It’s been a while since I’ve shared any new opportunities with my readers, but we’ve been playing a wait-and-see game for what I think are some of the biggest changes taking place in the global energy sector.
In my view, never have we witnessed such a dramatic change in markets and market sentiment, and we’re always following the Big Capital.
And yes, oil prices seem to be back on the rise, despite the demand culling of COVID-19, but I’ve got something which I think is far more exciting for you right now…
It’s what I believe is the next great supply squeeze …
But it’s not about energy.
It’s what I think is one of the most overlooked looming supply squeezes in the markets, and that’s what makes it the most uniquely interesting opportunity I’ve looked at since the cannabis and crypto booms.
We’re talking about a niche commodity that some experts say we are running out of.
That commodity is helium, and it’s led me to what I believe is the best investment opportunity of the year.
The play is Canadian Avanti Energy Inc. (TSX: AVN.V; US OTC: ARGYF), which I think is far more than a simple helium play. It’s got an experienced management team who have already helped discover natural gas in the Montney… producing almost 300,000 boe/d over the past decade and a half as one of the largest discoveries in North America.
Now, I think it’s right on target in an exciting new play, where it’s just acquired the license for 6,000 acres from the Government of Alberta.
You may want to be a part of what some think is the next commodity supercycle
This isn’t about balloons.
I fully expect that the helium sector may have even more upside than the first cannabis boom--and even the second one that’s looming.
Why? Because I think demand is soaring from multiple sectors.
A lot of companies need helium. The tech giants - Amazon, Alphabet, Facebook, Netflix - all need helium for their data centers. That demand may well surge along with our almost endless appetite for data.
The health sector needs helium, too. As the element with the lowest melting point, helium is a vital part of cooling the magnets in MRI machines.
It may also be critical for our global pandemic because helium is an important element in respirators, not to mention a line-up of other key medical equipment.
The only saving grace of a helium shortage that experts say was already looming before the pandemic was that the 10% that was sucked up in party balloons was freed up temporarily, partly because medical science asked helium balloon retailers to let it go. Apparently, it was that bad.
In 2019, the global helium market was worth approximately $10.6 billion. By 2023, it is expected to reach approximately $16 billion.
Until recently, experts say everyone was pretty relaxed about our helium supply. Apparently, that’s because the U.S. Federal Helium System controlled by the Bureau of Land Management (BLM) in Amarillo, Texas, had seemed to have an inexhaustible supply for the past seven decades. It’s reported to have provided some 40% of the world’s supply. As of September 30th 2021, the Bureau of Land Management will apparently no longer manage it.
But guess what? It’s out. Supply is being exhausted and what’s left in the stockpiles may only be used by the federal government. Reports say we need more, and we need it quickly. I think that’s an advantageous position for a small-cap explorer and developer in this market to be in right now.
Without new discoveries, supply appears to be in for a fantastically tight ride - a scenario that I think could send prices much higher between now and 2023.
That’s why Avanti is my big pick of the year, and I’m going all-in.
Not only has Avanti’s team recently acquired (in March) the license for over 6,000 acres of land from Alberta, but the company says that land is highly prospective for helium.
Now, it’s reported that most of the big supplies of helium in the world are found where drilling for natural gas takes place.
This may be no different. Avanti’s new position is on the site of previous exploration for oil and gas wells drilled by the government of Alberta. Avanti’s project resides in an area with confirmed reservoir rock that has seen multiple DSTs (drill stem tests) with analyzed gas.
We’re also looking for high-grade helium here.
Anything above 2% for helium is considered high-grade--and compares favorably to the commercially viable grades ranging from 0.3% to 1%.
A previously drilled well on the property returned gas with high helium content (2.18%) and high nitrogen content (96%).
The property apparently fits well with helium tests in multiple nearby wells and the potential for viable helium reservoirs over a larger basement structure.
I was already interested in Avanti earlier this year. My interest was increased on April 9th, when Beacon Securities Limited initiated coverage, seeing many of the same things I was seeing.
Beacon initiated coverage on Avanti, calling it an “enticing investment opportunity” because of its “world-class team” and “supportive market fundamentals”.
So, let’s look at those fundamentals again…
It’s not just that experts say we’re running out of helium, even though it’s quite abundant on earth. It’s that demand appears to be increasing. That set-up has reportedly resulted in helium prices going up by more than 200%.
Helium may not just be important for critical medical equipment, tech giants, and semiconductors… Experts say even space exploration, quantum computing, and nuclear power have applications that need helium.
As of March 2021--the same time as Avanti acquired its 6,000-acre license - the Canadian government added helium to its critical minerals list.
In my opinion, the fundamentals make Avanti one of the most interesting exploration stories to watch over the next few years. Starting now.
New sources of supply will ideally come from North America, which in my view adds geopolitical importance to Avanti’s exploration efforts.
And I think Beacon is definitely right about the team.
This is a management story as much as it is a supply squeeze story for an important commodity, and members of Avanti’s team have important previous experience.
Just like oil and gas, it helps to have a solid team behind a helium exploration project. If a small cap company’s team doesn’t have a previous track record of experience, investors should run for the hills.
Members of the Avanti team have already been involved in the development of a helium resource--the Encana/Ovintiv Montney production in British Columbia. They helped identify and develop it. And according to reports, it’s producing almost 300,000 boe/d.
Now, they’re getting ready to try it again…
Avanti’s, Genga Nadaraju, Dr. Jim Wood, and Ali Esmail are developing a plan to target significant helium accumulation that may strengthen North America's position on this gas map at a time when a supply squeeze appears to be looming.
It’s that plan and the fact that some of their team have helped to do it before that really piqued my interest. As in the natural gas industry, Avanti may use “conventional” exploration to identify structural traps and high points for drilling. Apparently, Avanti is pursuing an 80%-20% targeted model approach. Experts say that means it may do 20% of the exploration using standard industry conventional strategies, while 80% may be their own models.
That 80% model - what I think is the exploration key to help unlock the opportunities in this 6,000-acre project and possibly others--is being kept confidential, but members of the Avanti team have helped to do something like this before in the Montney, and I’m trusting in this team to try to do it again.
That’s exactly how I think a small-cap explorer may come out on top with a major advantage during what looks to be a great supply/demand setup.
Avanti’s new 6,000-acre project is just north of the US border …
And as I mentioned above, the Alberta project appears highly prospective for high-grade helium.
Avanti may also hope to slip across the border and add more land in Montana, where it’s already started putting its plans to work… and where they’ve already identified drill targets.
In the US Midwest, Avanti has also identified two parcels of land consisting of 2,749 acres with potential helium reserves.
In other words, I think we may be looking at a string of new acquisitions here in the very near future.
I believe this may be a quality asset in a relatively short period of time. That’s why I’m all-in early on, from the beginning of the 6,000-acre license acquisition. This is an experienced team looking at what appears to be a highly prospective play for my new favorite commodity.
Beacon says the potential returns here may be “very high”.
In fact, they note that with a raw gas rate of 2-2.5 mmcf/d (which they say is extremely feasible for 2,500-3,000 meter wells), a helium content of 1-2%, helium price of $300-$500, DCCT costs, operating costs and royalties, we may see some great potential numbers: Possible operating netbacks of C$309/mcf (with $300 helium prices) and C$548/mcf (with $500 helium prices).
But the real sweetener: According to Beacon, Avanti’s wells may “payout in only two to eight months and generate an IRR of 122-635%.”
Wells which may pay out in only 2-8 months and generate those kinds of returns is a very good opportunity in my opinion.
I think helium may be the new cannabis of commodities. And armed with support from Beacon’s initiation of coverage report, I’m sharing this opportunity with you after a bit of a winter hiatus.
This looks like helium’s time to shine. It’s always been produced as a byproduct of natural gas … but what seems to be important to understand now is that we may need to actually explore and produce helium on its own. Unless we’re just filling balloons, producing it as a byproduct may no longer be enough. We’re running out.
Avanti may be the best helium play I know. Yes, it’s still early stage. It’s speculative. But based on what I know about its management team… what they’ve already helped to achieve and what I think they may achieve in the future, plus what I suspect may be a string of additional project acquisitions in potentially helium-rich areas. Just like helium itself, I would expect AVN’s enterprise value to continue to go up.
You can read the full Beacon report here: https://avantienergy.com/wp-content/uploads/2021/04/AVN-2021-04-09.pdf
The company’s corporate presentation is here: https://avantienergy.com/wp-content/uploads/2021/04/Avanti-Corporate-Presentation-April-2021.pdf
Their website is: https://avantienergy.com
Their Canadian ticker is: https://finance.yahoo.com/quote/AVN.V?p=AVN.V
Their US ticker is: https://finance.yahoo.com/quote/ARGYF/?p=ARGYF
I really think this one is worth a look.
Here are some other interesting commodity plays to watch this year as funds shift their focus to resource plays:
Suncor Energy (NYSE:SU) is one of Canada’s biggest oil companies. And it’s set itself up perfectly for the rebound in the oil sands. Suncor has pioneered a number of high-tech solutions for finding, pumping, storing, and delivering its resources. Not only is it big in the oil sector, however, it is a leader in renewable energy. Recently, the company invested $300 million in a wind farm located in Alberta.
When the rebound in crude prices finally materializes, giants like Suncor are sure to do well out of it. While many of the oil majors have given up on oil sands production – those who focus on technological advancements in the area have a great long-term outlook. And that upside is further amplified by the fact that it is currently looking particularly under-valued compared to its peers.
Even more promising, some analysts are already turning a bit more bullish on the oil sands, which is great news for Suncor. “With improved cost structures and increased propensity to be capital disciplined, Canadian producers are emerging from the downturn stronger, with greater ability to generate free cash flow,” Morgan Stanley analysts Benny Wong and Adam J Gray.
Asia isn’t going to be left behind in the energy race, either. In fact, as demand for energy continues to explode in a post-pandemic China, CNOOC Limited (NYSE:CEO, TSX:CNU) will likely be one of the biggest benefactors. It’s the country’s most significant producer of offshore crude oil and natural gas and may well be one of the most controversial oil stocks for investors on the market. A label that has nothing to do with its operations, however.
In the past month, U.S. regulators announced their intention to de-list Chinese companies from the New York Stock Exchange, going back on their announcement just a few days later. The sustained negative press surrounding Chinese companies, however, has put CNOOC in an uncomfortable position for investors. While many analysts see the company as significantly undervalued, it is still struggling to gain traction in U.S. markets.
It's only natural to wonder why CNOOC was targeted and not CNPC or Sinopec. Lin Boqiang, dean of the China Energy Policy Research Institute at Xiamen University in southern ChinaSo, suspects CNOOC's drilling activity in the South China Sea area is responsible for putting it at loggerheads with U.S. authorities.
Turquoise Hill Resources Ltd. (NYSE:TRQ) is another key player in Canada’s resource and mineral industry. Like Teck Resources, Turquoise Hill is a major producer of coal and zinc, two resources with distinctly different futures. While headlines are already touting the end of coal, zinc is a mineral that will play a key role in the future of energy for years and years to come.
In addition to its zinc operations, Turquoise Hill is also a significant producer of Uranium. Uranium is a key material in the production of nuclear energy, which many analysts are suggesting could be a major component in the global transition to cleaner energy. While the mineral has not seen significant price action in recent years, there are a number of new projects set to come online across the globe in the medium-term, which could be a boon to Turquoise Hill.
Though 2019 was a particularly rough year for Turquoise Hill, its downturn led to an opportunity for new shareholders to get in on the company at reduced prices. Since dropping from all-time highs and settling at a low of just $5, Turquoise Hill has outperformed many of its peers, climbing by nearly 150% in 2020 alone.
Magna International (NYSE:MGA) is a fantastic way to get in on the explosive battery market without betting big on one of the new hot stocks tearing up among the millennials right now. The 63-year-old Canadian manufacturing giant provides mobility technology for automakers of all types. From GM and Ford to luxury brands like BMW and Tesla, Magna is a master at striking deals. And it’s clear to see why. The company has the experience and reputation that automakers are looking for.
More than a decade ago, Magna International was already making major moves in the battery market, investing over half a billion dollars in battery production while the market was still in its infancy. At the time, electric vehicles as we know them had barely hit the scene, with Tesla launching its premiere car just two years prior.
Magna’s massive investment has paid if in a big way, however. Since its battery bet, the company has seen it’s valuation soar by tens of billions of dollars, and it has solidified itself as one of the leaders in the business.
Maxar Technologies (NYSE:MAXR) is another high-flying tech stock to keep an eye on. While space firm specializes in satellite and communication technologies, it is also a manufacturer of infrastructure required for in-orbit satellite services, Earth observation and more. So what does Maxar have to do with the energy industry? Well, a whole lot, actually.
Maxar’s subsidiary, SSL, a designer and manufacturer of satellites used by government and commercial enterprises, has pioneered research in electric propulsion systems, lithium-ion power systems, and the use of advanced composites on commercial satellites. These innovations are key because they allow satellites to spend more time in orbit, reducing costs and increasing efficiency.
Thanks to Maxar’s incredible tech and innovative approach to the already extremely complicated space industry, the company has seen its share price climb where many of its peers have struggled. In fact, in just the past two years, Maxar has seen its share price increase by well over 1000%. And as the company secures more deals in the great beyond, the innovative firm will likely maintain its upward trajectory for some time.
Crescent Point Energy Corp. (TSX:CPG) was another Canadian oil producer that struggled in the oil price crisis of last year. The mid-cap company saw its share price tumble from a January high of $4.56 to an all-time low of just $0.70 as oil demand dissipated and prices tumbled into the negatives in a historically bad first quarter. The terrible year forced the company to lower output and capex forecasts for 2021.
Despite its struggles, however, Crescent has seen its share price climb significantly over the past month. The 28% gain may just be the beginning of a turnaround for the embroiled Canadian oil giant. In fact, it has even received a ‘strong buy’ signal from analysts at Zack’s thanks to its strong price performance and improving technicals.
In addition to bullish news from OPEC and Asian demand recovery, Canada’s oil sands are looking a bit more positive as well. According to government data, the controversial oil sands hit record production in November and will likely continue to grow throughout the year. This turnaround in Canadian oil will likely be a boon for Crescent, and a full recovery is looking ever more probable.
Matt Murphy, an analyst with energy research firm Tudor Pickering Holt explained, “There will be a bit of incremental growth in excess of this record,” adding, “Our model shows the oil sands getting to 3.3 million bpd by the middle of 2021.”
Enbridge (TSX:ENB) is in a unique position as oil and gas stages its 2021 comeback. As one of the more potentially undervalued companies in the sector, it could be set to win big this year. But that’s only if it can overcome some of the challenges in its path. Most specifically, its Line 3 project has faced scrutiny from environmentalists.
The $2.6-billion project plans to replace Enbridge's existing 282 miles of 34-inch pipeline with 337 miles of 36-inch pipe. The new Line 3 would have the capacity to move 370,000 barrels of oil per day, alleviating the takeaway capacity constraints that Canadian oil producers have been struggling with for years now. Line 3 is one of two pipeline projects in the works that are—in their unfinished state—keeping Canada's oil industry from reaching its potential.
While this challenge may prove difficult for Enbridge to overcome, the health of the Canadian oil industry is improving, and with it, the outlook for Canadian producers such as Enbridge. The company has already started the year off strong, and if it can continue its momentum, it will likely be able to see a sustained rally in its share price over the course of the year.
TC Energy Corporation (TSX:TRP) is a major oil and energy company based in Calgary, Canada. The company owns and operates energy infrastructure throughout North America. TC Energy is one of the continent’s largest providers of gas storage and owns and has interests in approximately 11,800 megawatts of power generations. It’s also one of the continent’s most important pipeline operators. With TC Energy’s massive influence throughout North America, it is no wonder that the company is among one of Canada’s highest valued energy companies.
One of TC Energy’s biggest struggles in recent years was grappling with the particularly difficult approval process for its Keystone Pipeline. But that’s all history now, and with the bounce back in oil and gas demand, TC Energy could stand to benefit.
While TC Energy’s stock price has yet to recover from pre-pandemic levels, it is one of the few industry giants which has managed to keep high dividends rolling in. With quarterly payouts exceeding 6%, TC has kept investors on board and its share price from falling too far. In fact, while many oil-focused energy companies saw their market caps shed as much as 50% of their value, TC Energy only dropped by 36% in from February to March 2020.
**IMPORTANT! BY READING OUR CONTENT YOU EXPLICITLY AGREE TO THE FOLLOWING. PLEASE READ CAREFULLY**
This publication contains forward-looking information which is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ from those projected in the forward-looking statements. Forward looking statements in this publication include that prices for helium will significantly increase, including due to political factors, and that helium will also retain its value in future due to global demand increases and overall shortage of supply; that Avanti can fulfill all its obligations in respect of its recently acquired licenses over the Alberta property; that Avanti’s licenses in respect of the Alberta property can achieve drilling and mining success for helium; that historical geological information and estimations will prove to be accurate or at least very indicative of helium; that high helium content targets exist; that Avanti can fulfill its obligations under its joint venture relationship in respect of its Montana project and carry out a drilling program on identified targets; that Avanti will be able to make future acquisitions of projects which are prospective for helium; and that Avanti will be able to carry out its business plans, including timing for drilling and exploration. These forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. Risks that could change or prevent these statements from coming to fruition include that demand for helium is not as great as expected; the Company may not fulfill requirements under its Alberta licenses or joint venture in Montana for various reasons; Avanti may not be able to finance its intended drilling programs to explore for helium or may otherwise not raise sufficient funds to carry out its plans; geological interpretations and technological results based on current data may change with more detailed information or testing; despite promise, there may be no commercially viable helium or other resources on any of Avanti’s projects; and Avanti may be unable to acquire any additional projects which are prospective for helium, be able to proceed with any exploration of such properties or find viable commercial helium resources in respect of any explorations it may undertake whatsoever. The forward-looking information contained herein is given as of the date hereof and we assume no responsibility to update or revise such information to reflect new events or circumstances, except as required by law.
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