Reducing drilling risk – from

exploration to field management

Introduction

Jim Lawless

© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 1

 Outline

 Objective of a geothermal exploration/

development program – setting the scene
 Staged and logical approach
– Financial structure
 Decision points: pre-feasibility and feasibility
study
 Need for resource estimation
 Why conceptual models

© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 2

 Objective of a geothermal
exploration/ development
program

 The fundamental objective of a geothermal exploration

program,of which drilling is an essential component, is to
identify and characterise a geothermal resource which
can be economically developed
– Or, if the resource cannot be economically developed, to
minimise cost exposure to the point of making that decision
– And to characterise the resource parameters as closely as
practical to allow an optimised design

– We will focus on electricity generation but the same concepts will

apply to direct use projects as well
– Main focus on high temperature, magmatic related resources

© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 3

 Features of a “good”
geothermal resource

 High resource temperature

 Significant stored heat
 High enthalpy to reduce overall production & injection
 Ability to inject at lower elevation to plant
 High permeability, natural or artificial
 Sufficient recharge or fluid volume
 Benign fluid chemistry (no corrosion or scaling)
 Easy access
 Low risk of volcanic eruption or hydrothermal eruptions
 Proximity to transmission infrastructure

© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 4

 Why do we need a
conceptual resource
model?

 To Integrate all resource information

 To understand the system
 To present information in a simple way with
predictive value
 Use the model as the basis for exploration
 Use the model as the basis for numerical
modeling
 Use as the basis for resource assessment

© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 5

 Initial conceptual
model

 Resource size
 Geological setting
 Structure
 Stratigraphy
 Reservoir fluid composition
 Reservoir temperature
 Phase conditions
 Hydrology

© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 6

 Need for a staged and
logical process

 Geothermal resources are difficult to assess

– Depth, variability of connection to surface, variety of
fluid characteristics, unknown permeability/porosity
– Drilling is an expensive process which usually must
be funded from scarce equity
 Apply a staged process to minimise cost and risk
exposure
– Start with low cost exploration methods
– Move to more costly methods, once confidence is
increased
– Regular evaluation and decision points
© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 7
 Stages

 Initial reconnaissance and prospect

identification
 Detailed geoscientific investigation
 Exploration drilling and well testing
 Delineation drilling and preliminary design
 Production drilling, design, construction and
commissioning
 Reservoir management and further
development
© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 8
 Theoretical fast track
project schedule

overlap between resource

evaluation, drilling and
design schedules

© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 9

 Actual time from first exploration
well to power plant commissioning:
can be much longer !

Bulalo
3MW Pilot
Tongonan 

Wayang Windu
Tiwi
Kamojang
Palinpinon
Wairakei
Los Azufres
Momotombno
Ahuachapan
G.Salak
Cerro Prieto
Lahendong 2.5MW Binary

Kizildere
Los Humeros
Mokai
Darajat
Dieng
2MW Pilot
Olkaria  ?
Ohaaki
Rotokawa

0 5 10 15 20 25 30
© IGA Education © Reducing Drilling Risk Years Jim Lawless, 2015 10
 Assessment of technical
risks for Prospect X

poorly
quantifiable
rapid reinjection
local returns
hydrothermal
eruptions
secondary acidity moderately
quantifiable
cold water
ingress local
volcanism
low
local permeability magmatic well
seismic risk acidity quantifiable
slope
instability high gas
content
can be
regional distant large mitigated
seismic low inadequate volcanism
subsidence temperatures resource
risk

Trivial Fatal may be

Consequences
© IGA Education © Reducing Drilling Risk mitigated
Jim Lawless, 2015 11
 Risk minimisation by
appropriate strategy

 Conflict:
– financial goal: maximize return by fast track
program
– risk mitigation: minimize risk by slower,
deliberate program

© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 12

 Cost of certainty

30

25
Cost of
20 certainty

15

10

0
50 75 100 125 150
MW
Net Present Value against station size, showing the premium for cost of certainty in
building a station of proven size (after Grant)

© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 13

 Need clear decision points
between stages to
minimize cost and risk

Time, years
Activity 1 2 3 4 5
1000
Project identification / reconnaissance
Geology and geochemistry

GO/NO GO
Geophysics
Prefeasibility study
100
GO/NO GO
Permitting / EIS
Infrastructure (pads, roads)
Cumulative
Exploration drilling, well testing
Cost, US$ M
Resource assessment, feasibility study
GO/NO GO
10
Preliminary design
Commercial negotiations to PPA
EIS, permitting
Development / production drilling
Establish EPC contract 1
FINANCIAL CLOSURE
EPC Manufacture
EPC Construction

COMMISSION

© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 14

 Decision points

 The objective of the course is to consider how to reach the pre-EPC

feasibility stage at minimum cost, through maximising drilling
success
 Ideally each decision point should be based on a systematic
assessment – a pre-feasibility or feasibility study
 The decision points in the process are also likely to represent
changes in the source of finance or even a change in ownership,
thus there is a due diligence component as well
– Exploration: usually 100% equity
– Power plant, gathering system and construction: usually 100% debt
except for the largest companies
– Development drilling: can vary from 100% equity to partially debt funded

© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 15

 Why do we need a
project concept ?

 To provide a basis for what constitutes the

resource and what doesn’t
– A resource by definition has to have some
reasonable prospects of economic development
– So some consideration of the project concept is
needed even at the early exploration stage
 The basis for a financial analysis
 To underpin a bankable feasibility study

© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 16

 What is in a project
concept/pre-feasibility
study ?

 Resource characteristics and size including some

comments on long term reservoir performance
– Number of make up wells
 Outline well design and costing
 Flow predictions per well, with uncertainties
 Probable conversion technology and costing
– Will need some reference to ambient conditions
 Access to grid/market
 Permitting and key environmental issues

 So these are the matters that need to be defined during

exploration
© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 17
 Why do we need to do
resource capacity
estimates ?

 To ensure to a sufficient level of certainty that

there is sufficient resource to support the chosen
project concept.
 Why do we need a formal process for this?
– To permit realistic comparisons between resources to
prioritize development
– Especially if there is a due diligence component, to
provide a consistent and accountable basis for
investment

© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 18

 Proving a geothermal
resource...
There is a big step from:

“Reconnaissance
indicates a 100
MW project may
be possible
here”

© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 19

 To:

“The geothermal reservoir

is proven at a 90%
confidence level to be
able to support a 100 MW
development and there is
low risk now for investing
M$400+ for production
drilling and construction”

© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 20

 Need to keep revising
assessment

 Resource assessment is not a static process

 A series of resource assessments should be
made at least at the following stages:
– exploration
– development
– exploitation
 Maintain and refine conceptual hydrological
model
 Construct and calibrate numerical simulation
model
© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 21
 Methods of resource
assessment and their
applicability
Method Applicable to:
Early Exploration Delineation During production
Exploration
(pre drilling)
Surface heat Yes but low Yes but low Largely redundant Largely redundant
flow confidence confidence
Sum of N/A No, does not No, does not No, does not directly
existing well directly indicate directly indicate indicate
outputs resource resource capacity resource capacity
capacity
Analogy Yes, but low Yes, but low Largely redundant Largely redundant
based on area confidence confidence
Stored heat Yes, but low Yes, preferred Yes, preferred Largely redundant
confidence method method
Lumped Yes, but not Yes, but not Yes Yes in some cases
parameter advisable advisable
models
Decline curve No No No Yes
analysis
Numerical Yes, but not Yes, but not Yes, but low Yes, preferred method
simulation advisable advisable confidence
models

From Australian/Canadian Geothermal Reporting Codes

© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 22
 Reporting Protocols

 To make sound, defensible financial decisions there

needs to be a recognized, unambiguous, accountable
resource assessment protocol
 Unlike in the Oil and Gas or Mineral industries for
geothermal there is no single generally accepted
resource assessment and reporting methodology, and in
many countries not even a national standard to work to
 But IGA/UN are working towards this
 The basis for their work, and pragmatically the closest
thing to an international standard right now is the
Australian and Canadian Codes (which are essentially
identical)
© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 23
 The Australian and
Canadian Geothermal
Reporting Codes

 All ASX listed companies

report resources and
reserves to this code
 All companies applying for
Australian Government
geothermal subsidies and
grants must have a
resource report completed
according to the code

http://www.agea.org.au
http://www.cangea.ca/
© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 24
 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 would often be
independent from the project proponent

© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 25

 Classification

Exploration Results

Geothermal Resources Geothermal Reserves

Increasing
geological
knowledge and Inferred
confidence

Indicated Probable

Measured Proven

Consideration of energy recovery and conversion, economic, marketing, environmental social, legal, and
regulatory factors
(the “Modifying Factors”)

© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 26

 Model data after
drilling

 Information to include:
– Stratigraphy and lithology
– Geological structure
– Hydrothermal alteration
– Well profiles with feed-zones
– Physical data: temperature, pressure and phase conditions
– Composition and distribution of major fluid types
– Physical processes: flow direction, boiling, mixing etc, controls on fluid
movement
– Chemical processes: mineral deposition and dissolution, chemical
reactions

– The next presentations will address how to get this inforrmation!

© IGA Education © Reducing Drilling Risk Jim Lawless, 2015 27