Valuation: our risked NAV unchanged at A$9.2c/share (+142% from current share price) Our risked NAV remains unchanged at A$9.2c/share as we await further details on the new acreage acquired. Our unrisked NAV stands at A$53c/share, representing nearly 14x times the current share price.
Natural Hydrogen Conference Highlights Significant Potential and Completion of Fortescue Investment
Completion of Strategic Investment by Fortescue HyTerra ("HYT") announced on Friday that it had received A$22mm in proceeds having issued 644mm shares and 322mm options to Fortescue. We see this deal as transformational for HYT as it provides validation of its strategy from an experienced hydrogen player with deep pockets, allowing HYT to expand globally. This will fully-fund the initial exploration phase of the Nemaha Project including continued leasing, geophysical activities and an expanded 6 well drilling campaign targeting additional prospects in several identified geological play areas. In Kansas, three further well permits have been approved and preparation of the site works for Blythe 13-10 prospect location start this week. New management appointed by NH2E, HYT’s partner in Nebraska, may help move forward with an updated work programme on these assets.
Developments in the natural hydrogen sector at HNAT 2024 H&P attended HNAT, the flagship Natural Hydrogen (“NatH2”) conference held in Paris recently. The industry has raised ~US$500mm to date with the vast majority by private company Koloma. While most of the projects are in the hands of the small E&P companies, there was a large presence of major energy companies (e.g. Shell, bp, TotalEnergies) and we anticipate more investment from these larger companies in 2025, after seeing Fortescue investing in HYT and Mitsubishi in Koloma earlier this year. The major focus area for exploration remains the US with Government representatives at the conference in force, as well as many academics and companies with acreage in the US.
ARPA-E and USGS present a strong case for natural hydrogen in North America The Advanced Research Projects Agency-Energy (“ARPA-E”) and United States Geological Survey (“USGS”) highlighted significant advancements and opportunities in NatH2 exploration and research across the US. ARPA-E stressed the need to create an ecosystem for NatH2 development, targeting production costs below US$1/kg to compete with natural gas. They allocated US$24mm to 18 projects involving exploration companies, universities, and research institutes. The USGS introduced a hydrogen prospectivity mapping methodology for the lower 48 states, combining geophysical, geological, and migration data to pinpoint regions for exploration, focusing on hydrogen accumulations and recharge systems.
HYT benefits from a high natural hydrogen prospectivity region in Kansas HYT has significantly expanded its Nemaha Project in Kansas, by more than 5x to >60k acres across Kansas within the resource-rich Mid-Continent Rift, an area known for iron-bearing minerals that are ideal for hydrogen generation. Historical wells drilled by High Plains Resources (Koloma) recorded high hydrogen occurrences, while nearby activity by H2Au and 45-8 Energy underscores the region’s exploration potential. The project benefits from the Nemaha Ridge's structural features, historic hydrogen migration along fault lines, and proximity to well-established rail and road networks, crucial for cost-effective transport to key markets, including over 35% of the US ammonia production located nearby. H&P estimates place HYT’s overall unrisked H2 resource at ~400bcf and helium at 1.9bcf.
Valuation: risked NAV unchanged at A$9.2c/sh (+142% from current share price) Our risked NAV remains unchanged at A$9.2c/sh as we await further details on the new acreage acquired. Our unrisked NAV stands at A$53c/sh, representing nearly 14x times the current share price.
Kansas Natural Hydrogen and Helium Occurrences Purposeful exploration for natural hydrogen is almost brand-new. Therefore, we see merit in exploring where there have been clear signs of potentially economic, natural hydrogen. HYT has been focused on acquiring leases with hydrogen occurrences. Some of the company’s existing acreage contains legacy wells that have tested high concentrations of natural hydrogen. HYT’s acreage has been carefully chosen to be located close to the Nemaha Ridge in the US Midwest, which is thought to be the focal point of hydrogen generation and migration. The helium potential is also high in areas like eastern Kansas and Nebraska due to their location above deep faults and major basement wrench structures, which allow access to deeper crustal or even mantle contributions enriching the helium content. Within Kansas, the Mid-continental rift is located west of the Nemaha uplift bounded to the east by the Humboldt fault which is the culmination point for the migration path of multiple gases. Historical drilling found minor pools of oil but no significant petroleum system. This oil has been demonstrated to have migrated 100’s kms from its southern source area in Oklahoma. Instead, elevated concentrations of non-hydrocarbon gases such as nitrogen, hydrogen, and helium were measured in several well-bores. These gases exist across various strata, from Precambrian to Pennsylvanian with varied lithology including ultramafic and sedimentary rocks which are essential for hydrogen generation and trapping respectively. Cross section of hydrogen play across old and new leases over the Mid-Continental Rift Source: HyTerra Three different reservoir intervals with hydrogen and helium potential have been assigned prospective resource; several further formations have potential but have not been analysed. Within each formation there are different plays or potential trapping configurations. Importantly, this diversifies the play risk, meaning that there are several different opportunities to target, and this can be done for a low cost given wells are ~US$0.5mm to drill.
Natural Hydrogen Drilling Campaign in Kansas
Natural hydrogen wells drilled in Kansas and HYT’s acreage
Kansas has seen numerous natural hydrogen wells since the 1980s. CFA Oil, has been instrumental in pioneering natural hydrogen exploration in the region. In the early 1980s, its exploratory drilling in Geary and Morris Counties led to the discovery of hydrogen alongside oil. CFA Oil drilled the famous Scott #1 well in 1982, which showed hydrogen concentrations up to 56%. This well is in the centre of HYT’s acreage in the Morris County.
Following an interim period of inactivity due to developmental challenges faced by the subsequent operators, CFA Oil recommenced its exploration efforts in Riley County during the 2000s. This campaign yielded successful results and sparked a resurgence of interest in hydrogen potential within the Mid-Continent rift system.
In 2009 in the Riley County, CFA Oil drilled the other exceptional hydrogen well, Sue Duroche #2 in the Riley County, which held hydrogen concentrations of up to 92%, accompanied by a 3% helium. HYT also has leases surrounding Sue Duroche #2.
The wells, including Sue Duroche 1 and 2 as well as Downey Ranch 1 and 2, signalled CFA Oil’s steadfast commitment to exploring hydrogen, with its activities continuing into the 2010s. The Mertz #1 well, completed in 2013, marked the culmination of CFA Oil hydrogen exploration endeavours and is recognised as a gas well by the Kansas Geological Survey. However, no gas analyses from these wells have ever been released. The company’s efforts laid the groundwork for subsequent exploration by High Plains Resources LLC, which has listed >10 wells across Kansas, some of which are adjacent to HYT’s acreage. High Plains has been testing for natural hydrogen in the region for a few years and now has >5 wells that are approved to drill. This complements HYT's exploration efforts, affirming the potential of the shared acreage for significant natural hydrogen production.
Natural hydrogen exploration wells drilled in Kansas Well name, Company, Remark Heins 1 CFA Oil <80% H2 Scott 1 CFA Oil <56% H2 Rindt 1 CFA Oil H2 reported Wolf 1 CFA Oil H2 reported Johnston 1 CFA Oil H2 reported Simpson 1 CFA Oil H2 reported T Nelson 1 CFA Oil H2 reported Nelson LE 1 CFA Oil H2 reported Amthauer-1 CFA Oil H2 reported Glessner 7-1 CFA Oil H2 reported Sue Duroche 1 CFA Oil H2 reported Sue Duroche 2 CFA Oil <92% H2; ~3% He 2 Downey Ranch 1 CFA Oil H2 sampled Downey Ranch 2 CFA Oil H2 sampled Mertz 1 CFA Oil Plugged and abandoned (Gas) Smith 11-27 High Plains Resources LLC Plugged and Abandoned Clark 21-4 High Plains Resources LLC Inactive Well (Gas) Hedge Lawn Farms 25-6 High Plains Resources LLC Inactive Well (Gas) Kohake 32-24 High Plains Resources LLC Approved Intent to Drill Macke 13-36 High Plains Resources LLC Approved Intent to Drill Stenstrom 23-21 High Plains Resources LLC Inactive Well (Gas) Carlson Farms 54-4 High Plains Resources LLC Inactive Well (Gas) Balsmeier 14-29 High Plains Resources LLC Approved Intent to Drill Balsmeier 21-32 High Plains Resources LLC Inactive Well (Gas) Carlson Farms 54-4 High Plains Resources LLC Inactive Well Dibben 31-19 High Plains Resources LLC Expired Intent to Drill (C-1) Vathauer 5-5-30-61 High Plains Resources LLC Approved Intent to Drill
HYT Price at posting:
4.0¢ Sentiment: Buy Disclosure: Held
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