power from theearth. - renu · served in the role for an interim period. dr hamilton will resume...

QUARTERLY REPORT PERIOD ENDING 31 DECEMBER 2010

power

from theearth.

Corporate Directory

BANKERWestpac Banking Corporation

AUDITORErnst & Young

SOLICITORDLA Phillips Fox

SHARE REGISTRYComputershare Investor Services Pty Limited GPO Box 523, Brisbane QLD 4001 Telephone Australia: 1300 552 270 Telephone International: +61 3 9415 4000 Facsimile: +61 3 9473 2500 Email:

SECURITIES ExCHANGE LISTINGGeodynamics Limited shares are listed on the Australian Securities Exchange. The home branch is Brisbane, ticker: GDY

This page: Rig 100 at Jolokia at sunset. Front Cover: Flow testing at 1 MWe pilot plant.

BOARD OF DIRECTORSMr Keith Spence (Non-Executive Chairman)Mr Geoff Ward (Managing Director and CEO) – from 31 January 2011Dr Jack Hamilton (Interim Managing Director and CEO) – to 30 January 2011 (Non-Executive Director) – from 31 January 2011Mr Banmali Agrawala (Non-Executive Director)Mr Pieter Britz (Non-Executive Director)Dr Prame Chopra (Alternate Director for Banmali Agrawala)Mr Bob Davies (Non-Executive Director)Mr Andrew Stock (Non-Executive Director)

COMPANY SECRETARY AND CFOMr Paul Frederiks FCPA FCIS FAICD

PRINCIPAL AND REGISTERED OFFICELevel 3, 19 Lang Parade, MILTON QLD 4064 Telephone: +61 7 3721 7500 Facsimile: +61 7 3721 7599

POSTAL ADDRESSPO Box 2046, MILTON QLD 4064

INTERNET

EMAIL

ABN55 095 006 090

2 GEODYNAMICS LIMITED Quarterly Report December 2010

Letter to Shareholders

Dear Shareholder

For my first quarterly report, I write to introduce myself and express the very great pleasure and excitement I have in joining the Geodynamics team during this key phase in the Company’s development.

Having worked in, and followed the energy sector for many years, I feel both excited and privileged to be working

for Australia’s leading geothermal energy developer, alongside a talented group of people who include some of the most experienced and advanced geothermal developers in the world.

My commitment is to deliver on our promise to shareholders of supplying the next generation of base load energy for Australia.

Our Cooper Basin acreage contains a world class resource with an estimated 230,000PJ of thermal energy in place with the potential to provide 7,000PJ electricity per annum. Recording the hottest temperatures suitable for Enhanced Geothermal Systems (EGS) development in Australia, it is a unique resource that has all the attributes to provide nationally significant emission-free base-load power to the Australian market. Demonstrating the commercial development of EGS will also establish Geodynamics as the leading global proponent of this technology.

Geodynamics has steadily built its operating experience through its deep geothermal drilling and hydraulic fracture stimulation programs. This has led to four wells reaching ~4,500m depth and most recently the hydraulic fracture stimulation at Jolokia 1. These wells have demonstrated that we have access to an extensive hot rock resource.

Substantial challenges are still present but the need for large-scale renewable energy has never been greater. As leaders in the field, we are continuing to push towards producing energy on a commercial scale, with immediate focus on the near term commissioning of the 1 megawatt (MWe) pilot plant, then an investment decision on the construction of a 25 MWe commercial demonstration power plant.

In addition to the potential of our flagship EGS project, our Cooper Basin tenements are also prospective for Hot Sedimentary Aquifer (HSA) geothermal potential. This “Shallows” opportunity is an exciting development for our Company in that it provides another source of geothermal energy that may have significant complementary benefits for our EGS (or “Deeps”) project and the overall development of renewable energy from the Cooper Basin. I look forward to the results of the planned exploration campaign that is being operated by our Joint Venture partner, Origin Energy, through the early part of this year.

As the incoming Managing Director, I would also like to take this occasion to thank shareholders for supporting the Company in its recent Share Purchase Plan offer. In the coming months, I look forward to meeting with the investment community and together with the Board and Executive Team, driving program delivery and company performance to achieve the best possible shareholder value.

Finally, I’d like to thank Dr Jack Hamilton for his guidance of Geodynamics as Managing Director and CEO for the interim period and his insight as part of the CEO transition program.

I hope you find this quarterly report informative. As always, if you have any questions these may be directed to our Investor Relations team via , by phone on +61 7 3721 7500 or mail.

Thank you for your continued support.

Regards

Geoff WardManaging Director and Chief Executive Officer

Quarterly Report December 2010 GEODYNAMICS LIMITED 3


HIGHLIGHTS

Geodynamics reports on the Company’s activities during the December 2010 quarter.

Activities during the quarter focused on operations in the field at Jolokia 1 and preparation from the Innamincka ‘Shallows’ Joint Venture exploration program. The Company appointed a new Managing Director to lead it through the current development phase.

The Company’s cash position at the end of the quarter stood at $44.5 million.

ReviewOf the DeCeMBeR quaRteR

following is a summary of highlights from the quarter:

Successfully completed the Jolokia 1 well with installation of casing liner from surface to total depth of 4,320 m.

Undertook the hydraulic fracture stimulation program at Jolokia 1, successfully establishing fracture initiation across two intervals at depths of 4,400 m and 4,700 m. Analysis of the fracture stimulation is continuing and will be incorporated into future well designs and reservoir studies.

Received confirmation from the Federal Government that the $90 million Renewable Energy Demonstration Program funding deed had gone unconditional. Claims for funds drawdown under this Deed will be progressively submitted as work towards the Commercial Demonstration Plant proceeds.

Executed a $7 million Geothermal Drilling Program grant deed with the Federal Government to support funding for Geodynamics’ Hunter Valley geothermal exploration project.

Casing laid down at Jolokia.


Acquired further prospective geothermal acreage in the Cooper Basin, Geothermal Exploration Licence (GEL) 268, from Clean Energy Australasia. Covering an area of 497 km2, the acquisition of GEL 268 expands Geodynamics’ geothermal tenement area to a total of 3,059 km2 and joins Geodynamics’ existing tenements together across South Australia and Queensland.

Rig 100 formally handed over to Origin Energy as Operator of the Innamincka ‘Shallows’ Joint Venture to carry out the drilling of two shallow wells targeting Hot Sedimentary Aquifer (HSA) geothermal potential. Rig 100 will be mobilised to spud the first HSA geothermal exploration well, Celsius 1, as road and surface conditions allow following local rainfall and flooding.

Construction and acceptance testing of Rig 200 was completed. Currently located in Edmonton, Canada, Rig 200 is currently being marketed for lease to the international drilling community as it not required for the Company’s present work program activities.

Geodynamics was independently nominated for Ethical Investor’s 2010 Australian Sustainability Awards recognising its innovation in sustainability.

Successfully raised $16.2 million under a Share Purchase Plan with thanks to our loyal shareholder base.

Mr Geoff Ward was appointed as Geodynamics’ new CEO and Managing Director and commenced his tenure on 31 January 2011. Dr Jack Hamilton returns to his Non-Executive Director role.


GEODYNAMICS WELCOMES MR GEOFF WARD AS MANAGING DIRECTOR AND CHIEF ExECUTIvE OFFICERMr Geoff Ward has been appointed the Company’s new Managing Director and Chief Executive Officer. He commenced in the role on 31 January 2011 and takes over from Dr Jack Hamilton, who served in the role for an interim period. Dr Hamilton will resume his role as a Non-Executive Director of the Company.

Mr Ward joins Geodynamics having most recently held the role of Director at Azure Capital, a Perth-based independent advisory firm, offering corporate advisory services to leading firms in the resources and engineering industries.

He has over 15 years experience in the oil and gas industry in senior roles covering business development, mergers and acquisitions, operations, oil and product trading, strategic and organisational development, planning and economics, investor relations and new project development.

BOARD RENEWALMr Martin Albrecht AC stepped down as Chairman at the 2010 AGM after 10 years of service but will continue to offer his services to the Board as Emeritus Chairman to support Geodynamics’ continued development.

Mr Keith Spence assumes the role of Chairman after making a significant contribution serving as Non-Executive Director and Deputy Chairman over the past three years. He has a wealth of industry knowledge with over 30 years experience in the oil and gas industry having served in senior roles with Woodside and Shell.

The Board has resolved not to appoint a new Non-Executive Director to replace the vacancy created by the retirement of Mr Albrecht.

Corporate Overview

The Board and Geodynamics’ team pays special tribute to Mr Albrecht for his leadership as the inaugural Chairman for the past 10 years since inception. Mr Albrecht has made an outstanding contribution to guiding the Company from early exploration to its current development phase through his strategic vision and dedicated service. He has been at the forefront of establishing a geothermal industry in Australia.


Operations Update

JOLOKIA 1 STIMULATIONDuring the period, the Innamincka ‘Deeps’ Joint Venture was focused on operations in the field, completing the Jolokia 1 well and conducting initial hydraulic fracture stimulation of the deep granite geothermal resource.

Early results from the stimulation program have provided encouragement in the joint venture’s ability to initiate fractures in the deep hot granites across our tenements. The preliminary analysis of seismic events during stimulation undertaken concluded that two fractures were stimulated at a depth of around 4,400 m and 4,700 m. These two enhanced fractures are deeper than the previously stimulated zone at Habanero which was at 4,250 m. Fracture conductivity analysis and interpretation of stimulation program results continues.

HABANERO PROJECT PLANNINGGeodynamics is committed to progressing the ‘Deeps’ EGS Project through 2011 and is in discussion with Origin Energy to review and agree the technical scope and timing of the joint venture’s 2011 / 2012 work program activities.

The next proposed ‘Deeps’ program activity sees the return to Habanero to progress the Habanero 4 well that will provide the energy source for the 1 MWe pilot power plant which was completed in 2009. Habanero is the site of the Company’s very successful fracture stimulation result at Habanero 3 which provided the most productive EGS well in the world.

Well completion design work and well implementation planning for the proposed Habanero 4 well is underway and will incorporate the important technical learnings from previous wells, including the full analysis of the Habanero 3 well investigation.

A well location has been selected for Habanero 4 and long lead items have been purchased in anticipation of drilling operations. Site storage domes have been constructed at the Habanero lay-down yard in order to improve Geodynamics’ storage of drill parts and materials.

Above: Equipment arriving at Jolokia for stimulation. Full page: Newly constructed storage domes at Habanero lay-down yard.


INNAMINCKA ‘SHALLOWS’ JOINT vENTURE UPDATEDuring the quarter, preparation and planning continued for drilling two slim-hole exploration and appraisal wells, Celsius 1 and Celsius 2, designed to evaluate the Hot Sedimentary Aquifer (HSA) potential on the Cooper Basin tenements as part of the Innamincka ‘Shallows’ Joint Venture (‘Shallows’), where Origin Energy is the Operator. These wells are expected be drilled to approximately 2 km depth, and are designed to test a number of parameters including temperature, porosity and permeability of the reservoir.

Origin has formally accepted Rig 100 and will operate the rig for the ‘Shallows’ exploration program, on the licence area.

Commencement of the drilling program was delayed in December due to further local rain in the Innamincka region and forecast flooding of the Cooper Creek originating from heavy November rainfall into the Thompson and Barcoo catchment areas. While many areas across Queensland were devastated by flooding, the rain events in the Thompson and Barcoo catchments were less significant but have restricted access across the Strzelecki Track.

During this time, Geodynamics has closely monitored flood peaks and has continued to take advantage of available localised rainfall and flooding data. Risk mitigation planning has been conducted, to determine options available to the joint venture given current conditions and the risk of further flood events in the Cooper Basin. Work has commenced to upgrade a number of the local tracks to provide alternative access routes with the objective of supporting site operations.

In preparation for commencement of the drilling program, a well pad has been constructed and the program will progress once road conditions allow the movement of the rig and risks associated with possible floods abates.

In parallel, the impact of rain delay on the ‘Deeps’ work program has been reviewed in detail. Assuming no further significant rain events, the delays to date have not materially impacted the activities of the Innamincka ‘Deeps’ Joint Venture.

Operations Update

Full page: Habanero camp.

CELSIUS 1 PAD DURING CONSTRUCTION SITUATED NEAR TO JOLOKIA AND SAvINA ‘DEEPS’ WELLS.


ACqUISITION OF GEL 268In November, Geodynamics announced its intention to acquire 100% ownership interest in Geothermal Exploration Licence 268 (GEL 268), from Clean Energy Australasia Pty Ltd. Post the reporting period, the transaction was approved by the South Australian Minister for Mineral Resources Development and Geodynamics has taken ownership of the tenement. The Company has issued 1,500,000 ordinary shares in Geodynamics Limited to Clean Energy Australasia as payment for the acquisition of the GEL.

The acquisition is strategically valuable in that it links Geodynamics’ existing tenement areas in South Australia with the Company’s Nappa Merrie tenement in Queensland. GEL 268 expands the Company’s’ geothermal acreage in the Cooper Basin region to a total area of 3,059 km2.

The tenement area is regarded as highly prospective for its EGS geothermal potential and may also prove suitable for Hot Sedimentary Aquifer exploration. Initial assessment of the tenement shows the potential for deep granite below a large section of GEL 268 complementing the Company’s flagship Cooper Basin EGS Project.

RIG DEPLOYMENTA significant milestone was achieved during the quarter when Rig 200 was completed on budget and within one month of the initial projected schedule. The rig is currently stored in a secure facility in Edmonton, Canada and is currently being marketed for lease to the international market while not required by Geodynamics. This decision has the added advantage of reducing immediate expenditure on Rig 200 by approximately $10 million in mobilisation and set up costs. Geodynamics is currently in discussions with a number of parties for the leasing of the rig.

Adelaide

SOUTH AUSTRALIA

N.T.

N.S.W.

VIC

QLD

KEY

Planned Shallows well locations

Exisiting Deeps well locations

Towns

Roads

TENEMENT MAP SHOWING GEODYNAMICS’ NEWLY ACqUIRED PERMIT AREA GEL 268 AND THE PLANNED CELSIUS 1 AND CELSIUS 2 ‘SHALLOWS’ WELL LOCATIONS.


Exploration and Appraisal

qUEENSLAND ExPLORATIONIn January 2010, Geodynamics was granted two geothermal exploration permits in south-western Queensland: EPG 5 (Tennaperra) and EPG 6 (Nappa Merrie) for a period of four years. These permits were granted on the basis of an agreed work program. Initial work program activities include research and gravity surveys across both permits. This activity will be followed with seismic surveys and shallow heat flow drilling to 500 m.

During the quarter, planning was conducted for both the gravity survey and the drilling of four shallow heat flow wells to commence in first quarter 2011, as soon as terrain conditions are favourable. An amount of $150,000 in funding awarded to Geodynamics in March 2010 by the Queensland Government will support direct drilling costs for the four heat flow wells in the Nappa Merrie tenement.

COMMUNITY CONSULTATION WITH BULLOO SHIRE COUNCILDuring November, a team from Geodynamics travelled to Thargomindah to conduct a consultation session with Bulloo Shire Council members. The session provided a forum to discuss the Company’s plans, including the upcoming gravity survey that will be used to further evaluate and refine drilling targets on the two Queensland tenements at Nappa Merrie and Tennaperra.

The consultation presentation is available for viewing and download from the Reports and Announcements \ Presentations section of our website, located at

On the road to target well locations – Nappa Merrie, Queensland.


HUNTER vALLEY PROJECT Scoping work for the Independent Seismic Risk Assessment continued through the quarter. Experts in the field were shortlisted with a contract awarded post the reporting period in January 2011. The independent risk assessment will commence in the current quarter and will provide all stakeholders with a better understanding of the potential impact of proposed future stimulation activities.

The assessment will be conducted in two stages. Stage one will assess the potential seismic activity that would be created as a result of proposed future stimulation activities and stage two is designed to evaluate the effect of any seismic activity on the built environment in the area.

The Company also commenced the renewal process for its existing NSW Hunter Valley tenements with the NSW government.


Execution of $7 m GDP grant for Hunter Valley Project

Government Relations

CLIMATE CHANGE COMMITTEE ADOPTS PRINCIPLES FOR CARBON PRICING MECHANISMThe newly established Multi-Party Climate Change Committee has moved ahead with the development of a carbon pricing model. The committee has recently agreed to adopt eleven policy principles to guide carbon pricing mechanisms.

The principles adopted were:• Environmental effectiveness• Economic efficiency• Budget neutrality• Competitiveness of Australian industries• Energy security• Investment certainty• Fairness• Flexibility• Administrative simplicity• Clear accountabilities• Supports Australia’s international objectives and obligations.

The Climate Institute’s CEO John Connor said, “These principles show refreshing pragmatism from this crucial parliamentary committee and can provide a springboard for the carbon pricing mechanism to be a key part of a flexible pollution reduction policy package.”

The Committee is starting from the position that a carbon price is a necessary economic reform required to reduce carbon pollution, to encourage investment in low emissions technologies and complement other measures including renewable energy and energy efficiency. It is also providing advice on and assisting in building community consensus for action on climate change.

This is a positive development for the renewable low emission energy sector and is consistent with the Federal Government’s continued support for the introduction of a carbon pricing mechanism.

During November 2010, the $7 m funding deed granted to Geodynamics by the Federal Government under Round 2 of the Geothermal Drilling Program (GDP) was executed.

Initially awarded to Geodynamics in late 2009 and announced at the time, the GDP funding has been granted for the development of Geodynamics’ Hunter Valley geothermal project.

The funding will be used by Geodynamics to drill two deep wells on the Company’s Hunter Valley tenements in order to demonstrate ‘Proof of Concept’. The funding will be staged over the duration of the planned exploration activity with the final amount payable following the successful announcement of ‘Proof of Concept’.


SUBMISSIONS SUPPORTING CARBON POLICY DEvELOPMENTGeodynamics continues to work with government bodies and electricity industry regulators to ensure the Company is in a prime position to deliver the potential of geothermal energy to the future of Australia. During the quarter Geodynamics made a submission to the Draft Strategic Directions for ACRE consultation being undertaken by the Australian Centre for Renewable Energy (ACRE).

ACRE was formed in 2010 and is a component of the Government’s expanded $5.1 billion Clean Energy Initiative (CEI). ACRE’s objective is to promote the development, commercialisation and deployment of renewable energy and enabling technologies and to improve their competitiveness in Australia. ACRE will become the Government’s central point of contact for Australian Government support for renewable energy and enabling technologies.

The submission detailed key focus areas for the development of renewable energy in Australia, emphasising the vast potential of the Cooper Basin as a clean energy hub coupled with the solar potential and existing gas resources in the area.

Geodynamics’ and other stakeholder submissions are available online at the following address:

Rig 100 at night in the Cooper Basin.


Public and Investor Relations

$16.2 M RAISED UNDER SHARE PURCHASE PLAN

In late December, Geodynamics was pleased to inform shareholders that the Share Purchase Plan (SPP) that closed on 10 December raised $16.2 million with 40.6 million

shares issued at a price of $0.40 per share.

Shareholders who participated in the SPP have been granted one option exercisable at $0.55 per share, expiring on 31 March 2012, for every share successfully subscribed under the SPP, on the condition that their Shareholding as at 7.00 pm AEST on the Option Record Date (17 December 2010) was not less than their Shareholding as at 7.00 pm AEST on the SPP Record Date (15 November 2010).

A total of 39.7 million options were allotted on 21 December 2010 to shareholders who satisfied this condition, and quotation on the Australian Securities Exchange commenced on 24 December 2010.

The Board and Management of Geodynamics are encouraged by the positive uptake of these offers and thank loyal shareholders for participating in the SPP with such strong support.

2010 AGM AND SHAREHOLDER BRIEFINGS REvIEWOver 600 shareholders attended the 2010 retail shareholder roadshow which commenced with the Annual General Meeting in Brisbane on 25 November 2010. Shareholder briefing events were also held in Sydney, Adelaide, Canberra and Melbourne.

AGM RESOLUTIONS Results of voting at the AGM were lodged on 26 November and are available through the ASX Announcements section of our website at

All resolutions were passed including a special resolution for capital raising through the Share Purchase Plan and attaching options and a proposed private placement with institutional and sophisticated investors in 2011.

vIEW THE PRESENTATIONA recording of the AGM presentation delivered by Dr Jack Hamilton, Managing Director and Dr Stuart McDonnell, Chief Operating Officer, with accompanying audio was released to the ASX and is available for viewing at

SEEKING YOUR FEEDBACKThe Board of Directors would be very pleased to receive any feedback from shareholders that will assist in improving future shareholder briefings and AGMs. To provide your comments, please email or phone our Investor Relations team via +61 7 3721 7500.

GEODYNAMICS NOMINATED FOR ETHICAL INvESTOR’S SUSTAINABILITY AWARDGeodynamics was independently nominated for the prestigious

Ethical Investor’s 2010 Australian Sustainability Award in the category for Environment. Now in their 10th year, the Australian Sustainability Awards recognise the best achievers in environmental, social and corporate governance practice.

Geodynamics was delighted to receive the nomination in recognition for its commercialisation progress, collaboration with peers and advocacy on climate change policy.

For more information on the Australian Sustainability Awards and the winners across the various categories, visit:


Useful Terms

TERM DEFINITION

Casing Large-diameter steel pipe with threaded connections lowered into an open hole and cemented in place.

Completion The assembly of down hole tubular and equipment required enabling safe and efficient production from, or injection into, a geothermal well.

Enhanced Geothermal Systems (EGS)

Use of hydraulic stimulation methods to enhance the capacity of natural fractures to flow fluid, thereby enabling geothermal development in areas not previously possible.

Hot Sedimentary Aquifers (HSA)

HSA systems are typically developed in naturally occurring porous sandstones containing water that is heated by either crustal heat flow or proximate hot rocks. Fracturing techniques may still be used to enhance water flow between wells and HSA systems have been successfully operating in Australia and internationally for decades.

Hydraulic stimulation In the sense of EGS development, a treatment involving the action of fluid pressure on existing natural fractures to enhance fluid pathways in the granite. It is achieved by pumping water down a well at high pressure.

MWe Megawatt electric - One million watts of electric capacity.

Reserve A measured resource for which commercial production can be forecast with some confidence with existing technology and prevailing market conditions.

Resource An area/volume of rock that has demonstrated character or dimensions to indicate that a body of thermal energy exists. Commerciality not yet established.

AUSTRALIAN GEOTHERMAL ENERGY CONFERENCE REvIEW

The 2010 Australian Geothermal Energy Conference was held at the Adelaide Exhibition Centre between 17-19 November 2010.

The Hon. Jay Weatherill MP on behalf of the South Australian Premier, opened the conference. Emphasising continued support from both the Federal and South Australian governments, Mr Weatherill highlighted South Australia’s prominent position within the geothermal industry, pointing out that the state is home to three of the most advanced geothermal projects in the country including Geodynamics’ Cooper Basin Project.

On day one of the conference, Geodynamics’ Chief Operating Officer, Stuart McDonnell, presented a Company and Operations Update.

To view a copy of the presentation, visit the Reports and Announcements\Presentations area at

DR DOONE WYBORN RECOGNISED AND AWARDED FOR CONTRIBUTION TO THE GEOTHERMAL INDUSTRYThe conference hosted an awards ceremony during the Gala Dinner celebrating contributions to the geothermal industry, with Geodynamics’ Chief Scientist, Dr Doone Wyborn, receiving the Chairman’s Award for Outstanding Contribution to the Industry.

Attending the gala event Dr Jack Hamilton accepted the award award on behalf of Dr Wyborn.

PRINCIPAL and REGISTERED OFFICE Level 3, 19 Lang Parade, MILTON QLD 4064 Telephone: +61 7 3721 7500 Facsimile: +61 7 3721 7599POSTAL ADDRESS PO Box 2046, MILTON QLD 4064 Internet Email

Impact of the floods in Queensland in January 2011

Tens of thousands of homes and businesses were impacted by the floods in Brisbane and other parts of Queensland in January 2011.

At its peak, the Brisbane River was 4.5 m higher than its mean level. Due to our close proximity to the river and the flood levels in Milton, the building housing Geodynamics experienced flooding of its carpark and basement lift wells and was forced to close. Geodynamics’ lease area on level 3 was not directly affected and during the office closure period, we were able to provide business continuity thanks to the excellent remote computing services maintained by our

IT team (all Geodynamics servers are housed in an offsite data centre) and the diversion of our Brisbane office phone lines.

The office was closed for just over one week, but sustained no lasting damage and we are pleased to now be back in full operation. Sadly, some Geodynamics team members have suffered damage to personal property, but thankfully all of our people are safe and in good spirits with many volunteering to assist with clean up efforts in the Brisbane community.

power from theearth. - renu · served in the role for an interim period. dr hamilton will resume...

Documents