Petratherm's quarterly report, released yesterday, said planning for the company's first deep well, Paralana-2, continued in the quarter, with preparatory work centred on well design and the development of the passive seismic array.

Paralana-2 is on track for drilling in the second half of 2008, according to the report.

Petratherm also signed an exclusive agreement with Swiss company Geothermal Explorers to provide high-level management and technical advice for the project.

Geothermal Explorers has plenty of hands-on experience in deep drilling and development of sub-surface reservoir in an engineered geothermal system (EGS), Petratherm said.

Beech Petroleum is an exploration partner in the Paralana project.

In Spain, Petratherm has expanded its portfolio to include two conventional geothermal exploration areas in the Canary Islands, five EGS systems on mainland Spain and district heating opportunities in Madrid and Barcelona.

A pre-feasibility study into the district heating opportunities in Madrid is underway and, according to the report, would be completed as early as next month.

French consultancy GPC Instrumentation Process (GPC IP) is assessing the practical application and commercial viability of the Madrid Basin Direct Heating project.

The project will involve drilling into a shallow geothermal reservoir 1500m beneath the Madrid Basin, 40km northeast of the Spanish capital.

Managing director Terry Kallis said if the study generates a viable outcome, the company would develop a detailed plan to exploit the resource and seek joint venture partners.

"GPC IP has already managed several district heating installations across the Paris Basin, which had similar geothermal characteristics to Madrid," he said.

"Like Paris, the Madrid Basin sits over a huge shallow geothermal resource with very large aquifers and high flow-rates.

"The Spanish resource hosts two main geothermal reservoirs, including a shallow reservoir at about 1500 metres depth where previous drilling to depth has already encountered temperatures of between 70-80C - ideal for direct heating application.

"The second reservoir, at 3400 metres depth, is even more exciting. Results based on previous drilling to depth show temperatures as high as 156C. This creates opportunities for both direct heating and significant power generation."

Kallis also said prospects for the project were further enhanced by proximity to one of Spain's largest electricity transmission systems.

If the project is successful, Petratherm said it would explore the potential to apply these techniques in Barcelona and other areas of Spain.