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The Helium One share price just crashed. Here’s what I’d do now

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The Helium One (LSE: HE1) share price has slumped by more than 50% in early deals. The stock has plunged after the company updated the market on its drilling programme in Tanzania. 

According to the update, the group has completed drilling at its Tai-1A exploration well at its 100%-owned Rukwa Project in Tanzania.

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Poor conditions 

Unfortunately, while the firm has discovered helium in the well, “poor and deteriorating” conditions prevented the firm from logging helium at the primary reservoir. 

The so-called Karoo Formation at the Tai-1A prospect showed good reservoir potential across all three target formations. According to Helium One’s CEO David Minchin, this shows “the presence of a working helium system in the Rukwa Basin.

However, the only helium the company has logged is contained in “thinly-bedded sands in the uppermost Karoo.” Further analysis shows there was no indication of “free gas,” only “fizz-gas.” This is water saturated with helium. 

This is the only part of the prospect Helium One has been able to log. Deteriorating well conditions prevented the company from analysing deeper target formations. 

This update is, without a doubt, highly disappointing for the company’s investors. It’s clear why the Helium One share price has crashed following the news. While management remains optimistic that the information gleaned from the drilling programme will help its future development of the Rukwa Project, there’s no denying the setback will cost the firm time and money.

Helium One share price outlook

I’ve reviewed the company several times and consistently concluded it’s an incredibly speculative investment. Indeed, the last time I covered the stock at the beginning of July, I noted I’d rather wait for the company’s drilling updates before initiating a position. Prospecting for any commodity has always been a hit-and-miss business. You never really know what’s in the ground until production starts. 

It seems the Helium One share price already had a lot of positive news baked into its valuation. That appears to be the reason why the stock’s fallen so sharply today. 

The good news is, this isn’t the end of the company. It’s a setback, but that’s it. Management will be able to use the information from this exploration well to identify further prospects. With the possibility of helium already identified in the ground, the firm seems to be heading in the right direction. 

However, it’s impossible to tell at this stage if, or when, the company will ever discover a significant, recoverable helium resource. With that being the case, I’m still not interested in the Helium One share price. And if I owned the stock, I’d sell the shares today.

I think there are other opportunities out there on the market that can produce better returns in the time it may take the firm to find a lucrative helium prospect.

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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