A Code for Reporting Geothermal Resources and Reserves

Adrian Williams, Jim Lawless, Malcolm Ward, Fiona Holgate and Adrian Larking

Adrian Williams | March 2010

Background and status

• Australian Geothermal Energy Association (AGEA) and

Australian Geothermal Energy Group (AGEG)

lead role in defining a Geothermal Reporting Code covering• Exploration results• Resources• Reserves

• Launched in 2008• Rapid acceptance by companies and finance community

• extending outside Australia

• The Code is mandatory for AGEA members• i.e. for all leading geothermal companies in Australia

• Second edition early 2010

Some key engagements and positions

• Australian companies and regulators, international consultants• development driven by operating companies

• Decision to build on what exists - established terminology/frameworks

JORC (Joint Ore Reserves Committee) • one of the keys to Australia’s successful mining industry• compliant with international CRISCO template

SPE Code Committee

• Australian Securities Exchange• seeking to include in listing rules (as for JORC)

• IGA and IEA for international awareness and support

Parallel activities

IGA: Established committee, agreed to support Code and put on website

CANGEA : Have now released their own Code very closelybased on the Australian example, expected to beratified by the TSX

NZGA: Supportive, want to apply agreed methodology tonew national assessment

USGS: Have just done new national inventory, are discussing possibility of their own Code

Why high quality reporting is important

• Understanding and confidence are key building blocks• Terminology and meaning• Integrity and consistency

• Critical for investors and lenders (banks)• Equity funding critical in early stages (exploration, proof of concept)• Company values (and ability to raise equity funds) depend on understanding and confidence in

+ Exploration results and

+ Estimates of resources and reserves

• Debt financing is increasingly critical for later stages (project dev)+ Major focus on proven reserves

• New technologies and resources emerging• HDR, HFR, EGS, low temperature• Widely differing project types

• All forms of geothermal energy – hydrothermal and hot rock, natural and engineered

• All end uses - focus on electricity generation, but applicable to direct use

• High and low temperatures

• Projects in other countries carried out by Australian companies

• Existing projects as well as green-fields

• Not geothermal heat pumps

Scope

Key Principles

•Transparency:• The basis for the estimate should be clear

• Materiality:• All relevant issues disclosed

• Competency:• Relies on the professional judgement of an accountable “Competent

Person”, who has relevant experience

“Competent Persons”

Must be:• Affiliated to an appropriate professional organisation

• Register is being established for the 2nd Ed.• Membership includes agreement to conform to the Code of Ethics

• Qualified and experienced • Minimum criteria defined• Must describe their background

• Accountable• A complaints procedure is being established for the 2nd Ed.

And:• Must sign off on all Public Reports where Exploration Results or

Resources or Reserves are referred to• Declare their corporate affiliation

Two dimensional categorisation

“Geological” Knowledge and Confidence• The resource characteristics• How reliably they are defined• Typically: “Proven – Probable – Possible”

Commercial Extractability• What can be commercially extracted - now• What may be extracted under more favourable conditions• Typically:

• Reserve = commercial • Resource = commerciality not yet demonstrated, but reasonable prospects for eventual extraction

Classification

Increasing geological knowledge

and confidence

Exploration Results

Geothermal Resources Geothermal Reserves

Inferred

Indicated

Measured

Probable

Proven

Consideration of energy recovery and conversion, economic, marketing, environmental social, legal, and regulatory factors

(the “Modifying Factors”)

Note

The Code:• Provides for how exploration results and estimates of resources and

reserves are reported

It does not prescribe how the estimates are to be made • It is up to the Competent Person to be satisfied that an appropriate method

has been used

• Requires a certain level of definition of the methodology and assumptions e.g. Relate cut-off “grade” to a specific assumed power price and / or technology

Alignment

The Code has drawn on other established work•To promote consistency and understanding

JORC (mining industry and CRISCO) for implementation and reporting

•The Code•Principles, terminology, framework, layout

The SPE and other sources for principles & guidelines •The Lexicon

Reporting requirements versus guidelines

The Code contains:• Mandatory paragraphs• Explanatory paragraphs (in italics)

The Guidelines (Lexicon) contain:• Discussion on methodology: a comprehensive outline of preferred

methodology and default parameters, but not mandatory• Considerable scope left for individual judgement in how guidelines are

applied

Certainty classifications: resources

Exploration Results• Can be less formally reported but will not define resources• Still need a Competent Person Statement

Inferred Resources• Less direct indications of area, depth and character• Sound reason for indicating resource e.g. Geochemistry

Indicated Resources• Sampled by wells• Temperature indicated by geochemistry or nearby wells• Are defined by geophysics / temperature gradient mapping

Measured Resources• Sampled by wells• Deliverability demonstrated• Area defined by geophysics / temperature gradient mapping

Certainty classifications: reserves

Probable• Sampled by wells• Temperature indicated by geochemistry or nearby wells• Area defined by geophysics / temperature gradient mapping

Proven• Sampled by wells• Deliverability demonstrated• Area interpolated between wells• “No surprises” expected in future drilling• Clear prospects / no barriers to commercialisation

Units for reporting: 1st Edition

Exploration results• Should not include any definitive assessment of the quantum of contained or recoverable

energy

Resources• Should be reported as thermal energy in place (PJ)*• For higher certainty categories, can optionally report recoverable and/or converted energy

(e.g. MW-years or GWh)* • To do so the assumptions and the technology pathway must be defined

Reserves• Should be reported as thermal energy in place (PJ)*• Should also be reported as recoverable thermal energy (PJ) and/or converted energy e.g.

GWh or MW for x years• And the basis, development plan and technology pathway must be defined

* Items changed in 2nd. Edition

Conclusions

• The Australian Code is a good step towards a formal definition of geothermal Reserves and Resources

• It is uniquely suitable for reporting on both “conventional” and “unconventional” geothermal projects

• It is already starting to serve as a basis for international standardisation

• Experience gained in the first 18 months of operation is being applied to a revised 2nd Edition

• The Code, Lexicon, Practice Notes and example reports for various types of projects can be downloaded from:

AGEG or AGEA websites or

Google “Australian Geothermal Code”