Hot rocks pepper joint venture

DRILLING is on schedule and on budget for the Habanero 4 well that was spudded on March 9 as part of the Innamincka Deeps joint venture (JV), according to geothermal explorer and developer Geodynamics. The drilling of the well had been planned as part of a gated appraisal program focussed on proving the fi rst major enhanced geothermal system (EGS) site in Australia. The company, which operates the JV in the South Australian Cooper Basin with a 70 per cent interest (Origin Energy Geothermal holds the remaining 30 per cent stake), is targeting a depth of 4170m at Habanero 4 and expects the well to be completed in about four months. Geodynamics chief executive Geoff Ward said that the drilling program was of a longer duration than a typical oil or gas well campaign due to the technical challenges and complexities involved in drilling for geothermal resources.
“It would probably be fair to say that this ranks up there with the most diffi cult wells being drilled in Australia this year,” Mr Ward said.
“We’ve set the first casing string and we’ve started off smoothly, which is extremely important for a well of this magnitude [and] for a company of our size… The well itself represents the first completely new well that’s been drilled in our Habanero geothermal project since 2009.”
The company stated in an ASX announcement that the Habanero 4 site was about 120m east of the previously drilled Habanero 3 well and had been selected in order for the well to intersect with the existing stimulated fracture zone in an area of demonstrated productivity. Geodynamics reported that once Habanero 4 was successfully drilled, a testing regime would be undertaken to establish reservoir performance parameters and to secure static and dynamic reservoir data necessary for long-term production modelling. Innamincka Deeps The Innamincka Deeps JV was formed in 2007 with the sole focus of developing and commercialising geothermal energy generation from EGS in the Cooper Basin. Mr Ward said that about 990 square kilometres of the company’s approximate 2300sqkm tenement area in South Australia was underlain by the Innamincka deep granite body, which Geodynamics believed extended downwards from about 3500m below the surface to 10km. “As a resource in its total potential, we’ve estimated [that] it has the ability to contribute something between 10 and 20 per cent of Australia’s baseload energy requirement for a period in excess of 30 years,” Mr Ward said.
He said that the project would be able to provide power of a similar scale to that which is currently produced through some brown coal fields in Victoria. “Drilling Habanero 4 is part of the process of proving our commercial resource and proving that we have a reserve base to secure customer offtakes,” Mr Ward said.
He said the company could consider options including producing and supplying for local customers such as BHP or Santos, which have industrial operations in SA, or for customers on a broader scale by selling its product to a retailer and connecting to the national electricity market.
Mr Ward outlined three key stages for the project that would span the next two to three years. “The first [stage] is the drilling of Habanero 4, which will allow us to reconnect with the reservoir that was created previously to further stimulate that reservoir to test how much further we can extend it from that single location, and to undertake open and closed loop flow trials.”
Mr Ward said that the flow trials would help the company to gain information about the flowing behaviour of the fracture, the temperature behaviour over time and the reservoir fluids.
In addition, Geodynamics planned to trial its 1-megawatt (MW) pilot plant, which had already been built at Innamincka and was awaiting the completion of the drilling campaign to provide its fuel for testing. Mr Ward said that these project stages would be the company’s focus for the next 15 to 18 months.
Beyond that time, Geodynamics intended to progress to another round of appraisal testing that would involve drilling a fifth Habanero well.
“[This well] would allow us to move from operating in the single fracture that we’ve seen at Habanero 4 into multiple fractures.” Mr Ward said that the three stages would enable the company to gather the sufficient drilling and engineering data required to confidently contract with a customer and move the project forward into design and contracting stages.
He said that while the pilot plant was expected to be commissioned at the end of this calendar year or in the first half of 2013, he could not be more specific until Geodynamics assessed the results of the field trials.
“The commissioning of the pilot plant is really one step in the testing program. The date of that itself is not actually of any real enormous significance. “I know that people will focus on it a lot and it is a really important milestone,but a key message is [that] we need to turn it on when we need that information it will provide. If we’re getting valuable information from other tests and want to extend those programs, we should do so even if it results in some delay to the pilot plant stage,” he said. Funding The Renewable Energy Demonstration Program In November 2009, Federal Resources and Energy minister Martin Ferguson announced funding of $235 million for successful applicants under the Renewable Energy Demonstration Program (REDP), which aimed to deliver almost 80MW of new renewable energy generation from wave technology, geothermal sources, and technologies including wind, solar and biodiesel. Geodynamics was awarded  $90 million grant under the REDP to support its demonstration of the fi rst 25MW of geothermal energy supply in the Australian market.
In November 2011, the company reached an agreement with the Department of Resources, Energy and Tourism tore-profile the funding arrangements. This allowed Geodynamics to access a greater proportion of the funds for the early stages of the Innamincka Deeps project in order toprogress with the current appraisal program. Habanero 3 insurance claim Three wells had previously been drilled by Geodynamics in the Habanero area of the Innamincka Deeps project: Habanero 1 in 2003, Habanero 2 in 2004 and Habanero 3 in 2008. In late April 2009, an incident occurred in which water and steam fl owed to the surface at the Habanero 3 wellhead. At the time, Geodynamics managing director Gerry Grove-White said in a statement that no one had been injured
and the site had been secured. The Dillons Highway had been temporarily redirected more than 100m from the well site and construction of the pilot plant had been suspended.
In August of that year, the company released technical data from an initial investigation of the incident that found hydrogen embrittlement may have led to the cracking of the casing materials. The hydrogen embrittlement was reported to have been the result of dissolved gasses in the reservoir fl uid reacting with the high-strength steel casing material. Exhaustive metallurgical studies undertaken during the past two years concluded that the combination of highly caustic fluids on the outside annulus of the casing and high temperatures during production testing caused a condition of caustic (stress) corrosion cracking. As a precaution, Geodynamics has factored all plausible failure mechanisms into the selection, qualification and testing of materials, the well design and the execution plans of all well activities since early 2010. The company also lodged an insurance claim seeking to recover the costs of the well control operation in addition to costs for drilling a replacement well.
In April 2011, Geodynamics received $4 million for Part A of the insurance claim and announced in December that it had received an additional $7.6 million to finalise Parts B and C of the claim, covering redrilling and environmental expenses. “Finalising the Habanero 3 insurance
claim has been one of the company’s key internal measures to support funding of the proposed work program [at Habanero],” Mr Ward said in the December statement. Also in December, a share purchase plan and institutional placement achieved the target maximum combined amount of $10 million, with funds being used to progress the development of the Innamincka Deeps project. Sale of Rig 100 Geodynamics announced in March this year that its Rig 100 drilling rig (which was jointly owned with Origin) had been sold to Weatherford International’s wholly-owned subsidiary Key International Drilling Company for a total cash consideration of $16.8 million. Mr Ward said in the announcement that the rig sale liberated valuable funds to enable the development of the Innamincka Deeps EGS resource.
In addition to the sale of the Rig 100, Geodynamics negotiated an agreement with Weatherford to carry out the drilling of Habanero 4. For future wells, thecompany planned to lease or use a rig hiring arrangement.
Other assets Geodynamics also has a 50 per cent interest in the Origin-operated Innamincka Shallows JV in the same tenement area as the Deeps project. The first Shallows well, Celsius 1, was drilled in April 2011, and reached a target depth of 2146m. Mr Ward said that Origin was still evaluating options regarding how it would progress with the project. “We’ll wait and see what their technical evaluation is and we may or may not progress to further drilling in that opportunity,” he said.
In addition, Geodynamics holds two geothermal exploration licences in the Hunter Valley of NSW (Bulga and Muswellbrook) and two permits in Queensland (Tennaperra and Nappa Merrie). Mr Ward said that the company did not intend to actively progress with any of the tenements until it had completed the next stage of its SA program. “For an exploration and development company operating in a challenging market environment, our view is that we need to focus our resources on the location: one, where we’ve had the most promising results; two, we know the most about; and three, that offers the most potential to demonstrate commercial EGS development in the short term,” Mr Ward said. He said that while Geodynamics would be interested in talking to parties who may wish to partner in its Hunter Valley or Queensland tenements, it had no current plans to relinquish or farm out the assets. “I think a farm out would present a very interesting prospect, [but] I think you’d have to say that there’s less interest in undrilled geothermal acreage at the moment, so it’s not a priority,” Mr Ward said. “At this stage, our view is… to focus our efforts at Habanero where we’ve encountered the most productive EGS fracture that’s been encountered anywhere in the world. “We have a clear program now that will take us out at least until approximately the middle of next year.
“Beyond that we need to look at the options for supplying the local market, supplying the national market, and also we need to understand to what extent the results in the fi eld we’re [working on] over the next 18 months give us enough certainty to proceed to that contracting phase,” Mr Ward said.


By Danica Newnham

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