- Geothermal temperature data;

- 3D seismic data; and

- Well transmissivity estimates

Bertus de Graaf, managing director of Panax said that "indications are that, subject to the well productivity tests planned for next month, the Salamander-1 well remains a candidate for producing clean base-load power for thousands of homes in the region."

"The new results not only boosted the geothermal potential of the Penola Trough, but it also lifts the potential of the other three troughs of Panax’s larger Limestone Coast Project."

In a statement the company said well clean-up flows are continuing and further data will become available from the well productivity test planned for next month.

Temperature data

The recently announced 15.4°C increase in the measured bottom hole temperature (BHT) of the Salamander-1 well, from 156°C to 171.4°C, has confirmed predictions of the regional 3D temperature data by Hot Dry Rocks Pty Ltd (HDRPL).

The 3D modelled temperature at 4,025m for the Salamander-1 well of 172°C is very close to the recently measured BHT at 4,000m of 171.4°C. Projected temperatures at 4,000m increase to the south and south-east into Panax’s GEL484, reaching 180°C within 4km of Salamander-1.

De Graaf said the new BHT of Salamander-1 combined with the new 3D temperature data is likely to increase the geothermal resources of GEL223.

He said it upgrades the overall regional potential of the Penola Geothermal Project, with higher temperatures alleviating the pressure on high production rates."

3D seismic data

The South Australian Government Department of Primary Industries and Resources recently released the Nangwarry 3D seismic survey data for public use. This combined with the vertical seismic profile data acquired at the end of drilling Salamander-1, allows calibration of the well results with the existing 3D seismic data.

Interpretation has shown that a high reflectivity zone, which is interpreted to be associated with reservoir rocks drilled in Salamander-1, extends 6.5km to the south east, covering an area of approximately 12.5km2.

This zone is interpreted as having similar reservoir properties to Salamander-1 and coincides with the higher temperatures of 175°C to >180°C at 4,025m as mentioned above. This zone also demonstrates the potential extent of the reservoir zones intersected in Salamander-1.

A review of the wireline logging data of the open hole section of the Salamander-1 well (from 2,900m to 4,025m) for estimating the reservoir quality of the target reservoir rocks (the Pretty Hill Sandstone) has been completed by Down Under Geosolutions (“DUGEO”) based in Perth.

Well transmissivity estimates

Panax have been advised that the combination of the “Lin-Log and MDT methods” are the most appropriate to estimate the “transmissivities” of the intersected target reservoir rocks.

The new temperature-, seismic- and transmissivity data have boosted the overall potential of the Penola Geothermal Project. The regional setting and potential have been greatly enhanced, with higher temperatures coinciding with areas where the reservoir rocks identified in Salamander-1 are interpreted to be present.

As the demonstration plant comprises a production and an injection well, this leaves the option of drilling a production well in the hotter area, and thereby converting Salamander-1 into an injection well. Overall, it is too early for such decisions, the company said, but the opportunity for this has now been created.

The new temperature is significant as it is well above the projected temperature of 160°C and 15 degrees hotter than previously reported.

As importantly, increased geothermal temperatures in the target reservoir rocks "have a highly positive effect on the overall economics of the Penola Project."

The new bottom hole temperature was measured earlier today, managing director Bertus de Graaf said, during well logging, conducted as part of the well clean-up flow operations.

De Graaf said it was too early to draw any specific conclusions from the result.

The short flow reservoir test on 31 March achieved the first steam from a hot sedimentary aquifer in Australia.

A significant amount of steam was released after production flows to surface reached boiling point temperatures (100°C).

A bottom hole temperature of 156°C was recorded at 4,015m, with approximately 130°C being recorded at 3,000m (being the top of the approximately 1,000m thick target reservoir), which are both in line with earlier estimates.

The BHT is expected to increase further as the temperatures in the well have not yet fully recovered from the cooling action of the recently completed drilling.

The data collected during the short clean-up flow test will now be evaluated and interpreted in combination with the well log data (petrophysical logs) collected following completion of drilling in mid-March. According to plan, an extended flow test is scheduled to be carried out in mid-May, 2010.

Both tests were designed by SKM (New Zealand) and endorsed by GeothermEx (USA), to collect the necessary data required for the establishment of “geothermal reserves”.

At this stage, the company said, it is too early to draw any conclusions as to the quality of the reservoir but completion of the scheduled short flow test brings the Penola Project one further step closer to the establishment of Australia’s first geothermal reserves.

Drilling operations were terminated at 4,025m in the Pretty Hill Sandstones, which comprise the target reservoir.

In a statement, the company said this makes Salamander-1 one of the deepest wells drilled in the Otway Basin.

The 4,025m deep well was drilled in 44 days (including four rig repair days), using only six drill bits, significantly reducing drilling time.

The Salamander-1 well has set a new drilling record for the Australian geothermal sector.

Operations will now focus on logging the 1,125m long open hole section in the target reservoir rocks and the setting of the open hole, seven inch perforated liner.

This will be followed by the well testing programme.

During the week, the operator cased and cemented the 12.25 inch section of the hole (9 5/8 inch casing) and was drilling ahead on the 8.5 inch section of the hole, before the commencement of logging, and running of 7 inch perforated liner in the reservoir section of the hole.

Dr Bertus de Graaf, managing director of Panax said the drilling rig was meeting expectations and Salamander-1 is on track to "reach its targets and the advancement of geothermal energy as a major power source in Australia is on its way to becoming a reality.”

The well aims to onvert part of the Penola Geothermal Project’s “Measured Geothermal Resources” into “Geothermal Reserves” sufficient to commence the development of a 5.9 MW (net) plant.

The proximity of the project to the national electricity transmission grid, meant Panax had one of the few renewable energy projects in the country capable of powering thousands of homes without requiring costly new grid connections.

He said today, this meant Panax the closest to achieving commercialisation of base load geothermal energy.

The Penola Geothermal Project uses proven technology and is the first geothermal well in Australia to test a Hot Sedimentary Aquifer (HSA), which relies on extracting existing hot water from an existing aquifer or HSA reservoir.

By exploring exisiting reservoirs containing hot geothermal fluids, which has fewer risks than hot fractured rock geothermal projects, Panax's development time for the project is much shorter.

An independently reviewed pre-feasibility study has shown Panax’s Penola Project has the potential to generate cheap base-load, clean energy with the Company planning to have a demonstration power plant in operation by 2011, subject to results of Salamander-1.

Dr de Graaf said further expansion could lead to a geothermal power station more than ten times larger by 2014.

The Hon. Martin Ferguson, Minister for Resources, Energy and Tourism was at the Salamander-1 Well Site, where the Minister unveiled a plaque commemorating the pioneering status of the well.

Bertus de Graaf, managing director of Panax reported that the Penola Geothermal Project GEL 223 in Penola, South Australia was  drilling ahead on the 12.25 inch section of the hole. Casing was being run on the 12.25 inch section (9 5/8 inch casing) of the hole, prior to the casing having to be retrieved to the surface due to issues associated with circulation of the drilling fluids.

Before this was achieved, an electrical motor (one out of two) powering the main draw works of the contract rig ceased to operate.  A new motor was sourced by Weatherford ex Dubai and has been fitted.

Operations have recommenced.

Casing and cementing of the 12.25 inch section to be undertaken, are scheduled to take approximately 2 days.  This will be followed by commencement of drilling of the 8.5 inch section of the hole.

During week 2, the well reached a total depth of 2,866m - an addition of 1,100m from the week before.

Activities during the the Week was spent casing and cementing of the 17.5 inch section of the hole; preparing for drilling of the 12.25 inch section of the hole; and drilling ahead on the 12.25 inch section of the hole.

The company will now case and cement and cement the 12.25 inch section to be undertaken, scheduled to take approximately.

The eagerly awaited Salamander-1 is a pioneering well within the Australian geothermal sector. It is the first well to test a conventional geothermal resource, namely a Hot Sedimentary Aquifer (HSA).

Panax will release a weekly drilling progress to the market each Tuesday, starting on 9 February, 2010.

This style of Geothermal Resource relies on extracting existing hot water from an existing aquifer or HSA reservoir.

It has similarities to a water bore, but targeting geothermally heated hot water. Testing of the aquifer or reservoir can be carried out using only one well, again similar to tests used in water bores.

The advanced Penola Geothermal Project has an independently assessed “Measured Geothermal Resource”, of 11,000 PJ sufficient for generating 100’s of MW of zero emission power.

Panax's “measured resource” means that there is a higher degree of confidence regarding the geothermal temperature as well as regarding the quality of the target reservoir. This sets the Penola Project apart from all other known geothermal projects in Australia.

The Salamander-1 well is a production well designed with the aim to convert part of the “Measured Geothermal Resources” of the Penola Project into “Geothermal Reserves”.  This would then be sufficient for a decision to commence the development of a 5.9 MW net plant, gridconnected, commercial Demonstration Plant, within three months of completion of drilling.

Panax received a $7 million grant from the first round of the Commonwealth’s Geothermal Drilling Programme towards the cost of this well.

Panax has stated that the drilling of the Salamander-1 well is unlikely to suffer from major delays, as were experienced by other geothermal projects in Australia.

In a statement, the Queensland-based company says the last of the approximately 130 trailer loads will arrive at the Salamander-1 drilling site in Penola today.

Panax reported that each of the loads delivered to date have arrived safely and without incident at the Salamander-1 site.

The rigging up process is continuing, with the rig on schedule to spud later this month.

Detailed on-site safety presentations and meetings will be conducted at the Salamander-1 site during the coming week.

As previously advised, the mobilization process was delayed on 21 December 2009 as a result of adverse weather conditions in the proximity of the Paralana drilling site, where the WDI Lightning Rig # 828 is currently being de-mobilised.

Managing Director Bertus de Graaf said the adverse weather conditions rendered the roads impassable to transport trucks for a period of approximately 20 days, resulting in the inability of both Panax and WDI to transport critical components of the rig away from the Paralana site.

"These adverse weather conditions have now passed and road conditions have been restored to allow transportation to re-commence," Mr de Graaf said.

He said Panax formally advised WDI of the cessation of the Force Majeure event, which was invoked to minimize the company’s exposure to any unforeseen costs, with effect from 6.00 am this morning.

"Panax and WDI have continued to work together in a mutually co-operative way during the period of the Force Majeure event to ensure that as many activities as possible were able to be completed during this period," he said.

"Panax looks forward to the spudding of our Salamander-1 well later this month."

Planning and preparation for drilling the well are in full progress. The permitting process is on schedule and site preparation has commenced.

In its quarterly update for the 3 months to end-June 2009, the company said it is in a sound financial position following the allocation of a A$7 million grant from the Commonwealth government’s Geothermal Drilling Programme (GDP) in April and a subsequent placing and entitlement issue.

Panax’s available cash was boosted from A$6.25 million at the end of the March 2009 quarter, to A$21 million at the end of the June 2009 quarter.

It has decided to seek a joint venture partner for Penola to realise the full development potential of this project. Detailed financial modelling of the project is nearing completion.

To develop its second geothermal project in the country, Tirrawarra in the Cooper Basin in Southern Australia,   Panax is currently preparing a submission for a A$7 million grant from a second round of the government’s GDP.

The company has submitted applications for two grants for projects in the Kyrgyz Republic and in Tajikistan to Geofund of the World Bank. Panax can earn up to 65 percent in these projects.

In India, the group’s joint venture partner for the Puga geothermal project, Partner Geosyndicate Power Private Ltd, expects that the development permit for Puga in the north of the country will be issued during the current quarter. Furthermore, the local government has confirmed it will construct a power line to the town of Puga, which will place the project to within 30-40 kilometres of power infrastructure.

Panax’s joint venture partner in Slovakia, Geopark, has applied for three geothermal licence areas in the country. Under the terms of the Memorandum of Understanding between the groups, Panax will have the right to farm-in to these three tenement areas for a working interest of up to 75 percent.

The reason?  An independent asssessment has measured the geothermal resource at its Tirrawarra Project in GEL281 in the Cooper Basin in South Australia at 11,000 PJ.

Put it in perspective, approximately 150 PJ of the Tirrawarra Project’s resources would be sufficient to generate 20 Mega Watts (net) of electric power for 30 years.

Combine Tirrawarra's resources with the 11,000 PJ at the Penola Project in South Australia’s Otway Basin - and Panax currently owns two of Australia’s only three measured geothermal resources.

Clearly, this is significant in any analysis for a (geothermal) company under 18 months of existence.

Tirrawarra project is located in a relatively remote location, about 35km north of Moomba in South Australia’s Cooper Basin – Australia’s main on-shore gas and oil processing facility.

Panax CEO Bertus de Graf said, “most of the exploration risk normally associated with Inferred Geothermal Resources has been eliminated. Ownership of these two advanced geothermal opportunities puts Panax in a leading and unique position as a geothermal exploration and development company in Australia.”

Interestingly, Tirrawarra has a further 30,000 PJ indicated, combining to make a total of 41,000 PJ.

Investors may recall that both projects are based on Hot Sedimentary Aquifers (HSA), which use the energy stored in hot water contained in existing aquifers or reservoirs to generate power.

The development of HSA projects is considered faster because it targets hot water contained in existing reservoirs (aquifers). In contrast with Hot Fractured Rock (HFR) Geothermal Resources, HSA Geothermal Reserves can be established by drilling only one well, which can subsequently be utilized as a production well.

Once flow rates are established, HSA projects can be developed using commercial, off the shelf binary geothermal power plants.

It is planned that geothermal power from the Tirrawarra Project may replace costly diesel power generation which is widely used in the oil and gas production in the region.

Panax is applying to the Commonwealth’s Geothermal Drilling Program for a $7million grant for drilling a production well in the Tirrawarra Project.

Anticipation should begin to build with the first production well, Salamander 1, at the Penola Project in the Limestone Coast region of South Australia due to spud in September, 2009,

Only two geothermal companies were succesful in round 1 funding grants:  MNGI Pty Ltd and Panax Geothermal Limited.

The Minister for Resources and Energy, Martin Ferguson said recently "that if just one per cent of Australia's geothermal energy was extracted it would equate to 26,000 times Australia 's total annual energy consumption. This extraordinary potential is one of the reasons the Australian Government is making this investment in geothermal energy as part of the $500 million Renewable Energy Fund."

"In addition to being a low-carbon energy source, geothermal energy also has the potential to add baseload power to the Australian energy grid. This would diversify Australia's energy supply and add to our overall energy security."

Panax was awarded the $7 million grant for the drilling of Panax’s Salamander-1 production well, which is on schedule to spud in mid-September 2009.  Under the terms of the Grant Agreement, 60% of the grant amount is expected to be received prior to the spud date, as part compensation for pre-spud expenditures such as mobilization, tubular, etc.