NEW FEDERAL RULES FOR GEOTHERMAL LEASING AND

PERMITTING

Utah Geothermal Working Group Meeting

Salt Lake City

March 14, 2007

Kermit Witherbee and Al Mckee

Geothermal Leasing

All competitive leasing for nominated lands.Parcels may be sold as a block that could be produced as 1 unit. *

Nomination limited to 5,120 acres max. Each nomination would include fee of $100 + $.10 acre.

Parcels not receiving bid in sale available noncompetitively for 2 yrs to 1st applicant.*

Direct Use Leases. *

Geothermal Leasing – Direct Use Leasing

Secretary of Interior may identify lands exclusively for direct use. *

Lands may be leased noncompetitively. *

Lease size no more than is reasonably necessary for proposed use. *

BLM publishes 90 day public notice of lands to be leased. *

If lands are available & there is competitive interest-offered next lease sale.

State, Tribal or Local Governments-Use with out sale & for public purposes other then commercial generation of electricity – nominal fee for use. *

Lease Duration & Work Commitment Requirements

Primary Term: 10 yrs *

Initial Extension: up to 5 yrs*

Additional extension: up to 5 yrs.*

Lessee must satisfy minimum work requirements (each yr after the 10th year).*

Establish a geothermal potential and if established confirm existence of producible geothermal resource.*

Payments in lieu of minimum work requirements.

Work requirements cease when lease begins commercial production.

Unit and Communitization Agreements

Majority interest of owners of any single lease has the authority to commit to unit. *

Secretary of Interior may initiate formation or require Federal lease to commit. *

Leases with different royalty rates will not be required to be modified in the same unit.*

Acreage Limitations

Maximum lease: 5,120 Acres. *

State total acreage: 51,200 Acres. *

Termination for Failure to Pay Rent

Terminate: Payment to MMS was not received in full by the anniversary date.*

Reinstate: Lessee has 45 days from anniversary date to pay the rent + late fee. If notified later than 15 days after anniversary date BLM will reinstate if MMS receives rent + late fee within 30 days from receipt of notification.

Annual Rental Per Acre

Competitive

Non-Competitive

Lease Type 1st Year 2nd – 10th year

$2

$1

$2

11th year on

$3

$5

$1

ProposedExisting

Existing

Rental and Royalty Payments

Before Production

Well Capable of Production

Rental

Minimum Royalty

Pa

ymen

t

Time

Actual Production

(competitive)

(non competitive)

Actual Royalty

Rental and Royalty Payments

Before Production

Well Capable of Production

Proposed – Electrical Generation

Royalty

Pa

ymen

t

Time

Actual Production

Rental(competitive)

(non competitive)

Royalty

Rental and Royalty Payments

Before Production

Well Capable of Production

Proposed – Direct Use

Royalty

Pa

ymen

t

Time

Actual Production

Direct Use Fees

(competitive)

(non competitive)

Rental

Rental and Royalty Payments (con’t)

Rental can be credited towards royalty

Direct use fees are paid in addition to rental

Royalty Rates

Existing

10 – 15% of Value

of Heat or Energy

Proposed

1st 10 years 11th year on

1.75% of Gross Proceeds from

Sale of Electricity

3.50% of Gross Proceeds from

Sale of Electricity

Electrical Generation(lessee sale of electricity)

Direct Use

MMS Fee Schedule

Electrical Generation(lessee sale of resource)

10% of Gross Proceeds fromSale of Resource

Royalty Rates – Lease Conversion

Existing

10 – 15% of Value

of Heat or Energy

Existing with Conversion*

X% of Gross Proceeds from Sale of Electricity (revenue neutral rate

established on a case-by-case basis)

Electrical Generation Direct Use

MMS Fee Schedule

*Available only for leases in effect before August 8, 2005;

Conversion request must be received within 18 months of the final rule;

Conversion eliminates qualification for production incentives

Production Incentives

• 50% reduction in royalty for “new” generation

• Two types of “new” generation:

• New facility

• Qualified expansion project

• Available only for leases in effect before August 8, 2005 that do not convert royalty terms

• Commercial operation by August 7, 2011

• In effect for 4 years after commercial operation

New Facility

Criteria include:

• Site license and/or Commercial Use Permit required

• At least one new turbine-generator unit

• New sales contract

• New or substantially larger footprint

• Not contiguous with existing projects

Production Incentive:

• All generation is subject to 50% royalty reduction

Qualified Expansion Project

QEP must:

• Involve substantial capital expenditure

• increase net generation by at least 10%

Production Incentive:

• Increased generation is subject to 50% royalty reduction

0

2

4

6

8

10

12

0 5 10

10%

Minimum 5 years of data

QEP in commercialoperation

Ne

t G

en

era

tio

n R

ate

, MW

Time, years

ProductionIncentive

Reservoir trend

Qualified Expansion Project Requirements

3

4

5

6

Jan Feb Mar Apr May Jun Jul Aug

Generation without QEP

10% target increase

Generation subject to full royalty

Generation subject to 50% royalty

Application of Production Incentive for QEPsN

et

Ge

ner

ati

on

, GW

h