,” stated Alberta Energy Minister Sonya Savage. “Economic diversification is an essential part of the province’s recovery efforts and sets a course towards future prosperity.” Previously, no royalty rate existed for helium, since no helium has ever been commercially produced in Alberta. In late 2018, amid concern from helium explorers, including the City of Medicine Hat, the Alberta Energy Regulator reaffirmed the rate was zero. To monitor the industry however, companies were ordered to report production levels so a helium-specific rate could be developed. Helium is captured in non-porous domes of rock deep underground, and is extracted (technically “mined”) via drilling similar to oil and gas exploration. 16-15
