Oil and gas producers with assets in the Gulf Coast, Midcontinent and Rockies may be sitting on a hot opportunity: geothermal energy.

The regions have strong geothermal gradients, which lead to lower levelized cost of energy, and access to transmission infrastructure to enable grid connection, according to analysts at Enverus.

“We’re also seeing strong power demand in those areas and strong power prices, which are good for creating contracts for power offtake,” Brynna Foley, associate of power and renewables at Enverus Intelligence Research (EIR), told Hart Energy. “So, just strong all-around features, both from a subsurface perspective with the geothermal gradient and the drilling depths, as well as that power perspective with the pricing.”

Geothermal energy, which pulls heat from belowground using wells drilled into hot reservoirs, has picked up steam as geothermal-focused companies incorporate techniques and technology from the oil patch to tap more heat with enhanced geothermal systems. It is also being championed as a baseload power source as temperatures and energy demand rise. Some oil and gas producers—Devon Energy and Chevron Corp., among others—are part of the movement, investing in startups or pursuing their own projects.

However, analysts say there is potential for more oil and gas companies to tap into geothermal on their existing assets—depending on available infrastructure and resource temperatures.

“It’s a way for them to electrify their own operations or use that heat for direct use within their operations,” Foley said. “And then, outside of that, it’s a way for them to diversify their revenue stream and decarbonize their own activities, while allowing them to harness their expertise and infrastructure that they have from a drilling perspective. As we see some of these areas with declining inventory become less and less economic, it is certainly an interesting opportunity for operators to shift towards geothermal power on their existing operations.”

Co-production of geothermal and oil and gas is also a value add.

In some oil-producing areas, water being pumped out is hot enough to generate geothermal power. Gradient Geothermal specializes in this area, having formed partnerships with companies that include Chord Energy.

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Something to consider

Before diving into geothermal, there are factors oil and gas companies should consider.

“It’s a different returns profile than what they’re used to,” which is a big change in comparison to oil, Foley said.

Turning to cost-based metrics such as the levelized cost of energy (LCOE), Foley said geothermal can be competitive with other forms of baseload energy, including nuclear and natural gas with carbon capture and storage.

“In terms of LCOE, we’re seeing gas plants more in the $50 to $70 range per megawatt hour [MWh], including CCS,” depending on capture, transportation and storage costs, she said. Nuclear averages around $72/MWh, she said.

Though technology strides have been made in geothermal drilling, technology risks are also evident. Proving there will be no thermal decline in reservoirs for a long time came to mind for Graham Bain, principal analyst at EIR.

Geothermal companies, including Fervo Energy, have leveraged oil and gas techniques and equipment such as PDC bits in the last 10 years to help drill wells better and faster, Bain said. They also know how to frack wells. But “if you’re creating a network of fractures and one of those fractures is wider than another, you’re going to get preferential fluid flow through that fracture, which is going to prematurely cool off the reservoir,” he said. “You’re going to get some negative feedback loops in terms of cooling that rock off. It’s going to cause contraction, which will lead to that fracture widening, which will further the problem.”

Sliding sleeves, a downhole zonal isolation tool, can be used to adjust flows and close off fractures to address that issue, Bain added. “That’s a technology leverage from the SAG D industry or steam-assisted gravity drainage up in the Athabasca oil sands where they use similar sliding sleeves to improve steam conformance in those well pairs.”

The geothermal gradient is also crucial, as it dictates whether an area is a good fit for geothermal energy. “The higher your bottom-hole temperature, the higher your gradient, the more efficient your power production is,” Foley said. “So, you can run that power production at a lower gradient, but again, it’s not as efficient. And if you’re going to drill, you probably want the most efficient power that you can get out of that infrastructure.”

Companies also need to understand the power side of the business and acceptable returns.

“Do I have the power demand? What do power prices look like? What kind of infrastructure is in the area, especially if you’re planning to sell that power back to the grid, is something that’s really useful to understand,” Finley added. “And then again, understanding their own return boundaries. … At what point does it become more economic to produce geothermal in that area than it does to develop those traditional [oil] assets toward the end of their lifetime?”

Influential factors

For the most part, interest in geothermal from oil and gas companies has been exploratory so far, as they assess the potential to expand their businesses; however, a meaningful shift has been seen in capital and attention from companies with little or no subsurface expertise, the analysts said.

Enverus has observed more interest in geothermal from the financial services segment and traditional power developers, Bain said. He added that geothermal-focused companies have also seen more capital.

“They’ve raised the same amount of capital in 2024 as has been raised over the last six years [combined],” he said. “It’s not a huge amount of money if you look at elsewhere, but for geothermal, there is a shift there.”

However, what baffles Bain—and perhaps many others—is why more oil and gas players, particularly supermajors, are not jumping into the geothermal game, given obvious synergies.

Higher returns from oil and gas may give them no reason to consider geothermal yet, he speculated. However, shrinking inventory, aging assets and falling oil prices could put geothermal on the radars of more oil and gas producers.

“It’s a push and pull on the price of oil and inventory. Your marginal inventory gets better as oil prices increase. And so, I think that’s one reason why we’re seeing a lot of interest and activity in [geothermal] right now because we have depressed oil prices,” Bain said. “There is a narrative around declining inventory, and so folks are wondering, ‘OK, what’s next?’ Maybe that is geothermal.”

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