Geothermal technical due diligence: what to check before you invest

A developer has a licence, a resource estimate, a drilling plan and a budget, and is asking you to invest, lend or buy in. In deep geothermal, most of the money goes into a handful of wells drilled kilometres into rock that nobody has fully seen yet. A geothermal technical due diligence answers one question before you commit: will the numbers in the business case survive contact with the rock, the rig and the regulator?

If you are buying a producing oil and gas asset instead, our note on technical due diligence before you sign covers that case. This note is about what changes when the asset is hot water.

How is geothermal due diligence different from oil and gas?

Three things change the shape of the review.

• You often pay before the resource is proven. An oil and gas buyer usually inherits years of production history. A geothermal investor often commits before the first or second well has shown how hot the rock is and how much water it will give. The review is less about checking history and more about separating what has been measured from what has been assumed.
• The wells are the project. Drilling is typically the largest cost, and the plant only earns if each well delivers the flow and temperature the model assumes. A well that underperforms is not a small variance: it can change how many wells the project needs.
• The rules may still be forming. In many countries deep drilling was regulated for hydrocarbons first. For the TRANSFER programme of Geothermie-Schweiz, our partner Vincent Geyl analysed how Switzerland's neighbouring countries regulate deep geothermal drilling, and the answers differ from one jurisdiction to the next. A permit timeline that looks routine on paper may not be.

What should a geothermal technical due diligence check?

Six areas, each with the question the review has to answer.

1. The resource. How hot is the rock, how easily does water move through it, and how sure is the developer? Ask for a range, not a single number, and for the link between that range and the flow rate each well must deliver. Check whether the flow assumption comes from wells in the same kind of rock or from an analogue that only looks similar. This is the core of subsurface and resource evaluation.
2. Faults and seismicity. Which faults sit close to the planned wells, and what happens if injection or production triggers tremors felt at the surface? A credible project has a monitoring plan and agreed rules for slowing or stopping operations, not a sentence promising to manage the risk.
3. The well design. Hot, corrosive brine and repeated heating and cooling stress casing and cement for the whole life of the well. Check where the design departs from hydrocarbon standards such as NORSOK, ISO and API, and why. A design copied unchanged from an oilfield programme is a finding. An independent review of it is drilling and well engineering work.
4. The drilling plan, cost and schedule. How many rig days, at what rate, with what contingency, and who pays when the hole misbehaves? Look for the plan if the first well disappoints: sidetrack, deepen, drill elsewhere or stop. A budget with no answer to that question has only one scenario in it.
5. Reinjection and long-term performance. The water has to go back into the ground, usually through wells of its own, for decades. Check how far apart the producing and injecting wells are, what the model says about the reservoir cooling over time, and how much margin the business case keeps.
6. Permits and contracts. Which approvals are granted, which are pending, and what conditions come with them? Then read the drilling contract and the heat or power offtake against the technical plan: risk the contracts leave with the developer is risk you are buying. Good regulatory support on the developer's side shows up here as a clear record of what the authority asked for and was given.

What to ask the developer for

The data room decides what the review can conclude. Ask early for:

• Seismic data and its interpretation, with the fault map.
• Records from nearby wells: temperature logs, flow and injection tests, drilling reports.
• The resource report, with its assumptions listed.
• The well design basis and the drilling programme.
• The cost estimate and schedule, with rig rates and contingency stated.
• Permits, permit applications and correspondence with the authority.
• Draft or signed drilling, service and offtake contracts.
• The developer's risk register, and who owns each risk.

Gaps in this list are findings in their own right. To turn the list into a scope bidders can price, see our note on the technical due diligence scope of work; for what drives the fee, see technical due diligence cost.

Red flags in a geothermal data room

• One resource number, with no range around it.
• A flow rate borrowed from a different kind of reservoir.
• An oilfield well design applied unchanged to a hot-water well.
• No plan for a first well that underperforms.
• Rig days and contingency that leave no room for a bad week.
• Seismic risk handled in one sentence.
• Permits described as a formality.
• A reviewer with commercial ties to the drilling contractor.

Investor, lender or buyer: who should commission it?

Whoever carries the risk. A lender usually appoints its own independent engineer, whose job is to protect the loan; an equity investor or a buyer needs a review that protects its own return. The two overlap but are not the same job, as our note on the owner's engineer and the independent engineer explains. Either way, commission it before the price or the terms are fixed, while findings can still change them. Focused screenings run in two to four weeks, and red flags should reach you as they are found, not saved for the final report.

In geothermal, the due diligence is mostly about wells that have not been drilled yet. Ask what is measured, what is assumed, and what happens if the assumption is wrong.

We provide independent geological assurance on a deep geothermal project in Switzerland, in support of the cantonal authorities, and since 2015 we have worked as owner's engineer across oil and gas, geothermal and CO2 geological storage. Our technical due diligence brings that well and subsurface experience to geothermal transactions. If you are weighing a geothermal investment now, tell us about the project and when the decision is due. We answer every enquiry within 24 hours.

Related notes

• How to choose a geothermal consultant for a deep geothermal project
• CO2 storage due diligence: what to check before you invest in a storage site
• Technical due diligence scope of work: what to ask for when buying an oil and gas asset