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HomeMy WebLinkAboutMount Spurr Geothermal Project Final Report for 2010 - Jan 2011 - REF Grant 7030018Mount Spurr Geothermal Project - Final Report for Year End 2010 Prepared by: 4RNI 46, LLC 6225 Neil Road Reno, Nevada 89511 For the Alaska Energy Authority Pursuant to Grant Agreement Number 7030018 January 1, 2011 11Page ORMAT'a '. ia% Table of Contents ExecutiveSummary............................................................................................................... 3 BasicProject Information...................................................................................................... 4 Section1: Land Use............................................................................................................... 9 Section 2: Permitting and Environmental Analysis.............................................................. 13 Section 3: Cost of Energy and Market Analysis.................................................................... 22 Section4: Simple Economic Analysis................................................................................... 24 Section5: Summary and Recommendations....................................................................... 25 Appendix A: Selected Photographs from the 2010 Exploration Activities ............................. 27 2 1 P a g e 5 Executive Summary ORNI-46 LLC, a fully owned affiliate of Ormat Nevada Inc, (jointly referred to in this document as "Ormat") was granted a Round III Renewable Energy Fund grant to perform a staged reconnaissance and assessment of the geothermal resources on Mt. Spurr, located in the west Cook Inlet, some 80 miles west of Anchorage. The exploration program under the grant is two -phased for continued resource studies, assessment surveys and drilling. Phase I, completed during the summer and early fall of 2010, focused on non - intrusive geothermal exploration and subsequent drilling of two core temperature gradient holes. Phase II, planned for the summer and fall of 2011, will focus on additional drilling. During the summer of 2010, Ormat completed extensive exploration work, built on field reconnaissance work done in 2009 and desktop and other studies done beforehand. Work performed in 2010 included geologic mapping; rock/soil sampling; geochemical sampling; a ground -based gravity survey; a ground based Magneto -Telluric (MT) survey; an airborne magnetic survey; airborne LiDAR and satellite -based digital imaging. Analysis and synthesis of the data collected, along with previous geologic information and models, resulted in the generation of seven core -hole targets, two of which were later on drilled. Core -drilling of well 62-2 (a.k.a Lower Chaka — R) was completed to a depth of 822 feet. Rigging -up occurred from September 2 through September 4, 2010; the hole was spudded on September 5 and was completed on September 18, 2010. Core -drilling of well 67-34 (a.k.a Upper Chaka — R) was completed to a depth of 1000 feet. Rigging up occurred from September 19 through 21, 2010; the hole spudded on September 21 and was completed on September 29, 2010. Although weather hampered some efforts, the overall findings are encouraging. Structural models were confirmed within the two core -holes via intersection of several fault zones with extensive, fracture - hosted hydrothermal alteration documented at very shallow levels. Anomalous (albeit low) temperatures were found as was encouraging chemistry, although deeper wells will be needed to determine subsurface temperature gradients, permeability and thus a viable geothermal reservoir. Nevertheless, confirmation of faulting coupled with extensive alteration, geothermal -indicative chemistry and anomalous temperature continues to indicate geothermal potential at -depth. Ormat recommends moving forward with the exploration work as planned, with additional, deeper core holes (a.k.a slim holes) in 2011 and, if results are encouraging, drilling the first full-size geothermal production well in 2012. 3 1 P a g e Basic Project Information Project Location The Mount Spurr geothermal project is located on geothermal lease tracts acquired from the State of Alaska in the Mt. Spurr Geothermal Lease Sale No. 3 on June 16, 2008 (see 4(Page The leases are located approximately 80 miles west of Anchorage on approximately 35,806 acres at Mt. Spurr (see Figure 1 and Figure 2), There are three main areas of exploration interest at the project, termed the Western, Central, and Eastern regions. All three regions were surveyed for geologic, geophysical, and geochemical properties. Site Access The project lies in a roadless region, 30- 40 miles west of the nearest infrastructure at the villages of Tyonek or Beluga. As such, a portion of the exploration conducted in 2010 was air -based in order to reduce the time spent on an expensive, remote ground -presence. Ground -based surveys, mapping, and sampling activities were serviced from both Beluga and Tyonek, while the actual work was performed from a temporary, remote base camp set up within the lease area, and serviced by helicopters. 5 1 P a g e z r 7 Track Number Section Township Range Meridian 001 35 and 36 14N 16W Seward 1 and 2 13N 16W Seward 002 33 and 34 14N 16W Seward 3 and 4 13N 16W Seward 003 31 and 32 14N 16W Seward 5 and 6 13N 16W Seward 004 35 and 36 14N 17W Seward 1 and 2 13N 17W Seward 005 33 and 34 14N 17W Seward 3 and 4 13N 17W Seward 006 31 and 32 14N 17W Seward 5 and 6 13N 17W Seward 007 11, 12, 13, and 14 13N 16W Seward 008 9, 10, 15, and 16 13N 16W Seward 009 7, 8, 16, and 17 13N 16W Seward 010 11, 12, 13, and 14 13N 17W Seward 011 9, 10, 15, and 16 13N 17W Seward 012 7, 8, 17, and 18 13N 17W Seward 013 21 and 22 13N 16W Seward (partial) 014 19 and 20 13N 16W Seward (partial) 23 and 24 13N 17W Seward 015 1 19, 20, 21, and 22 1 13N j 17W I Seward Table 1 geothermal leases - legal description 6 1 P a g e 3. O N to I p, cuboom t J AI - j �' �t iy �.♦///1� Ann still min - Y f :S t f - •.� i)1 ttoo sons Kin cC C7 � m C7 O O m m y m u} o N.MDZ"9 AMOL59 N,AxOM a) UO 4 IZ KQRbR1q= Section 1. Land Use The purpose of the exploration was to locate areas within the leasehold where a geothermal resource can be recovered. In addition, when selecting where to focus the exploration efforts, priority was given to areas that appear more feasible for future permanent site access (e.g. a future permanent road), should a power plant and a geothermal well -field eventually be constructed, and that are outside of the zone of greatest known volcanic.hazard. This first phase of the project included both non -intrusive exploration and the drilling of two shallow core holes (62-2 and 67-34), out of 7 potential target that were selected. See Figure 3 for a map of well targets. Exploration Summary Exploration at Mt. Spurr progressed on -time and on -track in 2010 with the proposed program submitted and approved through the various state agencies. Air -based geophysical surveys (hell-mag), ground - based geophysical survey (gravity and Magneto -Telluric), remote sensing (satellite spectral and airborne LiDAR), ground -based geochemical sampling, ground -based geological mapping and groundtruthing were all completed during this field season. In addition, two temperature gradient core holes (sited based on preliminary geophysical and geological results) were completed in the eastern exploration region; 62-2 to 822' and 67-34 to 1000'. The geophysical data, while only partially analyzed at this point, were coupled with sub -meter, high resolution elevation maps (from LiDAR) to create our current working model of the Mt. Spurr system. Structure (faults and fractures) has been mapped on the basis of these maps and has added to the current structural maps created from satellite interpretation and field -based mapping. In addition, several potential, previously unknown volcanic features have been delineated in these combined datasets. Delivery of the additional geophysical interpretation, expected in early 2011, will serve to further define these features. It is likely that one or more of these potential new volcanic features will be targeted in 2011 drilling. Ground Mapping and Sampling Surveys Exploration began with ground -based geologic mapping and aquatic geochemical sampling surveys late in the summer of 2009 and continued into the late spring and early summer of 2010. The geologic mapping was initially guided by original geologic maps (Nye and Waythomas, 2005) and by satellite - based high -resolution images. 91 Page Two separate field campaigns were carried out with the goal of further defining structure in the field (faults, fractures, highly altered rock) and continuing geochemical sampling to characterize resource temperature at depth. Geophysical Surveys Heli-bourne magnetic data was acquired over a period of approximately 1.5 months in July -August 2010. Ground -based gravity and MT data was collected in the same time period and is currently still in post - processing. These surveys were intended to 1) better elucidate structure in the Mt. Spurr region and 2) attempt to identify deep anomalies potentially coincident with magma and/or geothermal reservoirs. In summary, the geophysical surveys greatly enhanced our understanding of subsurface structures. Our model is still evolving; drilling data from September and final geophysical results from the gravity and MT (expected in January 2011) will be synthesized into current models and undergo further analysis. This next -generation geothermal model will be used to site core -holes for 2011 drilling. Remote Sensing Satellite -based multi -spectral data (historical data from 2005) was acquired in this 2010 timeframe and analyzed. Plane -based airborne LiDAR was collected in late August of 2010 and delivered in early October of 2010. Approximately 160 km2 of 0.2 cm spot -spaced LiDAR was collected over two days. The unprecedented resolution of the digital elevation model will aid in further precise processing of geophysical data. Due to its active electromagnetic nature, LiDAR can `see through' tree cover and capture the terra firma below. The combination of this data with the hell-mag has guided our initial siting of 2011 core -holes. It is currently being used for correction of the gravity and MT datasets. The completion of this work will provide the final pieces for our geothermal modeling and for our well -siting. While the hyperspectral and high resolution digital imaging survey had to be cancelled/postponed due to weather, we did use the archival Quickbird 0.6 m color/near-infrared satellite imagery (mentioned previously) for geologic base maps and logistical/drilling base maps. If warranted, a hyperspectral survey will be attempted again for the summer of 2011. It is clear from ground -mapping and the spectral core logging performed that there is significant hydrothermal alteration within our area of interest. Temperature Gradient Drilling Program Our core -hole drilling in 2010 targeted areas that would be most illuminating in our evaluation of subsurface structures. The first location, 62-2 intersected and confirmed modeled, hydrothermally altered fault zones at very shallow depths. The second location 67-34 revealed additional information to be used in modeling for our next drill targets. Anomalous temperatures were measured in both core holes. Although the highest temperature measured was sub 80'F, the temperature data, along with the 101 Page shallow gradient are actually anomalous for large, ice -laden stratovolcanoes, which channel extreme amounts of cold water through their flanks. 111 Page 4A Section 2; Permitting and Environmental Analysis Permitting For permitting purposes the 2010 exploration was broken down to two phases, "phase 1" covering non - intrusive exploration, primarily ground -based MT and gravity surveys, and "phase 2a" covering temperature gradient core drilling. All exploration activities depicted in this report were conducted in accordance with the following authorizations and permits: ADNR Division of Oil and Gas - Lease Plan of Operations • Approval No. LOCI 10-002 issued on July 2, 2010 for Phase 1 • Approval No. LOCI 10-005 issued on August 23, 2010 for Phase 2a ADNR Division of Mining, Land, and Water -Temporary Water Use Permit (TWUP) • Permit No. TWUP A2010-98 issued on August 31, 2010 • Request for 2 year extension of Permit No. TWUP A2010-98 on October 27, 2010 (pending approval) ADF&G Division of Habitat - Fish Habitat Permit • Permit FH 10-II-0206 issued on August 31, 2010 ADEC Division of Environmental Health - Temporary Waste Storage • Approval issued on September 3, 2010 ADEC Division of Environmental Health - Camp Permits • Permit No. 777770093 for Camp 1 location issued on July 13, 2010 • Permit No. 777770094 for Camp 2 location issued on July 13, 2010 • Permit No. 77777009E for Lower Camp location issued on July 13, 2010 • Permit No. 777770096 for Mid Camp location issued on July 13, 2010 • Permit No. 777770097 for Upper Camp location issued on July 13, 2010 AOGCC - Permit to Drill • Permit No. 210-117 for Lower Chaka-R 62-2 issued on September 3, 2010 • Permit No. 210-118 for Kid Canyon 37-9 issued on September 14, 2010 • Permit No. 210-098 for Upper Chaka-R 67-34 issued on September 21, 2010 Environmental analysis, including Infrastructure and Hazard Assessment, Models and Plans In order to protect the pristine nature of the area around Mount Spurr, great effort was undertaken to mitigate the presence of the exploration team and leave the area the way it was before we entered it'. 131Page This included compliance with all Mitigation Measures and Lessee Advisories outlined in the Mount Spurr Geothermal Lease Sale No. 3 Final Finding of the Director released by the Alaska Department of Natural Resources, Division of Oil and Gas on June 16, 2008. These measures, for which Ormat has complied, ensure that the exploration activities will not leave permanent impacts on the land. No permanent infrastructure was built. During the exploration program, equipment and project personnel were transported approximately 40 miles from both Beluga and Tyonek to the Mt. Spurr Project lease area and temporary camp by helicopter. Helicopter support consisted of a single engine turbine six passenger helicopter certified for VFR operations. An aviation small fuel cache was established at the temporary camp within the lease area as alternative fuel sources for helicopter operations. The fuel cache was designed with secondary containment in accordance with ADEC regulations. The storage of containers with an aggregate storage capacity of greater than 55 gallons that contain fuel or hazardous substances were placed at least 100 feet or greater away from a water body or further than 1,500 feet of a drinking water source. The project site was protected from leaking or dripping fuel and hazardous substances during equipment storage and maintenance by the placement of drip pans and other surface liners designed to catch and hold fluids under the equipment, and by creating an area for storage or maintenance using an impermeable liner. During fuel or hazardous substance transfer, secondary containment or a surface liner was placed under all container or helicopter fuel tank inlet and outlet points, hose connections, and hose ends. Appropriate spill response equipment (spill kits) sufficient to respond to spills of up to five gallons was on hand during any transfer or handling of fuel or hazardous substances. Trained personnel attended transfer operations at all times. Helicopter refueling did not occur within the annual floodplain. All independent fuel and hazardous substance containers were marked with the contents and the Ormat's or contractor's name using paint on a permanent label. The aviation vendor provided safety briefings for all project personnel regarding all flight operations Wildlife habitat Ormat prepared a Bear/ Wildlife Interaction Plan as part of its Lease Plan of Operations for its Phase 2a Mt. Spurr Geothermal Exploration TG Drilling Project. The objective of the Bear / Wildlife Interaction Plan was to ensure that the effects from the Phase 2a Mt. Spurr Geothermal Exploration TG Drilling Project on wildlife and wildlife habitats within the project area would be minimized, Practices and procedures aimed at preventing, minimizing or mitigating potential adverse effects of the project on wildlife and wildlife habitats are outlined below. This plan focused on species of interest that were identified during the environmental assessment process. Species of interest which specific mitigation measures have been developed for their habitat or protection include grizzly bear, golden and bald eagles, and migratory birds. Other species such as 141 Page moose, wolverine, black bear, ground squirrels, red fox, mountain goats, resident birds, and Dail sheep are considered using generalized mitigation measures. The following regulations apply to the wildlife and wildlife habitats within the project area. Migratory Birds Under the Migratory Bird Treaty Act (MBTA) (16 U.S.C. 703), it is illegal for anyone to "take" migratory birds, their eggs, feathers or nests. "Take" includes by any means or in any manner, any attempt at hunting, pursuing, wounding, killing, possessing or transporting any migratory bird, nest, egg, or part thereof. In Alaska, all native birds except grouse and ptarmigan (protected by the State of Alaska) are protected under the MBTA. The destruction of active bird nests, eggs, or nestlings can result from mechanized land clearing, grubbing, and other site preparation and construction activities and would violate the MBTA. Eagles Bald and golden eagles are protected under the Bald and Golden Eagle Protection Act (BGEPA: 16 U.S,C. 668-668c). All parties working in the vicinity of eagles are responsible for avoiding the taking, "at any time in any manner (of) any bald eagle ... or any golden eagle... or any part, nest or egg thereof' (16 U.S.C. 688a). "Taking" is defined as to, "pursue, shoot, shoot at, poison, wound, kill, capture, trap, collect, molest or disturb" (16 U.S.C. 688a). During the nesting period (March 1 through August 31), eagles may be sensitive to noise and obtrusive human activity in the vicinity of nest sites. Eagle nests occurring in the vicinity of any project component, including borrow sources, roads, staging areas, etc. must be identified. Bears Under Alaska State Regulations, "you may kill game animals in defense of your life or property if you did not provoke an attack or cause a problem by negligently leaving human food, animal food or garbage in a manner that attracts wildlife and if you have done everything else you can to protect your life and property." In addition, baiting and feeding bears and other wild game by photographers, tourists, hunters or others is prohibited by regulation (5 AAC 92.230) except for trapping furbearers or hunting black bears consistent with regulations on black bear baiting [5 AAC 92.085(4)]. General Wildlife Mitigation A number of general mitigation measures have been proposed to limit the effects of the project on wildlife. These policies and practices were applied throughout Phase I activities of the Mt. Spurr Geothermal Project and are aimed at minimizing or preventing wildlife problems through the training of employees, management of food and garbage, treatment of problem animals, and establishment of procedures and policies on wildlife management. These general mitigation measures included the following: All company and contractor personnel were required to complete awareness training. The training program was designed to inform each person working on the project of environmental, 151Page sn: !•xis cultural, and social concerns and to ensure that personnel understand and use techniques necessary to preserve geological, archeology, and biological resources. In addition, the program was designed to help personnel increase their sensitivity and understanding of the community values, customs, and lifestyles in the project area. • Additional specialized training was provided to employees as needed, including permit compliance requirements. • Any activities, including camp set up, did not occur within 500 feet of any fish bearing waterbody. • Project personnel were instructed not to feed wildlife of any type or in any other way attempt to attract or harass animals or birds. • Food was kept inside wildlife proof containers that minimize odors. Any grease, oils, fuels, or antifreeze stored on -site was stored in bear -proof areas or containers. • Waste was reduced, reused, or recycled to the maximum extent practicable. Garbage and domestic combustibles were incinerated daily or hauled daily whenever possible to an approved site in accordance with 18 AAC 60. • Dogs, other than those used to assist in bear control, were not allowed on site. • Personnel avoided all interactions with wildlife unless crew safety as at risk. • Firearms were used on -site by authorized personnel only (Le., bear monitors). Personal firearms were not permitted on -site. • No hunting or fishing by project personnel was permitted, Personal fishing gear was not permitted on -site. • Birds, nests, and eggs were left intact. No active nest was directly near or in the path of the construction work, otherwise a no -work buffer zone would have established and crews would have worked in another area until birds have vacated the nest. • Surface entry was avoided within one -quarter mile of trumpeter swan nesting sites between April 1 and August 31. Observations Migratory Birds: Ormat personnel did not observe any bald or golden eagle nests during the 2010 operations. The USFWS conducted aerial surveys on September 8, 2010, within 5 miles of the existing project site to document the presence/absence of golden eagles in potential nesting habitat. No bald or golden eagle nests were observed during the survey. One unidentified eagle (an immature) was observed flying in a gorge about 1.5 miles NE of current drilling operations. USFWS did not recommend a second survey for spring of 2011 since the project appears to have minimal potential for disturbance 161Page to nesting eagles due to: 1) disturbance associated with the type of work is anticipated to be minimal, and 2) lack of nesting eagles in the area. Cultural and Historical Sites No cultural or historic sites were encountered during the 2010 operations. Hazard Assessment INHERENT MT. SPURR HAZARDS Mt. Spurr is a stratovolcano in the Aleutian Volcanic Arc of Alaska, named after United States Geological Survey geologist and explorer Josiah Edward Spurr, who led an expedition to the area in 1898. Mt. Spurr possesses numerous sources of geologic hazards. See Figure 4 below for a summary hazard map taken directly from the USGS/AVO `Preliminary Volcano -Hazard Assessment for Mt. Spurr Volcano, Alaska' [Open -File Report 01-482]. Our potential base camp location is indicated by the red oval. 17[Page U.S. DEPAMIENT OF TLI[ INTCAR)e U.S. GEOLOGICAL. SURVEY ORMAT'gy OPEN -FILE R[POnT O S-402 Pfa I }dq;nl Snvm antl Cnwr Pa]M. sfa:.vY3 swan yN-e CaPr Pbxk xas ixeX br teSa:lrq 1 �3]aru[wN Vnrcrinxatl+roN.nsf NOTE ABOUTVOLCANO HAZABO ZONE BOUNDARIES rha PrEl P60—aGyl:l. itearrnw I'm�s Vr[` rz 1A]N .vawasmc „sd µ,N II LMP aupl�eM1401 R1eunl54aa'a rok.un 4am cravr RP]re4anL Plm r4]teleS aBarea. al A•h Xom v�uu. 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Md�„ms s�aentna rA]aCe•,sR'salsaniv ✓iWsgW4 IhP C.ya0 qh3 Wg rdyrkaeuaeP]a'arcrrn'ardro[NYI, Sashv9rtl tF va ce aa�I4w.naasans VOLCANIC -ASH HAZARDS Ha I4 •w xarn drwl:aaa<a>ei 14 i-slf u m• s nner ro d+e wrkl a asn hlou€a recelu ent�Ea'raa CIrTn, r4yW rid char Cen3 rrwtwk, s iM cpcui. vva ola:h luFon Wpa.-.rls �n ry Praaarf><.ruY tFr- Hledl•yrp gsnaro')r hum 5'revs3i, afh P4+mw tW4) rrsv na h:ynl a ss,cao nlHe� �rmo� a,.Tn.�a a�,n aAwr-wna a• nsn,o- we Iran. raR�n. a.<r en:n,e+rsnany swe.rsa ,�-tnnx. asn 4,wia [3 Aaurv�s u a�rarrmr� mess axumini Isnm nO,yY,nXa rnK. rff.4au -' �. x -Nvv v sn a r�wir ar._ V.. xr y:p:rca ' u 4 to r5 r54Rf_ti r)!rRLY.IFr[R5 .. Ltraax x.:z•+il relater. r. )<naao lean WM,�v� �� EXPLANATION Mom; LAHARNAZARDS YYRa CLASTIC-SLOLV "}r".'^= 4' •)•'r .....:..�.. r F. .... -:. z �rvr.= .. _. r.a. <•rc w.•s: AND PYROCLASM-SURGE WARDS fin. r;....y,..rvor.z.zeu.aa»'r•ax�a,:.. ,...: r... +'? I.,,,,,sa.a �. e�..�>v.lr�... ____. .. 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I L • - oh r..,ixA snL[a.4tanscr..uma. llmaaaxssaraaunfas Is. - ryerdau<utswnler.rrrY �Y4i..fry r�4 ............. aEBRfS'AVALANCHE HA2AR05 LATERAL -BLAST HAZARDS CAr•I[ •• " --.�,•..... a>ar. ,a �,>,..,,,, >•.. r � . r, .:ra.do.." w vrr.a 4 ,. ... n.,,.zr. r ..,., .. .R. rb ,r. - ,Aa.. n r >�t pxau(;We•krt se �Y.{ab nsxW.fa.Irnn Ci9rr 4'Nxlsr arf-X] """"" , N'r,+ •d YYrF ae ynlvml.tiap�::a.�u�nr)rpy wr:eeoutrlgaa[I.Ibmsw Wa4«ym TNs Xanvd W nl.ryd.nV alecasHurh .r.�.+a 4mmbYr vrwreal titre ar rsrrfm M1au (:rrw Puat In Nl.-er Vwr9fMl.wfom Xd.YY1 MnYNe.eoaxm.truual<aarL nrmar.ss ran a r+am rr iJhuw lieraln ties q1I'- 1;-::;s r ; PRELIMINARY VOLCANO -HAZARD ASSESSMENT FOR MOUNT SPURR VOLCANO, ALASKA by y Christopher F. Waythomas and Christopher J. Nye 2002 Figure 4: Volcano Hazard Assessment for Mt Spurr (Waythomas & Nye) uG s omerr for? dar.gfi4�,v rld 181Page Volcanic hazard that could affect Ormat's operations include: VOLCANIC ASH — Hazard from ash clouds include not only the fine particles lofted into the atmospheric column, but the threat of large fall -out volumes onto the flanks. Some of this fall -out may also be larger diameter (-8cm-2m) volcanic bombs more proximal (several kilometers) to the vent. LAHARS, RUN0UTS AND FLOODS — Lahars are fluidized rock and soil from the flanks of the volcano that are mobilized during eruptions due to interaction of flank snow and ice with hot erupted material. These types of debris flows generally run down previous drainages but can also lead to damming and thus eventual flooding. Lahar deposition at Mt. Spurr may reach 20-40km east of the edifice. DEBRIS AVALANCHES —Rock and soil mobilized due to flank collapse. These avalanches generally occur during eruptive phases however collapse can occur during quiescence due to slope instability from weakened flank rocks (due to longterm hydrothermal alteration of the edifice). Debris avalanches may reach between 15 and 30 km east or west of the edifice. PYROCLASTIC FLOWS —A mix of very hot (several hundred degrees Celsius) volcanic debris and gasses that travel down -slope from the vent; higher gas volumes leads to great velocities. Pyroclastic flows at Mt. Spurr could reach upwards of 20-25km distant from the edifice and would be lethal to anything in their paths. DIRECTED BLASTS —These blasts are a direct result of total flank failure (that uncaps the internal vent system) in a particular direction similar to the well-known Mt. St. Helens directed blast of 1980. While rare in the life of a volcano, one such blast has been documented for ancestral Spurr and thus is possible for the future of this edifice. A large directed blast could affect a radius of between 25 and 30 km from the edifice. LAVA FLOWS —Streams of lava tend to erupt from the vent after the initial explosive activity has paused or ceased. These flows tend to be slow moving (as compared to the gas -charged pyroclastic flows) and follow drainages. EARTHQUAKES — Mt. Spurr's location within the tectonic framework of the Upper Cook Inlet makes it susceptible to both volcanic and tectonic -induced earthquakes. While major events (greater than 6.0) are not known to occur regularly, events greater than 3.0 (that which can be reliably felt by humans) are common— especially during periods of unrest, pre -eruption and of course syn-eruption. Another source of geologic hazard unrelated to volcanism is simple SNOW AVALANCHFs. The large volume of ice and snow enjoyed by Mt. Spurr renders significant avalanche hazard to winter and spring- time operations down -slope from the steep southern faces of the Spurr edifice. RECENT ERUPTIVE HISTORY Ormat's geothermal leases are located immediately adjacent to Crater Peak, the currently active vent of Mt. Spurr that erupted historically in 1953 and 1992. The 1992 eruption covered the immediate area (including near where a geothermal plant might be located) in pyroclastic materials and debris flows or lahars). The 1992 eruption forcibly ejected large blocks up to 3.3 feet (1 m) across in a concentrated 191Page zone of fallout up to 1.9 miles (3 km) southeast of Crater Peak and blocks and bombs up to 6 miles (10 km) from Crater Peak vent. Explosive phases of the Crater Peak eruption sent ash and pulverized rock in an eruptive plume to more than 14 km (46,000 ft) altitude and during at least one explosive phase, ash was blown as far away as Manley Hot Springs, 264 mi (425 km) north of the volcano. As the eruption progressed, avalanches of hot debris cascading down the south flank of Crater Peak mixed with snow to form lahars that reached the Chakachatna River. Successive pyroclastic flows formed overlapping tongues of coarse debris that coursed down the slopes of Crater Peak and funneled into preexisting drainages. The farthest -traveled pyroclastic flows moved about 1.8 mi (3 km) from the crater rim, descending more than 3280 ft (1000 m) in elevation. ORMAT ExPERIENCE AND MITIGATION There are many geothermal power facilities worldwide located around or near active volcanoes and geothermal exploration has been performed in many of these settings by the geothermal industry. Ormat currently operates a 30 MW geothermal facility, operating since 1993, in a volcanically active area on the Big Island of Hawaii as well as plants near volcanoes at Momotombo, Nicaragua; Zunil and Amatitlan in Guatemala. We maintain contact with monitoring agencies in each of these locations (the Hawaiian Volcano Observatory [HVO] at our Puna plant in Hawaii and the in -country volcanological institutes in both Nicaragua [INETER] and Guatamala [INSIVUMEH]]. Although the risk of another Mt. Spurr volcanic eruption is not considered imminent, Ormat will plan for contingencies should volcanic activity intensify; volcanic systems and particularly those of the upper Cook Inlet, can be unpredictable and highly dangerous. Thankfully, the Alaska Volcano Observatory (AVO) monitors Mt. Spurr via several remote methods including a six-radio-telemetered seismic network (which is real-time and one of the best indicators of volcanic unrest), web -cam, satellite image analysis (twice daily for presence of ash or increased thermal flux) and field campaigns for geodetic signals (movement of the crust due to unrest), temperature and gas measurements. In the past, Mt., Spurr provided a several -week period of increased seismicity prior to eruption; this should give our crews plenty of time to respond and evacuate. Nevertheless, a procedure was developed for real-time monitoring, in synch with the AVO, and for rapid evacuation if needed. Our base -camps had a helicopter on stand-by at all times in case of such eventualities. With regards to avalanche hazard and other extreme weather, exploration work at Mt. Spurr was done primarily during months when the weather was more temperate. This is generally between late May and September. The base camp was established far enough away from the mountain to enable crews to ride out weather events at the exploration site, if and when they may occur. This includes potential avalanche episodes in the early spring. Though our leases rise to elevations of greater than 7,000 ft, much of our land to the south is at less than 1,500 ft. allowing for easier occupation of the site in all weather. In terms of health and safety, there were no reportable spills during the project and there were no injuries or accidents. A suspected unexploded ordinance UXO (rocket) was identified during project 20 1 Page camp construction on July 14, 2010. On site crews followed Ormat's Injury Prevention Plan including immediate notification to the appropriate U.S. Air Force base, resulting in a dispatch of a small demolition team to the site. The object turned out to be the remains of an exploded rocket and was removed.An incident report was provided to DNR. 211Page Section 3: Cost of Energy and Market Analysis The Mount Spurr geothermal power plant, if developed, would serve customers in the Railbelt. The Railbelt is unique among regions in the United States in that its cost curve for electricity and heat is highly dependent on one source of fuel, namely natural gas produced in the Cook Inlet. Thus, any easing to future supply disruptions in this source can potentially result in significant benefits that would not necessarily be experienced if such a project was located in the mainland U.S. Communities served by the Railbelt utilities are heavily reliant on natural gas resources produced in- state. On page 35 of the Mount Spurr Geothermal Lease Sale No. 3; Final Finding of the Director. Alaska Department of Natural Resources Division of Oil and Gas: June 16, 2008, the Alaska Department of Natural Resources concluded that "Although current electrical demand is largely met by natural gas, gas reserves are finite and eventually Southcentral Alaska will have to find another energy source. Geothermal development resulting from this lease sale could contribute to the area's future energy supplies. Additionally, introduction of a competing energy source in Southcentral Alaska may result in downward natural gas price pressure on local utilities." 30 25 20 10 j 0 Beltiga River Producers 12llar1 tholr Oil Co. l��°env CbuocaptulliPs Ct£t�n��cr Is�L���i�et�`oltunet 2009 :010 2011 2012 2013 2014 2015- 2016 Source: C1�t a h Long F mtvah�rai Gas Vu4nie, Forrrast. Apra 2j49 t pCite Irrage reproducer) front Chugach Electric Association, Gas Supply Contract with ConocoPhillips, 2009_ Figure 5. Cook Inter Natural Gas Production Figure 5 above demonstrates the forecast for supply shortages in Cook Inlet natural gas in the near future. The source is the Alaska Energy Authority - Alaska Fuel Price Projections 2010-2030. July 30, 2010: 221Page E: a http://www.akenergyauthority.org/RenewableEnergyFund/Round IV July 2010/Fuel _price projections evision fina1073010,pdf Natural gas production in the Cook Inlet is depleting rapidly, generating concerns over future supplies for both electricity and heating. By the time Mount Spurr will be available, natural gas supply may be in critical shortage. Thus, a 50-100 MW average, net to the grid, renewable base -load energy project will help bridge the gap and help stabilize energy prices by offsetting the need to use these natural gas supplies for electricity production and will free considerable amounts of natural gas for heating. In the final Alaska Railbelt Regional Integrated Resource Plan f RIRP) Study released in February 2010, Mount Spurr was the only geothermal resource considered as available to the Railbelt region. The report noted how the Railbelt in Alaska is unique in that it is removed from major domestic sources of natural gas, including the North Slope of Alaska, and mainland markets. Thus, options are limited for baseload power to Liquefied Natural Gas (LNG), hydro -electric, coal, municipal solid waste, nuclear power, or geothermal power. Intermittent sources such as wind and tidal are prospective, but require baseload generation to back them up. There is particular concern for how to accommodate significant amounts of wind into the grid, given that the Railbelt remains a relatively small market overall. Biomass is limited by biomass fuel stocks, which may not be available at economies of scale, and as a result, aren't analyzed in the report. LNG and nuclear power require significant cost, infrastructure, and time constraints. Hydro -electric remains site dependent and requires significant time constraints and initial capital costs towards development. The major hydro -electric project option, the Susitna Dam has its own environmental challenges, according to the report, and would cost between $4.1 billion and $10 billion and would take over a decade to complete. Coal-fired power plants remain an attractive option based on price, but environmental issues and the potential for environmental opposition and carbon pricing are a limiting factor. In the study, the estimated cost of wholesale power for any option will be $164.10/MWh to $206.80/MWh by 2025. That being said, at present the cost of electric power in the Railbelt is far lower than in rural Alaska, in a range closer to $100/MWh, although going up as -natural gas supply declines. With these kinds of estimates, Mount Spurr is in an advantageous position to provide baseload electric generation at the lowest end of the price scale. 231Page Section 4: Simple Economic Analysis Our updated preliminary cost estimates for a geothermal power plant indicate: • Size: 50 -100 MW net, on a yearly average basis • CAPEX: $5,000-$6,000 / kW • All inclusive O&M costs (incl. royalties, property taxes, etc): $35-$55/MWh • Target placement in service date: end of 2016 • Required power sales price: $120-$130/MWh Additional benefits to the Railbelt should this power plant be constructed: • Price is guaranteed, regardless of commodity prices (e.g. natural gas) for the lifetime of the power purchase agreement, expected at 25 years • This will we be a base -load plant that will help relieve the demand for depleting natural gas. The project will displace some $3,000,000 MMBtu of natural gas each year • Energy produced will be clean with near zero emissions, minimal surface and visual impact and will not consume water. The geothermal fluids will be 100% re -injected into the reservoir to ensure its sustainability • The stated power price includes the value of renewable energy credits and other green attributes • The plant will create over 100 jobs during construction and will create dozens of high quality permanent jobs in this rural part of Alaska 241Page Section 5: Summary and Recommendations Goals of exploration program Ormat had several goals in mind for the 2010 exploration program at Mount Spurr. At the time, we noted that existing reports, mapping and surveys on Mt Spurr (generated in the early to mid-1980's) utilized techniques not as sophisticated as could be applied today. We noted that geophysical surveys using modern equipment would provide a far more detailed picture of the subsurface geology. The historic Cook Inlet aeromagnetic maps (-1 km) were of insufficient resolution and historical gravity coverage in the Spurr region was little to non-existent. Electrical surveys (CSAMT) run in the early 1980's were an excellent start, but the technology in those days, and more importantly the modeling and processing power, were insufficient to properly characterize the sub- surface as is possible with today's tools. Modern geochemical surveys were also needed to better sample surface thermal features and derive information on potential geothermal reservoir fluids. Previously known geochemistry was performed over limited spatial extent and in many cases, with limited chemical species sampling suites. Nonetheless, similar thermal waters of mixed origin seen at Mt. Spurr occur on the flanks of many high - temperature geothermal fields in Indonesia. Ormat's goal was to create a new geothermal model based on advanced exploration techniques. This model was used to site initial core -holes for confirmation of resource. This same model continues to evolve and will be used for siting the remaining core -holes in 2011 and final confirmation or exclusion of a geothermal resource at Mt. Spurr. Execution of the exploration program In order to model the potential for a geothermal resource at Mount Spurr, Ormat pursued a rigorous exploration program throughout the summer of 2010. This exploration program is probably one of the most extensive geothermal exploration activities in the last two decades in Alaska. The activities were described in greater detail in Section 1. To summarize, the program included geologic mapping, rock/soil sampling, geochemical sampling, ground -based gravity, ground based MT, airborne magnetic survey, airborne LiDAR, satellite -based digital imaging, and two shallow core -holes to depths of 822' and 1000' respectively. What we found Although weather hampered some efforts, the overall findings are encouraging. Structural models were confirmed within the two core -holes via intersection of several fault zones with extensive, fracture - hosted hydrothermal alteration documented at very shallow levels. Anomalous (albeit low) temperatures were found as was encouraging chemistry, although deeper wells will be needed to determine subsurface temperature gradients, permeability and thus a viable geothermal reservoir. 25(Page Nevertheless, confirmation of faulting coupled with extensive alteration, geothermal -indicative chemistry and anomalous temperature continues to indicate geothermal potential at -depth. Recommendations Two additional core holes had been planned for 2010, but alas the weather and some initial drilling difficulties at well 62-2 made additional drilling impossible. However, we still managed to exceed our expectations and were able to drill targets that were valuable in evaluating our drilling program for 2011. We expect to drill at least two to three shallow core holes during the summer of 2011 and at least one core hole / slim -hole at a much deeper depth (-3000-4000 ft.). In summary, the exploration at Mt. Spurr proceeded extraordinarily fast in 2010, and though we are still analyzing the data and completing models, we are planning an equally aggressive drilling program in 2011 to test and verify our evolving models. Drilling in 2011 is expected to contribute significantly to our understanding of the geothermal potential of Mt. Spurr. Ormat recommends that the exploration program continues as planned with the suggested drilling targets discussed above. Additional processing of 2010 field and exploration data coupled with final results from the 2010 drilling will aid in siting the best targets for the 2011 core holes and slim holes plan. 261 Page ORMATO Appendix A: Selected Photographs from the 2010 Exploration Activities Photo 1: Mobilization of rig for well 62-2 via helicopter Photo 2: Close-up of rig at well 62-2 Photo 2: Camp at night Photo 3: Rig at 62-2 well pad with cuttings containment system 271 Page em ai � t' v S h } 3 .I4 iS }