Grand Gulf Energy
Our Initial Entry
5 Day VWAP
Our Current Returns
Oct 28 2021
Our Current Returns
Investment Memo: Short summary on why we invested (8th Dec 2021)
This investment memo is a short, high level summary of why we continue to hold GGE and what we expect the company to deliver in 2022. The purpose is to record our current thinking as a benchmark to assess the company's performance against our expectations 12 months from now.
What does this company do?
Grand Gulf Energy (ASX: GGE) is a Helium exploration company aiming to make a commercial Helium discovery in Utah, USA. A region dubbed the "Saudi Arabia of Helium".
What is the macro theme?
Semiconductors have become a critical part of the supply-chain across almost all industries from computer chips that power the modern world to cars, washing machines, smartphones & military equipment. Helium is a critical component in the manufacture of semiconductors & as the world modernises we expect demand for helium to increase exponentially.
Why did we invest?
- Near term drilling event. GGE plans to drill its first helium well in March 2022. As with most drilling, We expect a share price run up in the lead up to drill results as investors speculate on a positive result.
- Location of project. GGE’s helium project is located amongst a number of large producing helium companies and helium production plants. The project is located 8 miles from the Doe Canyon Helium Plant owned and has existing pipeline infrastructure around its project providing for a quick pathway to production.
- Helium a critical raw-material for Semiconductors. Both America and China are looking to secure key supply chain materials for semiconductors to advance their industrial modernisation ambitions. Helium is a critical raw-material in the manufacturing process for semi-conductors and we expect demand to increase exponentially as the world modernises.
- Performance milestones incentivising drilling & analog fields. GGE’s acquisition terms are structured so that they earn-in there final 75% ownership only after drilling 3-wells, the 1st before 30/09/22 & the remaining 2 before 30/09/23. Coupled with GGE’s project having similarities with the nearby Doe Canyon project which is producing 18 million cubic feet per day (mmcfd), at an average grade of 0.5% helium we think the drilling programs will act as major catalysts for the company.
What do we expect the company to deliver in 2022?
Objective #1: Drilling First Well
Our current estimate is for GGE to drill its first well March 2022
Objective #2: Expand the resource through leasing
GGE’s leases cover a gross 28,046 acres. The goal for the Joint-Venture is to secure 35,000 acres of leased land.
Objective #3: Progress commercialisation of the gas resource
GGE are currently negotiating off-take agreements. We expect some news regarding these over the next 12 months. We also expect a pipeline access deal to accompany any offtake agreements.
What could go wrong?
- GGE’s project is still at the prospective stage. There is a risk that drilling returns no helium and the project has no value.
- There is also a risk that even if helium is discovered, the flow rates are not sufficient for the project to be economically viable, or, that the well flows high water/oil content. This will reduces the probability of economically recovering helium.
- GGE is an early stage explorer, there is a risk that market conditions change & funding dry’s up for high-risk exploration like GGE’s.
What is our investment plan?
Our plan is to hold a position in GGE through the three well program.
We will aim to sell ~20% of our holding during the share price run up to the March 2022 drilling results to partially de-risk our position. After those drill results are analysed - expected to happen in the middle of 2022, we will reassess our investment plan based on the new information.
Other Useful information - [As of 8th Dec 2021]
Share price: 0.029
Shares on issue: 1,191,949,478
Options: 60,000,000 Exercisable @2.5c, Expiring 15/10/2024
Market Cap: $34.5M
Cash (As at 30/09/2021) : $1.82M
Fully diluted EV: $33.1M
Last Capital Raise: $950K Raised @1c on 13/09/2021.
=================== Investment Memo ends====================
We will asses the performance of this company against this initial investment memo in each update commentary we provide. This Investment Memo is current at 8th Dec 2021.
Objective 1: Drilling First Well
✅ Pre-drilling work complete
- ✅ Identify the highest priority drill targets
- ✅ Drill rigs secured
- ✅ Drilling permits granted
✅ First well drilled by the end of Q1-2022
- Our base case target is for GGE to prove there is a helium system present at the project.
- An exceptional result for us would be if they return >0.4% helium concentration in the raw gas stream at a flow rate of 10mmcfpd (million cubic feet per day) of raw gas (we will find out grade and flow rate two weeks after the well is complete).
[Objective Retro - 29th June 2022] Grade A:
GGE drilled the Jesse #1A well on time.
Drilling results outperformed our base case expectation, delivering commercially viable helium grades of 0.8% (well above our bullish expectation of 0.4%)
GGE managed to produce gas to surface, but fell short of our exceptional case expectation by not producing a flow rate.
Objective 2: Expand the resource through leasing
✅ Resource on Current Leases [before Christmas]: Today GGE announced the initial gas resource on the current leases. This forms a baseline for resource expansion.
🔄 Additional Leasing: GGE’s leases cover 23,600 acres with an additional 3,703 acres secured on the 18th of November. GGE’s goal is to secure 35,000 acres of leased land.
Objective 3: Commercialise the gas resource
✅ Offtake Agreement [6 months] - GGE has said an offtake negotiations are underway. In our experience, offtake negotiates can take longer than expected - a good result would be to see this within 12 months.
🔲 Pipeline deal secured [End of 2022] - Again these kinds of deals can take longer than expected, we would be happy for this to occur by the end of 2022, and very impressed if it comes earlier
Investment Milestones for GGE
✅ Initial Investment: @2.9c
🔲 Top Slice
🔲 Free Carry
🔲 Take Profit
🔲 Price increases 300% from initial entry
🔲 Price increases 500% from initial entry
🔲 Price increases 1000% from initial entry
🔲 12 Month Capital Gain Discount
🔲 Hold remaining Position for next 2+ years
Our Past Commentary on Grand Gulf Energy
Most recent catalysts for Grand Gulf Energy
Catalyst Hunter 23/09/2022
GGE confirm helium discovery - but a flow rate still evades them
GGE's flow test results came in this week - whilst GGE managed to produce both water and gas to surface, it couldn't isolate the gas - so no actual helium flow rate was able to be obtained.
Catalyst Hunter 31/08/2022
Rig Ready. GGE to Test Flow Rate on US Helium Discovery
This will be done by flow testing the same well where it made the helium discovery earlier in the year. GGE is rigging up right now, with the ultimate aim of producing a commercially viable flow rate.
Catalyst Hunter 29/06/2022
GGE confirms helium discovery - next step is to bring it to the surface
Today, GGE confirmed its maiden drilling program at its helium project in the Paradox Basin, Utah, USA intercepted commercially viable helium grades.
Catalyst Hunter 31/05/2022
GGE Hits Gas Column. Flow Rate and Helium Concentration to be Tested Next
Grand Gulf Energy (ASX:GGE) Drilling is now complete at the Jesse #1A well and GGE has confirmed it has intercepted a gross gas column measuring ~203 feet (~62 metres).
Catalyst Hunter 26/04/2022
GGE’s Maiden Helium Drilling Event has Begun - Here’s what we are looking for next
Our 2021 Catalyst Hunter Pick of the Year, Grand Gulf Energy (ASX: GGE) has just started drilling its first helium exploration well.
Catalyst Hunter 20/04/2022
GGE’s First Helium Well Happening this Month, More to Come
Our 2021 Catalyst Hunter Pick of the Year, Grand Gulf Energy (ASX:GGE), is now fully funded for multiple helium exploration wells, after closing an $11M capital raise.
Catalyst Hunter 05/04/2022
GGE’s First Helium Exploration Well Now 10 Days Away.
Helium spot prices are now trading between US$2,000-US$3,000Mcf — almost 5x what was being quoted only a few weeks ago.
Catalyst Hunter 16/03/2022
GGE gets helium offtake BEFORE drilling
It seems that the Russia/Ukraine conflict has now brought to light the potential fragility in the supply chain of yet another critical raw material - this time being helium.
Catalyst Hunter 09/03/2022
GGE Drilling 15 Miles Away from the Second Largest Helium Discovery in 70 years
Our US helium investment and Catalyst Hunter 2021 Pick of the Year, Grand Gulf Energy (ASX:GGE) is set to drill an exploration well in the coming weeks in a region of Utah that is dubbed the “Saudi Arabia” of helium.