Attached files
file | filename |
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EX-32.1 - EXHIBIT 32.1 - US GEOTHERMAL INC | exhibit32-1.htm |
EX-32.2 - EXHIBIT 32.2 - US GEOTHERMAL INC | exhibit32-2.htm |
EX-31.1 - EXHIBIT 31.1 - US GEOTHERMAL INC | exhibit31-1.htm |
EX-23.1 - EXHIBIT 23.1 - US GEOTHERMAL INC | exhibit23-1.htm |
EX-31.2 - EXHIBIT 31.2 - US GEOTHERMAL INC | exhibit31-2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to
___________
Commission File Number: 001-34023
U.S. GEOTHERMAL INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 84-1472231 |
(State or Other Jurisdiction of | (I.R.S. Employer |
Incorporation or Organization) | Identification No.) |
390 E. Parkcenter Blvd., Suite 250 Boise, Idaho | 83706 |
(Address of Principal Executive Offices) | (Zip Code) |
208-424-1027
(Registrants Telephone Number,
Including Area Code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes
[X] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes
[X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] |
Accelerated filer [ ] |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) |
Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes [
] No [X]
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Class | Shares Outstanding as of May 4, 2016 |
Common stock, par value | 111,529,742 |
$ 0.001 per share |
U.S. Geothermal Inc.
Form 10-Q
For the
First Quarter Ended March 31, 2016
INDEX
-3-
PART I FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements
U.S. GEOTHERMAL INC.
CONSOLIDATED BALANCE
SHEETS
(Unaudited) | ||||||
March 31, 2016 | December 31, 2015 | |||||
ASSETS | ||||||
Current: | ||||||
Cash and cash equivalents | $ | 7,431,602 | $ | 8,654,375 | ||
Restricted cash and security bonds | 4,134,737 | 4,696,007 | ||||
Trade accounts receivable | 2,359,146 | 3,766,517 | ||||
Other current assets | 1,731,628 | 1,680,819 | ||||
Total current assets | 15,657,113 | 18,797,718 | ||||
Restricted cash and security bond reserves | 18,168,014 | 17,495,789 | ||||
Property, plant and equipment, net of depreciation | 166,866,650 | 167,736,792 | ||||
Intangible assets, net of amortization | 15,220,407 | 15,265,828 | ||||
Net deferred income tax asset | 8,831,000 | 8,921,000 | ||||
Total assets | $ | 224,743,184 | $ | 228,217,127 | ||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||
Current Liabilities: | ||||||
Accounts payable and accrued liabilities | $ | 2,371,271 | $ | 2,703,226 | ||
Related party accounts payable | 7,318 | - | ||||
Convertible promissory note | - | 1,597,000 | ||||
Current portion of notes payable | 4,225,588 | 4,412,012 | ||||
Total current liabilities | 6,604,177 | 8,712,238 | ||||
Long-term Liabilities: | ||||||
Asset retirement obligations | 1,204,930 | 1,204,930 | ||||
Notes payable, less current portion | 88,249,159 | 89,887,052 | ||||
Total long-term liabilities | 89,454,089 | 91,091,982 | ||||
Total liabilities | 96,058,266 | 99,804,220 | ||||
Commitments and Contingencies (note 9) | ||||||
STOCKHOLDERS EQUITY | ||||||
Capital stock (authorized: 250,000,000 common
shares with a $0.001 par value; issued and outstanding shares at March 31, 2016 and December 31, 2015 were: 110,290,235 and 107,601,425; respectively) |
110,290 | 107,601 | ||||
Additional paid-in capital | 119,664,024 | 118,131,013 | ||||
Accumulated deficit | (17,286,239 | ) | (17,437,631 | ) | ||
102,488,075 | 100,800,983 | |||||
Non-controlling interests | 26,196,843 | 27,611,924 | ||||
Total stockholders equity | 128,684,918 | 128,412,907 | ||||
Total liabilities and stockholders equity | $ | 224,743,184 | $ | 228,217,127 |
The accompanying notes are an integral part of these interim consolidated financial statements.
-4-
U.S. GEOTHERMAL INC.
CONSOLIDATED STATEMENTS OF
INCOME
(Unaudited) | ||||||
For the Three Months Ended March 31, | ||||||
2016 | 2015 | |||||
Plant Revenues: | ||||||
Energy sales | $ | 8,410,822 | $ | 8,375,746 | ||
Energy credit sales | 92,454 | 98,115 | ||||
Total plant operating revenues | 8,503,276 | 8,473,861 | ||||
Plant Expenses: | ||||||
Plant production expenses | 2,398,716 | 2,290,212 | ||||
Depreciation and amortization | 1,580,863 | 1,568,012 | ||||
Total plant operating expenses | 3,979,579 | 3,858,224 | ||||
Gross Profit | 4,523,697 | 4,615,637 | ||||
Operating Expenses: | ||||||
Corporate administration | 354,046 | 295,380 | ||||
Professional and management fees | 1,056,509 | 383,123 | ||||
Employee compensation | 806,669 | 747,443 | ||||
Travel and promotion | 83,412 | 30,428 | ||||
Exploration costs | 21,266 | 43,041 | ||||
Operating Income | 2,201,795 | 3,116,222 | ||||
Other (income) expenses: | ||||||
Interest expense | 933,692 | 949,351 | ||||
Other income | (9,692 | ) | (40,510 | ) | ||
Income Before Income Tax Expense | 1,277,795 | 2,207,381 | ||||
Income Tax Expense | (90,000 | ) | (444,000 | ) | ||
Net Income | 1,187,795 | 1,763,381 | ||||
Net income attributable to the non-controlling interests | (1,036,403 | ) | (1,029,246 | ) | ||
Net Income Attributable to U.S. Geothermal Inc. | $ | 151,392 | $ | 734,135 | ||
Basic Net Earnings Per Share Attributable to U.S. Geothermal Inc. | $ | 0.00 | $ | 0.01 | ||
Diluted Net Earnings Per Share Attributable to U.S. Geothermal Inc. | $ | 0.00 | $ | 0.01 | ||
Shares used in the calculation of income per share: | ||||||
Basic |
109,402,667 | 107,039,029 | ||||
Diluted | 111,282,209 | 108,417,352 |
The accompanying notes are an integral part of these interim consolidated financial statements.
-5-
U.S. GEOTHERMAL INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited) | ||||||
For the Three Months Ended March 31, | ||||||
2016 | 2015 | |||||
Operating Activities: | ||||||
Net Income | $ | 1,187,795 | $ | 1,763,381 | ||
Adjustments to reconcile net income to total cash provided by operating activities: | ||||||
Depreciation and amortization | 1,613,521 | 1,595,421 | ||||
Stock based compensation | 277,315 | 365,455 | ||||
Change in deferred income taxes | 90,000 | 444,000 | ||||
Net changes in: | ||||||
Trade accounts receivable | 1,407,371 | 1,214,332 | ||||
Accounts payable and accrued liabilities | 478,507 | (567,674 | ) | |||
Prepaid expenses and other assets | (50,810 | ) | 119,206 | |||
Total cash provided by operating activities | 5,003,699 | 4,934,121 | ||||
Investing Activities: | ||||||
Purchases of property, plant and equipment | (1,501,101 | ) | (1,496,717 | ) | ||
Net (funding of) receipts from restricted cash reserves and security bonds | (110,955 | ) | 774,478 | |||
Total cash used by investing activities | (1,612,056 | ) | (722,239 | ) | ||
Financing Activities: | ||||||
Issuance of common stock | 1,258,385 | 13,951 | ||||
Distributions to non-controlling interest | (2,451,484 | ) | (2,102,658 | ) | ||
Principal payments on notes payable and other obligations | (1,824,317 | ) | (1,815,267 | ) | ||
Principal payment on note for subsidiary acquisition | (1,597,000 | ) | - | |||
Principal payments on capital leases | - | (12,494 | ) | |||
Total cash used by financing activities | (4,614,416 | ) | (3,916,468 | ) | ||
(Decrease) Increase in Cash and Cash Equivalents | (1,222,773 | ) | 295,414 | |||
Cash and Cash Equivalents, Beginning of Period | 8,654,375 | 12,994,975 | ||||
Cash and Cash Equivalents, End of Period | $ | 7,431,602 | $ | 13,290,389 | ||
Supplemental Disclosures: | ||||||
Non-cash investing and financing activities: | ||||||
Accrual for purchases of property and equipment | $ | 803,144 | $ | 86,579 | ||
Other Items: | ||||||
Interest paid | 1,361,349 | 1,399,457 |
The accompanying notes are an integral part of these interim consolidated financial statements.
-6-
U.S. GEOTHERMAL INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS EQUITY - Unaudited
For the Three Months Ended March 31, 2016 and Year
Ended December 31, 2015
Non- | ||||||||||||||||||
Number of | Common | Additional Paid- | Accumulated | controlling | ||||||||||||||
Shares | Shares | In Capital | Deficit | Interest | Totals | |||||||||||||
Balance at January 1, 2015 |
107,018,029 | $ | 107,018 | $ | 103,669,371 | $ | (19,284,860 | ) | $ | 46,397,092 | $ | 130,888,621 | ||||||
Distributions to non-controlling interest entities |
- | - | - | - | (3,486,589 | ) | (3,486,589 | ) | ||||||||||
Acquisition of additional interest in subsidiary |
- | - | 13,304,848 | - | (18,401,848 | ) | (5,097,000 | ) | ||||||||||
Stock issued by the exercise of employee stock options |
155,000 | 155 | 49,395 | - | - | 49,550 | ||||||||||||
Stock compensation |
428,396 | 428 | 1,107,399 | - | - | 1,107,827 | ||||||||||||
Net income |
- | - | - | 1,847,229 | 3,103,269 | 4,950,498 | ||||||||||||
Balance at December 31, 2015 |
107,601,425 | 107,601 | 118,131,013 | (17,437,631 | ) | 27,611,924 | 128,412,907 | |||||||||||
Distributions to non-controlling interest entities |
- | - | - | - | (2,451,484 | ) | (2,451,484 | ) | ||||||||||
Stock issued under At Market Issuance Purchase |
||||||||||||||||||
Agreement net of commitment shares valued at $225,000 |
2,463,810 | 2,464 | 1,186,171 | - | - | 1,188,635 | ||||||||||||
Stock issued by the exercise of employee stock options |
225,000 | 225 | 69,525 | - | - | 69,750 | ||||||||||||
Stock compensation |
- | - | 277,315 | - | - | 277,315 | ||||||||||||
Net income |
- | - | - | 151,392 | 1,036,403 | 1,187,795 | ||||||||||||
Balance at March 31, 2016 |
110,290,235 | $ | 110,290 | $ | 119,664,024 | $ | (17,286,239 | ) | $ | 26,196,843 | $ | 128,684,918 |
The accompanying notes are an integral part of these interim consolidated financial statements.
-7-
U.S. GEOTHERMAL INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS - Unaudited
March 31, 2016
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
U.S. Geothermal Inc. (the Company) was incorporated on March 10, 2000 in the State of Delaware. U.S. Geothermal Inc. Idaho was formed in February 2002, and is the primary subsidiary through which the Company conducts its operations. The Company constructs, manages and operates power plants that utilize geothermal resources to produce energy. The Companys operations have been, primarily, focused in the Western United States of America.
Basis of Presentation
These unaudited interim consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. In our opinion, the unaudited consolidated financial statements include all material adjustments, all of which are of a normal and recurring nature, necessary to present fairly our financial position as of March 31, 2016 and our operating results and cash flows for the three months ended March 31, 2016 and 2015. The accompanying financial information as of December 31, 2015, is derived from audited financial statements. Interim results are not necessarily indicative of results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2015.
The Company consolidates subsidiaries that it controls (more-than-50% owned) and entities over which control is achieved through means other than voting rights. These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, as well as three controlling interests. The accounts of the following companies are consolidated in these financial statements:
i) |
U.S. Geothermal Inc. (incorporated in the State of Delaware); | |
ii) |
U.S. Geothermal Inc. (incorporated in the State of Idaho); | |
iii) |
U.S. Geothermal Services, LLC (organized in the State of Delaware); | |
iv) |
Nevada USG Holdings, LLC (organized in the State of Delaware); | |
v) |
USG Nevada LLC (organized in the State of Delaware); | |
vi) |
Nevada North USG Holdings, LLC (organized in the State of Delaware); | |
vii) |
USG Nevada North, LLC (organized in the State of Delaware); | |
viii) |
Oregon USG Holdings, LLC (organized in the State of Delaware); | |
ix) |
USG Oregon LLC (organized in the State of Delaware); | |
x) |
Raft River Energy I LLC (organized in the State of Delaware); | |
xi) |
Gerlach Geothermal LLC (organized in the State of Delaware); | |
xii) |
USG Gerlach LLC (organized in the State of Delaware); | |
xiii) |
U.S. Geothermal Guatemala, S.A. (organized in Guatemala); | |
xiv) |
Geysers USG Holdings Inc. (incorporated in the State of Delaware); | |
xv) |
Western GeoPower, Inc. (incorporated in the State of California); | |
xvi) |
Etoile Holdings Inc. (incorporated in the Bahamas); | |
xvii) |
Mayacamas Energy LLC (organized in the State of California); | |
xviii) |
Skyline Geothermal LLC (organized in the State of Delaware); | |
xix) |
Skyline Geothermal Holding, Inc. (incorporated in the State of Delaware); | |
xx) |
Earth Power Resources Inc. (incorporated in Delaware); and |
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xxi) |
Idaho USG Holdings LLC (organized in the State of Delaware). |
All intercompany transactions are eliminated upon consolidation.
In cases where the Company owns a majority interest in an entity but does not own 100% of the interest in the entity, it recognizes a non-controlling interest attributed to the interest controlled by outside third parties. The Company will recognize 100% of the assets and liabilities of the entity, and disclose the non-controlling interest. The statements of income will consolidate the subsidiarys full operations, and will separately disclose the elimination of the non-controlling interests allocation of profits and losses.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all unrestricted cash, short-term deposits, and other investments with original maturities of no more than ninety days when acquired to be cash and cash equivalents.
Trade Accounts Receivable Allowance for Doubtful Accounts
Management estimates the amount of trade accounts receivable that may not be collectible and records an allowance for doubtful accounts. The allowance is an estimate based upon aging of receivable balances, historical collection experience, and the periodic credit evaluations of our customers financial condition. Receivable balances are written off when we determine that the balance is uncollectible. As of March 31, 2016 and December 31, 2015, there were no balances that were over 90 days past due and no balance in allowance for doubtful accounts was recognized.
Concentration of Credit Risk
The Companys cash and cash equivalents, including restricted cash, consisted of commercial bank deposits, money market accounts, and petty cash. Cash deposits are held in commercial banks in Boise, Idaho and Portland, Oregon. Deposits are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per legal entity. At March 31, 2016, the Companys total cash balance, excluding money market funds, was $836,604 and bank deposits amounted to $1,131,537. The primary difference was due to outstanding checks and deposits. Of the bank deposits, $159,201 was not covered by or was in excess of FDIC insurance guaranteed limits. At March 31, 2016, the Companys money market funds invested, primarily, in government backed securities totaled $27,425,156 and were not subject to deposit insurance. A contracted power purchaser held a security bond for the Company that totaled $1,468,898 at March 31, 2016.
Property, Plant and Equipment
Property, plant and equipment, including assets under capital lease, are recorded at historical cost. Costs of acquisition of geothermal properties are capitalized in the period of acquisition. Major improvements that significantly increase the useful lives and/or capabilities of the assets are capitalized. A primary factor in determining whether to capitalize construction type costs is the stage of the potential projects development. Once a project is determined to be commercially viable, all costs directly associated with the development and construction of the project are capitalized. Until that time, all development costs are expensed. A commercially viable project will have, among other factors, a reservoir discovery well or other significant geothermal surface anomaly, a power transmission path that is identified and available, and an electricity off-taker identified. A valid reservoir discovery is generally defined when a test well has been substantially completed that indicates the presence of a geothermal reservoir that has a high probability of possessing the necessary temperatures, permeability, and flow rates. After a valid discovery has been made, the project enters the development stage. Generally, all costs incurred during the development stage are capitalized and tracked on an individual project basis. If a geothermal project is abandoned, the associated costs that have been capitalized are charged to expense in the year of abandonment. Expenditures for repairs and maintenance are charged to expense as incurred. Interest costs incurred during the construction period of defined major projects from debt that is specifically incurred for those projects are capitalized. Funds received from grants associated with capital projects reduce the cost of the asset directly associated with the individual grants. The offset of the cost of the asset associated with grant proceeds is recorded in the period when the requirements of the grant are substantially complete and the amount can be reasonably estimated.
-9-
Direct labor costs, incurred for specific major projects expected to have long-term benefits will be capitalized. Direct labor costs subject to capitalization include employee salaries, as well as, related payroll taxes and benefits. With respect to the allocation of salaries to projects, salaries are allocated based on the percentage of hours that our key managers, engineers and scientists work on each project and are invoiced to the project each month. These individuals track their time worked at each project. Major projects are, generally, defined as projects expected to exceed $500,000. Direct labor includes all of the time incurred by employees directly involved with construction and development activities. General and/or indirect management time and time spent evaluating the feasibility of potential projects is expensed when incurred. Employee training time is expensed when incurred.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset. Where appropriate, terms of property rights and revenue contracts can influence the determination of estimated useful lives. Estimated useful lives in years by major asset categories are summarized as follows:
Estimated Useful | |||
Asset Categories | Lives in Years | ||
Furniture, vehicle and other equipment | 3 to 5 | ||
Power plant, buildings and improvements | 3 to 30 | ||
Wells | 30 | ||
Well pumps and components | 5 to 15 | ||
Pipelines | 30 | ||
Transmission lines | 30 |
Stock Compensation
The Company accounts for stock based compensation by recording the estimated fair value of stock-based awards granted as compensation expense over the vesting period, net of estimated forfeitures. The fair value of restricted stock awards is determined based on the number of shares granted and the quoted price of the Companys common stock on the date of grant. The fair value of stock option awards is estimated at the grant date as calculated by the Black-Scholes-Merton option pricing model. Stock-based compensation expense is attributed to earnings for stock options and restricted stock on the straight-line method. The Company estimates forfeitures of stock-based awards based on historical experience and expected future activity.
Earnings Per Share
Basic income or loss per share is computed using the weighted average number of common shares outstanding during the period, and excludes any dilutive effects of common stock equivalent shares, such as options and restricted stock awards. Restricted stock awards (RSAs) are considered outstanding and included in the computation of basic income or loss per share when underlying restrictions expire and the awards are no longer forfeitable. Diluted income per share is computed using the weighted average number of common shares outstanding and common stock equivalent shares outstanding during the period using the treasury stock method. Common stock equivalent shares are excluded from the computation if their effect is anti-dilutive. In a period where the Company is in a net loss position, the diluted loss per share is computed using the basic share count.
-10-
Foreign Currency Translation
The Companys functional currency is the U.S. dollar. Monetary items are converted into U.S. dollars at the rate prevailing at the balance sheet date. Resulting gains and losses are generally included in determining net income for the period in which exchange rates change.
Revenue
Revenue Recognition
Energy Sales
The energy sales revenue is recognized when the electrical power generated by the Companys power plants is delivered to the customer who is reasonably assured to be able to pay under the terms defined by the Power Purchase Agreements (PPAs).
Renewable Energy Credits (RECs)
Currently, the Company operates three plants that produce renewable energy that creates a right to a REC. The Company earns one REC for each megawatt hour produced from the geothermal power plant. The Company considers the RECs to be outputs that are an economic benefit obtained directly through the operation of the plants. The Company does not currently hold any RECs for our own use. Revenues from RECs sales are recognized when the Company has met the terms and conditions of certain energy sales agreements with a financially capable buyer. At Raft River Energy I LLC, each REC is certified by the Western Electric Coordinating Council and sold under a REC Purchase and Sales Agreement to Holy Cross Energy. At San Emidio and Neal Hot Springs, the RECs are owned by our customer and are bundled with energy sales. At all three plants, title for the RECs pass during the same month as energy sales. As a result, costs associated with the sale of RECs are not segregated on the consolidated statement of income.
Revenue Source
All of the Companys operating revenues (energy sales and energy credit sales) originate from energy production from its interests in geothermal power plants located in the states of Idaho, Oregon and Nevada.
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements. The following pronouncements were deemed applicable to our financial statements:
Revenue Recognition
In May 2014, FASB issued Accounting Standards Update No.
2014-09 (Update 2014-09), Revenue from Contracts with Customers (Topic
606). Update 2014-09 amends the revenue recognition guidance and requires
more detailed disclosures to enable financial statement users to understand the
nature, amount, timing and uncertainties of revenue and cash flows arising from
contracts with customers. In April 2016, FASB issued Accounting Standards
Update No. 2016-10 (Update 2016-10), Revenue from Contracts with Customers
(Topic 606), Identify Performance Obligations and Licensing. In March 2016,
FASB issued Accounting Standards Update No. 2016-08 (Update 2016-08), Revenue from Contracts with Customers (Topic 606), Principal versus Agent
Considerations (Reporting Revenue Gross versus Net). Both Update 2016-10 and
2016-08 provide additional guidance on how an entity should recognize revenue
when depicting the transfer of promised goods or services. These Updates provide
more guidance on identifying performance obligations and licensing.
The guidance, as amended, is effective for annual and interim reporting periods
beginning after December 15, 2017, with early adoption permitted for public
companies effective from annual and interim reporting periods beginning after
December 31, 2016. Management will continue to evaluate the possible impact that
the guidance defined by these Updates may have on future consolidated financial
statements.
-11-
Stock Compensation
In March 2016, FASB issued Accounting Standards Update No.
2016-09 (Update 2016-09), Compensation- Stock Compensation (Topic 718), Improvements
to Employee Share-Based Payment Accounting. Update 2016-09 provides guidance
designed to simplify of the accounting treatment of certain matters surrounding
share-based compensation. Update 2016-09 is effective for annual periods
beginning after December 15, 2016, and interim periods within those annual
periods. Changes related to the timing of when excess tax benefits are
recognized, minimum statutory withholding requirements, forfeitures, and
intrinsic value should be applied using a modified retrospective transition
method by means of cumulative-effect adjustment to equity as of the beginning of
the period in which the guidance is adopted. It is likely that some of the
guidance in this Update, related to public entities, will apply to our Company.
Management is currently evaluating the possible impact this Update may have on
the financial presentation of the Companys consolidated financial
statements.
Leases
In February 2016, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update No. 2016-02 (Update 2016-02), Leases (Topic 842). Update 2016-02 recognizes lease assets and lease
liabilities on the balance sheet and requires disclosing key information about
leasing arrangements. Under previous standards, assets and liabilities were only
recognized for leases that met the definition of a capital lease. Our
preliminary review indicates that many of the Companys lease contracts would be
subject to the reporting requirements defined by this Update. The Update is
effective for public companies with fiscal years beginning after December 15,
2018, including interim periods within those fiscal years. Early adoption is
permitted. In transition, the Company would be required to recognize and measure
leases at the beginning of the earliest period being presented using a modified
retrospective approach. Management is still evaluating the possible impact this
Update may have on the financial presentation of the Companys consolidated
financial statements.
Business Combinations
In September 2015, FASB issued Accounting Standards Update No.
2015-16 (Update 2015-16), Business Combinations (Topic 805), Simplifying the
Accounting Measurement-Period Adjustments. Update 2015-16 provides
additional guidance on how to account for provisional costs of business
combinations that are incomplete at the end of a reporting period. The amendment
to this Update is effective for public business entities for fiscal years
beginning after December 15, 2015, including interim periods within those fiscal
years. The specific circumstances addressed in this Update do not currently
apply to the Company. However, the Company may engage in transactions subject to
the guidance of this Update in future periods. Management will continue to
evaluate the possible impact that this guidance may have on future consolidated
financial statements.
-12-
NOTE 3 RESTRICTED CASH AND SECURITY BOND RESERVES
Under the terms of the loan agreements with the Department of Energy and Prudential Capital Group, various bond and cash reserves are required to provide assurances that the power plants will have the necessary funds to maintain expected operations and meet loan payment obligations. Restricted cash balances and bond reserves are summarized as follows:
Current restricted cash and bond reserves:
March 31, | December 31, | ||||||
Restricting Entities/Purpose | 2016 | 2015 | |||||
Idaho Department of Water Resources, Geothermal Well Bond | $ | 260,000 | $ | 260,000 | |||
Bureau of Land Management, Geothermal Lease Bond- Gerlach | 10,000 | 10,000 | |||||
State of Nevada Division of Minerals, Statewide Drilling Bond | 50,000 | 50,000 | |||||
Bureau of Land Management, Geothermal Lease Bonds- USG Nevada | 150,000 | 150,000 | |||||
Oregon Department of Geology and Mineral Industries, Mineral Land and Reclamation Program | 400,000 | 400,000 | |||||
Prudential Capital Group, Cash Reserves | 146,902 | 2,259 | |||||
Prudential Capital Group, Debt Service Reserves | 1,596,552 | 1,595,555 | |||||
Bureau of Land Management , Geothermal Rights Lease Bond | 10,000 | 10,000 | |||||
U.S. Department of Energy, Debt Service Reserve | 411,214 | 2,118,193 | |||||
State of California Division of Oil, Gas and Geothermal Resources, Well Cash Bond | 100,000 | 100,000 | |||||
CAISO, Transmission Interconnection Escrow Deposits | 1,000,069 | - | |||||
$ | 4,134,737 | $ | 4,696,007 |
Long-term restricted cash and bond reserves:
March 31, | December 31, | ||||||
Restricting Entities/Purpose | 2016 | 2015 | |||||
Nevada Energy, PPA Security Bond | $ | 1,468,898 | $ | 1,468,898 | |||
Prudential Capital Group, Maintenance Reserves | 1,144,501 | 708,300 | |||||
Prudential Capital Group, Well Reserves | 473,736 | 314,590 | |||||
U.S. Department of Energy, Operations Reserves | 270,000 | 270,000 | |||||
U.S. Department of Energy, Debt Service Reserves | 2,466,022 | 2,542,058 | |||||
U.S. Department of Energy, Short Term Well Field Reserves | 4,507,516 | 4,507,110 | |||||
U.S. Department of Energy, Long-Term Well Field Reserves | 5,069,492 | 4,966,543 | |||||
U.S. Department of Energy, Capital Expenditure Reserves | 2,767,849 | 2,718,290 | |||||
$ | 18,168,014 | $ | 17,495,789 |
The well bonding requirements ensure that the Company has sufficient financial resources to construct, operate and maintain geothermal wells while safeguarding subsurface, surface and atmospheric resources from unreasonable degradation, and to protect ground water aquifers and surface water sources from contamination. Other future costs of environmental remediation cannot be reasonably estimated and have not been recorded. The debt service reserves are required to provide assurance that the Company will have sufficient funds to meet its debt payment obligations for the terms specified by the loan agreements. The maintenance and capital expenditure reserves are required by the lending entities to ensure that funds are available to acquire and maintain critical components of power plants and related supporting structures to enable the plants to operate according to expectations. Except for the PPA Security Bond, all of the restricted funds consisted of cash deposits or money market accounts held in commercial banks. Portions of the cash deposits are subject to FDIC insurance. During the current quarter, the Company entered into an interconnection agreement with CAISO that required escrow deposits of $1,000,069 for funding costs at our WGP Geysers Project. The PPA Security Bond is held by the power purchaser. All of the reserve accounts were considered to be fully funded at March 31, 2016 and December 31, 2015.
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NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
During the first quarter ended March 31, 2016, the Company incurred costs that exceeded $495,000 for the design and engineering costs of the WGP Geysers Project power plant. Costs related to the study of the drilling results at Guatemala totaled approximately $108,000.
Property, plant and equipment, at cost, are summarized as follows:
March 31, | December 31, | ||||||
2016 | 2015 | ||||||
Land | $ | 3,074,052 | $ | 3,074,052 | |||
Power production plant | 159,800,893 | 159,800,893 | |||||
Grant proceeds for power plants | (52,965,236 | ) | (52,965,236 | ) | |||
Wells | 67,621,167 | 67,621,167 | |||||
Grant proceeds for wells | (3,464,555 | ) | (3,464,555 | ) | |||
Furniture and equipment | 3,695,896 | 3,668,984 | |||||
177,762,217 | 177,735,305 | ||||||
Less: accumulated depreciation | (32,589,594 | ) | (31,021,494 | ) | |||
145,172,623 | 146,713,811 | ||||||
Construction in progress | 21,694,027 | 21,022,981 | |||||
$ | 166,866,650 | $ | 167,736,792 |
Depreciation expense charged to plant operations and administrative costs for the three months ended March 31, 2016 and 2015, was $1,568,100 and $1,595,999; respectively.
Changes in construction in progress are summarized as follows:
For the Three | |||||||
Months Ended | For the Year | ||||||
March 31, | Ended December | ||||||
2016 | 31, 2015 | ||||||
Beginning balances | $ | 21,022,981 | $ | 15,652,722 | |||
Development/construction | 671,046 | 5,370,259 | |||||
Transfers into production | - | - | |||||
Ending balances | $ | 21,694,027 | $ | 21,022,981 |
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Construction in Progress, at cost, consisting of the following projects/assets by location are as follows:
March 31, | December 31, | ||||||
2016 | 2015 | ||||||
Raft River, Idaho: | |||||||
Unit I, well improvements | $ | 107,551 | $ | 105,160 | |||
Unit II, power plant, substation and transmission lines | 752,201 | 750,493 | |||||
Unit II, well construction | 2,160,727 | 2,146,531 | |||||
3,020,479 | 3,002,184 | ||||||
San Emidio, Nevada: | |||||||
Unit II, power plant, substation and transmission lines | 439,898 | 426,942 | |||||
Unit II, well construction | 3,802,362 | 3,798,563 | |||||
4,242,260 | 4,225,505 | ||||||
Neal Hot Springs, Oregon: | |||||||
Power plant and facilities | 53,551 | 50,297 | |||||
Well construction | 335,696 | 314,360 | |||||
389,247 | 364,657 | ||||||
WGP Geysers, California: | |||||||
Power plant and facilities | 325,989 | 325,989 | |||||
Well construction | 8,186,510 | 7,690,748 | |||||
8,512,499 | 8,016,737 | ||||||
Crescent Valley, Nevada: | |||||||
Well construction |
1,236,135 | 1,228,888 | |||||
El Ceibillo, Republic of Guatemala: | |||||||
Well Construction | 4,284,907 | 4,176,510 | |||||
Plant and facilities | 8,500 | 8,500 | |||||
4,293,407 | 4,185,010 | ||||||
$ | 21,694,027 | $ | 21,022,981 |
NOTE 5 INCOME TAXES
The Companys estimated effective income tax rate is as follows:
For the Three Months Ended | ||||||
March 31, | ||||||
2016 | 2015 | |||||
U.S. Federal statutory rate | 34.0% | 34.0% | ||||
Average State and foreign income tax, net of federal tax effect | 3.5 | 3.7 | ||||
Consolidated tax rate before non-controlling interest | 37.5 | 37.7 | ||||
Tax effect of non-controlling interests | (30.5 | ) | (17.6 | ) | ||
Net effective tax rate | 7.0% | 20.1% |
-15-
The provision for income taxes reflects an estimated effective income tax rate attributable to U.S. Geothermal Inc.s share of income. Our provision for income taxes for the three months ended March 31, 2016, reflects a reported effective tax rate of 7.0% which differs from the statutory federal income tax rate of 34% primarily due to the impact of the non-controlling interest and state income taxes.
NOTE 6 NOTES PAYABLE
U.S. Department of Energy
On August 31, 2011, USG Oregon LLC (USG Oregon), a subsidiary
of the Company, completed the first funding drawdown associated with the U.S.
Department of Energy (DOE) $96.8 million loan guarantee (Loan Guarantee) to
construct its power plant at Neal Hot Springs in Eastern Oregon (the Project).
All loan advances covered by the Loan Guarantee have been made under the Future
Advance Promissory Note (the Note) dated February 23, 2011. Upon the
occurrence and continuation of an event of default under the transaction
documents, all amounts payable under the Note may be accelerated. In connection
with the Loan Guarantee, the DOE has been granted a security interest in all of
the equity interests of USG Oregon, as well as in the assets of USG Oregon,
including a mortgage on real property interests relating to the Project site. No
additional advances are allowed under the terms of the loan. A total of 13 draws
were taken and each individual draw or tranche is considered to be a separate
loan. The loan principal is scheduled to be paid over 21.5 years from the first
scheduled payment date with semi-annual installments including interest
calculated at an aggregate fixed interest rate of 2.598% . The principal payment
amounts are calculated on a straight-line basis according to the life of the
loans and the original loan principal amounts. The principal portion of the
aggregate loan payment is adjusted as individual tranches are extinguished. The
principal payments started at $1,709,963 on February 10, 2014 and are scheduled
to be reduced to $1,499,259 on February 10, 2017 and continue through February
12, 2035. The loan balance at March 31, 2016 totaled $61,836,759 (current
portion $3,192,688).
Loan advances/tranches and effective annual interest rates are detailed as follows:
Annual Interest | |||||||
Description | Amount | Rate % | |||||
Advances by date: | |||||||
August 31, 2011* | $ | 2,328,422 | 2.997 | ||||
September 28, 2011 | 10,043,467 | 2.755 | |||||
October 27, 2011 | 3,600,026 | 2.918 | |||||
December 2, 2011 | 4,377,079 | 2.795 | |||||
December 21, 2011 | 2,313,322 | 2.608 | |||||
January 25, 2012 | 8,968,019 | 2.772 | |||||
April 26, 2012 | 13,029,325 | 2.695 | |||||
May 30, 2012 | 19,497,204 | 2.408 | |||||
August 27, 2012 | 7,709,454 | 2.360 | |||||
December 28, 2012 | 2,567,121 | 2.396 | |||||
June 10, 2013 | 2,355,316 | 2.830 | |||||
July 3, 2013* | 2,242,628 | 3.073 | |||||
July 31, 2013* | 4,026,582 | 3.214 | |||||
83,057,965 | |||||||
Principal paid through March 31, 2016 | (21,221,206 | ) | |||||
Loan balance at March 31, 2016 | $ | 61,836,759 |
* - Individual tranches have been fully extinguished.
-16-
SAIC Constructors LLC
Effective August 27, 2010, the Companys wholly owned
subsidiary (USG Nevada LLC) signed a construction loan agreement with SAIC
Constructors LLC (SAIC). The new 10.0 net megawatt power plant was considered
complete and operational for financial reporting purposes on September 1, 2012.
On February 15, 2013, USG Nevada LLC signed a settlement agreement with SAIC
that defined the terms of three separate debt components to settle the
obligations incurred under the construction loan agreement. As of December 31,
2013, two components of the settlement agreement were paid in full. On April 30,
2013, SAIC signed a loan agreement with Nevada USG Holdings LLC (parent company
of USG Nevada LLC and wholly owned subsidiary of the Company), that further
defined the terms of the remaining debt component of $2 million. This remaining
obligation will be repaid in quarterly installments of $119,382, including
interest at 7.0% per annum that began on July 31, 2013 and is scheduled to be
repaid by September 2018. The loan balance at March 31, 2016 totaled $985,855
(current portion $419,347).
Prudential Capital Group
On September 26, 2013, the Companys wholly owned subsidiary
(USG Nevada LLC) entered into a note purchase agreement with the Prudential
Capital Groups related entities (Prudential) to finance the Phase I San
Emidio geothermal project located in northwest Nevada. The term of the note is
approximately 24 years, and bears interest at fixed rate of 6.75% per annum.
Interest payments are due quarterly. Principal payments are due quarterly based
upon minimum debt service coverage ratios established according to projected
operating results made at the loan origination date and available cash balances.
The loan agreement is secured by USG Nevada LLCs right, title and interest in
and to its real and personal property, including the San Emidio project and the
equity interests in USG Nevada LLC. At March 31, 2016, the balance of the loan
was $29,652,133 (current portion $613,553).
Based upon the terms of the notes payable and expected conditions that may impact some of those terms, the total estimated annual principal payments were calculated as follows:
For the Year Ended | Principal | |||
March 31, | Payments | |||
2017 | $ | 4,225,588 | ||
2018 | 4,028,109 | |||
2019 | 3,644,455 | |||
2020 | 3,702,522 | |||
2021 | 3,830,356 | |||
Thereafter | 73,043,717 | |||
$ | 92,474,747 |
NOTE 7 COMMON STOCK
On January 25, 2016, the Company entered into a Purchase Agreement with Lincoln Park Capital (LPC). Under the Purchase Agreement, the Company has the right to sell and LPC has the obligation to purchase up to $10 million of equity capital over a 30-month period.
During the quarter ended March 31, 2016, the Company issued 2,463,810 shares of common stock at prices between $0.58 and $0.61 per share under the At the Market (ATM) Issuance Purchase Agreement with LPC.
During the quarter ended March 31, 2016, the Company issued 225,000 shares of common stock as a result of employees and former employees exercising stock options priced at $0.31per share.
-17-
NOTE 8 - STOCK BASED COMPENSATION
The Company has a stock incentive plan (the Stock Incentive Plan) for the purpose of attracting and motivating directors, officers, employees and consultants of the Company and advancing the interests of the Company. The Stock Incentive Plan is a 15% rolling plan approved by shareholders in September 2013, whereby the Company can grant options to the extent of 15% of the current outstanding common shares. Under the plan, all forfeited and exercised options can be replaced with new offerings. As of March 31, 2016, the Company can issue stock option grants totaling up to 16,543,535 shares. Options are typically granted for a term of up to five years from the date of grant. Stock options granted generally vest over a period of eighteen months, with 25% vesting on the date of grant and 25% vesting every six months thereafter. The Company recognizes compensation expense using the straight-line method of amortization. Historically, the Company has issued new shares to satisfy exercises of stock options and the Company expects to issue new shares to satisfy any future exercises of stock options.
The following table reflects the summary of stock options outstanding at January 1, 2016 and changes for the three months ended March 31, 2016:
Weighted | |||||||||
Average | |||||||||
Number of | Exercise | Aggregate | |||||||
shares under | Price Per | Intrinsic | |||||||
options | Share | Value | |||||||
Balance outstanding, January 1, 2016 | 12,613,500 | $ | 0.57 | $ | 3,940,061 | ||||
Forfeited/Expired | - | - | |||||||
Exercised` | (225,000 | ) | 0.31 | ||||||
Granted | 1,810,000 | 0.65 | |||||||
Balance outstanding, March 31, 2016 | 14,198,500 | $ | 0.58 | $ | 4,381,986 |
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatilities are based on historical volatility of the Companys stock. The Company uses historical data to estimate option volatility within the Black-Scholes model. The expected term of options granted represents the period of time that options granted are expected to be outstanding, based upon past experience and future estimates and includes data from the Plan. The risk-free rate for periods within the expected term of the option is based upon the U.S. Treasury yield curve in effect at the time of grant. The Company currently does not foresee the payment of dividends in the near term.
Changes in the subjective input assumptions can materially affect the fair value estimate and, therefore, the existing models do not necessarily provide a reliable measure of the fair value of the Companys stock options.
On March 23, 2016, the Company awarded 910,000 stock options at an exercise price of $0.63 expiring on March 23, 2021 to its employees. On March 31, 2016, the Company awarded 900,000 stock options at an exercise price of $0.67 expiring on March 31, 2021 to its employees and directors.
During the quarter ended March 31, 2016, 225,000 stock options exercisable at the price of $0.31 were exercised by employees and former employees.
As of March 31, 2016, there was $522,390 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 1.5 years.
-18-
Stock Compensation Plan (Restricted Shares)
On March 23, 2016, the Company granted 111,667 shares of Company stock at a price of $0.63 that fully vest on March 23, 2017 to its employees. On March 31, 2016, the Company granted 68,333 shares of Company stock at a price of $0.67 that fully vest on March 31, 2017 to its executive employees and directors. Through March 31, 2016, the total recognized fair value of these shares was $61,472. As of March 31, 2016, there was $133,900 of total unrecognized compensation cost related to non-vested restricted share grants.
Stock Purchase Warrants
At March 31, 2016, the outstanding broker warrants and share purchase warrants consisted of the following:
Broker | |||||||||||||
Warrant | Share | Warrant | |||||||||||
Broker | Exercise | Purchase | Exercise | ||||||||||
Expiration Date | Warrants | Price | Warrants | Price | |||||||||
May 23, 2017 | 255,721 | $ | 0.44 | - | $ | - | |||||||
December 21, 2017 | - | - | 3,310,812 | 0.50 |
NOTE 9 FAIR VALUE MEASUREMENT
Current U.S. generally accepted accounting principles establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
The three levels of the fair value hierarchy are as follows:
Level 1 Quoted prices are available
in active markets for identical assets or liabilities.
Level 2 Directly or indirectly market
based inputs or observable inputs used in models or other valuation
methodologies.
Level 3 Unobservable inputs that are
no corroborated by market data. The inputs require significant management
judgement or estimation.
The following table discloses by level within the fair value hierarchy the Companys assets and liabilities measured and reported on its Consolidated Balance Sheet as at fair value on a recurring basis:
At March 31, 2016:
Total | Level 1 | Level 2 | Level 3 | |||||||||
Assets: | ||||||||||||
Money market accounts * | $ | 27,425,156 | $ | 27,425,156 | $ | - | $ | - | ||||
At December 31, 2015: |
Total | Level 1 | Level 2 | Level 3 | |||||||||
Assets: | ||||||||||||
Money market accounts * | $ | 27,921,666 | $ | 27,921,666 | $ | - | $ | - |
* - Money market accounts include both restricted and unrestricted funds.
-19-
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Companys total lease costs are summarized as follows:
For the Three Months Ended, | ||||||
March 31, | ||||||
2016 | 2015 | |||||
Minimum lease payments | $ | 98,976 | $ | 64,479 | ||
Royalty based contingent lease payments | 99,038 | 74,131 | ||||
$ | 198,014 | $ | 138,610 |
The following is the total contracted lease operating obligations for the next five years:
Years Ending | ||||
December 31, | Amount | |||
2016 | $ | 488,635 | ||
2017 | 628,270 | |||
2018 | 621,491 | |||
2019 | 514,556 | |||
2020 | 484,838 | |||
Thereafter | 9,353,376 |
NOTE 11 JOINT VENTURES/NON-CONTROLLING INTERESTS
Non-controlling interests included on the consolidated balance sheets of the Company are detailed as follows:
March 31, | December 31, | |||||
2016 | 2015 | |||||
Gerlach Geothermal LLC interest held by Gerlach Green Energy, LLC | $ | 210,018 | $ | 213,882 | ||
Oregon USG Holdings LLC interest held by Enbridge Inc. | 24,208,132 | 25,353,058 | ||||
Raft River Energy I LLC interest held by Goldman Sachs | 1,778,693 | 2,044,984 | ||||
$ | 26,196,843 | $ | 27,611,924 |
Gerlach Geothermal LLC
On April 28, 2008, the Company formed Gerlach
Geothermal, LLC (Gerlach) with our partner, Gerlach Green Energy, LLC
(GGE). The purpose of the joint venture is the exploration of the Gerlach
geothermal system, which is located in northwestern Nevada, near the town of
Gerlach. Based upon the terms of the members agreement, the Company owned a 60%
interest and GGE owned a 40% interest in Gerlach Geothermal, LLC. The agreement
gives GGE an option to maintain its 40% ownership interest as additional capital
contributions are required. If GGE dilutes to below a 10% interest, their
ownership position in the joint venture would be converted to a 10% net profits
interest. Initially, the Company contributed $757,190 in cash and $300,000 for a
geothermal lease and mineral rights; and GGE has contributed $704,460 of
geothermal lease, mineral rights and exploration data. From November 18, 2014
through December 31, 2015, the Company made additional contributions that
totaled $411,000 to Gerlach that were not proportionally matched by GGE. These
contributions effectively reduced GGEs ownership interest to 32.49%, and
increased the Companys interest to 67.51% as of December 31, 2015. During the
quarter ended March 31, 2016, the Company made an unmatched contribution of
$10,000, which effectively increased the Companys ownership interest to 67.66%
.
-20-
The consolidated financial statements reflect 100% of the assets and liabilities of Gerlach, and report the current non-controlling interest of GGE. The full results of Gerlachs operations are reflected in the statement of income with the elimination of the non-controlling interest identified.
Oregon USG Holdings LLC
In September 2010, the Companys subsidiary, Oregon USG
Holdings LLC (Oregon Holdings), signed an Operating Agreement with Enbridge
Inc. (Enbridge) for the right to participate in the Companys Neal Hot Springs
project located in Malheur County, Oregon. On February 20, 2014, a new
determination under the existing agreement was reached with Enbridge that
established their ownership interest percentage at 40% and the Companys at 60%,
effective January 1, 2013. Oregon Holdings has a 100% ownership interest in USG
Oregon LLC. Enbridge has contributed a total of $32,801,000, including the debt
conversion, to Oregon Holdings in exchange for a direct ownership interest.
During the three months ended March 31, 2016 and the year ended December 31,
2015, distributions were made to the Company that totaled $3,643,517 and
$5,193,883; respectively. During the three months ended March 31, 2016 and the
year ended December 31, 2015, distributions were made to Enbridge that totaled
$2,429,012 and $3,462,588; respectively.
The consolidated financial statements reflect 100% of the assets and liabilities of Oregon Holdings and USG Oregon LLC, and report the current non-controlling interest of Enbridge. The full results of Oregon Holdings and USG Oregon LLCs operations are reflected in the statement of operations with the elimination of the non-controlling interest identified.
Raft River Energy I LLC (RREI)
Raft River Energy I is a joint venture between the Company and
Goldman Sachs. An Operating Agreement governs the rights and responsibilities of
both parties. At December 31, 2015, the Company had contributed approximately
$17.9 million in cash and property, and Goldman Sachs has contributed
approximately $34.1 million in cash. Profits and losses are allocated to the
members based upon contractual terms. The initial contracted terms stated that
the Company would be allocated 70% of energy credit sales and 1% of the residual
income/loss excluding energy credit sales. Under the terms of the amended
agreement that became effective December 16, 2015, the Company will receive a
95% interest in RREIs cash flows. Under the terms of both agreements, Goldman
Sachs receives a greater proportion of the share of profit or losses for income
tax purposes/benefits. This includes the allocation of profits and losses as
well as production tax credits, which will be distributed 99% to Goldman Sachs
and 1% to the Company during the first 10 years of production, which ends
December 31, 2017.
The consolidated financial statements reflect 100% of the assets and liabilities of RREI, and report the current non-controlling interest of Goldman Sachs. The full results of RREIs operations are reflected in the statement of income with the elimination of the non-controlling interest identified.
NOTE 12 ASSET RETIRMENT OBLIGATIONS
The Geysers, California
On April 22, 2014, the Company completed the acquisition of a
group of companies owned by Ram Power Corp.s (Ram) Geysers Project located in
Northern California. Two of the acquired companies (Western GeoPower, Inc. and
Etoile Holdings, Inc.) contained asset retirement obligations that, primarily,
originate with the environmental regulations defined by the laws of the State of
California. The liabilities related to the removal and disposal of arsenic
impacted soil and existing steam conveyance pipelines are estimated to total
$598,930. Obligations related to decommissioning four existing wells were
estimated at $606,000. These obligations are initially estimated based upon
discounted cash flows estimates and are accreted to full value over time. At
March 31, 2016, the Company has not considered it necessary to specifically fund
these obligations. Since the Company is still evaluating the development plan
for this project that could eliminate or significantly reduce the remaining
obligations, no charges directly associated the asset retirement obligations have been charged
to operations. The obligation balances at March 31, 2016 and 2015 totaled
$1,204,930 and 1,400,000; respectively. All of the obligations were considered
to be long-term at December 31, 2015.
-21-
Raft River Energy I LLC, USG Nevada LLC, and USG Oregon
LLC
These Companies operate in Idaho, Nevada and Oregon and are
subject to environmental laws and regulations of these states. The plants,
wells, pipelines and transmission lines are expected to have long useful lives.
Generally, these assets will require funds for retirement or reclamation.
However, these estimated obligations are believed to be less than or not
significantly more than the assets estimated salvage values. Therefore, as of
March 31, 2016 and 2015, no retirement obligations have been recognized.
NOTE 13 BUSINESS SEGMENTS
The Company has two reportable segments: Operating Plants and Corporate and Development. These segments are managed and reported separately due to dissimilar economic characteristics. Operating plants are engaged in the sale of electricity from the power plants pursuant to long-tern PPAs. Corporate and development costs are intended to produce additional revenue generating projects. A summary of financial information concerning the Companys reportable segments is shown in the following table:
Corporate & | ||||||||||
Operating Plants | Development | Consolidated | ||||||||
For the Three Months Ended March 31, 2016: | ||||||||||
Operating Revenues | $ | 8,503,276 | $ | - | $ | 8,503,276 | ||||
Net Income (Loss) | 3,493,691 | (2,305,896 | ) | 1,187,795 | ||||||
Total Assets | 164,048,691 | 60,694,493 | 224,743,184 | |||||||
For the Three Months Ended March 31, 2015: | ||||||||||
Operating Revenues | $ | 8,473,861 | $ | - | $ | 8,473,861 | ||||
Net Income (Loss) | 3,469,634 | (1,706,253 | ) | 1,763,381 | ||||||
Total Assets | 157,210,852 | 71,006,275 | 228,217,127 |
-22-
Item 2 - Managements Discussion and Analysis of Financial Condition and Results of Operations
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of risks and uncertainties. We caution readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. These statements are based on current expectations of future events. You can find many of these statements by looking for words like believes, expects, anticipates, intend, estimates, may, should, will, could, plan, predict, potential, or similar expressions in this document or in documents incorporated by reference in this document. Examples of these forward-looking statements include, but are not limited to:
|
our business and growth strategies; | |
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our future results of operations; | |
|
anticipated trends in our business; | |
|
the capacity and utilization of our geothermal resources; | |
|
our ability to successfully and economically explore for and develop geothermal resources; | |
|
our exploration and development prospects, projects and programs, including timing and cost of construction of new projects and expansion of existing projects; | |
|
availability and costs of drilling rigs and field services; | |
|
our liquidity and ability to finance our exploration and development activities; | |
|
our working capital requirements and availability; | |
|
our illustrative plant economics; | |
|
our illustrative growth goals and development and acquisition projections; | |
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market conditions in the geothermal energy industry; and | |
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the impact of environmental and other governmental regulation. |
These forward-looking statements are based on the current beliefs and expectations of our management and are subject to significant risks and uncertainties. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results may differ materially from current expectations and projections. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements:
|
the failure to obtain sufficient capital resources to fund our operations; | |
|
unsuccessful construction and expansion activities, including delays or cancellations; | |
|
incorrect estimates of required capital expenditures; | |
|
increases in the cost of drilling and completion, or other costs of production and operations; | |
|
ability to obtain a power purchase agreement for a new project; | |
|
the enforceability of the power purchase agreements for our projects; | |
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impact of environmental and other governmental regulation, including delays in obtaining permits or ongoing impacts of the sequester; |
-23-
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hazardous and risky operations relating to the development of geothermal energy; | |
|
our ability to successfully identify and integrate acquisitions; | |
|
the failure of the geothermal resource to support the anticipated power capacity; | |
|
our dependence on key personnel; | |
|
the potential for claims arising from geothermal plant operations; | |
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general competitive conditions within the geothermal energy industry; and | |
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financial market conditions. |
All subsequent written or oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, except as may be required under applicable U.S. securities law. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
The U.S. dollar is the Companys functional currency. All references to dollars or $ are to United States dollars.
General Background and Discussion
The following discussion should be read in conjunction with our unaudited consolidated financial statements for the quarter ended March 31, 2016 and notes thereto included in this quarterly report and our filed Annual Report for the year ended December 31, 2015 filed with the SEC on March 10, 2016.
U.S. Geothermal Inc. (the Company) is a Delaware corporation. The Companys common stock trades on the NYSE MKT LLC under the trade symbol HTM.
For the quarter ended March 31, 2016, the Company was focused on:
|
operating and optimizing the Neal Hot Springs, San Emidio and Raft River power plants; | |
|
permitting the deepening of temperature gradient wells at San Emidio; | |
|
executing the Large Generator Interconnection Agreement, continuing the optimizing and engineering of the power plant design, working on obtaining the Conditional Use Permit, and pursuing PPA opportunities for the WGP Geysers project; | |
|
flow testing resource wells and planning future drilling at El Ceibillo; | |
|
supporting the Special Committee of the Board in their process to evaluate strategic alternatives to increase shareholder value; | |
|
finalizing the acquisition of three binary power plant equipment packages; | |
|
finalizing the payment for the acquisition of approximately 6 additional megawatts of ownership interest in Raft River Energy I LLC; and | |
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evaluating potential new geothermal projects and acquisition opportunities. |
Project Overview
The following is a list of projects that are in operation, under development or under exploration. Projects in operation currently have producing geothermal power plants. Projects under development have a geothermal resource discovery or may have wells in place, but require the drilling of new or additional production and injection wells in order to supply enough geothermal fluid sufficient to operate a commercial power plant. Projects under exploration do not have a geothermal resource discovery occurrence yet, but have significant thermal and other physical evidence that warrants the expenditure of capital in search of the discovery of a geothermal resource. Due to inflation and marketplace increases in the costs of labor and construction materials, estimates provided for project development costs could understate actual costs.
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Projects in Operation
Projects in Operation | ||||||||||||||||
Generating | Contract | |||||||||||||||
Project | Location | Ownership | Capacity (megawatts) | Power Purchaser | Expiration | |||||||||||
Neal Hot Springs | Oregon | JV(1) | 22.0 | Idaho Power | 2036 | |||||||||||
San Emidio (Unit I) | Nevada | 100% | 10.0 | Sierra Pacific | 2038 | |||||||||||
Raft River (Unit I) | Idaho | JV(2) | 13.0(3) | Idaho Power | 2032 |
(1) | In September 2010, the Companys wholly owned subsidiary (Oregon USG Holdings LLC) entered into agreements that formulated a strategic partnership with Enbridge (U.S.) Inc. (Enbridge). Enbridge contributed approximately $32.8 million to the Neal Hot Springs geothermal project. The Companys equity interest in the project is 60% and Enbridges equity interest is 40%. | |
(2) | In December 2015, the Company purchased 45% of the Raft River Energy I LLC membership interest from Goldman Sachs Group, bringing the Companys membership interest in the project to 95%. Goldman retains a 5% membership interest. | |
(3) | The annual average net output design for the plant is 13 megawatts. The output of the Raft River Unit I plant currently is approximately 9.4 megawatts annual average. |
Neal Hot Springs, Oregon
Neal Hot Springs is located in Eastern Oregon near the town of
Vale, the county seat of Malheur County, and achieved commercial operation on
November 16, 2012. The Neal Hot Springs facility is designed as a 22 megawatt
net annual average power plant, consisting of three separate 12.2 megawatt
(gross) modules, with each module having a design output of 7.33 megawatts (net)
annual average based on a specific flow and temperature of geothermal brine.
For the first quarter of 2016, generation was 53,671 megawatt-hours with an average of 25.4 net megawatts per hour of operation and plant availability was 96.7% . The plant generated 53,500 megawatt-hours in the first quarter of 2015. A 2.3 day maintenance outage was taken on Unit 1 and a 1.8 day outage was taken on Unit 2 during the quarter to replace the high pressure feed pumps under the terms of the TAS Settlement Agreement.
Work is ongoing to advance a hybrid cooling system that would increase summer power generation at the project. Two new fresh water drilling targets have been identified, with drilling expected to start in the second quarter. The minimum amount of water needed for a hybrid cooling system is approximately 200 gallons per minute (gpm) per module. A purchase or long term lease of existing surface water or groundwater rights is also being studied. An initial study of various hybrid cooling methods was completed by Power Engineers which confirms a strong economic return for hybrid cooling if enough water can be found.
The PPA for the project was signed on December 11, 2009 with the Idaho Power Company. It has a 25 year term, and a variable percentage annual price escalation. The PPA has a seasonal pricing structure that pays 120% of the average price for four months (July, August, November, December), 100% of the average price for five months (January, February, June, September, October) and 73.3% of the average price for three months (March, April, May). The average price paid under the PPA for 2016 is $109.27 ($106.79 for 2015) per megawatt-hour.
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San Emidio Unit I, Nevada
The Unit I power plant at San Emidio is located approximately
100 miles north-east of Reno, Nevada near the town of Gerlach, and achieved
commercial operation on May 25, 2012. The San Emidio facility is a single 14.7
megawatt (gross) module, with a design output of 9 megawatts (net) annual
average based on a specific flow and temperature of geothermal brine.
For the first quarter of 2016, generation was 20,433 megawatt-hours with an average of 9.4 net megawatts per hour of operation and plant availability was 99.4% . The plant generated 21,754 megawatt-hours in the first quarter of 2015.
On June 1, 2011, an amended and restated PPA was signed with Sierra Pacific Power Company d/b/a NV Energy for the sale of up to 19.9 megawatts of electricity on an annual average basis. The PPA has a 25-year term with a base price of $89.75 per megawatt-hour, and an annual escalation rate of 1 percent. The average price paid under the PPA for 2016 is $93.01 ($92.08 for 2015) per megawatt-hour.
Raft River, Idaho
Raft River Unit I is located in Southern Idaho, near the town
of Malta, and achieved commercial operation on January 3, 2008. The Raft River
facility is a single 18 megawatt (gross) module, with a design output of 13
megawatts (net) annual average based on a specific flow and temperature of
geothermal brine.
For the first quarter of 2016, generation was 19,684 megawatt-hours with an average of 9.4 net megawatts per hour of operation and plant availability was 100%. The plant generated 20,672 megawatt-hours in the first quarter of 2015.
Production well RRG-2 was taken off line on February 9, 2016 when the production pump failed. The pump was pulled in March 2016, and the well remains off line in preparation for drilling a second production leg on the well. Drilling is planned for the second quarter after the selection of a drilling contractor.
The PPA for the project was signed on September 24, 2007 with the Idaho Power Company and allows for the sale of up to 13 megawatts of electricity on an annual average basis. The PPA has a 25 year term with a starting average price for the year 2007 of $52.50 that escalates at 2.1% per year through 2020 and then at 0.6% per year until the end of the contract in 2034. The Idaho Power PPA has a seasonal pricing structure that pays 120% of the average price for four months (July, August, November, December), 100% of the average price for five months (January, February, June, September, October) and 73.5% of the average price for three months (March, April, May). The average price paid under the PPA for 2016 is $63.30 ($62.00 for 2015) per megawatt-hour.
In addition to the price paid for energy by Idaho Power, Raft River Unit I currently receives $4.75 per megawatt-hour under a separate contract for the sale of Renewable Energy Credits (RECs) to Holy Cross Energy, a Colorado electric cooperative. Starting in calendar year 2018, 51% of the RECs produced by the project will be owned by the Idaho Power Company and 49% by the project. For the 49% of RECs owned by the Raft River project, a new, 10 year REC contract with the Public Utility District No. 1 of Clallam County, Washington will replace the current contract. The Company currently receives 95% of the REC income during the remaining term of the Holy Cross contract and will receive 95% of the REC income due to Raft River during the term of the Clallam County contract.
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Mergers and Acquisitions
Raft River, Idaho
In March 2016, we completed the purchase of a majority of
Goldman Sachs ownership and cash flow interest in the Raft River geothermal
project. Effective on December 14, 2015 we acquired 95% of the project and will
receive 95% of the cash flow instead of the previous 1% that we were contracted
to receive until or if the previously existing 50-50 ownership position changed
under the tax equity structure.
The total purchase price under the agreement was $5.1 million for the 95% interest, with an option to purchase the balance of Goldmans interest for Fair Market Value at the end of 2017. The first payment of $3.5 million was made to Goldman in December and the final payment of $1.635 million, which includes interest on the note, was made on March 31, 2016 to complete the transaction.
The purchase unlocks our ability to consider capital upgrades that may increase output from the facility and potentially reach its design capacity of 13 megawatts. Under the agreement, we will also receive 100% of any increased cash flow and tax benefits from any project improvements. Plans are currently underway to drill a second production leg on well RRG-2 during the second quarter of 2016.
Power Plant Equipment
In December, all of the major and long lead equipment for the
construction of three binary geothermal power plants was acquired for a total
purchase price of $1.5 million (approximately 5% of the equipments estimated
original cost of $28 million). A first payment of $750,000 was made upon signing
the agreement, and the final payment of $750,000 was made in January 2016. The
equipment was part of an order for six power plant units by another geothermal
developer, but was not installed. The components for the three units being
purchased are all new and unused, and are being held in storage.
The equipment is from the same manufacturers, and is of a similar size and design, to that installed at the Companys Neal Hot Springs and San Emidio power plants. The design output of the acquired units totals approximately 35 megawatts (MW). Actual output of each unit will be determined by resource conditions found at the sites at which the equipment is ultimately installed.
The three equipment packages represent approximately 70% of the components needed for the complete plants, and will meet the major and long lead equipment requirements for the Companys proposed Crescent Valley I power plant (25 MW) and San Emidio II power plant (10 MW). This equipment gives us the ability to expand our megawatt output at our existing portfolio of advanced stage development projects at significantly lower cost, and in much shorter construction timeframes
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Projects Under Development/Exploration
Projects Under Development | ||||||||||||||||||
Estimated | ||||||||||||||||||
Target | Projected | Capital | ||||||||||||||||
Development | Commercial | Required | Power | |||||||||||||||
Project | Location | Ownership | (Megawatts) | Operation Date | ($million) | Purchaser | ||||||||||||
Raft River | Idaho | 100% | 3 | 3rd Quarter 2016 | 3 | IDPC | ||||||||||||
Neal Hot Springs | Oregon | 60% | 3 | 3rd Quarter 2017 | 10 | IDPC | ||||||||||||
San Emidio Phase II | Nevada | 100% | 10 | 4th Quarter 2017* | 60 | TBD | ||||||||||||
WGP Geysers | California | 100% | 30 | 2nd Quarter 2018* | 150 | TBD | ||||||||||||
El Ceibillo Phase I | Guatemala | 100% | 25 | 2nd Quarter 2018* | 140 | TBD | ||||||||||||
Crescent Valley Phase I | Nevada | 100% | 25 | 4th Quarter 2018* | 130 | TBD |
* | - Commercial operation dates are projections only. Actual dates can only be provided after power purchase agreements have been obtained. |
Properties Under Exploration | ||||||||||
Target Development | ||||||||||
Project | Location | Ownership | *(Megawatts) | |||||||
Gerlach | Nevada | 67.7% | 10 | |||||||
Vale | Oregon | 100% | 15 | |||||||
El Ceibillo Phase II | Guatemala | 100% | 25 | |||||||
Neal Hot Springs II | Oregon | 100% | 10 | |||||||
Raft River Unit II | Idaho | 100% | 13 | |||||||
Crescent Valley Phase II | Nevada | 100% | 25 | |||||||
Crescent Valley Phase III | Nevada | 100% | 25 | |||||||
Lee Hot Springs | Nevada | 100% | 20 | |||||||
Ruby Hot Springs Phase I | Nevada | 100% | 20 |
* | Target development sizes are predevelopment estimates of resource potential of unproven resources. The estimates are based on our evaluation of available information regarding temperature, and where available, flow. |
Property Details | |||||||||||||
Property Size | |||||||||||||
(square | |||||||||||||
Property | miles) | Temperature (ºF) | Depth (Ft) | Technology | |||||||||
Neal Hot Springs | 9.6 | 286-311 | 2,500-3,000 | Binary | |||||||||
San Emidio | 27.9 | 289-316 | 1,500-3,000 | Binary | |||||||||
Raft River | 10.8 | 275-302 | 4,500-6,000 | Binary | |||||||||
Gerlach | 4.7 | 338-352 | 2,000-3,000 | Binary | |||||||||
El Ceibillo | 38.6 | 410-526 | 1,800-TBD | Steam/Flash | |||||||||
WGP Geysers | 6.0 | 380-598 | 6,000-10,000 | Steam | |||||||||
Crescent Valley | 33.3 | 326-351 | 2,000-3,000 | Binary | |||||||||
Lee Hot Springs | 4.0 | 280-320 | 1,250-5,000 | Binary | |||||||||
Ruby Hot Springs | 3.3 | 315-340 | 1,670-4,500 | Binary | |||||||||
Vale | 0.6 | 290-300 | 2,450-5,000 | Binary |
WGP Geysers, California
The WGP Geysers project is located in the broader Geysers
geothermal field located approximately 75 miles north of San Francisco,
California. The broader Geysers geothermal field is the largest producing
geothermal field in the world generating more than 850 megawatts of power for
more than 30 years. Acquisition of the WGP Geysers Project from Ram Power was
completed on April 22, 2014 for $6.4 million.
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We received the signed Large Generator Interconnection Agreement for the project on March 6, 2016 with the California Independent System Operator and Pacific Gas & Electric. This agreement allows the project to connect to the transmission grid and deliver up to 35 megawatts of energy. The interconnection cost remains at $1.9 million for the grid operators portion of the work in the substation and an initial payment on this cost of $1.0 million was made on February 5, 2016. An additional 1.7 mile long transmission line will be required to connect from the plant to the substation.
Engineering optimization of the power plant design is continuing with a focus on the new hybrid plant design that includes both water and air cooling. This design will dramatically increase the volume of water available for injection back into the reservoir. Traditional water cooled steam plants re-inject approximately 20 to 25% of the water that is removed during power generation, while a hybrid design may re-inject 65% or more of the water. This higher injection rate will provide longer term, stable steam production, and will result in increased power generation over the life of the project. Approval of the new conditional use permit from Sonoma County is expected during the second quarter of 2016.
Based on flow test data generated in mid-2015, GeothermEx reported in September 2015 that the four production wells are capable of delivering an initial capacity of 28.1 MW (gross) or 25.4 MW (net) based on current power plant steam conversion rates from a detailed design for a 28.8 MW (net) power plant. These longer term tests show the wells would initially produce a combined total of 458,000 pounds per hour of steam compared to 462,000 pounds per hour of steam from short term tests performed when the wells were first drilled, demonstrating that the capacity of the wells is virtually unchanged. Using the average steam production rate from these wells and an assumed interference factor of 30%, GeothermEx estimates that an additional two to three production wells would be needed to support the long term operation of a 28.8 MW (net) plant.
Two methods were used to estimate the long term capacity of the WGP project, and both support a high probability that a 28.8 MW (net) plant can be operated for 25 years, given the modern plant design and the available productive area. The first method is an established natural gas reservoir engineering calculation that is routinely used at The Geysers, which estimated that the reservoir could support the 28.8 MW (net) plant for up to 54 years using hybrid cooling as the basis. The second method is an empirical approach based on GeothermExs extensive experience at The Geysers, and uses the estimated steam production capacity per acre within the productive area of a geothermal leasehold. On this basis, the productive acreage within the WGP leasehold has steam reserves sufficient to supply up to 44 MW (net) with a conventional injection level of 25%, and potentially more at the higher injection levels associated with the planned hybrid cooling system.
Discussions with numerous potential off-takers for the power from our power plant continue, with high interest expressed by a number of them for base load, renewable power to replace fossil fuel based power generation that is being phased out of their portfolios. We responded to one Request For Proposal (RFP) early in the year, but did not make the initial short list. Additional information has been provided to the issuer. Other RFPs are anticipated in both the second and third quarters of 2016.
El Ceibillo, Republic of Guatemala
A geothermal energy rights concession, located 14 kilometers
southwest of Guatemala City, was awarded to U.S. Geothermal Guatemala S.A., a
wholly owned subsidiary of the Company in April 2010. The concession has a five
year term for the development and construction of a power plant. There are
24,710 acres (100 square kilometers) in the concession which is at the center of
the Aqua and Pacaya twin volcano complex.
With the concession agreement modified in 2015 to reflect the updated development schedule, discussions are being reestablished with potential buyers for the output from the plant. Additionally, the Guatemalan government, through the National Electrical Energy Commission (COMISIÓN NACIONAL DE ENERGÍA ELÉCTRICACNEE), has announced that it is preparing to issue a 40MW RFP exclusively for geothermal power. CNEE has retained Tetra Tech Inc., a large U.S. based consulting firm, to prepare the RFP, and it is expected to be released during the second quarter of 2016.
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Four wells have intersected commercial temperature and permeability; TG-6, EC-2A, EC-3 and EC-4, indicating a reservoir with a temperature of 383-392°F (195-200°C) at an approximate depth of 1,300 feet (400 meters). Mannvit Engineering has been retained to advise the company on development of the field and to construct a reservoir model for the project. Wells EC-2A, EC-3 and EC-4 have undergone flow and injection testing. Due to the small diameter of the wells, a larger diameter well must be drilled and flow tested in order to obtain needed reservoir pressure data than can be used to estimate the size and production characteristics of the El Ceibillo reservoir.
Plans are under way to drill a large diameter well to intersect the EC-2A production zone. Drilling is expected to begin during the second quarter, with flow testing to be completed by the end of the quarter.
San Emidio, Nevada
The Phase II expansion is dependent on successful development
of additional production and injection well capacity. We expect that
approximately 75% of the Phase II development may be funded by project loans,
with the remainder funded through equity financing. We anticipate the project
qualifying for the 30% Federal Investment Tax Credit, which when monetized can
meet most of the equity financing requirements.
During 2015, five, 1,000 ft. deep temperature gradient wells were completed in the southwest zone, with all of the wells encountering high bottom hole temperatures and anomalously high temperature gradients. Bottom-hole temperatures ranged from 224°F to 274°F, and temperature gradients in four of the wells ranged from 12.4°F per 100 feet to 14.9°F per 100 feet. These results are considered to be indicative of a nearby, active geothermal system at depth.
A second phase drilling program to deepen the two most prospective wells is being permitted with the Bureau of Land Management. Delays with the permitting requirements have been worked through, and we expect to be able to conduct drilling operations on the two wells this summer. Additional temperature gradient wells or development wells to further expand the anomaly are also under consideration depending upon the outcome of the deepening of first two wells. Further drilling will have to be permitted separately, after additional cultural and endangered species surveys are conducted.
The final stage study of the interconnection process, the Facilities Study, was started by NV Energy in February, and is anticipated to be completed during the second quarter of 2016. We currently have 16 megawatts of transmission capacity and are asking for an additional 3.9 megawatts to cover the Phase II plant requirements for transmission.
Raft River, Idaho
In 2011, the Raft River Phase II project was awarded an $11.4
million cost-shared, thermal stimulation program grant from the Department of
Energy with the University of Utah Energy And Geoscience Institute as the
project lead. The goal of the project is to create an Enhanced Geothermal System
(EGS) by creating thermal fractures and developing a corresponding increase in
permeability in the low permeability rock. Well RRG-9 was made available, and
after installing four, 300 ft. deep monitoring wells with seismic geophones to
allow for seismic monitoring, the first stage of injection into the well began
in June 2013.
Initially the well was only capable of receiving 20 gallons per minute (gpm) of water due to the low permeability of the rock. After several moderate pressure stimulations, injection of cold injectate has continued through the quarter which causes thermal fracturing within the host rock. The flow into the well continues to increase from its initial 20 gpm to a current flow rate of 977 gpm indicating a significant success.
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Well RRG-9 continues to be used temporarily as an injection well as an extension of the DOE EGS program, which is expected at this time to continue through 2016. The Companys contributions for the thermal stimulation program are made in-kind by the use of the RRG-9 well, well field data provided by the Company, and through ongoing monitoring support.
Crescent Valley, Nevada
The Crescent Valley prospect consists of approximately 21,300
acres (33.3 square miles) of private and Federal geothermal leases. It is
located in Eureka County, Nevada, approximately 15 miles south of the Beowawe
geothermal power plant and about 33 miles southeast of Battle Mountain. The
project was acquired as part of the Earth Power Resources merger which was
completed in November 2014.
In light of federal legislation that extended the qualification for the 30% Investment Tax Credit to projects that began construction prior to December 31, 2014, drilling of the first production/injection well CVP-001 (67-3) was initiated in December of 2014, following completion of gravity surveys, and analysis of prior temperature gradient drilling data. Well CVP-001 was completed on March 27, 2015 to a depth of 2,746 feet. The well exhibited modest permeability with a flowing temperature of 213°F, which makes the well suited for duty as an injection well. The next phase of development work is in the planning stages and is currently on hold due to market conditions.
Operating Results
For the three months ended March 31, 2016, the Company reported net income attributable to the Company of $151,392 ($0.00 income per share) which represented a decrease of $582,743 (79.4% decrease) from net income attributable to the Company of $734,135 reported in the same period ended 2015 ($0.01 income per share). Both favorable and unfavorable variances were reported in areas related to the operations of the Companys three power plants. A notable favorable variance was reported for income tax expense. Notable unfavorable variances were noted for corporate and administrative costs, professional and management fees, and travel and promotional costs. The combined variance for these three line items totaled $785,036, which was an increase of 110.7% from the same period in the prior year. The variance is, in a large part, the result of a one-time expense for financial advising and associated costs.
Plant Operations
A summary of energy sales by plant location is as follows:
For the Three Months Ended March 31, | ||||||||||||
2016 | 2015 | |||||||||||
$ | % | $ | % | |||||||||
Energy sales by plant: | ||||||||||||
Neal Hot Springs, Oregon | 5,366,004 | 63.8 | 5,207,350 | 62.2 | ||||||||
San Emidio, Nevada | 1,900,467 | 22.6 | 2,003,346 | 23.9 | ||||||||
Raft River, Idaho | 1,144,351 | 13.6 | 1,165,050 | 13.9 | ||||||||
8,410,822 | 100.0 | 8,375,746 | 100.0 |
% | - represents the percentage of total Company energy sales. |
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A quarterly summary of megawatt hours generated by plant are as follows:
For the Quarter Ended, | |||||||||||||||
March 31, | June 30, | September 30, December 31, | March 31, | ||||||||||||
2015 | 2015 | 2015 | 2015 | 2016 | |||||||||||
Neal Hot Spring, Oregon | 53,500 | 37,232 | 33,498 | 52,642 | 53,671 | ||||||||||
San Emidio, Nevada | 21,754 | 18,492 | 18,924 | 20,369 | 20,433 | ||||||||||
Raft River, Idaho | 20,672 | 17,223 | 15,950 | 21,751 | 19,684 | ||||||||||
95,926 | 72,947 | 68,372 | 94,762 | 93,788 |
Neal Hot Springs, Oregon (USG Oregon LLC) Plant Operations
For the three months ended March 31, 2016, subsidiary net income was $3,226,740 which was an increase of $216,477 (7.2% increase) from subsidiary net income of $3,010,263 reported in the same period ended 2015.
Energy sales for the three months ended March 31, 2016, increased 3.0% from the same period ended 2015. The sales increase is primarily due to the effective contracted rate increase of 2.7% . The plant produced 53,671 megawatt hours, which was consistent with the same quarter in the prior year. In the current quarter, the plants three units experienced a total of 166 hours of lost production. In the quarter ended March 31, 2015, the plants three units experienced a total of 192 hours of lost production. In both periods, the main outages were caused by plugged vaporizers.
Plant operating costs, excluding depreciation and amortization, for the three months ended March 31, 2016 decreased $47,257, (4.9% decrease) from the same period ended 2015. For the current quarter, field maintenance costs were 56.4% lower than the same quarter in the prior year. In the three months ended March 31, 2015, repair costs that exceeded $53,000 were incurred to repair the vaporizers. Also, training costs that totaled approximately $24,000 were incurred in the prior year.
Summarized statements of operations for the Neal Hot Springs, Oregon plant are as follows:
Three Months Ended March 31, | ||||||||||||||||||
2016 | 2015 | Variance | ||||||||||||||||
$ | % | $ | % | $ | %* | |||||||||||||
Plant revenues: | ||||||||||||||||||
Energy sales | 5,366,004 | 100.0 | 5,207,350 | 100.0 | 158,654 | 3.0 | ||||||||||||
Plant expenses: | ||||||||||||||||||
General operations | 917,848 | 17.2 | 965,105 | 18.6 | 47,257 | 4.9 | ||||||||||||
Depreciation and amortization | 818,062 | 15.2 | 819,708 | 15.7 | 1,646 | 0.2 | ||||||||||||
1,735,910 | 32.4 | 1,784,813 | 34.3 | 48,903 | 2.7 | |||||||||||||
Gross Profit | 3,630,094 | 67.6 | 3,422,537 | 65.7 | 207,557 | 6.1 | ||||||||||||
Other income (expense): | ||||||||||||||||||
Interest expense | (405,315 | ) | (7.5 | ) | (414,833 | ) | (8.0 | ) | 9,518 | 2.3 | ||||||||
Other and interest income | 1,961 | 0.0 | 2,559 | 0.1 | (598 | ) | (23.4 | ) | ||||||||||
(403,354 | ) | (7.5 | ) | (412,274 | ) | (7.9 | ) | 8,920 | 2.2 | |||||||||
Subsidiary Net Income | 3,226,740 | 60.1 | 3,010,263 | 57.8 | 216,477 | 7.2 |
% | - represents the percentage of total plant operating revenues. | |
%* | - represents the percentage of change from 2015 to 2016. Increases in revenues and decreases in expenses from the prior period to the current period are considered to be favorable and are presented as positive figures. |
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The intercompany elimination adjustments for interest expense, management fees and lease costs are not incorporated into the presentation of the subsidiarys operations.
Key quarterly production data for the Neal Hot Springs, Oregon plant is summarized as follows:
Mega- | Ave. Rate | Depreciation | ||||||||||||||
watt | Energy | per | Subsidiary | & | ||||||||||||
Hours | Sales | Megawatt | Net Income* | Amortization | ||||||||||||
Quarter Ended: | Produced | ($) | Hour ($) | ($) | ($) | |||||||||||
June 30, 2014 | 40,629 | 3,402,318 | 83.7 | 1,196,404 | 820,526 | |||||||||||
September 30, 2014 | 32,246 | 3,712,988 | 115.0 | 1,412,124 | 805,497 | |||||||||||
December 31, 2014 | 54,472 | 6,377,488 | 117.1 | 4,147,356 | 819,924 | |||||||||||
March 31, 2015 | 53,500 | 5,207,350 | 97.3 | 3,010,263 | 819,708 | |||||||||||
June 30, 2015 | 37,232 | 3,188,091 | 85.6 | 1,027,928 | 819,785 | |||||||||||
September 30, 2015 | 33,498 | 4,004,715 | 119.3 | 1,651,029 | 819,450 | |||||||||||
December 31, 2015 | 52,642 | 6,423,643 | 122.0 | 4,311,789 | 819,171 | |||||||||||
March 31, 2016 | 53,671 | 5,365,129 | 100.0 | 3,226,740 | 818,062 |
* | - The intercompany elimination adjustments for management fees and corporate support are not incorporated into the presentation of the subsidiarys net income. |
San Emidio, Nevada Plant Energy Sales and Plant Operating Expenses (USG Nevada LLC)
For the three months ended March 31, 2016, the San Emidio plant reported subsidiary net income of $425,447 which was a decrease of $130,854 (23.5% decrease) from the $556,301 in subsidiary net income reported in the same period ended 2015.
Energy sales for the three months ended March 31, 2016, decreased 5.1% from the same period ended 2015. During the current quarter, the plant produced 20,433 megawatt hours, which was a 6.1% decrease from the same period ended 2015. In the current quarter, the decrease in production was primarily due to the loss of a production pump motor. Also, the plant lost production due to a cooling water pressure transmitter freezing and a stoppage needed for programing changes made to the plants operating software.
For the three months ended March 31, 2016, the total operating costs, excluding depreciation, increased $36,786, which was a 5.9% increase from the same period ended 2015. Increases in field maintenance costs and taxes were partially offset by decreases in corporate and administrative costs. Field maintenance costs increased $37,667 (48.1% increase) from the same period ended in 2015. During the current quarter, costs that exceeded $71,000 were needed for repairs to a production pump motor and a cooling water pump.
Taxes increased $55,441 (301.3% increase) from the same period ended in 2015. The mineral proceeds tax for the State of Nevada were significantly lower in 2015 due to an overpayment in 2014 and lower budgeted allowable expenses for 2015.
Effective November 2015, the Company discontinued the management fees charged to the plant. Management fees of $68,799 were charged to the plant for the three months ended March 31, 2015.
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Summarized statements of operations for the San Emidio, Nevada plant are as follows:
Three Months Ended March 31, | ||||||||||||||||||
2016 | 2015 | Variance | ||||||||||||||||
$ | % | $ | % | $ | %* | |||||||||||||
Plant revenues: | ||||||||||||||||||
Energy sales | 1,900,467 | 100.0 | 2,003,346 | 100.0 | (102,879 | ) | (5.1 | ) | ||||||||||
Plant expenses: | ||||||||||||||||||
Operations | 658,048 | 34.7 | 621,262 | 31.0 | (36,786 | ) | (5.9 | ) | ||||||||||
Depreciation and amortization | 318,214 | 16.7 | 316,346 | 15.8 | (1,868 | ) | (0.6 | ) | ||||||||||
976,262 | 51.4 | 937,608 | 46.8 | (38,654 | ) | (4.1 | ) | |||||||||||
Gross Profit | 924,205 | 48.6 | 1,065,738 | 53.2 | (141,553 | ) | (13.3 | ) | ||||||||||
Other income (expense): | ||||||||||||||||||
Interest expense | (500,613 | ) | (26.3 | ) | (509,718 | ) | (25.4 | ) | 9,105 | 1.8 | ||||||||
Other income | 1,855 | 0.1 | 281 | 0.0 | 1,574 | 560.1 | ||||||||||||
(498,758 | ) | (26.2 | ) | (509,437 | ) | (25.4 | ) | 10,679 | 2.1 | |||||||||
Subsidiary Net Income | 425,447 | 22.4 | 556,301 | 27.8 | (130,854 | ) | (23.5 | ) |
% | - represents the percentage of total plant operating revenues. | |
%* | - represents the percentage of change from 2015 to 2016. Increases in revenues and decreases in expenses from the prior period to the current period are considered to be favorable and are presented as positive figures. | |
# | - Variance percentage was extremely high or undefined. |
The intercompany elimination adjustments for management fees are not incorporated into the presentation of the subsidiarys net operating income/loss.
Key quarterly production data for the San Emidio, Nevada plant is summarized as follows:
Mega- | Ave. Rate | Subsidiary | Depreciation | |||||||||||||
watt | Energy | per | Net Income | & | ||||||||||||
Hours | Sales | Megawatt | (Loss)* | Amortization | ||||||||||||
Quarter Ended: | Produced | ($) | Hour ($) | ($) | ($) | |||||||||||
June 30, 2014 | 15,686 | 1,450,526 | 91.2 | (203,424) | 316,283 | |||||||||||
September 30, 2014 | 18,240 | 1,663,119 | 91.2 | 109,515 | 316,638 | |||||||||||
December 31, 2014 | 21,745 | 1,982,709 | 91.2 | 158,352 | 315,609 | |||||||||||
March 31, 2015 | 21,754 | 2,003,346 | 92.1 | 556,301 | 316,346 | |||||||||||
June 30, 2015 | 18,492 | 1,702,633 | 92.1 | 264,410 | 315,846 | |||||||||||
September 30, 2015 | 18,924 | 1,742,750 | 92.1 | 386,033 | 314,940 | |||||||||||
December 31, 2015 | 20,369 | 1,875,755 | 92.1 | 278,453 | 316,269 | |||||||||||
March 31, 2016 | 20,433 | 1,900,467 | 93.0 | 425,447 | 318,214 |
* | - The intercompany elimination adjustments for management fees and corporate support charges are not incorporated into the presentation of the subsidiarys net income/loss. |
Raft River, Idaho Unit I (Raft River Energy I LLC) Plant Operations
For the three months ended March 31, 2016, the Raft River plant reported subsidiary net loss of $158,497 which was an unfavorable increase of $61,567 (63.5% loss increase) from the $96,930 in subsidiary net loss reported in the same period ended 2015.
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During the current three months, the plant produced 19,684 megawatts, which was a 4.8% decrease from the same period ended 2015. The decrease in production was partially offset by the contracted rate increase, which effectively increased 3.2% from the same period in the prior year. During the current quarter the plant lost production hours due to an outage caused by a disturbance on the grid due to a heavy snow storm.
Plant operating costs were consistent with the prior year. Increases in field maintenance costs were offset by decreases in chemicals and lubricants. In the current quarter the plants field maintenance costs increased $74,109 (64.8% increase) from the same quarter in 2015. Costs that exceeded $95,000 were incurred in the current quarter to pull a production pump for repairs. Also in the current quarter, a cooling pump was repaired for approximately $17,700 and the membranes used by the reverse osmosis system were replaced for approximately $13,000.
In the quarter ended March 31, 2015, the plant was required to replace the motive fluid at a total of $21,409. The motive fluid purchases/replacements were not needed in the current quarter.
The summarized statements of operations for RREI are as follows:
Three Months Ended March 31, | ||||||||||||||||||
2016 | 2015 | Variance | ||||||||||||||||
$ | % | $ | % | $ | %* | |||||||||||||
Plant revenues: | ||||||||||||||||||
Energy sales | 1,144,351 | 92.5 | 1,165,050 | 92.2 | (20,699 | ) | (1.8 | ) | ||||||||||
Energy credit sales | 92,454 | 7.5 | 98,115 | 7.8 | (5,661 | ) | (5.8 | ) | ||||||||||
1,236,805 | 100.0 | 1,263,165 | 100.0 | (26,360 | ) | (2.1 | ) | |||||||||||
Plant expenses: | ||||||||||||||||||
General operations | 951,104 | 76.9 | 938,106 | 74.3 | (12,998 | ) | (1.4 | ) | ||||||||||
Depreciation and amortization | 444,587 | 35.9 | 431,959 | 34.2 | (12,628 | ) | (2.9 | ) | ||||||||||
1,395,691 | 112.8 | 1,370,065 | 108.5 | (25,626 | ) | (1.9 | ) | |||||||||||
Gross Profit (Loss) | (158,886 | ) | (12.8 | ) | (106,900 | ) | (8.5 | ) | (51,986 | ) | (48.6 | ) | ||||||
Other income (expense) | 389 | 0.0 | 9,970 | 0.8 | (9,581 | ) | (96.1 | ) | ||||||||||
Subsidiary Net Loss | (158,497 | ) | (12.8 | ) | (96,930 | ) | (7.7 | ) | (61,567 | ) | (63.5 | ) |
% | - represents the percentage of total plant operating revenues. | |
%* | - represents the percentage of change from 2015 to 2016. Increases in revenues and decreases in expenses from the prior period to the current period are considered to be favorable and are presented as positive figures. |
The intercompany elimination adjustments for interest expense, management fees and lease costs are not incorporated into the presentation of the subsidiarys operations.
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Key quarterly production data for RREI is summarized as follows:
Mega- | Ave. Rate | Subsidiary | Depreciation | |||||||||||||
watt | Energy | per | Net Income | & | ||||||||||||
Hours | Sales | Megawatt | (Loss)* | Amortization | ||||||||||||
Quarter Ended: | Produced | ($) | Hour ($) | ($) | ($) | |||||||||||
June 30, 2014 | 18,069 | 907,194 | 50.2 | (579,569) | 428,180 | |||||||||||
September 30, 2014 | 18,501 | 1,273,013 | 68.8 | 117,281 | 429,164 | |||||||||||
December 31, 2014 | 20,614 | 1,425,811 | 69.9 | 203,414 | 431,214 | |||||||||||
March 31, 2015 | 20,672 | 1,165,050 | 56.4 | (96,930) | 431,959 | |||||||||||
June 30, 2015 | 17,223 | 888,599 | 51.6 | (668,764) | 438,955 | |||||||||||
September 30, 2015 | 15,950 | 1,106,643 | 69.4 | (296,743) | 443,233 | |||||||||||
December 31, 2015 | 21,751 | 1,533,621 | 70.5 | 425,745 | 443,744 | |||||||||||
March 31, 2016 | 19,684 | 1,144,351 | 58.2 | (158,497) | 444,587 |
* | - Subsidiary net income (loss) does not include intercompany elimination adjustments for interest expense, management fees and lease costs. |
Corporate Administrative
For the three months ended March 31, 2016, the Company reported
$354,046 in corporate and administrative costs which was an increase of $58,666
(19.9% increase) from the same period ended 2015. Additional filing fees that
exceeded $23,000 were incurred related to the registration of shares for the
option of extinguishing the obligation related to the acquisition of additional
ownership interest in Raft River Energy I LLC. Also, additional filing fees were
incurred related to the current quarter stock offerings. Rent/lease costs of
$18,331 were incurred for the storage of plant equipment acquired in the fourth
quarter of 2015. The majority of these storage costs will be eliminated when the
equipment is moved to Company owned facilities. Interest and other fees of
approximately $38,300 were incurred in the current quarter related to the
convertible debt obligation for the additional ownership interest of Raft River
Energy I LLC.
Professional and Management Fees
For the three months ended March 31, 2016, the Company reported
$1,056,509 in professional and management fees which was an increase of $673,386
(175.8% increase) from the same period ended 2015. In August of 2015, the
Company formed a Special Committee of the Board of Directors to thoroughly
explore strategic options to maximize shareholder value. The Company ended this
process and ended the contract with the primary consultant that was engaged in
the examination in March 2016. For the current quarter, the consultants fees
associated with this examination were approximately $544,000. The Company
incurred fees of $100,000 for services provided by a new financial advisor hired
during the current quarter. Legal costs of approximately $109,000 ($64,000
increase from the three months ended March 31, 2015) were incurred for services
related to the stock offerings under the At the Market (ATM) facility and the
strategic option examination.
Travel and Promotion
For the three months ended March 31, 2016, the Company reported
$83,412 in travel and promotional costs which were an increase of $52,985
(174.1% increase) from the same period ended 2015. During current quarter, the
Company incurred additional travel costs related to the process of exploring
strategic options to maximize shareholder value and to attend investment
conferences.
Net Income Tax Expense
For the three months ended March 31, 2016, the Company reported
net income taxes of $90,000, which was a decrease of $354,000 (79.7% decrease)
from the same period ended 2015. The variance was a function of lower income
attributed to the Company primarily due to higher professional fees and
administrative costs noted above.
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Non-Controlling Interests
The following is a summarized presentation of select financial
line items from the statement of operations by project and the impact of the
related non-controlling interests for the three months ended March 31, 2016:
Neal Hot | Activities and | Consolid- | ||||||||||||||
Statement of | Springs | San Emidio | Raft River | Corporate | ated | |||||||||||
Operations Element | $ | $ | $ | $ | $ | |||||||||||
Gross Profit (Loss) | 3,630,094 | 924,205 | (158,886 | ) | 128,284 | 4,523,697 | ||||||||||
Expenses/(Income) | 419,879 | 498,758 | (389 | ) | (4)2,327,654 | 3,245,902 | ||||||||||
Net Income(Loss) before tax expense | 3,210,215 | 425,447 | (158,497 | ) | (2,199,370 | ) | 1,277,795 | |||||||||
Income taxes USG Portion | (722,000 | ) | (160,000 | ) | (32,000 | ) | 824,000 | (90,000 | ) | |||||||
Non-controlling interests | (1)(1,284,086) | - | (2)243,820 | (3)3,863 | (1,036,403 | ) | ||||||||||
Net income attributable to U.S. Geothermal | 1,204,129 | 265,447 | 53,323 | (1,371,507 | ) | 151,392 |
(1) | The non-controlling interest for Neal Hot Springs represent a 40% interest for our joint venture partner, Enbridge. | |
(2) | The non-controlling interest for Raft River represents 5% of REC income and cash flows, and 99% of all remaining profits and losses allocated to the Goldman Sachs Group. | |
(3) | The non-controlling interest for our exploration activities represents an approximately 33% interest for our joint venture partner at Gerlach, GGE Development. | |
(4) | Major costs included in Exploration Activities and Corporate for the three months ended March 31, 2016 included: |
| Employee compensation | $ | 806,669 | ||||
| Corporate administration | 354,046 | |||||
| Professional fees | 1,056,509 |
These costs are the responsibility of U.S. Geothermal Inc. (the Parent Company) and cannot be allocated to projects. Once a project has been classified as developmental, the costs associated with a project will be capitalized.
Off Balance Sheet Arrangements
As of March 31, 2016, the Company does not have any off balance sheet arrangements.
Liquidity and Capital Resources
During the quarter ended March 31, 2016, the operating projects of U.S. Geothermal continued to generate significant available cash (after debt service and reserves) to fund our development activities and corporate costs. In addition, exercise of options generated $71,000 during the quarter. Excess available cash of $1.2 million at Raft River Energy I, LLC was distributed to the partners subsequent to quarter-end (USG portion 95%). We believe our cash and liquid investments at March 31, 2016 are adequate to fund our general operating activities through December 31, 2016.
Development of our projects under development and under exploration may require additional funding. In addition to government loans and grants discussed below, we anticipate that additional funding may be raised through financial and strategic partnerships, market loans, issuance of debt or equity, and/or through the sale of ownership interest in tax credits and benefits. The Company continues discussions with potential investors to evaluate alternatives for funding at the corporate and project levels.
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Idaho Power Company and Sierra Pacific Power (NV Energy), continue to pay for their power in a timely manner. This power is sold under long-term contracts at fixed prices. The status of the credit and equity markets could delay our project development activities while we seek to obtain economic credit terms or a favorable equity market price to further the drilling and construction activities.
On January 25, 2016, management determined it would be prudent to enter into a new Lincoln Park Capital (LPC) facility. The Companys first Purchase Agreement with LPC, was entered into on May 21, 2012 and expired in 2015. Under the new Purchase Agreement, at the companys sole discretion, the Company has the right to sell and LPC has the obligation to purchase up to $10 million of equity capital over a 30-month period subject to the conditions in the Purchase Agreement. The agreement provides for an initial sale of $650,000 of shares of common stock upon closing. Net proceeds from LPCs investments will be used to cover a portion of the cost of the recent acquisition of the Goldman Sachs ownership interest of the Raft River project, development of our geothermal projects and for general corporate purposes. An additional $571,650 has been raised under the At the Market (ATM) subsequent to the initial sale.
On December 14, 2015, the Company acquired from Goldman Sachs the majority of their cash flow interest in and ownership of the Raft River geothermal project. The Company will receive 95% of the cash flow from the project on a going forward basis, along with all increased cash flow from any project improvements. The purchase price was $5.1 million for the 95% interest, with an option to purchase the balance of Goldmans interest for Fair Market Value at the end of 2017. The purchase price consisted of a $3.5 million cash payment plus a promissory note of $1.6 million that bears interest at 8%. Under the promissory note agreement, $1 million of the note could be satisfied with shares of U.S. Geothermal common stock priced at the 10 day weighted average closing price of the common stock at time of conversion if not otherwise paid in cash by March 31, 2016. Since the Company paid off this note in cash on March 31, 2016, the Company has now withdrawn its resale registration statement covering the shares to be issued in satisfaction of the promissory note.
On August 10, 2015, the Company announced that its Board of Directors had approved a stock repurchase program, pursuant to which the Company is authorized to repurchase, from time to time, up to $2 million of its outstanding common stock through the end of July 2016. The extent to which the Company repurchases its common stock and the timing of the repurchases will depend upon market conditions and other corporate considerations. The Company intends to pay for any stock repurchased with existing cash balances. To date, the Company has not purchased any shares under this program.
On February 4, 2014, a replacement shelf registration statement filed on Form S-3 with the SEC became effective. The replacement shelf registration statement was filed as a routine course of business due to the impending expiration of the Companys existing shelf registration statement that, under SEC rules, would have expired on December 1, 2013. The Company may use the replacement shelf registration statement to offer and sell from time to time for a period of three years in one or more public offerings up to $50 million of common stock, warrants, or units consisting of any combination thereof. The terms of any securities offered under the replacement shelf registration statement, and the intended use of the resulting net proceeds, will be established at the times of any future offerings and will be described in prospectus supplements filed at such times with the SEC. Other than with respect to the LPC facility described above, the Company has no immediate plans to sell any additional stock under the replacement shelf registration statement at this time, but wishes to preserve the option in support of its future growth and development of its projects as well as strategic acquisition opportunities.
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Potential Acquisitions
The Company intends to continue its growth through the acquisition of ownership or leasehold interests in properties and/or property rights that it believes will add to the value of the Companys geothermal resources, and through possible mergers with or acquisitions of operating power plants and geothermal or other renewable energy properties.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that we believe to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
There have been no significant changes to our critical accounting estimates as discussed in our Annual Report.
Item 3 Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4 - Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective at the end of this period covered by this quarterly report to ensure that information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms relating to us, including our consolidated subsidiaries, and was accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
There has been no change to our internal control over financial reporting during the three months ended March 31, 2016 that has materially affected, or is likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None.
Item 1A - Risk Factors
Not applicable.
Item 2 - Unregistered Sales Of Equity Securities And Use Of Proceeds
None.
Item 3 Defaults Upon Senior Securities
None.
Item 4 Mine Safety Disclosures
Not applicable.
Item 5 - Other Information
None.
Item 6 - Exhibits
See the exhibit index to this quarterly report on Form 10-Q.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
U.S. GEOTHERMAL INC. | |
(Registrant) | |
Date: May 10, 2016 | By: /s/ Dennis J. Gilles |
Dennis J. Gilles | |
Chief Executive Officer | |
Date: May 10, 2016 | |
By: /s/ Kerry D. Hawkley | |
Kerry D. Hawkley | |
Chief Financial Officer and Corporate Secretary |
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EXHIBIT INDEX
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