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Enhanced Oil Resources Oil Patch Research Investment Profile - 4th Quarter 2008 Enhanced Oil Recovery is poised for a new wave of development in North America, but will CO2 supply constraints stifle this huge untapped resource of domestic crude? Few have heard that tucked away in the rolling hills of the Arizona / New Mexico border is a mammoth gas reservoir, a huge undeveloped resource covering 260,000 acres. This unusual resource is not natural gas, but instead holds the key to unlocking over 40 billion barrels of the highest quality domestic oil, at low production costs that are now unheard of in North America. Enhanced Oil Resources is developing North America’s largest undeveloped CO2 and helium dome.
Stuart MacKenzie, P. Eng.
Contributing Writer - Oil Patch Research
OilPatchResearch@gmail.com
Prospecting for Black Gold
CO2 floods to dramatically increase oil recovery are now considered a fully developed technology. The first CO2 flood occurred in Texas in 1976, and since then hundreds of highly successful CO2 floods have been implemented worldwide. In that time, the economics have improved considerably. In appropriate reservoirs, CO2 injection generally has the effect of rejuvenating the reservoir to produce at flowrates comparable to the historical peak rates of the field. With two-thirds of the oil normally still remaining in the ground at the conclusion of primary production, the amount of domestic oil production that can be realized utilizing this technology is truly staggering. For many “dead” oilfields, implementation of a CO2 flood is much like a chance to start the field production over from day one, producing another multiple of oil previously thought unrecoverable, at oil prices that are several times higher than when the field was young.
WAG (Water Alternating Gas) involves alternating the injection of water and CO2. The CO2 is injected at a pressure greater than its MMP (Minimum Miscibility Pressure) where the CO2 acts to increase the volume of the oil miscible phase and lower its viscosity, freeing it from trapped pore spaces. At high pressures, supercritical CO2 acts as a “supersolvent”.
The Encana (NYSE: ECA) Weyburn field of Saskatchewan, Canada is a prime example of the kind of production that can be realized utilizing enhanced oil recovery technology. The project is expected to recover an additional 130 million barrels of oil from the field over the next 25 years. Production rates at Weyburn have been increased incrementally by over 10,000 Bbl/day by the use of this technology since late in the year 2000. Companies like Kinder Morgan (NYSE: KMP) and Denbury Resources (NYSE: DNR) have built highly successful oil producer empires on a strong foundation of CO2 flooding in Texas. The US Department of Energy expects this trend to continue, in fact the DOE has stated that there are 240 billion barrels of otherwise unrecoverable oil that should be recovered utilizing CO2 flooding technology.
So, why aren’t we currently seeing CO2 floods at every depleted oilfield? The main drawback of CO2 flooding is the difficulty in obtaining a readily available source of CO2. The vast majority of enhanced oil recovery CO2 in Texas is produced from several naturally occurring CO2 reservoirs. All of these reservoirs have been producing and depleting for a number of years, so while the demand for CO2 flooding increases, the supply of the key ingredient has been dwindling. Many more producers in the Permian basin area of Texas would engage in CO2 floods if there were CO2 available for sale that was not already spoken for in large, long term contracts with major producers. Very few industrial CO2 sources are of suitable quality for CO2 flooding as combustion based CO2 is typically has a high nitrogen content that makes it unsuitable for CO2 flooding. Further processing of such industrial sources tends to increase the cost of the CO2 quite significantly, so to date the majority of CO2 has been utilized from naturally occurring sources, selling in the price range of $1-3 per MCF. This allows for a CO2 flood process that can typically produce oil economically, even at oil prices as low as $40/BBl.
There is at least one recent discovery that promises to ease the strain on the enhanced oil flooding CO2 supply. The St. Johns CO2 dome appears to be the last significant undeveloped CO2 dome in North America. Within proximity to the Permian basin, third party estimates put the volume of gas at approximately 8 TCF (trillion cubic feet). Originally discovered in 1994, it wasn’t until a highly successful air drilling program and recent record oil prices that the field was brought into the spotlight. Enhanced Oil Resources is a relatively small oil & gas company that owns the colossal St. Johns CO2 dome on the New Mexico/Arizona border, and in addition to owning the last inexpensive and readily available source of CO2 in North America, they have been making stranded oilfield purchases in excess of 80 million recoverable barrels. With 240 billion barrels of oil amenable to CO2 flooding in Texas and New Mexico, the demand for CO2 is set to far outstrip the supply, even once St. Johns is tied into the CO2 pipeline network. Enhanced Oil Resources expects to have all their available CO2 spoken for in long term contracts two years prior to completion of the pipeline. The demand is quite significant. A 350 to 500 MMSCFD CO2 pipeline is planned for construction completing in 2010.
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