EXECUTIVE SUMMARY Green Rock Energy Limited (‘the Company’ or ‘GRK’) is a junior energy developer with a portfolio of oil & gas and geothermal energy projects predominantly in Australia. The Company has recently expanded into the booming oil and gas activity in the Canning Basin in WA. Most recent is the acquisition of a 20% interest in the Backreef Area, adjacent to the Blina oil field, with potential for both oil production in the near term and shale gas. The other key Canning Basin assets are a 15% interest in Exploration Permit EP417, a large permit with conventional and shale gas potential and an adjacent area of mutual interest with New Standard Energy (NSE) where GRK has a 40% interest. Acquisition of 20% Interest in Backreef Area On 30 April 2012, GRK finalised the acquisition of a 20% farm-in interest in the Backreef Area for $2.5 million. The Backreef Area is the most advanced project in GRK’s asset portfolio, with the operator and 80% JV partner Oil Basins Ltd (ASX: OBL) targeting oil for near-term production and cashflow. OBL is advancing the production testing of Backreef-1 which has two intervals independently assessed as having oil potential. Acquisition of 15% Interest in EP417 In March 2011, GRK acquired a 15% farm-in interest acquired in Exploration Permit EP417 (a hydrocarbon project). EP417 contains several conventional targets of natural gas and regional potential for large scale unconventional gas resources. In addition to the EP417 farm-in, GRK entered into an agreement with New Standard Energy to explore new acreage including an area awarded to New Standard Energy that is immediately adjacent to EP417 and which will extend GRK’s acreage in the emerging Laurel Project. Recent discoveries by Buru Energy has generated excitement in the Canning Basin and have confirmed potential of GRK’s interests in the Laurel shale gas play in the Fitzroy Trough / Gregory sub-basin; where the Yulleroo-2, Valhalla-2 and Valhalla North-1 wells have shown significant amounts of gas and condensate from the Laurel Formation. Continued over page GREEN ROCK ENERGY LIMITED (GRK) Expanding Footprint in the Canning Basin SPECULATIVE 14 May 2012 Important Disclosure Investors should be aware that Green Rock Energy Limited is a corporate client of Alpha and that Alpha will receive a consultancy fee from Green Rock Energy Limited for compiling this research report Share Trading Info ASX Code GRK Current Share Price (Aust. cps) 0.6 Trading Low /High (Rolling Year) (cps) 0.5 - 2.4 Mkt Captalisation (undiluted) ($m) 7.4 Cash as at 31 March 2012 ($m)* 1.95 * Note ~$3.8m raised subsequent to March 2012 qtr Capital Structure (m) Current Shares on Issue 1237.2 Listed Options 243.9 Unlisted Options 83.7 Total Securities on Issue 1564.8 Board of Directors* Richard Beresford Executive Chairman Gabriel Chiappini Non Executive Director * Further details on Page 19 Major Shareholders Deck Chair Holdings P/L 6.1% Mahsor Holdings P/L 5.7% Ms Merle Smith & Ms Kathryn Smith 1.9% Glamour Division P/L 1.8% Eyeon Investments P/L 1.8% Dr Jörg Baumgätner Non Executive Director Jeffrey Schneider Non Executive Director 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 Price (cps) Volume ('000) GRK 6-month Price Chart Price Volume
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EXECUTIVE SUMMARY
Green Rock Energy Limited (‘the Company’ or ‘GRK’) is a junior energy developer with a portfolio of oil & gas and geothermal energy projects predominantly in Australia.
The Company has recently expanded into the booming oil and gas activity in the Canning Basin in WA. Most recent is the acquisition of a 20% interest in the Backreef Area,
adjacent to the Blina oil field, with potential for both oil production in the near term and shale gas. The other key Canning Basin assets are a 15% interest in Exploration Permit EP417, a large permit with conventional and shale gas potential and an adjacent area of mutual interest with New Standard Energy (NSE) where GRK has a 40%
interest. Acquisition of 20% Interest in Backreef Area On 30 April 2012, GRK finalised the acquisition of a 20% farm-in interest in the Backreef Area for $2.5 million. The Backreef Area is the most advanced project in GRK’s asset portfolio, with the
operator and 80% JV partner Oil Basins Ltd (ASX: OBL) targeting oil for near-term production and cashflow. OBL is advancing the production testing of Backreef-1 which has two intervals independently assessed as having oil potential. Acquisition of 15% Interest in EP417
In March 2011, GRK acquired a 15% farm-in interest acquired in Exploration Permit EP417 (a hydrocarbon project). EP417 contains several conventional targets of natural gas and regional potential for large scale unconventional gas resources. In addition to the EP417 farm-in, GRK entered into an agreement with New Standard
Energy to explore new acreage including an area awarded to New Standard Energy that is immediately adjacent to EP417 and which will extend GRK’s acreage in the emerging Laurel Project.
Recent discoveries by Buru Energy has generated excitement
in the Canning Basin and have confirmed potential of GRK’s
interests in the Laurel shale gas play in the Fitzroy Trough / Gregory sub-basin; where the Yulleroo-2, Valhalla-2 and Valhalla North-1 wells have shown significant amounts of gas and condensate from the Laurel Formation.
Important Disclosure Investors should be aware that Green Rock Energy Limited is a corporate client of Alpha and that Alpha will receive a consultancy fee from Green Rock Energy Limited for compiling this research report
Low-cost entry into Backreef Area Instructively, GRK’s entry into the Canning Basin in the case of both projects has been low-cost,
particularly the Backreef Area, as OBL has spent over $5 million in the area on drilling Backreef-1, de-risking by identifying oil on the well logs and identifying Leads and prospects in two zones that produce oil at the nearby Blina Oilfield. Potential for re-rating of GRK in the event of success in the Canning Basin
In October 2011, Buru Energy shares were re-rated sharply after the latter company announced an oil discovery at the Ungani-1ST1 well in the Canning Basin. New Standard Energy shares have also enjoyed a re-rating since its announcement in July 2011 that it had entered a Heads of Agreement with ConocoPhillips to farm-in and jointly explore New Standard Energy’s flagship Goldwyer Project in the Canning Basin.
New World Energy P/L & GRK JV hold dominant geothermal power development in Mid
West Region GRK’s JV with New World Energy P/L to jointly develop the Geothermal Exploration Permits (GEPs) held by both GRK and New World Energy P/L in the North Perth Basin in the Mid West region of WA provides the Company with exposure to a larger and potentially more attractive target drilling area. The initial focus of the JV will be on identifying the most prospective drilling target for drilling two
wells, with the objective of an initial ~5MW of power generation capacity connected to existing power infrastructure. GRK has an alliance with Australia’s leading renewable power developer Pacific Hydro which includes the Mid West. The huge potential resource next to a booming market for power indicates the potential to produce several hundred Megawatts of baseload renewable power. GRK are presently focused on selecting suitable drilling locations near existing power transmission
lines for easy access to market. Key priorities include forming a consortium (potentially with other petroleum and geothermal companies actively exploring in the Perth Basin) in order to secure a
suitable drilling rig to be active in mid 2012, as well as introducing Federal government funding into the project so as to enable drilling in 2013. Adequate funding post acquisition of 20% interest in Backreef Area
The cash balance as at 31 March 2012 was ~$1.95 million and was supported by a placement of $2 million completed through two placement tranches ($1.5 million raised in January 2012 from the issue of 100 million GRK shares at 0.5 cents per share and $0.5 million raised in March 2012 from the issue of 300 million GRK shares at 0.5 cents per share). The balance sheet is debt free. GRK raised a further $3.763 million in April 2012, which enabled the Company to exercise its option on 30 April 2012 to acquire up to 20% of the Backreef Area (including production testing of the
Backreef-1 well) for up to $2.5 million; as well as to pursue its other priority hydrocarbons and geothermal projects. The funds raised in April 2012 were also completed in two tranches:
1. A placement of $1.413 million (157 million shares issued at 0.9 cents per share), with one
attaching option exercisable by 31 January 2015 at 1.2 cents. The options are subject to shareholder approval at a Shareholders’ Meeting to be held in June 2012.
2. The issue of Converting Loans amounting to $2.35 million, convertible to shares at either 0.9 cents per share, or the 5-day Volume Weighted Average Price prior to the Shareholders’ Meeting. The conversion will also be subject to shareholder approval.
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Peer Analysis Table 1 provides a summary of the key financials for GRK’s ASX-listed peers, ranging from junior to
mid-cap companies. Figure 1 charts the respective Enterprise Values for the peer group. The analysis includes onshore WA explorers (such as Buru Energy, New Standard Energy, Empire Oil & Gas and Norwest Energy NL), as well as explorers in the offshore basins of Australia (such as Moby Oil & Gas and Bass Strait Oil Company). Table 1: Trading and Financial Snapshot of Peers
* Prices as at 11 May 2012 ** As at 31 March 2012 Quarterly Cashflow Statements
Figure 1: Peer Enterprise Value Comparison ($m)
Price* Market Cap Net Cash** Ent. Value
(cps) ($m) ($m) ($m)
Buru Energy BRU 261.0 611.6 17.3 594.3
Nexus Energy NXS 18.5 246.0 -174.0 420.0
New Standard Energy NSE 51.5 150.5 23.0 127.5
Empire Oil & Gas EGO 1.7 80.7 8.3 72.4
Norwest Energy NL NWE 6.0 52.5 2.6 49.8
Oil Basins OBL 5.6 25.7 2.7 23.1
Moby Oil & Gas MOG 2.9 9.3 2.9 6.4
Green Rock Energy GRK 0.6 7.4 2.0 5.5
Bass Strait Oil Company BAS 1.9 7.4 2.3 5.0
Company Name ASX Code
594.3
420.0
127.5 72.4 49.8
23.1 6.4 5.5 5.0 0
100
200
300
400
500
600
BRU NXS NSE EGO NWE OBL MOG GRK BAS
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Capital Structure There are a total of ~1,237 million ordinary shares on issue, with a further 327.6 million options on
issue, all of which are presently out-of-the-money. Of this amount, there are 243.9 million listed options (ASX: GRKO) exercisable at 3.6 cents per share with an expiry date of 31 March 2013. The remaining unlisted options on issue have expiry dates ranging from November 2012 to November 2015. GRK has an openly-held share register, with the top 40 shareholders holding ~45% of the total
shares on issue. Further, there are only two substantial shareholders that hold a combined 11.8% of the total shares on issue. Table 2: GRK Capital Structure
NOTE: The above capital structure does not include the Convertible Loans amounting to $2.35 million, which remain subject to shareholders approval.
Board Restructure Strengthens Expertise in Hydrocarbon and Geothermal Exploration and Development A restructure of the Board in March 2012 and the concurrent appointment of Mr Andy Carroll as Business Development Advisor have better positioned GRK to extract value from its existing asset
portfolio, as well as to identify new hydrocarbon opportunities given the recent boost in funding. Key appointments arising from the March 2012 restructure include:
Mr Richard Beresford was appointed as Executive Chairman in March 2012, having previously
held the position of MD since 2010. Mr Jeffrey Schneider, previously Non Executive Chairman, has been retained on the Board as
a Non Executive Director. Mr Adrian Larking, previously Director of Operations, has been retained as a geothermal
consultant to GRK. Mr Gabriel Chiapinni, with strong Corporate Finance and listed company Director experience,
On 2 April 2012, GRK entered into a Heads of Agreement with
ASX-listed company Oil Basins Ltd (ASX: OBL) in relation to an option to acquire up to a 20% interest in the Backreef Area. The option was exercised on 30 April 2012, with GRK paying $2.5 million to acquire beneficial rights to a 20% JV interest in the Backreef Area. The Backreef Area, located in the onshore Canning Basin
(approximately 70 kilometres east of Derby (WA)) comprises EP 129
Remainder R2 (part thereof), R3 & Production License L6, (part thereof). The project area is illustrated in Figure 2.
Figure 2: Location of Backreef Area and Backreef-1 Well (Source: OBL Presentation, January 2012)
OBL acquired an initial 20% stake in the Backreef Area in February 2006, with the aim of focusing on the previously undrilled Kimberley
Downs Embayment. In October 2008, OBL moved to 80% rights and earned 100% equity rights via drilling the Backreef-1 well. OBL assumed ownership later, in 2010. Since OBL assumed full ownership of Backreef Area in October 2010, OBL has undertaken extensive work, including:
Drilling the Backreef-1 well, which was later cased and suspended at 1,155 metres pending production testing,
Petrophysical Assessment,
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Extensive re-processing of existing seismic data and Interpretation of the oil shows.
In October 2010, OBL drilled the Backreef-1 exploration well in the L6 portion of the Backreef Area to 1,800 metres. Petrophysical analysis from Weatherford’s proprietary Petrolog CPX indicated that Backreef-1 encountered on Oil Pool, with a gross reservoir interval of around 48.9 metres intersected and a net oil pay of around 12 metres to 39.2 metres was intersected at a relatively shallow depth of around 910
metres to 965 metres. Backreef-1 was later cased and suspended at plugged-back total depth 1155m MDRT1, as there were no reservoir samples and satisfactory pressure tests.
1.2 Nearby Oil Infrastructure
The largest nearby structure in the immediate region of the Backreef Area is the Blina Oilfield2, located in onshore Production License L6 in the Canning Basin, 105 kilometres E-SE of Derby (WA). The Blina
Oilfield was discovered in 1981 and was the first commercial oil discovery in the Canning Basin. The field was discovered by Home Oil Australia with the drilling of Blina-1, which intersected two distinct reservoirs, namely the Upper Devonian (Famennian) Nullara Limestone Formation (Nullar Oil Pool) and the Lower Carboniferous dolomitic Yellow Drum Formation (Yellow
Drum Oil Pool).
1.3 Independent Expert Assessment of Backreef Area
In order to gain a better understanding of the reservoirs, OBL engaged independent experts in order to collect and digitise around 16 vintage 2D seismic within the Kimberley Downs Embayment feature of the Backreef Area applying modern 3D techniques, and to map a potential 2C (probable contingent resource) of the new oil play. OBL then engaged RPS Energy to review the 2D seismic data utilising advanced
3D Petrel™ seismic interpretation software, which defined a potential new oil play first delineated by Backreef-1. RPS Energy considered the seismic data quality to be generally sufficient to delineate two primary reservoir intervals, the Yellow Drum Formation and Nullara Limestone3. Given the sparse 2D seismic coverage, detail faults and structural closures were not able to be
defined; only Leads were defined. In particular, seismic mapping
showed that there appeared to be two distinct conventional roll-over ‘oil pool’ targets, namely Lead A (East Blina Lead) and the Backreef-1 prospect, with moveable oil present at Backreef. An independent assessment by RPS Energy concluded that the Backreef Area could host a large, aggregated undiscovered potential OIP volume
of between 45.6MMbbls to 117MMbbls (mean estimate of 77.7MMbbls and 20.6MMbbls Prospective Resources).
1 Measured Depth Relative to Rotary Table 2 Wholly owned and operated by Buru Energy Ltd 3 By way of background, oil production at the Blina oil field, located to the west of the Backreef Area, is from the
Yellow Drum Formation and Nullara Limestone.
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Eight Leads have been independently derived within the southern and SE portions of the Backreef Area, of which four Leads have the
potential to be larger than the Blina Oil Field which has an initial OIP of circa 5.7MMbbls (with ~1.9MMbbls produced since 1981). Further, two newly-mapped stratigraphic Leads, Lead E and Lead F, are potentially with indicative areas greater than 4km2, with a gross recoverable Prospective Resource greater than 5MMbbls for these two Leads.
1.4 OBL Rapidly Advancing Production Test of Backreef-1
OBL’s production test program for the Backreef Area allows for two separate production tests of Backreef-1, across intervals in the
Gumhole and Yellow Drum Formations.
1. The Gumhole Formation (Zone 1) in 4-metre interval from 957
metres to 961 MDRT delineated by Weatherford’s assessment of Backreef-1 logs, as well as independently by RPS Energy. If Zone 1 recovers hydrocarbons, the result will be consistent
with the Backreef Oil Pool contingent resource estimate determined by an earlier RPS Energy study. If oil is recovered in Zone 1, then this column is below the interpreted structural closure and the trap is possible stratigraphic in nature.
2. The Yellow drum Formation (Zone 2) in a 22-metre interval from 918 metres to 940 MDRT. Weatherford’s assessment was
that potential hydrocarbons are reservoired within the Yellow Drum Formation, which consists of layers of dolomitised carbonates with good indicated porosity but if unknown
permeability. OBL’s interpretation of hydrocarbons recovered in Zone 2 is
that this oil column is likely contained by structural closure. Figure 3 outlines the production test zones 1 and 2 at Backreef-1, while Figure 4 shows OBL’s seismic mapping over Blina-1 and Backreef-1 illustrates that moveable oil is present at Backreef. The seismic mapping also indicates a rollover closure at Lead A.
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Figure 3: Backreef-1 Production Test Zones 1 and 2
Source: OBL ASX Announcement 7 May 2012
Figure 4: Seismic Mapping of Potential New Oil Play
Source: OBL Presentation, January 2012
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1.4.1 Execution of Rig Contract for Backreef-1
OBL has formally contracted Australia Drilling Services (ADS) Petroleum Drilling Rig No. 2 for the cased-hole production testing of Backreef-1 and expect to conduct production testing from mid-to-late May 2012 (subject to obtaining the required approvals and consents from the Department of Mines and Petroleum). The ADS Rig No. 2, as at the time of writing, had not yet arrived on site.
The budgeted cost of the production test for Backreef-1 has risen to $1.8 million (from <$0.9 million), to allow OBL to conduct two production tests (instead of one as originally planned). In addition, OBL have reported unforeseen additional costs associated with site works and mobilisation of an appropriate camp from Geraldton (rather
than Derby).
1.5 Significance of the Canning Basin
A report by the US Energy Information Administration (EIA) published in April 2011 identified the Canning Basin as one of four sedimentary basins in Australia with significant shale gas potential, with a risked recoverable resource figure calculated for the Canning Basin of 229Tcf. The EIA paper and supporting report by Advanced Resources International (ARI) reviewed 48 sedimentary basins in 32 countries.
According to the EIA report, the Canning Basin has emerging potential in several organic-rich shales, including the Laurel, Lower Anderson, and Goldwyer shales, though their potential remains poorly defined. While only around 60 wells have intersected the principal source rocks in the Canning Basin, the deeper shale source rocks in the troughs
have not yet been penetrated.
Several conventional and tight gas discoveries have been made in the basin, though not developed due to lack of gas pipelines, indicating that source rocks here may be mature. Buru Energy (with partner Mitsubishi) and New Standard Energy hold most of the leases in this area and currently are evaluating the basin’s shale potential.
Table 3: Shale Gas Reservoir Properties and Resources of Australia
Source: EIA - World Shale Gas Resources: An Initial Assessment
In March 2011, GRK executed a Farm-In Agreement with New Standard Energy to earn an initial 15% interest in Exploration Permit EP417 in the Fitzroy Trough in the Canning Basin. Upon initial farm-in, New Standard Energy will retain a 50% interest in EP417 (and is the operator), while Buru Energy hold a 35% interest. The Company has the right to increase its interest in EP417 to 20% by funding 22.5% of the first $10 million of the costs of drilling a second well and 20% of
any further costs.
Within EP417 New Standard Energy has estimated a combined tight gas and shale gas exploration target of over 850 Bcf Gas In Place in the Lawford Prospect, as well as a Tight Gas Potential of 1,050 Bcf Gas In Place at the Lawford Creek Prospect.
GRK has successfully earned its 15% interest in EP417 by funding 27.5% of the first $4.0 million of costs and 15% of further well costs in the process of deepening the Lawford-1 well in the 3rd quarter of 2011. The Lawford-1 well was initially spudded by New Standard Energy in 2008 before being temporarily suspended before reaching the target Anderson and Laurel Formations due to mechanical issues and the
impending onset of the wet season.
3.2.1 Deepening of the Lawford-1 Well
In August 2011, deepening of the Lawford-1 well commenced, with the EP417 JV partners later agreeing to revise the target depth of the
Lawford-1 well to the then current depth of 2,690 metres. The well was then plugged and abandoned without the Laurel Formation being intersected and evaluated. At its final depth, the well was drilling in clay stones and red beds of what is interpreted to be the Lower Anderson Formation and
encountered slow drilling due to very hard and abrasive formations. The JV partners decided to terminate the drilling of the well as a result of:
i. Slow drilling progress, ii. Thicker-than-expected Anderson Formation in this location
leading to geological uncertainty about the depth of the target
Laurel Formation, iii. Depth limitations of the rig and iv. The lack of significant hydrocarbon shows.
Interpretation of the Vertical Seismic Profile (VSP) and well logs (which were run before the well was plugged and abandoned) will result in an
improved understanding of the geology of the area. The Laurel Formation is present below the Anderson Formation in all wells drilled to sufficient depth within the Fitzroy Trough and as a result is still expected to be present across EP417 and the Lawford Ridge.
The Lawford-1 deepening indicates that the Laurel Formation is at a significantly greater depth on the Lawford Ridge than indicated by
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previous geological modeling. As a result, the Laurel Formation will remain untested in the basin centre of the Fitzroy Trough with the overall hydrocarbon prospectivity remaining, albeit at greater than
expected depths. Subsequent analysis of logging and seismic data has indicated that the top of the Laurel Formation is expected to be at around 3,000 metres. The deepening of the Lawford-1 well fulfilled the immediate work commitments across EP417 and enabled its continued retention.
The EP417 JV partners currently intend to conduct further geoscience studies in 2012/13, ahead of any further drilling activity. This work will involve both basin centre targets as well as basin margin prospects similar to those being pursued elsewhere in the Fitzroy Trough.
In the intervening time, the JV partners will benefit from data obtained from an acceleration of exploration drilling and appraisal activity in the region via the Buru/Mitsubishi JV, such as in the Valhalla gas and oil discovery in EP 371. in the northern Fitzroy/Gregory Basin. This appraisal activity will continue to define the geological understanding of the Laurel play across the region.
Figure 5: Map Outline of the Laurel Project including the Seven Lakes SPA, EP417 and various prospective targets
Source: New Standard Energy
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2.2 Area of Mutual Interest
In addition to the EP417 farm-in, GRK and New Standard Energy have executed an Area of Mutual Interest (AMI) agreement to jointly pursue additional new exploration opportunities in the Fitzroy Trough in the Canning Basin. Under the terms of this agreement, New Standard is entitled to a 60% working interest and GRK a 40% working interest in any jointly pursued exploration acreage awarded within the AMI and
each party will pay its share of exploration costs. In July 2011, New Standard Energy was offered a Special Prospecting Authority (SPA) for the Seven Lakes area in the northern Canning Basin. This new acreage is immediately adjacent to EP417 (and Lawford-1 well) and when converted to an exploration permit will
extend GRK's acreage in the emerging Laurel Project. The Seven Lakes
SPA is the first acreage to be acquired under the terms of the AMI. The work program on the SPA area is expected to be completed during 2012. This region of the Canning Basin is also seeing accelerated interest
through the acquisition by Hess of Kingsway Oil with its Canning Basin interests including EP449 adjacent to the SPA area.
2.3 Recent Discoveries Outline Potential of Laurel Formation
Recent discoveries by Buru Energy has generated excitement in the Canning Basin area and have confirmed potential of GRK’s interests in the Laurel shale gas play in the Fitzroy Trough / Gregory sub-basin; where the Yulleroo-2, Valhalla-2 and Valhalla North-1 wells have shown significant amounts of gas and condensate from the Laurel Formation.
In particular:
The Valhalla-2 well (drilled in 2011) targeted conventional gas reservoirs in the Upper and Lower Laurel formation as well as the Lower Laurel unconventional gas reservoirs present in the extensive shale zones of the Lower Laurel gas sands. Gas and condensate naturally flowed to surface from Laurel sands/shales.
At Yullerro-2, gas and condensate flowed to surface from Laurel
sands/shales following reservoir stimulation.
Ungani 1 confirmed a significant oil column in Laurel carbonate section, which flowed to surface at peak rates of 1,650 barrels of oil per day.
Figure 6 illustrates the cross section of the Fitzroy Trough, as well as the geological similarities between Valhalla-2, Yuleroo-2 and EP 417.
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Figure 6: Cross Section of the Fitzroy Trough
Source: New Standard Energy
Figure 7: Map of Fitzroy Trough Highlighting GRK Interests Relative to Other Discoveries
3.1 Background In the last 12 months, GRK has entered into two key agreements focusing on the development of geothermal-based power projects in the North Perth Basin in the Mid West region of WA and the Great Artesian Basin in SA. GRK holds a 100% interest in nine Geothermal Exploration Permits
(GEPs) in the North Perth Basin, covering 2,637km2. In October 2010, Geothermal Consulting Group Hot Dry Rocks P/L estimated an Indicated geothermal resource within a small area of the North Perth Basin permits of 26,000 Petajoules thermal, which on its own is
equivalent to over 820,000 megawatt years and capable of supporting over 100MW of power generation capacity. The Inferred geothermal resource across all permits has the potential to support a multiple of
this (refer to GRK Annual Report 2011). In the Great Artesian Basin, GRK has 11 exploration licenses which occupy an area of approximately 5,038 km2. The Great Artesian Basin is one of the largest artesian groundwater basins in the world and underlies over 1.7 million km2 and contains artesian water held in permeable sandstone layers which are over 3,000 metres thick in the
deeper parts of the Basin.
3.2 MoU with Pacific Hydro The first of these two agreements was a binding Memorandum of
Understanding (MoU) entered into with Pacific Hydro in August 2011 to cooperate on the development of power projects based on geothermal exploration permits and licences held by both GRK and Pacific Hydro in the North Perth Basin and the Great Artesian Basin.
The initial focus is to develop power projects of at least 25MW in both the North Perth Basin and the Great Artesian Basin. Both companies have jointly developed an Information Memorandum for the two projects, directed at potential upstream ‘farm-in’ partners to substantially fund drilling of the wells required to prove up the conventional geothermal resource.
Pacific Hydro will lead development, project financing, construction and operation of any power projects developed and will have the right to purchase 51% ownership in the project.
3.2.1 About Pacific Hydro
Pacific Hydro is a leading renewable energy company, producing clean power from natural resources. Operating assets include the 30MW Ord hydro plant in WA, which provides clean energy to the East Kimberly and local diamond mine, and wind farms in Victoria and South Australia with a combined generating capacity of 260MW.
Pacific Hydro is a wholly owned subsidiary of the IFM Australian Infrastructure Fund. IFM is an investment management company specialising in the management of investment products across private equity, infrastructure, debt and listed equities portfolios, and is wholly owned, through Industry Super Holdings Pty Ltd, by a large number of Australian superannuation funds.
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Pacific Hydro has a mix of hydro power and wind farm projects, some of which are operational, with others in the development/construction
stage.
3.3 Agreement with New World Energy P/L Subsequent to the signing of the MoU with Pacific Hydro, GRK entered into an agreement with New World Energy P/L to jointly develop the GEPs held by both GRK and New World Energy P/L in the North Perth Basin in the Mid West region of WA, which is the fastest growing electricity market in WA.
New World Energy P/L has a 100% interest in eight GEPs in the North Perth Basin. For GRK, the JV agreement provides the Company with
exposure to a larger and potentially more attractive target drilling area, with three of the New World Energy P/L GEPs located to the W-NW of the GRK GEPs and a further five GEPs located to the south of the GRK GEPs.
New World Energy P/L, based in Perth, is the largest geothermal energy landholder in WA with permits covering the prospective areas in the Pilbara and Mid West regions, and is actively acquiring significant projects throughout Asia. In September 2011, it announced the acquisition by its Philippines subsidiary Geoenergy Inc of five high-
potential geothermal projects in the Philippines.
3.3.1 Benefits of the Agreement with New World Energy P/L
The agreement between GRK and New World Energy P/L provides the
JV the dominant position for geothermal power development in the Mid
West, especially given the baseload electricity requirements for magnetite mining and processing projects in the region4. The initial focus of the JV will be on identifying the most prospective drilling target for drilling two wells, with the objective of an initial ~5MW of power generation capacity connected to existing power
infrastructure. The JV with New World Energy P/L also strengthens GRK’s prospects for government funding, especially as around one-third of the Federal Government’s Emerging Renewables Program is expected to be directed towards geothermal projects. In February 2012, GRK submitted a Project Funding Application to the Federal Government.
4 GRK will be the initial operator of the JV
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Figure 8: Permit Areas in the Mid West and Surrounding Infrastructure
Source: GRK
3.4 Current Focus and Priorities
The area surrounding the permits is known as an active petroleum exploration and production region, with 135 petroleum wells drilled within GRK’s permit area. A such, there is extensive geophysical, geological and well data from 2D and 3D seismic, which will assist in locating and designing geothermal wells, as well as drilling in the area.
Accordingly, GRK are presently focused on selecting suitable drilling locations near existing power transmission lines for easy access to market. Recent work undertaken by GRK includes:
Analysis of 3D seismic in the region to map geological stratigraphy, structure and natural fracture patterns,
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Analysis of data from petroleum wells to detect open fractures in relation to the existing structures and stratigraphy and the sub-surface stress field.
For GRK, the key priorities include:
To form a consortium (potentially with other petroleum and geothermal companies actively exploring in the Perth Basin) in order to secure a suitable drilling rig to be active in mid 2012.
Introduce funding into the project so as to enable drilling in 2013.
GRK has a 50% JV interest in Central Europe Geothermal Energy Private Company Limited (CEGE) Zrt, a Hungarian geothermal energy company established in 2008. The other 50% JV owner of CEGE is Hungarian oil and gas company MOL Plc (MOL), a major European oil
and gas company which holds the largest hydrocarbon leases in Hungary. MOL is listed on the Budapest Stock Exchange and has a market capitalisation of around US$8 billion. The strategy behind the Company’s interest in CEGE is to develop geothermal energy projects in Hungary through the utilisation of
information gathered from MOL’s historic and existing oil & gas wells and seismic surveys; as well as to leverage off MOL’s significant expertise in drilling, exploration and operating in Hungary and Central
Europe. CEGE aims to select project areas where power production can be achieved in the shortest time frame and at lowest cost, using existing wells and technology.
4.2 Why Hungary?
While Hungary at present the Carpathian Basin, has The Carpathian Basis (or Pannonian Basin) is a large basin situated in the SE of Europe
and centred in Hungary. Based on petroleum drilling carried out by MOL, the Carpathian Basin is known from to have very favourable geology with abundant natural geothermal water with temperatures ranging between 120°C to 200°C at reasonable depths between 2.5 to four kilometres. MOL has drilled in excess of 5,000 petroleum wells in Hungary providing CEGE with a
significant information base and real near term production opportunities. Hungary’s wind, solar and hydro resources are limited and at present, Hungary has no electricity production from geothermal energy (which is established throughout Europe with approximately 1,553 MW of
installed electricity capacity in 2010). However, the Carpathian Basin is understood to have significant geothermal potential, with geothermal energy now expected to be the major contributor to Hungary meeting its 13% renewable energy target by 2020. GRK has access to European geothermal expertise, with Dr Jörg Baumgärtner (a Non Executive Director of GRK) considered to be one
of the world's leading experts in the development and production of
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geothermal energy. Dr Baumgärtner is the CEO of BESTEC Drilling Gmbh, a German geothermal power generation developer and operator with a geothermal power project in operation since 2007 at Landau in
the Rhine Valley and a second project under construction nearby at Insheim. BESTEC is currently an adviser to the JV on potential geothermal projects in Hungary and Europe.
4.3 Targeting the First Geothermal Power Project in
Hungary
In October 2010, GRK announced that CEGE had acquired encouraging well data from a former MOL petroleum well in Hungary, located close to existing power infrastructure. CEGE also negotiated with MOL an
option to purchase the data and well for around $1 million. This option was exercised in February 2012 after expert evaluation by MOL, GRK
and BESTEC concluded that the well data indicates a sizeable economic geothermal reservoir capable of supporting several MW of power generation capacity.
CEGE is targeting commencement of power production in 2013, subject to obtaining a geothermal concession. The first geothermal concession tenders in Hungary are anticipated to be issued by the 3rd quarter of 2012, after public comment on the Environmental Impact Assessment of the target concession area closed on 15 January 2012.
Mr Beresford has 29 years experience in the international energy industry spanning research, technology commercialisation, strategic planning, operations, consultancy, business development, acquisitions, marketing and general management.
He spent 12 years with British Gas plc, including three years in London managing a portfolio of downstream gas and power generation investments in Asia and four years in Jakarta as Country Manager. He joined Woodside Petroleum Ltd in 1996 where he became General Manager, Business Development, then Managing Director of Metasource, Woodside's green energy subsidiary, until 2001. Mr Beresford was Head of Gas Strategy and Development of CLP Power Hong Kong Ltd from January 2005 to March 2007.
Prior to his appointment in March 2012 as Executive Chairman of Green Rock Energy Limited, Mr Beresford held the position of Managing Director of Green Rock Energy Limited since February 2010 and prior to this appointment, he was a non-executive director from September 2008.
He is currently Non Executive Chairman of ASX-listed company LNG Ltd and has been a Non Executive director of ASX-listed company Eden Energy since May 2007.
Jeffrey Schneider Non Executive Director
Interest in GRK:
~3.93m ordinary shares
Listed Options ~0.98m @ 3.6c exp 31/3/2013
Mr Schneider has over 35 years experience in the Australian energy industry including 24 years at Woodside culminating in the role of Director – Australian Gas. His roles at Woodside included General Manager Commercial, accountable for business and strategic planning, mergers and acquisitions, and business performance for Woodside’s North West Shelf investment.
In this position he was also responsible for marketing all of the company’s products including natural gas, LNG, condensate and oil. Other roles within Woodside included Director Australian Gas where he was responsible for the commercialisation of reserves in the Otway Basin, Timor Sea and Browse Basin.
Dr Baumgätner is one of the World's leading experts on the development and production of geothermal energy from Engineered Geothermal Systems (EGS) or Hot Dry Rocks. Based in Germany, he is the CEO of BESTEC Drilling Gmbh, a German geothermal power generation developer and operator with a geothermal power project in operation since 2007 at Landau in the Rhine Valley and a second project under construction nearby at Insheim. He is a member of both the Management and Supervisory boards of the Soultz Geothermal project, the foremost EGS project in Europe.
Gabriel Chiappini Non Executive Director Interest in GRK:
3m ordinary shares
Mr Chiappini owns and manages consulting company Laurus Corporate Services which provides Corporate Finance, ASX, Director and Company Secretarial advice to ASX listed companies. He is currently a Non-Executive Chairman of Dromana Estate Ltd and Company Secretary of numerous ASX listed companies.
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5.1 Other Key Personnel
Andy Carroll Mr Carroll has over 34 years experience in the oil and gas industry, having begun his career with BP and has held Board and executive
positions with Ausam Resources, Vermilion Oil and Gas Australia and Carpathian Resources, including Managing Director of Great Artesian Oil and Gas (which later merged with Drillsearch Energy Ltd). Andy was responsible for establishing the upstream business of InterOil Corporation in PNG, and advisor to AGL Energy in re-establishing its upstream business.
He holds a Bachelor and Masters Degree in Engineering and a Post Graduate Degree in Business Law, and is currently the founding
Managing Director of consultancy company Australasian Energy P/L and founding Director of public unlisted company Phoenix Oil and Gas. Mark Ballesteros
Mr Ballesteros works on a part-time basis for GRK as Business Manager for the Mid West Geothermal Project and is also involved in assessment and technical management of GRK’s oil and gas business. He is a geologist and geophysicist with 27 years experience in oil and gas exploration, having worked for Reading and Bates for five years, Hadson Petroleum for four years, Apache for eight years and as an
independent consultant for nine years, including assignments for Isis Petroleum Consultants, Searcher Seismic and others. Adrian Larking
Mr Larking was a founding director of GRK and is now part-time Technical Adviser to its geothermal business and director of the
geothermal JV with MOL in Hungary. He is a geologist and resources lawyer with in excess of 30 years experience in the minerals and petroleum industries in Australia and internationally mostly with Western Mining Corporation Ltd (since acquired by BHP Billiton).
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