NEW FEDERAL RULES FOR GEOTHERMAL LEASING AND PERMITTING Utah Geothermal Working Group Meeting Salt Lake City March 14, 2

1. NEW FEDERAL RULES FOR GEOTHERMAL LEASING AND PERMITTING Utah Geothermal Working Group Meeting Salt Lake City March 14, 2007 Kermit Witherbee and Al Mckee

2. 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. *

3. 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. *

4. 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.

5. 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.*

6. Acreage Limitations Maximum lease: 5,120 Acres. * State total acreage: 51,200 Acres. *

7. 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.

8. Annual Rental Per Acre Existing Proposed Lease Type 1st Year 2nd – 10th year 11th year on Competitive $2 $2 $3 $5 Non-Competitive $1 $1

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

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

11. Rental and Royalty Payments Proposed – Direct Use Direct Use Fees Payment Royalty Rental (competitive) (non competitive) Before Production Well Capable of Production Actual Production Time

12. Rental and Royalty Payments (con’t) Rental can be credited towards royalty Direct use fees are paid in addition to rental

13. Royalty Rates Proposed Existing Electrical Generation (lessee sale of electricity) Direct Use 11th year on 1st 10 years 10 – 15% of Value of Heat or Energy 1.75% of Gross Proceeds from Sale of Electricity 3.50% of Gross Proceeds from Sale of Electricity MMS Fee Schedule Electrical Generation (lessee sale of resource) 10% of Gross Proceeds from Sale of Resource

14. Royalty Rates – Lease Conversion Existing with Conversion* Existing Electrical Generation Direct Use 10 – 15% of Value of Heat or Energy X% of Gross Proceeds from Sale of Electricity (revenue neutral rate established on a case-by-case basis) 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

15. 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

16. 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

17. 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

18. Qualified Expansion Project Requirements 12 Minimum 5 years of data Production Incentive 10 8 Reservoir trend Net Generation Rate, MW 6 4 QEP in commercial operation 10% 2 0 0 5 10 Time, years

19. Application of Production Incentive for QEPs 6 5 Net Generation, GWh 4 3 Jan Feb Jul Aug Mar Apr May Jun Generation subject to full royalty Generation without QEP 10% target increase Generation subject to 50% royalty