American Oil and Gas Reporter - January 2015 - 31

WASHINGTONWATCH
Technology Needs
Right Regulatory Environment
To Produce Results
Now isn't necessarily a time that operators are trying to find
more oil. But innovative technologies are spurred by a number
of factors: increased demand, rising prices, or external factors such
as environmental policies. When the innovation comes to
fruition, circumstances may have changed somewhat. However,
the innovation still can be significant.
Such is the case with enhanced oil recovery using carbon dioxide to repressurize older, depleted wells. Not only are the fields'
resources maximized, but the process also results in the associated long-term storage of CO2, which holds great potential for
meeting emerging environmental regulations on using fossil fuels.
Louis Berger, a global professional services corporation, undertook a review of some of the state's original oil fields in Southeast Texas and the Gulf Coast region, many of which still have
production potential. Earlier reports-in 1983 by the Bureau of Economic Geology at the University of Texas, and in 1996 by the U.S.
Department of Energy-had identified 131 nearly depleted oil reservoirs or fields along Texas' Gulf Coast, estimating 2.3 billion barrels of recoverable reserves using CO2 EOR. But only two of those
131 fields have been developed as EOR projects. They are being
operated by Denbury Onshore LLC, a wholly owned subsidiary
of Denbury Resources Inc.
Following up on its operations as case studies, Denbury worked
with Louis Berger to evaluate the potential economic benefits of
increasing tertiary CO2 along the Gulf Coast. Denbury shared the
results of this economic impact study at the Texas Economic Development Council's (TEDC) quarterly meeting in October. According to the study, if all these fields were developed for EOR,
$28.5 billion in capital investment would be needed to bring these
fields back to productive life and would create more than
25,000 jobs. More than $32 billion in severance and ad valorem
taxes would be generated over the life of these projects.
The Denbury/Louis Berger study considers several other scenarios for development, estimating benefits for:
* Developing 30 percent of the total potential reserves
within 16 fields;
* Developing 20 percent through fieldwide CO2 EOR within six fields, and;
* Developing 10 percent within four fields.
In addition to the jobs created, the income from those jobs, the
gross regional product and sales of the resources, the stored CO2
can be a valuable product and a viable means for industrial CO2
producers to comply with emerging greenhouse gas regulations
for capturing carbon. However, the regulatory framework for handling CO2 must be structured carefully so as to encourage, not
stymie, this process.
For example, the presence of an effective unitization procedure that allows a field to be operated as one, large, unitized lease
would facilitate fieldwide recovery. According to the Denbury/Louis Berger report, the absence of an effective unitization
framework may explain the lack of significant CO2-based fieldwide recovery operations in Texas, which is the only major oil

"The regulatory framework for
handling CO2 must be structured carefully

"

so as to encourage EOR.

and gas producing state without statutory unitization. As noted
in the Denbury/Louis Berger report, "As a result, only in Texas
is CO2 EOR production of older, nearly depleted fields limited
by the requirement to have 100 percent of the working mineral
and royalty interest owners' ratifications of the unit. As a result,
these fields eventually will deplete, the leases will expire, and the
fields will be abandoned permanently, leaving hundreds of millions of barrels of oil unrecovered."
However, statutory unitization alone does not make tertiary development of a field an easy process. Even in states with statutory unitization, it takes from four to nine years to reach agreement contractually among as many as thousands of owners, depending on the size of the field.
Similarly, as discussed in the April and May 2014 Washington Watch columns, pending decisions by the U.S. Environmental
Protection Agency have the potential to thwart increased use of
CO2 for EOR. Mandating injection wells be permitted under a
new and untried Class VI, rather than as Class II, under the Underground Injection Control program would create increased costs
and uncertainty. In addition, EPA is proposing to require that an
entity purchasing and injecting CO2 for storage must report to the
agency under Subpart RR of the greenhouse gas reporting
rules. This is an approach that will not work under state conservation laws.
EPA must work with the states if it is to certify CO2 storage
as part of EOR in a manner that also allows for hydrocarbon development.
With a conducive regulatory framework, CO2 EOR has great
potential. By the time that framework is in place, the price environment for oil production may have rebounded to fully encourage development of our recoverable oil resources.
Ì

SUSAN GINSBERG is vice
president of crude oil and natural gas regulatory affairs for
the Independent Petroleum
Association of America. She
covers legislation and regulation, focusing on the CFTC
and FERC. Her experience in
natural gas regulatory affairs
spans 25 years.
JANUARY 2015 31



American Oil and Gas Reporter - January 2015

Table of Contents for the Digital Edition of American Oil and Gas Reporter - January 2015

Contents
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