Ann: Mbelele results clarification, page-49

What a ride, It generally comes back to a few key points IMHO. Apologies, about to be a bit of text in this post below the dot points, trying to keep my review of the drilling program to one post.

1. there is an active and prolific helium system here, and, the helium is in place (cant collect it if it all just seeps to surface)
2. They cant/didn't collect a free gas sample from the 10-15m gas cap in M-1 as they cased it to continue drilling to the primary targets. They also didnt wireline it as it was cased... They noted gas at 140m from M-2, but cased down to 250m to drill primary targets. So no testing of what could be the gas cap (they noted the gas at 140 is likely to correlate to that at 85m from MB-1)....
3. They have plugged M-1. So, their comment to get a low cost rig sounds to me like they will re-drill a shallow well (about 100m depth) to re-encounter the gas cap at M-1 and test (i.e. collect sample, maybe wireline if the rig allows) and possible case it for flow testing. - Justyn comments on 2BCF appears to relate to the gas cap only.
4.The helium in water solution is and is not an unconventional system - this really depends on your angle... Ill note later on this..
5. How are the next steps funded (JV partner, cap raise, other unconventional deal)...

From a chemical and reservoir perspective, there has been some research on how helium gas formations actually occur. It is universally agreed (i.e. a fact) that helium comes from deeper in the crust as a result of radioactive decay of uranium and thorium. How the helium then moves from this source depends on the physical properties present within the crust, above the point of decay. So to save some time, ill skip straight to the properties that appear to be encountered an MB-1 and MB-2. We have a large, and pressurised aquifer (water) sitting below a gas cap, both contain helium (concentrations to be confirmed).

What this would look like to a laymen is like a sealed bottle of soda water. lets say it is 20cm tall, the whole bottle contains earth (layers of sandstone, and likely clay that separates these intervals). The bottom 16-17cm of the earth contains water, and this water has helium dissolved in it (ignore how it got there, we know its there). The top 3-4 cm there is no water just gas (within the earth) - that gas contains some helium - the balance appears to be nitrogen per company reports. So - this system is in a somewhat equilibrium state as quite well described by henry's law. i.e. the pressure of the gas cap will stop any gas releasing from the liquid below.... Now think of what happens when you open a normal bottle of soda... Before you open, nothing is happening, its in equilibrium... henrys law... Open the lid, the gas escapes, and the built up CO2 in the soda can now escapes, it wants to find a new equilibrium - they gas bubbles flow like crazy to the surface, give it a shake it accelerates... Now a few things to consider in our real world example...

1. the bottle has earth in it, so resistivity increases, so the flow of gas out of the top of the bottle will decrease.
2. The exsolution rate rate will also decrease - but it will still occur. And we know it occurs in the basing as there is a gas cap present, the helium had to come from the water in the first place.
3. Our basin effectively has a small pin prick in the lid, in the form of a well, instead of the bottle lid which is about 1/5th of surface area of the bottle. think of this like a choke on the bottle... A bit like if you dont put the lid back on tight, you probably wont see the bubbles releasing, but it will still go flat overnight..
4. What happens when you pump the water out of the basin... See below..

So the work that needs to be undertake from here.

1. drill the M-1.a (that's what I am going to call it) and declare a discovery on the gas cap, and fast track that early monetisation. Ill ignore funding for now as I don't know how much cash they have post drilling.
2. The modelling for the balance of the reservoir (aquifer). Best case scenario will be that permeability is high enough and the extraction of gas from the gas cap reduces formation pressure, and allows natural recharge from the aquifer....But, I think this will likely be too slow due to the clay in between the sandstone formations etc I would love to be wrong)...

So, what I actually expect for commercialisation of these reservoirs is, (continuation of point 4 above) as the water is removed from the reservoir, the barriers to gas exolving are removed and, this expedites the process, so there are two potential extraction points.... helium captured from the water that is pumped to surface. Obviously this differs to CSG where the water is pumped into an evaporation pond, or used for irrigation (the water in CSG doent hold the gas, the pressure of the water in the formation stops the coal from released the methane)... But the helium value is so high, this might be commercial... Secondly, as water is removed, the reservoir will depressurise, and, henry's law again, gas will exsolve from the water while still in the reservoir... But, the difference here is it doesnt need to find its way to the gas cap for extraction as noted in the recharging of the gas cap theory I had (but as noted, not likely to occur).the gas can just travel along its own seam, and based on the high porosity reading to date, this is very plausible. There will also be a point in time where we see a cross over in rate of helium extracted from water brought to surface, vs exsolved helium flowing through the de-watered aquifer/reservoir.

The concentration of helium in the water brought to surface would decline over time also as gas is exsolved sub surface. .. Reservoir qualities and the integrity of the seals between each of the layers will determine the final design of a program like this, can they depressurise all at once, or target each seam sequentially... all TBC. This is possibly where UQ would add the most value as this is a key element of CSG commercialisation... I didn't note, but there also the risk of water recharge, this is typically a problem when working across a really large CSG basin and they just can't pump water fast enough to reach desorption. Typically the water is coming from within the own structure due to high permeability. This might not actually be an issue here if commercially viable extraction is possible at surface as the recharging water will likely contain helium... Rather it is unlikely to not contain helium as the water wont be coming from above the gas cap, otherwise that would indicate an ineffective seal and there wouldn't be a gas cap to begin with. And, if the water recharge happened to come from deeper reservoirs, then they probably too contain helium.

I have no doubt that there is an engineering solution to the unconventional production. But, Is it commercial?

I also feel that, at current SP, the conventional resource alone is undervalued. Maybe it is risk adjusted and fairly valued for North Rukwa. But definitely not considering the balance of the portfolio.

Overall, I am disappointed that the SP has been so weak on what I see as a quite impressive maiden drilling program. I now see it that I have time to allow some other plays to unfold and acquire in the new yr and or, participate in a future CR and take a much bigger position into what I think is a maturing story for NHE.

GLTAH. DYOR.