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Vol. 13, No. 37 Week of September 14, 2008
Providing coverage of Alaska and northern Canada's oil and gas industry

$3.5 million in high bids

Ormat Nevada gets all but one tract in Mount Spurr geothermal lease sale

Alan Bailey

Petroleum News

Any doubts about serious interest in geothermal energy for Southcentral Alaska were dispelled on Sept. 10 at the state Mount Spurr geothermal lease sale. The state received an estimated $3.5 million in apparent high bonus bids, with all 16 tracts on offer being sold. Three bidders participated in the sale, with Reno-based Ormat Nevada picking up 15 of the tracts. Chad Attermann, a private individual with an address in Utah, picked up tract number 16.

Ormat Nevada outbid Iceland America Energy Inc. on four of the tracts. Two of those contested tracts lie in the centre of the lease sale area and attracted bids of $1.5 million and $1.4 million. Attermann outbid Ormat Nevada on tract 16 with a bid of $5,007.

Because the title work on the tracts has already been done, leases could be issued by the end of September, said Kevin Banks, director of Alaska’s Division of Oil and Gas.

Third sale

This is the third geothermal lease sale that the state has held on tracts on the southern flanks of Mount Spurr, the closest volcano to the city of Anchorage. The last sale occurred in 1986.

The lease sale area is about 40 miles from Beluga, the nearest point on the Southcentral Alaska electricity grid, thus the sale area is a possible site for a geothermal power plant.

Although no one has yet proved the existence of a viable geothermal source at Mount Spurr, a geophysical survey in the 1980s provided tantalizing indications of a possible layer of warm or hot brine 2,000 feet below the plateau at the entrance to the pass on the south side of the mountain. Some soil geochemistry anomalies also pointed to the existence of geothermal water in the area.

The vigorous bidding in this latest Mount Spurr sale came as a relief to DOG — the division had worried that lease terms such as the royalty rates mandated under state statutes and regulations might deter bidders.

“We were concerned because of the kind of response we got from industry … that some of the lease terms might be too onerous,” Banks told Petroleum News after the sale. “… I am happy that we got that little bit of tug-of-war and that competition, and many of the tracts received more than a single bid.”

The royalty rate for leases on the tracts is 10 percent of gross revenues and the primary terms of the leases will be 10 year, Banks told sale attendees. The lengths of the primary terms reflect the time that it may take to evaluate and develop the leases, he said.

Rising energy prices

Amy MacKenzie, attorney for Ormat Nevada, told Petroleum News that the company started approaching the Alaska Department of Natural Resources about a couple of years ago, to see if a Mount Spurr lease sale could be held. Rising energy prices and dwindling gas supplies in the Cook Inlet area made the prospect of a Mount Spurr geothermal development attractive.

“It’s the perfect storm of opportunities,” MacKenzie said.

Ormat Nevada is a special purpose subsidiary of Ormat Technologies Inc, a company that specializes in geothermal power and which has implemented geothermal power plants internationally, Paul Thomsen, director of policy and business development for Ormat Technologies told Petroleum News Sept. 11.

“We’ve been developing geothermal power projects for about 25 years,” Thomsen said. “… We operate about 400 megawatts in the United States, primarily in Nevada, California and Hawaii.”

The company also markets geothermal equipment and has experience with both organic rankine cycle and combined cycle geothermal technology, he said.

Because the company is growing at about 100 megawatts annually in the United States, the company is constantly on the lookout for new geothermal resources, Thomsen said.

Looking at Alaska

“We have been looking at Mount Spurr and Mount Makushin in Alaska probably for the last 15 years and when this lease sale gave us the opportunity to bid … we jumped all over it,” Thomsen said (Mount Makushin is the volcano next to Unalaska in the Aleutian Islands). In addition, the company chairman has a personal interest in Alaska as a result of selling small geothermal units in Alaska in 1975, Thomsen said.

“We made a bid that we were comfortable with and that we think the resource supports and we’re thrilled to have won 15 out of the 16 tracts,” Thomsen said of the lease sale. “… We’ve done a lot of cursory work looking at the markets and so forth, and energy prices, and we think that Alaska is ripe for developing a base load geothermal resource.”

The advantage of geothermal energy is the potential for long term energy price stability, once the geothermal facility is established, Thomsen said. And the size of the lease sale bids reflected Ormat Technologies’ view of the “potential resource size and application,” he said.

Ormat Technologies will deploy some of its geologists to do field mapping and seismic work in the leases to prove up information available about the geothermal prospects, Thomsen said. The timing of that work will be weather dependent. The next step would involve drilling using small diameter holes, to define where the resource might be. Depending on the results of that drilling, the drilling of a production well would then enable testing of the viability of the resource.

And although Ormat Technologies uses its own geothermal equipment, the company would use local Alaska services as much as possible as it moves forward with any development at Mount Spurr.

“When it comes to running the pipes and the wells and so forth we tend to contract out and typically we use as many local contractors as we can to engage the community,” Thomsen said.

The timeframe for any development would depend on what the company finds in its investigations at Mount Spurr and how a Mount Spurr development would mesh in with the company’s other projects, Thomsen said.

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