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Grand Gulf Energy Limited

ASX:GGE

Last Price:

$0.023

Our Investment Summary

Date of
Initial Coverage

28-Oct-21

Initial
Entry Price

$0.030

Returns from
Initial Entry

-23%



Investment Memo: Grand Gulf Energy (ASX:GGE) - LIVE

Opened: 08-Dec-2021

Shares Held at Open: 49,940,826


What does GGE 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 in GGE?

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 GGE to deliver in 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 between 0.44% - 0.65%. GGE just fell short of delivering our exceptional case expectation by not producing a flow rate.

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.

Milestones

Resource on Current Leases [before Christmas]

Additional Leasing

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.

Milestones

Offtake Agreement [6 months]

What could go wrong?

Exploration Risk

GGE’s project is still at the prospective stage. There is a risk that drilling returns no helium and the project has no value.

Flow rate risk

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.

Funding Risk

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.


Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 49,940,826 GGE shares at the time of publishing this article. The Company has been engaged by GGE to share our commentary on the progress of our Investment in GGE over time.



Investor Presentation

Trading halt, flow test results pending.

ASX:GGE Jun 27, 2022 Announcement


Investment Memo: GGE 2022

Objective #1: Drilling of first well


Our 2021 Catalyst Hunter Pick of The Year Grand Gulf Energy (ASX: GGE) just went into a trading halt pending the flow test results from its potential company making pure play helium well in Utah, USA.

We have been looking forward to GGE completing and then reporting on the results from this drilling program ever since we first Invested back in October 2021.

Only 9 months later we get to see whether or not GGE has in fact made a new helium discovery in the US, which could see it go from explorer to producer off the back of one drilling program.

GGE expects to come out of a trading halt at the earliest of “the commencement of normal trading on Wednesday, 29 June 2022 or when the announcement is released to the market” so we only have to wait another two days.

In our last note on GGE we detailed our bullish, base and bearish case expectations for the flow test results, to read that note click here.


Stimulation work completed, flow testing next

ASX:GGE Jun 23, 2022 Announcement


Investment Memo: GGE 2022

Objective #1: Drilling of first well


Our 2021 Catalyst Hunter Pick of The Year Grand Gulf Energy (ASX: GGE) is now almost ready to start flow testing it’s potentially company making pure play helium well in Utah, USA.

Today, GGE confirmed that it had completed stimulation work at its Jesse #1A well and is now completing the final preparation works leading up to the all important flow testing program.

GGE will perform several days of flow testing before final samples for helium concentrations will determine whether or not GGE has in fact made a new helium discovery.

In our last note on GGE we detailed our bullish, base and bearish case expectations for the flow test results, to read that note click here.


Workover rig mobilised, flow testing underway.

ASX:GGE Jun 17, 2022 Announcement


Investment Memo: GGE 2022

Objective #1: Drilling of first well


Our 2021 Catalyst Hunter Pick of The Year Grand Gulf Energy (ASX: GGE) is now a week or two away from knowing whether or not it had made an entirely new helium discovery in the US.

Today, GGE confirmed that a workover rig had been mobilised to the Jesse #1A well site on the 14th of June and stimulation work had commenced in preparation for the all important flow testing program.

GGE also announced that the rig would “perform several days of flow testing” before final samples for helium concentrations will determine whether or not GGE has in fact made a whole new helium discovery.

In our last note on GGE we detailed our bullish, base and bearish case expectations for the flow test results, to read that note click here.


Permit submitted for second helium well in the US

ASX:GGE Jun 14, 2022 Announcement


Investment Memo: GGE 2022

General: Exploration


Our 2021 Catalyst Hunter Pick of The Year Grand Gulf Energy (ASX: GGE) has confirmed it is fast tracking permitting for its second helium well at its US helium project.

With the Jesse #1A well intercepting a large 62 metre gas column, GGE has “accelerated” the permitting process for a second helium well over its project area.

GGE expects to drill this second well in Q3 2022.

While the announcement didn’t detail where the next round of drilling would be targeted, in our last note we covered all of the follow up exploration prospects inside its project area and mentioned that the next round of drilling would be dictated by the results from the Jesse #1A well.

If a commercial discovery is confirmed we could see GGE drill the same structure to increase flow rates and expand the reservoir size. Alternatively, GGE might look to drill an exploration well over another one of its prospects.

Below is an image from our last note showing the four main prospects that sit inside GGE’s project area.


Almost ready to flow test for helium concentrations

ASX:GGE Jun 14, 2022 Announcement


Investment Memo: GGE 2022

Objective #1: Drilling of first well


A workover rig had started mobilising at Grand Gulf Energy’s (ASX: GGE) Jesse #1A well site to begin flow testing for helium concentrations.

This comes two weeks after GGE intercepted a 203 foot (~62 metre) gas column in its maiden drilling program at its US helium project.

GGE didn't give any indication of timing for the results from the flow testing program but we expect at least an update within the next week or two.

As mentioned in GGE’s announcement today, “flow rates and laboratory analysis of sampled helium concentration will be the ultimate determinant of a successful commercial discovery”.

In our last note on GGE we detailed our bullish, base and bearish case expectations for the flow test results, to read that note click here.


Helium concentrations 37x above background levels

ASX:GGE May 20, 2022 Announcement


Investment Memo: GGE 2022

Objective #1: Drilling first helium well


This morning, our 2021 Catalyst Hunter Pick of the Year Grand Gulf Energy Ltd (ASX:GGE) announced that it had detected helium concentrations ~37x higher than the background levels right above the primary helium target GGE is drilling towards.

This effectively means, GGE is detecting helium in parts of the well where no helium is expected to be found. The significance of this is that the presence of helium in and around the main target area (Leadville formation target) could be an indicator that there is a working helium system at depth.

Today’s announcement also gave us an update on the progress of the drilling program, with GGE confirming that:

  • Drilling is currently completed to a depth of ~8,070 feet, with cement casing down to that depth currently ongoing.
  • The primary Leadville Formation helium target is at an anticipated depth of ~8,300 feet and the next phase of drilling will be drilling into this zone.

Effectively, GGE is now likely a few days away from drilling into its main target zone at its pure play helium well in Utah, USA.

In our last note on GGE, we set some expectations for the drilling results which can be seen below:

  • Our base case target is for GGE to prove there is a helium system present at the project. If GGE intercepts a helium structure, it can be followed up with additional drilling programs.
  • An exceptional result for us would be if GGE returns >0.4% helium concentration in the raw gas stream at a flow rate of 10mmcfpd of raw gas. In our opinion, this would constitute a commercial discovery and could immediately be tied into the offtake partners processing facility, moving GGE from explorer to producer.

To read more about how we came up with this, check out our last note for GGE here: GGE’s Maiden Helium Drilling Event has Begun - Here’s what we are looking for next


Helium shows 17x higher than expected above primary target

ASX:GGE May 13, 2022 Announcement


Yesterday our 2021 Catalyst Hunter Pick of the Year Grand Gulf Energy Ltd (ASX:GGE) put out a drilling update for its Jesse1#A pure-play helium well that is currently being drilled in Utah, USA.

In yesterday’s announcement, GGE confirmed that it had detected helium concentrations of up to 17x background levels across several zones OUTSIDE of the primary target area.

The significance of this is that the helium shows above the primary Leadville formation target could be an indication of a working helium system at depth.

GGE also gave an update on the drilling operations announcing the following:

  • Drilling has currently reached a depth of ~5,875 feet.
  • The primary Leadville Formation helium target is at an anticipated depth of ~8,300 feet and GGE plans to drill down to a ~8,100 feet depth before running casing and preparing to drill into the primary target.

Yesterday’s announcement is therefore a positive first signal, indicating that GGE is drilling in the right spot to make a commercial helium discovery.

We are now waiting for the drilling program to reach the primary target and see how the results from flow testing compare with the expectations we set in our last note.

Below is what we want to see from the drilling results:

  • Our base case target is for GGE to prove there is a helium system present at the project. If GGE intercepts a helium structure, it can be followed up with additional drilling programs.
  • An exceptional result for us would be if GGE returns >0.4% helium concentration in the raw gas stream at a flow rate of 10mmcf per day of raw gas. In our opinion, this would constitute a commercial discovery and could immediately be tied into the offtake partners processing facility, moving GGE from explorer to producer.

To read more about how we came up with this and how we go about setting expectations going into these type drilling programs, check out our last note for GGE here: GGE’s Maiden Helium Drilling Event has Begun - Here’s what we are looking for next


Semiconductor industry reshoring in the US

ASX:GGE May 06, 2022


Yesterday we saw this clip from the Wall Street Journal titled “What Samsung’s Return to U.S. Chip Manufacturing Means For the Economy”.

The key takeaways for us was the following:

  1. Samsung’s US$17 billion facility is not the only one being built in the US.
  2. Taiwan Semiconductor Manufacturing Company (TSMC) is investing US$12 billion on a new facility in the US.
  3. Intel is investing US$20 billion on new facilities in the US.

All three of these facilities are a part of the US government's call to try and reshore the manufacturing of semiconductors so as to ensure domestic supplies and avoid shortages like the ones we have been seeing over the last two years.

The tie back to our Portfolio, all of this US domestic production will mean there is increased demand for the raw materials that go into producing these semiconductors.

One of those raw materials is helium. Helium is a key component in semiconductor manufacturing because it’s an inert gas with a high thermal conductivity AND cooling properties.

Multiple billions of dollars in investment flowing into US semiconductor manufacturing facilities and our 2021 Catalyst Hunter Pick of The Year Grand Gulf Energy (ASX: GGE) is currently drilling at its helium project in Utah, USA.

GGE put out an update today, that the drilling had reached a depth of 3095 feet, or around one-third of the targeted total depth.

With an offtake agreement already in place and a strategic alliance signed with the offtake partner, GGE could be on the cusp of going from helium explorer to producer, depending on the results of the drilling program.

Drilling of the well started on 24 April and the drilling program is expected to take ~30 days to reach the total depth of ~8,500 feet. Ideally we hope to see some initial results less than one week after the drilling is completed with the detailed results including any flow testing to take another two to three weeks after this.

Effectively, within two months we will know whether or not GGE has made a commercial discovery at its project.

We set our expectations for what we wanted to see from the drilling program in our last note for GGE: GGE’s Maiden Helium Drilling Event has Begun - Here’s what we are looking for next.

The drilling program is key objective #1 of our 2022 GGE Investment Memo and we will get to know how the company did versus our expectations in around two months’ time.

To check out all of the objectives we set for GGE, the reasons we hold GGE in our portfolio, and the key risks to our investment thesis, check out our 2022 Investment Memo here.


Strategic alliance with helium offtake partner

ASX:GGE Apr 11, 2022 Announcement


Just days out from drilling its pure play helium well Jesse#1, Grand Gulf Energy (ASX:GGE) has entered into a strategic alliance with helium refiner and seller Paradox Resources.

Paradox owns the advanced Lisbon Valley Helium Plant that’s located 20 miles north of GGE’s Red Helium Project in Utah, USA. Today’s agreement comes on the back of a recent offtake agreement with Paradox, which provides a low cost, quick path to monetisation for GGE for its Jesse#1 well.

This strategic alliance is designed to fast-track and optimise commercial opportunities in the current buoyant helium market. It sees GGE become the priority raw gas helium supplier to Paradox’s liquefaction plant and to the high-purity helium market, which is now commanding prices of around US$1,000/mcf.

A specialist helium consultant with considerable experience in helium processing, sales and marketing has been appointed to facilitate and drive the strategic alliance, which includes a number of key items, as follows:

Restart of Paradox Resources’ Helium Liquefier:

  • At present, Paradox is producing gaseous helium via its purification plant.
  • A helium discovery at GGE’s project could provide the needed supply for Paradox to restart its liquefaction plant and produce high purity helium (99.9995% helium) that can be sold into markets where prices are fetching upwards of US$1,000/mcf.

Collaborative Marketing to High Purity End Users:

  • The two parties will together market helium to high-purity helium end-users in the semiconductor, medical, research, space and defence industries.
  • The key takeaway from this is that GGE will become the supplier direct to the buyers meaning it will sell at the highest possible price the buyer is willing to buy at. Generally producers of raw materials would be selling to someone like a Paradox and leaving a lot of the margin on the table for the processor to take up.

Expansion of Existing Offtake and Commercial Alignment:

  • Recognising synergistic commercial benefits, the parties will assess and jointly pursue corporate opportunities.
  • The key point is that the offtake agreement (signed 16 March 2022) is limited to the Jesse #1 well. After today’s announcement Paradox have effectively expanded the relationship beyond just the single well.

Explore Options for CO2 Disposal - Enhanced Oil Recovery and Carbon Sequestration:

  • Explore pathways to dispose of, and derive revenue from, the Red Helium residual gas stream (primarily carbon dioxide and nitrogen) including enhanced oil recovery at Paradox-owned oil fields and carbon sequestration. Two potentially revenue-generating CO2 disposal options have already been identified and will be more fully developed in the short term.
  • With CO2 being sold for US$1.50/mcf, this could potentially add additional revenues to GGE’s project via the processing of a by-product.

The upcoming drilling event at Jesse#1 is the primary reason why we invested in GGE and is the main objective that we want to see it achieve in 2022. You can see our other objectives and reasons for investing in our GGE Investment Memo here.

Paradox’s Lisbon Valley Helium Plant


GGE: Commences Trading on OTCQB Market in the USA

ASX:GGE Apr 06, 2022 Announcement


This morning our 2021 Catalyst Hunter Pick of the Year confirmed that it has commenced trading on the OTCQB market in the USA.

The company is trading under the ticker “GRGUF” and trading activity can be viewed via the following link: https://www.otcmarkets.com/stock/GRGUF/overview.

GGE is less than 10 days out from drilling its pure play helium well in Utah and has managed to get this OTC listing done at just the right time.

Helium is a critical raw material in the supply chain for producing semiconductors and has recently been getting a lot of domestic US interest.

Supply side disruptions are coming mainly from:

  1. Sanctions on Russia and the Armur facility (which was expected to produce ~11% of the world's helium supply)
  2. The recent unplanned shutdown of the US’s largest producing project (The Cliffside helium field)

This at a time when US semiconductor manufacturing capacity is increasing with the world's biggest chipmaker, Taiwan Semiconductor Manufacturing Company investing $12 billion in a new US facility and competitor ploughing $20 billion into a facility of its own also in the US.

The US is now facing a potential structural shortage in the helium markets and the OTC listing for GGE could not have come at a better time.

We suspect that those in the US who are aware of all of this will look at GGE as a potential investment exposure in the helium space.

GGE’s Managing Director Dane Lane hinted at this in today’s announcement saying the company's “assets and helium offtake partner located in the US, Grand Gulf has received significant interest from investors based in North America”.

We wrote about GGE’s upcoming drilling on Catalyst Hunter yesterday - you can read that note here.

To see why we are invested in GGE and why it is our 2021 Catalyst Hunter pick of the year, check out our 2022 Investment Memo by clicking the image below:


Additional drilling locations identified

ASX:GGE Apr 04, 2022 Announcement


This morning our 2021 Catalyst Hunter Pick of the Year Grand Gulf Energy (ASX:GGE) announced that it had identified three new independent drilling prospects at its helium project.

The three new prospects came about after GGE reprocessed ~315km of historic seismic data and through the analysis of historical drilling data available over its project area.

These three new prospects come in addition to the Jesse prospect which GGE is now expecting to drill on 15 April. In the event of a successful drilling program, GGE plans to follow up with a second round of drilling in ~Q3 of this year.

GGE also confirmed that given the size of the Jesse prospect, on a successful discovery of a helium system it could quickly go back and drill into four different step out locations that were also picked up when analysing all the historical data.

With a helium offtake agreement already sorted with Paradox Resources, which owns the nearby Lisbon helium processing plant, GGE now has the optionality to expand the size of its project by drilling the new prospects.

The significance of all of this is that GGE is now approaching a milestone drilling program which could see the company go from explorer to producer (contingent on a successful well) and now has the exploration upside to increase its production capacity either through step out wells at the Jesse prospect or by drilling the newly identified independent prospects.

The upcoming drilling program is the primary objective that we want to see GGE achieve this year:

What’s next: GGE has now confirmed that the drilling program will commence on 15 April. All that's left before then is for the drilling permits to be granted.


Onshoring semiconductor manufacturing a top priority for the USA

ASX:GGE Apr 04, 2022


Overnight we saw a tweet from Gina Raimondo, the US commerce secretary, that links to a video in which she talks about the importance of onshoring semiconductor manufacturing in the USA.

Secretary Gina Raimondo highlights how 20 years ago the US accounted for 40% of global semiconductor manufacturing, leading to innovation across the US tech sector.

Today, the US accounts for just 12% of global chip production and purchases ~90% of its high tech semiconductors from Taiwan.

Clearly the US government recognises the importance of being a leader in the semiconductor manufacturing industry and how critical establishing domestic supply chains will be for the US economy.

This is why we invested in and made US-based helium explorer Grand Gulf Energy (ASX:GGE), our 2021 Catalyst Hunter Pick of the Year.

Helium is required for the production of all semiconductors. It cannot be replaced with any other gas due to its unique properties as an “inert gas”.

The US government is now treating this as a critical issue and intends to invest over US$50B of government funds into chip manufacturing in a bid to maintain its edge over China. We think the demand domestically for the raw materials required to produce semiconductors will mean more demand for helium.

With its first drilling program expected in less than two weeks and a helium offtake agreement signed BEFORE the drilling program, GGE is approaching a potentially transformational moment as a junior exploration company, where it could go from explorer to producer. Read more about the offtake agreement and the upcoming drilling program here.

Of course this is contingent on a successful drilling program which always carries the risk of failing to make a discovery.

What’s next: We are now waiting for GGE to sort out its permitting before the expected drilling date in the middle of this month.


Helium well site construction underway; drilling in weeks

ASX:GGE Mar 25, 2022 Announcement


This morning, our 2021 Catalyst Hunter Pick of the Year Grand Gulf Energy (ASX:GGE) confirmed that construction works had commenced at the site of its proposed maiden well at its US helium project.

With the works expected to be completed by next Monday and the drill rig to arrive on site by 15 April, GGE is now only weeks away from drilling the maiden (Jesse #1) well.

An offtake agreement was secured just last week (as covered in our latest GGE note) and all infrastructure is already in place.

GGE is now closing in on a milestone moment where it could make the transition from explorer to producer and start generating revenues from its helium project. Of course this is all contingent on the success of the maiden drilling program.

We set the drilling of the first well at its helium project as the primary objective we wanted to see GGE deliver in our 2022 Investment Memo. To see all of these objectives as well as why we continue to hold GGE in our portfolio, read our 2022 GGE Investment Memo here.


Helium offtake agreement locked in early

ASX:GGE Mar 17, 2022


GGE yesterday announced that it has partnered with Paradox Resources to explore future opportunities together in the helium space.

Paradox is a major player in the North American premium helium market with advanced processing capability. It owns the Lisbon helium processing plant located 20 miles north of the GGE’s helium project.

GGE points to the gas sales and offtake agreement with Paradox as further validation of the technical merit of its pure-play Red Helium Project, where it is targeting a gross prospective resource of 10.9 bcf.

The signed drill contract and offtake agreement provide line of sight to monetisation on success GGE’s maiden helium well, Jesse#1 which is scheduled for spud next month.

The company notes that this deal comes at a time when helium, one of the world’s most critically scarce commodities, is needed most.

We provided our take on the deal in a Note to Wise-Owl readers yesterday: GGE gets helium offtake BEFORE drilling, and explain how it relates directly to the third objective in our Investment Memo (Progress commercialisation of the gas resource) that we want to see GGE achieve in 2022.


Trading halt “significant commercial agreement announcement"

ASX:GGE Mar 15, 2022


Yesterday morning we also saw our 2021 Catalyst Hunter Pick of the Year GGE go into a trading halt pending an announcement regarding a commercial agreement.

In our 2022 Investment Memo our third objective for “what we want to see GGE achieve in 2022” was for it to commercialise its helium resource. GGE had mentioned to the market that it was in negotiations regarding some sort of offtake agreement but we didn’t think this would come until at least after the first well was drilled.

With the company now in a trading halt it looks like GGE may have managed to secure something before its drilling program targeted for mid-April.

The market usually responds well when a positive announcement is early or unexpected.

Of course a “commercial agreement” is still very vague so we will be watching to see what GGE announces on/before Wednesday this week.


GGE Appoints Managing Director

ASX:GGE Feb 23, 2022


Today GGE announced the appointment of Dane Lance as its managing director.

Lance is a senior oil and gas professional and reservoir engineer with over 16 years industry experience. He has a focus on “resource maturation and monetisation” - a perfect fit for GGE who will be drilling its maiden well at its helium project very soon.

Lance has worked for Woodside, Ophir (including technical evaluation of the ~$500m Ophir acquisition of Salamander) and Oil Search in previous roles.

We think the experience in monetising new discoveries is important especially given GGE’s project sits in an infrastructure rich area where new discoveries can quickly be brought to market.