U.S. Energy Corp. on its geothermal interest

Alexander Richter 31 Mar 2009

In a recent Wall Street Analyst Forum session. U.S. Energy Corp. gave an insight into its approach to geothermal. The company invested about US$ 3.4 million in Standard Steam Trust LLC in December 2008. (see: Yahoo)

“We were out looking for oil and gas, found some really good private companies and the theory that they had was if you are going after geothermal it is very similar if you are going after oil and gas, you are looking at the same type of records and the court houses because joint companies have to post what they get where the water was, what the temperatures were, what type of formations they went through, what the logging was. So we had kind of a unique combination the group that we went with also said let’s look where there is transmission lines, you do not want to be 100 miles away from a transmission and transmission lines would have capacity.

And so the thing that really attracted us to geothermal and I would suggest that if any of you are not interested in it or do not know about it to look at a company called Ormat that runs a 100 megawatt power plant in Reno, Nevada, I have been there. It was one of the most amazing things I have ever done, this plant is producing a 100 megawatts, it has scarcity [ph] power of about 15 megawatts, it runs a lot of pumps, it is moving a lot of fluid. I was glad to see it, there are no trucks bringing fuel in and there are very few people and they are running a pretty exciting plant out there and the costs are much lower than other renewables. I listened to the Ethanol presentation before, we have looked at solar and we have looked at wind and I will tell you the problem with solar and if not the problem just the facts. The wind does not always blow and the sun does not always shine and so when you obtain a long-term power purchase agreement for those commodities you get between $0.05 and $0.06 a kilowatt.

Geothermal you get between $0.10 and $0.115 because it is very slow, it flows all the time unless you have a power outage but you are creating your own power. So we have picked up 60,000 acres with our investment in this private company Standard Steam Trust, the next step here is to go out and prove what we have got and it is very expensive drilling to prove it up.

The first thing you do is you do temperature gradient drilling and basically you can tell if you go down a couple of hundred feet, if the temperature is rising so many degrees per foot or per hundred foot, then you can extrapolate and say, okay, we know that when we get down to 2000 feet we are going to have the magic number 300 degree water and that is what – the ideal for a geothermal plant is around 300 plus.

There are two ways to produce power with geothermal, one is called Flash and that is in California, they take the water when it hits the atmosphere, it flashes into steam and it turns the turbine. The other Norway that is being developed and it is more environmentally friendly is called the closed-loop binary system. What you do is you bring the heated water up, run it through a heat exchanger, the heat exchanger heats into alcohol, the alcohol flashes and it turns the turbine, you cool that alcohol back down and it is a closed loop, then you cool the water back down and inject it right back into the formation. So it is a zero omission.

Some of the geothermal water is pretty nasty water, it is pretty corrosive and it has – that is one of the issues with geothermal as well. Our exit strategy here is to sell the land to utility joint venture with utility. We are not utility. One thing that we do recognize is we have to partner up with really smart good operators both in the oil and gas as well as in this endeavor but we have been pretty successful in developing these projects, getting a diamond in the rough, put a little shine to it and then realizing value. The end thing is and if Mr. Obama has given money and throwing it at renewables, we may become a generator. I would say that would be less likely though.

We want to continue working on the geothermal, again these gradient, temperature gradient holes and then once you get there then you go on to the development holes that will prove up per megawatt as a function of temperature and water flow. You have to have permeability so you can move a lot of water and then taking it out it is just technology and let someone else come in and engineers your plant but the ticket is prove that you have the water.”

Source: SeekingAlpha.com