Montana

Highlands holds leases of over 154,072 acres in south-eastern Montana in an area that it considers to be prospective for natural gas and helium. A January 2017 Competent Person’s Report for the initial 69,120 acre lease holding first acquired by the Company indicated a “best estimate” NPV10 of US$341 million for a natural gas development project alone, with no account given for any potential helium resource (which was subsequently established by Highlands to be present in concentrations of 0.31% to 0.33%).

 

Our tests during 2018 on the Eagle formation at Helios Two provided promising, albeit inconsistent, results. As we announced on 1 February 2018, the Helios Two well was stimulated in the Eagle Formation using a combination of water and foam-based stimulation agents in three separate stages. Opening of two of the three stages has resulted in natural gas production rates which peaked at 216 Mcfpd. However, the production rate was not sustainable.

 

The first stage of the fracturing operation, which was left unopened, was stimulated with water, shut in and left to soak for 10 months and, on 16 October 2018, we announced a sustainable production rate of 58 Mcfpd. This innovative water-based soaking method has enabled Highlands to understand important characteristics of the geology of the project. In comparison to using expensive foam-based stimulation techniques, this method could potentially allow the Company to economically develop the Eagle formation. Given the thickness of the formation, Highlands believes that it could stimulate the formation with potentially up to a dozen stages and achieve potential economic production.

 

The extensive resource base of the area is not in doubt but the technical challenges for a full development and commercialisation of the project should not be underestimated. Highlands’ team has installed autonomous systems for continuous long-term monitoring of gas rates and further data collection at the wellbore and this ongoing testing will confirm over time the commerciality of the project, including the value of the potential water resources.

 

Highlands has discovered, during its dewatering operations at its Montana Project, that its interests there contain potentially billions of barrels of water suitable for oil and gas operations and specifically in the Powder River basin given its proximity. This is a longer term plan and clearly was not the original strategy for Montana. However, as explained below, any commercial development of Montana is going to require a significant dewatering exercise. If that dewatering can itself become a business line for Highlands, then it will considerably change the economics of that project.