PILOT ENERGY LIMITED — Capital/Financing Update 2011

Jul 27, 2011

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July 28, 2011

Positive completion to Concept Study

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Earth Heat Resources Limited (ASX-EHR) is pleased to announce today the receipt of a draft Concept Study by Auckland based consultants Sinclair Knight Merz (SKM). The study was commissioned to undertake concept screening for a viable technical solution of an initial exploitation of the Copahue geothermal resource in Neuquen Province, Argentina. An Environmental Impact Assessment (EIA), was completed separately as part of the process, by a local Argentinean group (see release on July 7, 2011).

HIGHLIGHTS

• Significant social and environmental benefits, best practice development possible based on the EIA;

• Pre-existing drilling provides opportunities for minimising future production well risk, with only two production wells likely to provide requisite net 15 MWe power production with reserve for run-down.

• Location provides for suitable sites for power plant construction within close proximity to the four existing wells

• An organic rankine cycle (binary) power plant with air cooled condensers provides an effective method for geothermal power conversion however final design will depend upon the outcome of further studies.

• The 15 MWe net produced by the power plant can be readily exported to the national grid by way of existing 33 kV line.

• Should an integrity check of the existing COP 4 well prove positive it may be utilised as the second producing well.

EHR’s Managing Director Torey Marshall said “The receipt of the Concept Study is a significant milestone. The 15 MW modular design meets EHR’s current commercial and risk profiles for initial development, which importantly would exploit a known geothermal resource which has significant upward scalability.’’

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“Thorough and rigorous environmental assessments are also being undertaken to ensure minimal environmental impact of future development plans,’’ Mr Marshall added.

Role of Sinclair Knight Merz (SKM)

EHR commissioned SKM to undertake the Concept Study for a small modular plant development at its Copahue geothermal site. The study involved conceptual design of the wellfield, steamfield, power plant and power export into the national electrical grid. SKM’s New Zealand group, which undertook this Concept Study, are world leaders in geothermal technology and based their design on their recently completed assessment of the vapour dominated resource, as well as their knowledge of binary power plants gained over a number of projects. .

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General Aspects and Outcomes of the Concept Study

The main considerations in the study were-

• environmental and social concerns and best practice;

• the proximity to the production well pads to minimise the length of the steam production pipeline;

• minimising visual impact;

• topographic considerations, i.e. reasonably flat ground;

• some elevation to allow gravity flow to assist injection and avoid pumping costs;

• minimising steam production pipeline lengths while providing distance between production and injection sectors.

The presence of 4 wells, some of which have previously been connected for the production of steam, significantly de-risks the project, by increasing the confidence of the resource. For instance, the final well drilled previously, COP-4, could be used to produce steam into a power plant system (subject to integrity assessment).

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Initially directional drilling (and/or 'big hole' design), to better intersect the reservoir proven by previous wells was identified during the study as the best course of action. Therefore, with high confidence, steam is either available, or will be available for the power plant to utilise.

The recommended option for the anticipated conditions is an air-cooled organic rankine cycle (binary) plant. An ORC plant is expected to provide good conversion efficiency at a reasonable capital cost. Spent geothermal condensate would be re-injected, and non condensable gases (NCGs) vented to atmosphere. An air-cooled ORC plant is recommended for the following reasons:

• the gas extraction parasitic load imposed by high NCG levels would significantly reduce the efficiency of a comparable steam rankine cycle plant, but will not have a significant effect on an ORC plant

• an air-cooled plant is necessitated by the lack of a suitable cooling water source

• use of air cooling will not significantly affect the efficiency of the power plant, due to the relatively low ambient temperatures

• reinjection of spent geothermal fluid will prolong the useful life of the geothermal resource, and minimise the environmental effect of the development in line with the Environmental Impact Assessment (EIA)

• the pre-fabricated, modular nature of ORC plants allows faster construction on site, reducing the impact of the short construction season on the overall project schedule

• air-cooled ORC plants are visually less obtrusive than comparable steam turbine plants, as they have no visible plume of water vapour and minimal buildings.

EHR's internal electrical interconnection feasibility studies showed that the connection to the national transmission grid will be by constructing a short 33kv line to the Caviahue township.

First cost estimates are in line with global averages of $3m to $6m per MWe installed, but will be refined during subsequent studies.

The Company is currently undergoing an internal review and consultation process with a view to determining the parameters of the next stage of the Copahue development.

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For further information please contact:

Torey Marshall, Managing Director Thomas, Six Degrees Investor Communication

+618 8212 0579Victoria +614 31 151 676