Today, all the biggest names in tech are likely to find themselves scrambling to get their hands on more of this ultra-rare commodity. Without it, Netflix couldn’t stream movies and shows to TVs around the world. Google couldn’t support the 5.6 billion searches made per day. And Apple couldn’t produce the millions of iPhones and Apple Watches that so many fanatics die for. Mentioned in today’s commentary includes: Apple Inc., Tesla, Inc., Baidu, Inc., Alphabet Inc., Amazon.com, Inc.
However, Big Tech’s house of cards may be closer than ever to falling apart because of a massive supply squeeze that’s only getting worse. That’s because after 70+ years of production, the world’s single largest source of this commodity, the US National Helium Reserve in Amarillo, TX has finally dried up.
Most wouldn’t believe that a helium shortage could create a looming crisis for the entire tech sector. But what they don’t know is helium plays a critical role in far more than just filling birthday balloons. Because of its unique properties, helium is one of the best options in the world for cooling the equipment needed to keep the world as we know it running.
That includes everything from diagnosing health problems (MRI machines) and connecting us with friends and family (fiber optic cables for the internet)…To building the world’s most popular electronics (semiconductors) and keeping trillion-dollar businesses in operation (supercomputing and data centers). Now experts are predicting that we won’t have enough of the rare gas with current production rates to last us for even the next 20 years.
Technology plays a bigger and more important role than ever in our world today, which is driving demand for helium sky-high at a time when supply is lower than ever. That has sent the price of helium soaring, making it over 100x more valuable than natural gas today ($2-5/Mcf versus $200-600/Mcf). And that’s giving helium exploration companies like Avanti Energy Inc. (AVN.V; ARGYF) incredible upside potential for early investors.
Avanti acquired the mineral rights to nearly 70,000 acres of prospective real estate on the United States-Canada border last year. Now, they’ve made an exciting announcement in their current drill program that could soon capture the attention of oil and gas majors everywhere.
Home to a Potential Billion Dollar Helium Discovery?
Avanti’s veteran exploration team reviewed over 30 different opportunities before narrowing it down to 10 and finally acquiring the Greater Knappen project. With 69,000 acres of prospective helium properties, that equals out to ~10,000 acres in Alberta and ~60,000 acres in Montana.
Over the last 8 months, they’ve plowed ahead after acquiring the property, identifying 10 structural targets that could house the helium needed to help power this tech-hungry world. Since then, they’ve put together the drill program, built out the infrastructure, and they’ve already successfully completed drilling of the first well and the second well has been spudded.
Payback on that nearby well could be just 6 months.
After that, anything produced in the coming years could equal huge potential profits as helium prices continue to climb higher. But results look to be even more promising at Avanti’s property based on what their team announced in recent drilling results.
More Than Just Potential
At their first well, Avanti’s team drilled more than a mile below the surface to hit 5,860 feet, encountering all targeted zones for helium potential along the way. What they encountered may help put them squarely in the spotlight of this fast-growing helium market.
The results of open-hole logging showed 5 zones with reservoir characteristics (good porosity and low water saturation). That suggests it warrants further testing from the team in each of these zones. Even more importantly, drill stem testing results showed economic helium potential, which gives the team the green light to complete each of these zones they’ve identified moving forward.
Genga Nadaraju, Avanti’s Vice President – Subsurface, commented on the results, “Avanti’s technical team is thrilled that our first exploratory well encountered all targeted zones for potential helium.”
“We are also excited to have seen shows in an additional formation not previously identified and the team is looking forward to the further evaluation of the well.”
All that to say, the results are even more promising than the company expected. And the economics could be off the charts, based on the early estimates. After accounting for drill costs of around $1.5 million, it could take only 3 to 4 months to pay this back.
In the Right Place at the Perfect Time?
Avanti’s (AVN.V; ARGYF) announcement may even be more important given the growing supply chain issues ravaging markets around the world right now.
Supply chain problems have struck everything from semiconductors to medical equipment to lumber, to name only a few. Helium hasn’t been spared in that conversation either.
That means the rare commodity we need to produce nearly ALL of our electronics could be held up overseas because of where the largest helium producers are based.
Most of the world’s non-US supply today is primarily coming out of Russia, Qatar, and Algeria. Even putting global politics aside (and the fact that Russia could hold this as leverage in any upcoming clash), having helium that far away from North America poses a huge risk.
That’s why it’s critical to add to the helium supply in North America to ensure we’re able to produce the electronics we need and help keep tech companies powering forward Thankfully, Avanti is announcing their latest results at a time when helium is really growing in demand.
High Expectations for the Greater Knappen
The report coming out of this proven helium region in Montana has been enough to build a serious bull case in some analysts’ views. Beacon Securities recently wrote, “The technical acumen is a main advantage that Avanti has in its exploration for helium, and we continue to have high expectations for the Greater Knappen area.”
Of course, the technical acumen they’re referring to comes from certain team members who are already known for their involvement in a world-class discovery in Canada’s Montney Formation. After producing nearly 300,000 barrels of oil equivalent/day, the Montney has been recognized as one of the largest discoveries in all of North America.
That means they could possibly be sitting on over $1 billion of helium if all goes to plan.
With results just coming in from the first well, we’re looking at a steady potential stream of news and upcoming catalysts coming out of Avanti’s camp. That may put Avanti (AVN.V; ARGYF) square in the middle of the action as Big Tech continues to push the need for helium in North America sky-high.
The Helium And Semiconductor Shortages Could Have A Massive Impact
While Apple (AAPL) has become almost synonymous with its iPhones and more recently its wearables division, it still holds its place as the 4th largest computer producer in the world today. It’s taking this opportunity as the semiconductor markets shore up to make major changes of its own.
In a giant shift, Apple has begun using chips of its own design after years of working with Intel. The tech giant will now produce new M1 chips with ARM technology that is more efficient, being similar in design to the chips more typically found in smartphones. This fits with Tim Cook’s comments made in the past about their “long-term strategy of owning and controlling the primary technologies behind the products we make.”
Tesla (TSLA) was able to outsmart many other automakers to avoid getting hit hard amid the semiconductor crisis. It did this by changing several bits of code in its software in order to make it fit with other available semiconductors. The young EV company has had the advantage of designing its vehicles from the ground up, which has also allowed Tesla to be nimble when facing these challenges over the last year or two.
As a result, the automaker was able to produce 80% more electric vehicles in 2021 compared to the year prior. That’s a huge improvement over most automakers, whose production remained flat for the year.
Chinese search engine giant, Baidu (BIDU), took the opportunity to diversify its business over the last year. Beyond its roots in advertising and search, it branched out to begin working in artificial intelligence and autonomous vehicles as well.
In the fall, Baidu raced to begin mass producing its “Kunlun 2” AI chip to try to become a key player in China’s push to grow their semiconductor business. The company recently confirmed that it will plan to spin their semiconductor arm into its own company as it continues to grow.
America’s own search engine giant, Google (Alphabet, GOOG) already developed in-house chips to help run its data centers, but this change should allow the company to take control of the consumer-facing side of the business starting around 2023.
While it can be an expensive process to flip to becoming a semiconductor producer, Google is one of the biggest semiconductor users in the world, so the shift would allow it to produce leading-edge chips that are customized to its own AI models.
As Amazon (AMZN) transformed from an online retailer to a cloud computing leader, its need for chips has skyrocketed as well. In fact, it helped turn the company into one of the world’s biggest buyers of semiconductors for data centers.
In a trend that’s sweeping across Big Tech, Amazon has also moved toward designing its own chips, which is threatening the steady lead held by big chipmakers like Intel and Taiwan Semiconductor. Its move to designing chips is expected to open up the door to help Amazon customize its parts to fit its needs and differentiate the company more from competitors like Google in the cloud computing space.