Rockin' Slugcatcher gets all steamed up

NERVES are starting to fray on the stock market as crunch time looms for Australia’s bold experiment in geothermal power.

Over the past three weeks the share price of Geodynamics, the company drilling deep holes to tap hot rocks in the middle of South Australia, has slipped by 13%, one of the steepest declines on the overall market, and the first time there have been more sellers than buyers in the market.

From $1.71 as recently as November 8, Geodynamics has eased back to $1.48. The decline may be the result of a recent $14.2 million capital raising, and it may be just a temporary setback since the stock been a bit of plaything, especially among Adelaide-based speculators who love the theory of discovering the equivalent of 50 billion barrels of oil in their backyard.

Slugcatcher shares their enthusiasm for the 50 billion barrels which, at current oil price is worth around $US2,500,000,000,000 – or $US2.5 trillion, a truly delicious-sounding number.

But, Slugcatcher has never really shared the unbridled optimism for a concept which sounds so simple, but which has always seemed to be closer to science fiction than science fact.

For anyone not familiar with what drives Geodynamics, and a handful of copy-cat geothermal power plays, there is a theory which says that by pumping cold water down to very hot (and very deep) rocks you can create (very) hot water, which is then drawn to the surface, converted to steam, pushed through a turbine, and hey presto, you have a squillion watts of electricity.

Said quickly, and with a straight face, and by sticking to the theory – it sounds terrific.

However, the proof of this particular pudding, is close to coming out of the oven as drilling nears its final depth, and a few nervous nellies are starting to show a little bit of concern about four issues:

- recent troubles in the hole, including a lost drill string.

- a change in plan from a three well program to two wells.

- rising costs which led to the $14.2 million capital raising.

- Woodside Petroleum opting out of the capital raising.

In the interests of being fair-minded, Slugcatcher will withhold final judgment on Geodynamics’ bold plans for the twin holes it calls Habanero No.1 and No.2 – mainly because it may all work splendidly, and no-one wants to be seen as a doubting Thomas.

But, the truth about hot rocks theory is that it requires an awful lot of things to go just right for it to work, and the missing Habanero No.3 is a sign that all has not gone quite to plan.

Having said that, Slugcatcher quickly adds that no-one doubts that rocks at depth are hot. You only have to go down a deep goldmine to discovery how hot. No-one doubts that if you splash cold water on very hot rocks it produces steam.

The perils in the “hot rocks to electricity theory” lie in the deep drilling itself (first problems already encountered), getting water to flow between a cold water inlet hole and a hot water outlet hole (yet to be proved), getting enough water to flow to produce a meaningful amount of steam (a seriously big test), and working out how the finances work with questions such as how many holes will be required, how hot are the rocks, will they stay hot, and things like that.

Slugcatcher continues to wish Geodynamics every success but reckons that the non-participation of Woodside in the latest capital raising was an ominous sign simply because it would have been such a small amount of money for an oil company stuffed with cash.

What appears to be happening at Woodside is that the new chief executive, Don Voelte, is more interested in the certainty of oil and gas and less interested in scientific experiments which may, or may not, become a business.

After years of talk and promise, the next few weeks will show whether Voelte’s instincts were right, or whether hot rocks geothermal power has a future.

Fingers crossed.