At San Emidio, yesterday the EPC contractor operated and tested the new Phase I power plant in a key trial operation sequence. The plant has already been operated in test mode on several occasions. It has been synchronized to the transmission grid and has generated electricity but there is still unacceptable levels of vibration in the gearbox. The vibration data is under analysis so adjustments can be made. The new plant must complete component commissioning and performance testing prior to achieving commercial operation. The EPC contractor is providing its services under a fixed price contract that includes financial guarantees for the original completion date and power output of the plant.
At San Emidio Phase II, the drilling program discovered a new, higher temperature portion of the geothermal reservoir in an area south of the Phase I plant. Work is continuing on the development of new production wells under a ten-well cost sharing grant from the U.S. Department of Energy ("US DOE"). Four of five planned wells, located in the southern part of the project, have already been drilled (OW-6, OW-8, OW-9 and OW-10) with the fifth well (45A-21) currently being drilled. Well OW-10 is the first new production well for the Phase II power plant and produces a flowing temperature of 302°F from a reservoir zone 2,500 feet below the surface. Well OW-8 encountered the highest recorded reservoir temperature in the San Emidio field to date at 320°F and will undergo flow testing to determine zone permeability. Well OW-9 exhibited commercial flow of 280°F from a zone at 2,090 feet. During drilling operations at OW-9, a total lost circulation zone was encountered with 294°F fluid at 1,830 feet, but was sealed off behind casing to allow the drilling to proceed to deeper targets. Testing of the 1,830 foot zone in well OW-9 is planned. Well OW-6 also discovered commercial permeability with a flowing temperature of 279°F at 1,930 feet.
At Neal Hot Springs, the 22 net MW power plant construction continues and is nearly 85% complete. The air cooling apparatus is fully constructed as shown in the photo below.
Over the course of the ongoing construction, the budget was increased by $13 million in equity contributions by the partners. The first increase was for $7.0 million to cover additional drilling costs and modifications in plant controls and the cooling mechanism. Enbridge Inc. of Canada, our partner at Neal Hot Springs, provided the additional investment in exchange for increased ownership interest in the project from 20% to approximately 27%. The project already has 100% of the required production capacity and about 70% of the required injection capacity proven. Certain wells were drilled into deep injection zones but two of these wells do not have satisfactory capacity; therefore, a second increase of $6 million has been established for a drilling program, about to be initiated, that is engineered to achieve the required 30% capacity. Depending on the amounts contributed by each partner, this cash call may result in further adjustments in the ownership of the project. The total project cost, including contingencies, is now expected to be $ 143.6 million.
RAFT RIVER
At Raft River, the geothermal power plant is currently producing about 10 net MW output after the recent successful completion of a well casing repair program. The power plant continues to operate at more than 95% availability. Under a US DOE development grant, the project is testing thermal fracturing of reservoir rock using cold water in well RRG 9, a production well drilled by U.S. Geothermal outside of the partnership with Raft River I Holdings, an affiliate of Goldman Sachs. The work on well RRG 9 may result in increased permeability which could lead to the well providing additional production fluid to the existing power plant.
Currently the partners are holding discussions as to the accounting treatment of part of the initial investment made by each of the partners. Varying methods regarding the appropriate tax accounting for a portion of U.S. Geothermal’s initial capital contribution are under review and, based on the outcome, could result in a non-cash write down estimated between $1.2 million and $6.1 million. We continue to discuss this matter with our advisors and partner to find the appropriate accounting solution.
GUATEMALA
The company continues development activities on the El Ceibello project with efforts underway to secure a local, well capitalized equity partner and a power purchase agreement for the project. The concession contains 24,710 acres (100 square kilometres) located in the center of the Aqua and Pacaya twin volcano complex. A key asset included in the concession is the El Ceibillo geothermal project which has nine existing geothermal wells with depths ranging from 560 to 2000 feet (170 to 610 meters) and a significant amount of geophysical and other technical data completed during the 1990s. The first of these wells encountered unexpectedly high temperatures and produced a mixture of steam and water. Six of the wells have measured reservoir temperatures in the range of 365 to 400°F (185 to 204°C). Fluid samples and rock cutting data from the wells suggest the existence of a deeper, higher-permeability reservoir at this site with temperatures ranging from 410 to 446°F (210 to 230°C). These wells have high conductive thermal gradients that indicate rapidly increasing temperatures with depth.
El Ceibillo is located in an industrial zone with major electrical transmission and distribution lines nearby. The Company has already completed preliminary reservoir, transmission and environmental studies for the project.
U.S. Geothermal Inc. is a leading renewable energy development company that is operating geothermal energy projects at Raft River, Idaho and San Emidio, Nevada. The Neal Hot Springs project, located in eastern Oregon, is currently under construction and will be the company’s third operating power project. The company holds geothermal energy rights to 69,500 acres comprising six advanced stage geothermal development projects.
