Battling the Blue Mountain blues

Nevada Geothermal Power, operator of the Faulkner 1 geothermal plant at Blue Mountain, is working its way through a plan to increase power generation and lessen declining geothermal water temperatures at the facility west of Winnemucca.

NGP, based in Vancouver, also is working to restructure $91.3 million in mezzanine financing with EIG Global Energy Partners. Declining hot water temperatures led to a decline in power production at the Faulkner 1 plant, and in December Nevada Geothermal Power missed its scheduled loan repayment obligations to EIG Global Energy Partners. The company has engaged Canaccord Genuity as a financial advisor to assist in its debt restructuring plans.

NGP also owes $91.7 million in senior financing to John Hancock Life Insurance a loan that still is in good standing, says Paul Mitchell, investor relations manager with NGP.

To correct the problem of declining water temperatures, Vancouver-based NGP has proposed a $20 million drilling program for three new wells.

Two of the wells would serve as injection wells, while the third well would be an additional production well that could boost total power generation at Faulkner 1 to 53 megawatts, up from 49.5 megawatts. The plant currently is running at about 90 percent capacity, Mitchell says, and is producing 42 to 44 gross megawatts.

The plant is placing about 34 net megawatts on the grid after drawing a portion of its output to run the Faulkner 1 facility.

Nevada Geothermal Power ran into problems at its Faulkner 1 power plant in 2011 when it discovered that its injection wells, which return depleted cool water into the ground to be reheated and reused by production wells, were drilled too close to the plant's production wells. The returned cool water did not have time to be sufficiently reheated, and power production was expected to continually decline.

Once the problem surfaced, NGP placed three existing unused wells into service in an attempt to correct the situation.

Two of the wells have resulted in a lessening of temperature declines, Mitchell says, while the third well appears to be disconnected from the current geothermal production zone.

Last year NGP retained Engeocon LLC of Reno to study how it could better use the geothermal fluid flow system at the site. Last week Nevada Geothermal Power proposed a plan to drill three new wells at the northeastern end of the Blue Mountain production zone.

Publicly held Nevada Geothermal Power is seeking funding to undertake the $20 million drilling program, Mitchell says. Raising capital may prove challenging, however. Nevada Geothermal Power's stock has taken a beating on the TSX-Venture Exchange, shedding nearly 90 percent of its value over the past year. Last week the stock hovered at around 8 cents, down from a 52-week high of 71 cents.

"We are trying to positively affect the temperature decline by moving it away from the production zone," Mitchell says. "The more accurately (the new injection wells) can be placed, the more that will help us generate more electricity and more revenue.

"That study formed the basis for our current management strategy and gives us some new targets that are northeast of the existing well field. If that is successful it will really help our company. If we are producing over 42 megawatts net power delivered to the grid it will really increase our revenue."

The plant, which sells its production to NV Energy, was placed into service in October 2009.