By John Kemp
LONDON, May 15 (Reuters) - Texas may fall behind states such as Louisiana in enhanced oil recovery (EOR) and carbon capture and storage (CCS) projects, even though it has some of the best geological potential in the United States, unless it enacts a law allowing compulsory unitisation of oil fields.
Texas is the only major oil and gas-producing state without provisions for compulsory unitisation - a mechanism that allows petroleum production to be managed on a field-wide basis if enough mineral rights owners vote to pool their interests and regulators agree.
It leads the country in enhanced oil recovery projects employing CO2 injection from natural sources. Operators inject more than 1.6 billion cubic feet of CO2 from natural sources into the state's Permian Basin oil fields to produce an extra 170,000 barrels per day of oil.
Now operators want to use manmade CO2 as well.
Legislation introduced in the Texas House of Representatives during the current session would have provided for compulsory unitisation to support operations intended to increase the ultimate recovery of oil and gas, including EOR and CCS, if at least 70 percent of mineral rights owners agreed.
It ran into opposition, however, from farming interests, environmentalists and small independent mineral rights owners, who objected that they could be forced to contribute to the upfront costs of unified field development, when it may take years for those capital costs to be paid back.
The Oil and Gas Majority Rights Protection Act (HB 100), and a companion measure introduced in the state Senate (SB 136), died in committee, leaving the future for large-scale EOR-CCS projects in Texas uncertain.
Companies wanting to inject manmade carbon dioxide (CO2) underground, as well as environmental regulators, need assurances it will stay there forever and not be released back into the atmosphere.
'To monitor and verify there is no unanticipated migration from an oil recovery/sequestration project, the project sponsor must have control of the entire area of the reservoir,' according to the Texas Energy Foundation.
'Without a state unitisation procedure, carbon dioxide venting is likely, and industrial sources will not send their CO2 to such fields because of legal exposure and the potential for violation of CO2 emission rules,' the foundation concluded in a recent report (http://www.texasenergyfoundation.org/denbury-report/).
CCS AND EOR AS COMPLEMENTS
For CCS to occur on a large scale, it needs to capture the enormous but dilute CO2 emissions produced by power plants, concentrate them, then inject the relatively pure CO2 into salty aquifers deep underground.
The FutureGen project in Illinois, backed by the U.S. Department of Energy, is trialling this approach. But no one has yet achieved CCS on a utility scale from a regular power plant in commercial operation.
CO2 accounts for just 7 to 10 percent of the exhaust gases in a typical power plant, and the costs of separating and concentrating it from other exhaust gases remain prohibitively high, though the Department of Energy is spending heavily on research into ways to make the process more efficient.
Attention has turned to capturing the CO2 produced by industrial processes, such as production of hydrogen, and injecting it into depleted fields to recover some of the oil and gas that would otherwise be left behind by ordinary production methods. The Energy Department is promoting this approach as carbon capture, utilisation and storage (CCUS).
CO2 is already fairly concentrated in the exhaust gases of some industrial processes, so it needs less purification. Rather than being pumped uselessly into briny aquifers, the CO2 is used to produce valuable oil and gas. In this form, it has commercial value, which helps offset some or all of the costs incurred in separating and transporting it.
Ironically, many potential EOR projects are currently stalled because there is not enough liquid CO2 from natural sources available and it is expensive. CCS from industrial processes could solve the problem. CCS and EOR projects are therefore complementary.
PIONEERING DENBURY RESOURCES
CCS-EOR is being pioneered by Denbury Resources.
Denbury is already one of the largest independent oil and gas producers in Mississippi and Montana. It makes extensive use of CO2 injection to boost oil recovery at a number of fields.
So far all the CO2 has come from natural sources, where it is extracted from underground reservoirs such as Jackson Dome, Mississippi. Denbury has a controlling interest in every known CO2 producing well in the Gulf Coast region, according to its website.
But the company also has signed long-term contracts to purchase waste CO2 from six industrial plants in the Gulf Coast region currently under construction.
It is also negotiating with the operators of existing facilities that producer smaller and less concentrated CO2 waste streams.
CO2 MIGRATION AND SAFEGUARDS
Once CO2 is injected into a formation, whether it is a salt water aquifer or a depleted oil and gas field, it can migrate throughout the reservoir.
Every well in the reservoir can potentially benefit from CO2 injections intended to enhance oil and gas recovery, which poses a free-riding problem unless the reservoir is unitised.
Equally, CO2 injected into one well as part of an EOR project may be released from another in the same formation along with the oil and gas unless measures are taken to strip it from the oil and gas and reinject it.
CO2 injection needs to be managed on a field-wide basis, especially if credits are being claimed for CCS.
HB 100 would have allowed the Texas Railroad Commission, which regulates petroleum production in the state, to impose compulsory unitisation on all wells and minerals rights owners in a common reservoir for the purpose of increasing ultimate oil and gas recovery by waterflooding, repressurising and tertiary recovery (including CO2 injection).
The Commission would have been able to act on an application from an owner of a working or royalty interest only after attempts to reach a voluntary agreement had failed and at least 70 percent of the working interest and rights holders had signified agreement.
TEXAS UNITISATION DEBATE
Denbury testified before the Energy Resources Committee of the Texas House of Representatives in favour of the unitisation bill.
The Texas Oil and Gas Association and the Texas Alliance of Energy Producers also testified positively, and Occidental Petroleum and Chevron backed the measure, according to committee records.
But the bill was opposed by representatives from the Texas land and mineral rights association, the National Association of Royalty Owners (NARO), Texas Farm Bureau, Texas and Southwestern Cattle Raisers Association, Plains Cotton Growers, Exotic Wildlife Association and other farming and conservation interests.
Farmers worried about schemes that could include hydraulic fracturing and add to pressure on water supplies. Green groups opposed any increase in production of fossil fuels and the risk of pollution.
Compulsory pooling and unitisation provisions were first introduced in other parts of the United States in the 1940s and 1950s and are now in force in all major oil and gas producing states (including North Dakota, Kansas, Kentucky, Tennessee, Oklahoma and California) and common internationally (for example the United Kingdom).
Compulsory unitisation remains taboo in property-rights loving Texas, though it is debatable whether Oklahoma and Alabama (which have had compulsory unitisation since 1945) and Tennessee (since 1984) are really hotbeds of socialism.
With the Texas legislature coming to the end of its once-every-two-years session, compulsory unitisation provisions cannot now be enacted until at least 2015.
(editing by Jane Baird) Keywords: COLUMN KEMP/TEXAS OIL&CO2
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