A rigged market – geothermal sector cedes fortunes to CSG

In a deal that says much about the state of the industry as it does about the individual circumstances of the company, a drilling rig owned by geothermal aspirant Geodynamics has been sold to oil and gas group Pangea Resources.

The sale of the rig was not a surprise, and had been well flagged by Geodynamics, whose new board and management couldn’t justify the investment in a relatively capital-intensive piece of equipment.

In fact, the rig was put up for sale just months after the company took delivery of the specially constructed rig, Rig 200. The sale price of $21 million is nearly half the company’s much reduced market capitalization of $46 million, and means both rigs owned by the company have been sold. And, predictably, both at a loss.

Getting the funds to pay for expensive drilling campaigns, and getting hold of drilling rigs, has been one of the biggest challenges for the geothermal industry in the past few years – a situation reflected by the handing back of most of the geothermal drilling grants allotted by the government.

Only a few companies have actually drilled deep holes – Geodynamics, Petratherm and Panax being among the most productive – and most geothermal aspirants have turned their attention to international opportunities.

Rather than hire rigs, Geodynamics decided to buy its own to ensure availability, although it had planned to lease Rig 200 until it was ready for an intensive drilling campaign for its 25MW demonstration plant.

The investment raised eyebrows at the time, but it was a decision reflected the buoyant outlook for the industry at the time. But the mood in the sector is much more somber, reflected in the share prices – which for nearly all companies are at record lows – after a series of drilling disappointments and delays.

The timing of the demonstration plant also now seems up in the air, particularly after its recent announcement that it had failed to agree on a work program with its joint venture partner, Origin Energy, to get to the initial 1MW pilot plant near Innamincka.

So, Rig 200 goes to the oil and gas industry, and a likely campaign of drilling for coal seam gas – a reflection of how the fortunes for two energy sectors have turned on their heads in the last few years.