Forbes article
forbes.com
HOUSTON -- At first glance last week, it looked like Denbury Resources agreed to pay Wapiti Energy way too much for Texas' Conroe Field: $420 million in cash and stock, or $172,000 for each of the old field's meager 2,500 barrels of daily production. Compare that with the $46,000 per flowing barrel (of oil and natural gas equivalents) that Denbury received in recent sales of its Barnett Shale assets.
But it's what Denbury ( DNR - news - people ) thinks it can get out of Conroe that counts: a 10-fold production boost in five years. Denbury plans to breathe new life into this old field by injecting it with massive amounts of carbon dioxide--a process with big implications for the capture and sequestration of carbon emissions from power plants across the country.
Some 40 miles north of Houston, Conroe Field is an oldie, producing oil since 1931. In its time Conroe was a gusher, flowing some 60,000 barrels per day from a reservoir that started with as much as 2 billion barrels of oil stretching across 19,000 acres. Over the years it has given up roughly 740 million barrels of oil and 1.4 trillion cubic feet of natural gas. By 2006, when closely held Wapiti Energy bought the field from ExxonMobil ( XOM - news - people ), Conroe's output had dwindled to 1,200 barrels of oil a day.
"We felt ExxonMobil wasn't managing the field in the way it could be managed," says Ryan O'Shaughnessy, senior vice president of Wapiti. The company overhauled many of Conroe's wells, and put in new fluid-handling gear--important considering that what was coming out of the ground averaged just 2% oil to 98% water. This rehab effort wouldn't have been material for ExxonMobil, but it's made a handsome return for Wapiti's majority owner Richard Agee. They doubled the field's output and increased proved recoverable reserves to 20 million barrels.
Denbury thinks it can boost that to 125 million barrels by injecting the wells with chilled carbon dioxide that will be brought in by pipeline from Mississippi. That's where Denbury owns the Jackson Dome, an extinct volcano that contains the biggest source of naturally occurring carbon dioxide on the Gulf Coast.
Denbury is building a pipeline to bring that carbon dioxide to a number of coastal fields it has acquired in Louisiana and Texas. Of them all, Conroe could be the biggest. The carbon dioxide, injected deep into the reservoir, basically scours the oil out of the rock and pushes it upward where it can flow into a well. It's a technique that has been used for years in the Permian Basin of west Texas, which is rich with naturally occurring carbon dioxide.
Building the carbon dioxide pipeline to Conroe and installing new equipment will require an estimated $1 billion over five years. Add that to the purchase price and Denbury will have sunk roughly $12 per barrel in capital costs (assuming it can get those 125 million barrels out). But Denbury thinks it's well worth it. Operating costs at Denbury's conventional oil fields average $32 per barrel of recovered oil. Yet at its fields with carbon dioxide floods, those costs drop to $23 per barrel (including $7 per barrel in carbon dioxide costs, $6 for power and fuel, $3 for labor, $1.50 for chemicals). The big difference? The wells in Conroe and other old fields have already been drilled.
But using naturally occurring carbon dioxide seems a waste when the great climate debate is focused on stopping the emission of so much man-made carbon into the air. Denbury Chief Executive Phillip Rykhoek has said that in time he thinks a combination of new technology and government incentives will make it cost effective to capture power plant emissions for injection into Denbury's fields. He thinks billions of barrels of American oil trapped in old fields can be recovered using carbon dioxide injection.
What's more, because the depleted reservoirs will trap more carbon dioxide than would be generated by burning the recovered oil, Denbury would be able to market carbon-neutral oil. Now there's a premium petroleum product that even environmentalists can love. |
