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 Type1 st Year2 nd – 10 th year $2 $1 $2 11 th year on $3 $5 $1 ProposedExisting

Rental and Royalty Payments Before Production* After Production* Rental $2/acre Minimum Royalty Actual Royalty Before Production After Production Rental Actual Royalty or Fees Existing: Proposed: *Production includes a well capable of production

Existing Rental and Royalty Payments Before Production Well Capable of Production Rental Minimum Royalty Payment Time Actual Production (competitive) (non competitive) Actual Royalty

Rental and Royalty Payments Before Production Well Capable of Production Proposed – Electrical Generation Royalty Payment Time Actual Production Rental (competitive) (non competitive) Royalty

Rental and Royalty Payments Before Production Well Capable of Production Proposed – Direct Use Royalty Payment 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 1 st 10 years 11 th 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 from Sale 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 GenerationDirect 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

% Minimum 5 years of data QEP in commercial operation Net Generation Rate, MW Time, years Production Incentive Reservoir trend Qualified Expansion Project Requirements

JanFeb MarAprMayJun JulAug Generation without QEP 10% target increase Generation subject to full royalty Generation subject to 50% royalty Application of Production Incentive for QEPs Net Generation, GWh