After more than a year of riding under a new brand, the company most responsible for making carbon dioxide (CO2) flooding routine in the Permian Basin is bullish on what the future holds for that enhanced oil recovery (EOR) technique.
During that time, Kinder Morgan CO2 Co. LLC (nee Shell CO2 Co.), Houston, Texas, has survived a "lumpy" oil price scenario, as its president, Tim Bradley, calls it. And today, with prices apparently headed for future long-term residence in the $20/bbl to $25/bbl range, the possibility of expanding existing Permian floods and starting up new ones is becoming more probable. Conditions are right.
First, there's enough spare capacity in the company's CO2 source fields (with a net recoverable reserve base of more than 5 Tcf) to tackle new and expanded floods in the Permian Basin.
Second, major company mergers have pretty much shaken out, and those companies who've remained committed to domestic production already have decided whether the Permian Basin fits their long-term goals. If it does, the mature fields therein will require techniques like CO2 flooding to recover more of the huge reserves of oil still in place.
Third, there's renewed interest by the many smaller Permian Basin producers in CO2 flooding, and Kinder Morgan CO2 Co. (KMCO2) considers itself a service provider, so it isn't afraid to take an ownership or profit-sharing interest as partial payment for its services to less well-heeled customers.
Bradley is frankly glad Kinder Morgan Energy Partners LP (KMP) bought the CO2 company (in April 2000 for about US $185.5 million). After all, he said, Shell is a worldwide oil giant, with all the stratification and decision-making delays that go with it. On the other hand, KMP is a master limited partnership - America's biggest with an enterprise value of some $3.7 billion. As such, the principal partners in the company are able to guide project approavals through in weeks instead of years.
In many ways, the purchase was a natural, said Bradley. The obvious one is that KMP owns and operates one of the nation's largest product pipeline systems and understands the profitable advantages of having a lock on the nearest CO2 production, as well as the more than 1,000 miles (1,609 km) of CO2 transmission and distribution pipelines that serve the Permian area. Other attractions included the acquired company's accumulated technical expertise in CO2 flooding and its valuable CO2 marketing experience.
"But the decision-making advantage is really the star attraction with KMP," Bradley said. "It took only a few weeks for Richard Kinder and Bill Morgan to decide on acquiring, for about $55 million, 100% interest in the 16-in. D Canyon Reef Carriers pipeline, the chief CO2 supplier to the huge Sacroc Unit in the eastern Permian Basin, as well as 71% interest in the unit itself, both from Devon Energy. The company also acquired minority interests in two other fields under CO2 floods - the Sharon Ridge and Reinecke units, operated by Exxon Mobil and Spirit 76, respectively."
That acquisition, made in June 2000, gave KMCO2 major entrée to fields not yet subjected to CO2 flooding, as well as a unique presence that could bring CO2 supplies to basins even farther eastward in north Texas and southern Oklahoma, should such markets materialize.
Since that time, KMCO2 has made several other key moves that have helped secure a longer-term presence in the Permian area. In December, it formed a joint venture with Marathon in the southern part of the basin that transferred to the venture nearly 13% of the remaining interest in the Sacroc unit and a 49.9% interest in the giant Yates unit. KMCO2 owns 15% of the venture. At the same time, KMCO2 initiated a $4 million eastward expansion of its ongoing Sacroc CO2 flood, spreading CO2 injection to significant new in-place oil reserves heretofore only waterflooded for improved recovery.
And finally, in March, KMCO2 entered two long-term CO2 contracts with Oxy Permian. Under the first, Oxy will begin injection at the Cogdell Canyon Reef unit in the third quarter to extend that field's life and produce an additional 10 million bbl of oil. For KMCO2 the contract will increase use of available compression capacity at nearby Sacroc, and more fully use processing capacity at the company's gas plant at Snyder, Texas.
The second contract is a 20-year processing arrangement under which KMCO2 will process CO2-contaminated gas for a fee, and then return the extracted CO2 to Oxy Permian for reinjection at Cogdell.
The Oxy Permian deals are significant for two reasons, Bradley said. The CO2 supply contract is good for a minimum of 10 years and will therefore enhance long-term revenues. But the processing contract carries perhaps even more importance.
"It's an ideal example of two companies partnering together to use existing infrastructure to keep capital costs for new CO2 projects down," he said, obviously hoping other area producers take heed of how creative CO2 flood arrangements can be.
Bradley said the market for Permian CO2 floods is quickly returning to the robust health it exhibited in the days prior to the late 1990s "bust." At that time, nearly 1 Bcf/d of CO2 was injected into area fields. But when oil prices fell, that dropped to the mid-700 MMcf/d level. Once the market regains its prior heights, he said, there is excellent potential for even higher CO2 use in Permian area EOR.