Crude oil prices have rebounded somewhat in recent weeks (and now are hovering near $50/bbl), but cash-hungry shale-play producers remain laser-focused on high-output “sweet spots” that promise quick, sure-fire economic returns. What if these same producers could get an added, low-cost boost in output—and much-needed revenue—through enhanced oil recovery (EOR)? EOR, which involves injecting or “flooding” seemingly past-their-prime oil wells with steam, carbon dioxide (CO2), natural gas or nitrogen to spur further production, has always been associated with conventional, vertical wells; but as we discuss today, there’s a push under way to make EOR work in horizontal wells too.
Enhanced oil recovery, like hydraulic fracturing, is a way to unlock trapped oil. Primary recovery of oil from a conventional, vertical well (through natural pressure and pumps) typically recovers only about 10% of a reservoir’s total oil, and secondary recovery (mostly injecting water to displace oil and drive it to a production wellbore) can recover another 20 to 40%, leaving as much as 70% of a reservoir’s oil untapped. EOR—or tertiary recovery--can recover a portion of what’s left. There are two main EOR techniques in relatively widespread use on vertical wells: thermal and CO2-EOR. Thermal-EOR involves injecting steam to increase the flow of heavy, viscous oil; thermal techniques (in the U.S. used primarily in California) account for about 40% of total EOR-based output in the U.S. CO2-EOR, which accounts for virtually all of the rest, involves injecting CO2 (or in some cases nitrogen or natural gas) to push additional oil to the wellbore. As we suggested in the title of our last series on EOR (EOR Don’t Get No Respect—The Rodney Dangerfield of Crude Production), EOR is the oil sector’s neglected step-child, providing maybe 5% of total U.S. production and getting none of the attention that tight-oil or shale plays do.
EOR at conventional, vertical wells also has suffered lately from the collapse in oil prices because EOR is far from free. CO2-based EOR, for instance, can add as much as $20/bbl to the cost of producing oil, a black mark for the practice when oil is selling for less that $50/bbl. Still, traditional EOR remains a mainstay for a few producers in certain plays, including EOR leader Occidental Petroleum (Oxy), which has more than 30 active CO2-EOR projects in the U.S. and which in 2015 produced 145,000 barrels of oil equivalent a day (145 Mboe/d) through CO2-EOR in the Permian Basin alone. (Because of efficiencies Oxy has achieved, the company’s CO2-EOR costs in the Permian are only $3 to $12/boe.) And more CO2-EOR in conventional, vertical wells is planned as new CO2 production capacity comes online. For example, at the $1 billion Petra Nova Carbon Capture Project near Houston, new equipment being installed at NRG Energy’s 610-MW, coal-fired W.A. Parish Unit 8 in Fort Bend County is expected to enable the power generator to capture 90% of the CO2 from a 240-MW portion of the unit’s emissions, making it the largest project of its type on an existing coal unit. When the process starts operating in late 2016 (we hear that everything’s on-budget and on-schedule as of early June), 75 MMcf/d of captured CO2 will be compressed and delivered via a new, 82-mile pipeline to the mature West Ranch oil field in Jackson County, TX. At West Ranch (which is co-owned by Hilcorp Energy and a joint venture of NRG and JX Nippon Oil & Gas Exploration Corp.), the CO2 will be used in EOR to increase oil production from the current 500 b/d to 15 Mb/d—and to “sequester” (or permanently store) the CO2. The revenue generated by the expected 30-fold increase in oil output is planned to offset the cost of the project. The 11,500-acre West Ranch oil field has produced 390 MMbbl since it was first drilled in 1938, and is currently estimated to hold about 60 MMbbl of oil recoverable from CO2-EOR. At $50/bbl, the value of the recoverable oil would be about $3 billion.