Tamar Hallerman
GHG Monitor
09/28/12
The top official in the Department of Energy’s Office of Fossil Energy said last week’s deal between Denbury Resources and Exxon Mobil Corp. is evidence that the market is starting to respond to the economic benefits of carbon capture, utilization and storage. In an interview with GHG Monitor this week, DOE Assistant Secretary for Fossil Energy Chuck McConnell said the exchange agreement, which will help expand Denbury’s enhanced oil recovery operations in the Rockies and Gulf Coast, could help move the needle forward on CCUS, a concept he has been championing since arriving at DOE in May 2011. “Every opportunity in the marketplace for us to deploy existing technology gives us more confidence that this business model that we’ve been talking about can and will be successful,” he said. “It also sets the stage for second and third-generation new technologies that we continue to invest in here in the department as well as in cooperation with industry to continue to drive down the cost of CO2, which this market fundamentally hinges on.”
Denbury announced last week that it agreed to sell its assets in the Bakken oil play to Exxon subsidiary XTO Energy in exchange for $1.6 billion in cash and Exxon’s interests in two oilfields ripe for CO2 flooding. Denbury said Exxon also agreed in principle to sell the company an interest in roughly one-third of the naturally-occurring CO2 produced from its LaBarge Field—up to 115 million cubic feet per day—in southwestern Wyoming. In a release, Denbury highlighted how the deal would improve the company’s footing in its two regions of “strategic focus” while also doubling down on the company’s expertise in EOR. Both of the oilfields acquired in the deal—the Webster in southeast Texas and the Hartzog Draw in Wyoming’s Powder River Basin—are located within miles of existing and near-complete Denbury CO2 pipelines, respectively, and CO2 flooding could contribute up to 105 million barrels of oil to the company’s inventory. “We had the infrastructure and the CO2 supply, so the only missing factor was the oil fields,” Denbury spokesman Ernesto Alegria told GHG Monitor. “We felt that this was a very strategic deal to get done, and obviously we’re pleased with the results. [EOR] is without a doubt the core of our business, and this deal has done nothing but strengthen our focus on CO2-EOR. It was kind of a no-brainer for us.”
Other CCUS experts interviewed this week agreed that CCUS could be further elevated as a result of the deal as other companies analyze Denbury’s EOR investment and consider their own strategic directions for the future. “I think this deal is a good thing for CCUS,” said Victor Der, McConnell’s predecessor as head of FE who now works as the Global CCS Institute’s general manager for North America. “The demand for CO2 as a commodity for the oil and gas industry can be a driver for the research that will reduce the cost of capture and the energy penalty associated with CCS, so you can get closer to closing the gap of the production costs of the CO2 from what the market prices will bear. So that’s a good positive thing that comes along with this deal.”
Experts: Deal Underscores Denbury’s Status as an EOR Leader
Others interviewed this week said the agreement, more than anything, further establishes Denbury’s status as a CO2-EOR leader. “What makes this deal interesting from our perspective is that it puts more EOR assets into the hands of a company that’s focused on EOR as a cornerstone of its business model,” said Kurt Waltzer, CCUS coordinator for the Clean Air Task Force. “They’re clearly developing the expertise necessary to integrate EOR with industrial and power carbon capture projects.” Lon Whitman, owner of the Wyoming-based Premier Oil Recovery, said that in the Rockies Denbury appears to be following a similar process to how it acquired much of its assets on the Gulf Coast—by first acquiring large anchor oil fields, building up the transport and source infrastructure around it and then buying nearby fields ripe for CO2 flooding. “Denbury is primarily a CO2-EOR company, so from my perspective this agreement makes tons of sense all the way around. They’re focusing on what they do best, and it certainly seems like a good deal for Exxon as well,” Whitman said. “The fact that they would do a deal like this was no surprise to me.”
One oil industry consultant with knowledge of the deal said that the agreement elevates Denbury into a bigger player given that Exxon rarely signs billion-dollar deals with smaller companies. “Denbury’s reaching an impressive stature with this deal. Here was this upstart company in the 1990s that had no prayer with doing a deal with Exxon, and now here they are in 2012 doing a billion-dollar deal, and so that’s a feather in their hat,” the consultant said. “I just can’t understate how far they’ve come. The average person probably doesn’t understand how major it is to ink a deal with Exxon, and so I just tip my hat to Denbury and how far they’ve come in 15 years.”
Denbury Starting to Look Towards Anthropogenic CO2
Denbury said last week that it will likely spend a portion of the money it earned off the deal on acquiring more depleted oilfields that are prime for CO2-flooding in the Rockies and Gulf. While most of the company’s projects to date have used CO2 produced from natural sources—Denbury owns the Jackson Dome in Mississippi, as well a source near Lost Cabin, Wyo.—Alegria said the company is increasingly looking at utilizing CO2 from anthropogenic sources. The company has already signed off-take agreements for CO2 produced at Mississippi Power’s Kemper County integrated gasification combined cycle plant and Air Products and Chemicals’ Port Arthur industrial CCS project in Texas, and is in talks with other potential suppliers, Alegria said. “We will look at any plant that’s being constructed,” he said.
McConnell said he expects to see similar deals moving forward. “Who can’t like a good energy security story that’s combined with environmental responsibility and stewardship?” he said. “I have a hard time believing that this is not a political issue. It’s a sensibility issue and it’s just good business for people to be looking at.”
