some unanswered questions

Since the collapse of the ETS and Copenhagen I have taken a less active stance re renewable energy but as Petratherm are in the throes of their SPP, I thought it would be a good time to try and address some previously unanswered questions on this board. The following are my views and you should obviously do your own research.

Why is the Paralana 2 well 4,012m TD but only cased to 3,725m?

The short answer is that they had problems drilling through 3,800m and once the drill was removed they were unable to reclaim the TD up to 4,012m and hence unable to case past 3,725m.

The more detailed answer is as follows:
The drilling was progressing slowly but consistently until late October 2009 when they reached a Skillogalee Dolomite formation.
On 28th October 2009 Beach reported that the well depth was at 3,822m in the Skillogalee formation.
On 4th November 2009 Beach reported achieving little progress (42m in a week and having to change drill bits).
On 6th November 2009 Panax advised the market that they were told by Weatherford that the delay at Paralana 2 was due to unexpected geological problems that require time to be investigated. They were referring to the difficult drilling conditions associated with the Skillogalee Dolomite formation.
On 9th November 2009 Petratherm announced that drilling was terminated at 4012m. They would soon discover that once they removed the drill from the bottom section they would be unable to get past 3,740m.
On 18th November 2009 Petratherm announced that the wireline logging program would be modified to include Logging While Drilling (LWD). They were hoping that they could reclaim the 4,012m TD during the LWD program.
On 2nd December 2009 Petratherm announced that they could not run the LWD past 3,740m due to possible cuttings in the hole. So they affectively decided not to jeopardise the well by perusing the TD of 4,012m.
On 12th December 2009 the Weatherford Rig was released.
On 14th December 2009 Petratherm announced that they had successfully cased to 3,725m.

So the bottom line is that although they drilled to 4,012m the Paralana 2 well is only viable to 3,725m.

Is the cost of drilling efficient enough for the project to be viable long term?

From the above analysis of the drilling of 3,740m to 4,012m we can see that approx 40 days were waisted trying to drill and then reclaim the bottom section of the well. The WDI rig cost the Paralana 2 project $85,000 per day so that equates to $3.4 million which was affectively waisted in just trying to drill and case the well from 3,725m to 4,010m.

Peter Reid has indicated on numerous occasions that he is very confident that the drilling team can drill Paralana 3 at a much faster rate, as they have gained valuable experience with the drilling conditions learnt while drilling Paralana 2.

So if Petratherm are able to establish substantial fracture zones which should translate to good flow rates, I can see no reason why the cost of drilling Paralana 3 (which should be significantly less expensive than Paralana 2) cannot be easily justified.

Will Beach and TRUenergy continue with their support for Paralana 3?

From Beach and TRUenergy's perspective, they have a strong joint venture in a company which has successfully completed an injection well which sits on top of a very considerable geothermal resource with secured government backing ($62.8 million REDP grant). From their point of view the project has been appreciably de-risked over the last six months so if anything this should strengthen the JV relationship.

Conclusions:
As a shareholder that has followed this sector for some considerable time, I just wanted Petratherm to end up with successfully completed injection well sitting on top of a viable geothermal resource. There have been too many instances of wells that have for one reason or another been a complete waste of time any money. Although I would have preferred Paralana 2 to be cased to 4km, had a bottom hole temperature of +200 C and cost significantly less, I am very satisfied with the final outcome. Too many shareholders seem to be forgetting that this is the exploration business in a new frontier, fraught with uncertainty so to achieve what Petratherm has so far is not trivial.

I am confident that Paralana 3 will proceed and will cost significantly less to drill than Paralana 2. I am also assured that the strong JV relationship with Beach and TRUenergy will persist. But in the short term, Petratherm must concentrate on capital raising, progressing Spain and performing the fracture stimulation at Paralana. Only time will tell how these things will progress but I am intending on taking up the SPP because on my past experience the Petratherm management has consistently been able to deliver.

Systemiser.