Imperial Helium (TSX-V: IHC)(OTC: IMPHF) CEO David Johnson on Exceeding Expectations on Independent Production Test Analysis of New Sub-Salt Zone & 2022 Catalysts

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the President and CEO of Imperial Helium, Mr. David Johnson. David, it's great to have you back on. How are you, sir?

David Johnson: I'm really well, Gerardo. It's just a pleasure to be back here with you.

Gerardo Del Real: Well, let's dive right in. You had some news last week that I think for most people that are not following the Helium space on a minute by minute and a week by week basis, was very technical in nature. Very positive I should say but very technical in nature and I wanted you to come on and provide some context. Now, the headline for the news release was:

Imperial Helium Corp. Announces Positive Independent Production Test Analysis of New Sub-Salt Zone and Change of Auditor

Change of auditor aside, let's talk about the positive, independent production test analysis and this new zone and what it means. I'll let you provide the context.

David Johnson: Okay. That's great. So by context, Imperial Helium is developing a helium resource that we've identified and already tested. So in our previous well, the Steveville-2 well, we went down and we production tested a zone called the Blow-Out Zone and it produced at five to eight million cubic feet a day. So we moved over to put our second well into the field and these will both be production wells, to drill down and test the Blow-Out Zone in this well. Now, we were aware that there was a lower zone that looked interesting to us from the last well but we hadn't production tested it and it's the Sub-Salt Zone. It's a zone below the Blow-Out Zone and below a salt layer and salt is a really good seal. So it's hard for helium to get through that.

So we drilled into this lower zone and it looked really good on the logs and so we perforated it and ran a production test. Now, a production test is a bit of a complicated thing but the result was extremely positive and it'll contribute another 2.5 million cubic feet a day of production out of that zone, so yay. The business about being an independent production test, production tests are highly technical. What we're looking at is how the pressure changes as we start producing. So you start producing, it's like letting the pressure out of a bottle, it flows out. As it flow out, when we measure the pressure down in the reservoir, it tells us what the shape and the productivity of the reservoir is but there are experts that do this.

And they're IHS Markit that do an independent analysis. So they have no vested interest here. They just look at the data and say, "Hey, this is what the data says." And the data says good things for us with regard to the Sub-Salt Zone. The other thing about the Sub-Salt Zone that was different, I mentioned about that seal. Well, it turns out the concentration of the gases in this zone are different as well.

And there's two things that's important that are important here. First off that there's no CO2 and CO2, aside from being a greenhouse gas, also is what's known as an acid gas. It's hard on equipment and machinery. So not having it present means that it's less expensive to actually produce the gas and strip out the helium and that's very exciting. The other thing about this zone is that the gas is .51% helium as opposed to .43%. So that's an 18.6% increase in the amount of helium in the gas. That's huge. So we have more helium and we have less acid gas, so we're getting better gas out and we don't have to deal with some of the problems with the other zone. So this is a real contributor to the resource that we found here in this well.

Gerardo Del Real: That summary I think was perfect. You're getting more helium, it's cleaner. It's going to obviously help with production cost and obviously it sounds like it's going to be a whole heck of a lot better on the equipment. Walk me through catalysts for the several months, David. I know there's a lot of dialogue going on behind the scenes. We're clearly living in interesting times as it relates to pretty much everything, right? Geopolitically, supply chain issues, logistics issues… presents opportunities but also presents challenges. How are things coming along on the operational front?

David Johnson: Right. So I'll sort of start micro but mention the macro as well. Clearly, the events in Ukraine are unfortunate and what's happened is it's driven the price of energy up. And as it's driven the price of energy up, looking for oil and gas in Alberta has gone through the roof. So there's a lot of players out here looking to explore for oil and gas. So there's big demand for equipment all of a sudden. Well, we're moving from the first test interval, which was the Sub-Salt Zone up to our next interval to test it. And you don't keep a drilling rig on location the whole time because it's too expensive. So you bring them in, you start the zone testing and then they go off and you get other people in, testers in. So there's multiple pieces of equipment that are involved with a test.

We're about to test the Blow-Out Zone. Now this is the overlying zone, the one that tested so well in the Steveville-2 well and we expect it to do the same here. So we're about to begin that production test, we're just waiting on a rig to get that test going because we need to have a rig to come in to blow holes into the formation you do something called perforation to perforate into the well bore so that we can flow gas to the surface. And so that next production test will begin shortly. And once we've commenced it, I'll let the market know and then we have about 30 days of production testing. So in 35 days time or so I'll be back to the market telling you about what the production test results are from this zone. And we're looking for this to be tremendously exciting because there's two things about this test. One, we're doing a long pressure test like we've always done, but second, we want to flow the reservoir at what production conditions are like.

So we're actually going to flow it at the rate that we would produce it at. And that just satisfies everyone that we're able to do this and that we can do it so that's the backdrop on that. When you look at the macro picture in the world though talking about helium, so we have a resource with two wells that we're looking to bring on stream and start producing helium into the marketplace within a year's time. We're in that timeframe but when we look at the market, Russia was going to bring on through the Amur project about 2.1 billion cubic feet a year into the market. But the people that were doing the processing for that were associated with some of the big four out there. Air Products I believe was associated with the development of the Amur project. And so clearly that project is going to have a hard time playing ahead, as is shipments of helium out of Russia.

So that puts more pressure on the helium market. And you can see articles out there in about shortage 4.0 and I believe Gasworld had an article on helium shortage associated with Russia as well. So there's information out there but when we look to north America, there's more of a consolidation as well on chip manufacturing, there’s a shortage in the United States. And so the US government has put $56 billion into the chips program to incentivize development of chips and chip makers in the United States. That's an increase in demand on helium into the United States and a decrease in supply in the world as a whole.

The other thing that's happened is re-routing its gas into Europe. And as they've started to do that, they've taken their helium separation plant offline. So helium separation is reduced out of Algeria. Helium supply is reduced out of Russia. That means we're looking for local helium supply and the other 30 odd percent of helium supply in the world goes through the Strait of Hormuz. All right, so not exactly the stablest place in the world. So all that said, we need to secure helium supply in North America. And there's only a number of us that are out there that are moving forward towards it. So it says good thing about the demand for helium in North America and local supply. And we're here to provide into that market.

Gerardo Del Real: Exciting times. It sounds like both on the micro and macro and at least as it relates to Imperial, things are lining up beautifully. I know there's dialogue going on behind the scenes with potential offtake partners. Anything that you'd like to update us on or should we leave that for the next conversation, David?

David Johnson: I think what I would say is that we're engaged with multiple partners with regard to uptake. And there's just a little more urgency around the whole business right now.

Gerardo Del Real: Looking forward to chatting soon. Thank you for that very, very thorough update. Appreciate your time, David.

David Johnson: Oh, Gerardo, it's always a pleasure to speak with you.

Gerardo Del Real: All right. Chat soon.

David Johnson: Thanks.