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American Energy Oil Independence via Enhanced Oil Recovery (EOR) Primer – Technology Company Projects
What most Americans don’t realize is that America may have all the oil it needs right here at home. And the best place to find new oil is in an old oil well — because for every one-barrel of oil pumped out of the ground using primary oil recovery methods, there remains approximately four-barrels of stranded-oil still left in the ground.
EOR (Enhanced Oil Recovery) is The Next Big Thing in the oil business because new EOR technologies can enable America to recover up to 70% of the stranded oil that remains in hundreds of thousands of America’s old and abandoned oil wells.
Over the last few years, my partners and I have worked diligently to commercialize two much-needed technologies for this burgeoning EOR business:
1. a geothermal-powered pump that does not consume electricity (enabling marginally-producing water-cut wells to operate profitably without high monthly electric pumping bills that might otherwise force such wells to shut down for economic reasons) and
2. a portable engine exhaust gas injection EOR system that promises to be more cost-effective than pure-CO2 EOR in extracting stranded oil from marginally-producing and abandoned oil fields whose permeable geological characteristics can best benefit from re-pressurizing the reservoir to re-mobilize the oil.
This capability of a low-cost portable, skid-mounted, N2+CO2 exhaust gas injection EOR system has been achieved by www.FossilBayEnergy.com.
Here’s why the promise of portable N2+CO2 EOR offers so much promise to increase American energy independence: There are approximately 500,000 actively producing oil wells in the U.S., of which 80% (~400,000) are classified as marginally-producing “stripper wells” that produce less than 10-barrels of oil per day. Today, these stripper wells produce in aggregate nearly 1-million barrels of oil per day, representing almost 20% of America’s daily oil production.
When stripper wells are prematurely abandoned, as much as 65%-75% of their oil can remain in the reservoir. From 1994 to 2006, approximately 177,000 stripper wells were prematurely plugged and abandoned, leaving literally billions of barrels of crude oil in the ground that can only be recovered using today’s EOR technologies.
In fact, the DOE has estimated that the use of CO2-EOR could generate >240 billion barrels of recoverable oil: Likewise, BP’s head of technology says future oil supply will come from EOR, not new oil discoveries:
Just a few years ago, America imported over 10.1-million barrels of crude oil a day. Today, because of an increase in domestic oil production, we actually import 3-million barrels a day less oil. Soon, because of new Enhanced Oil Recovery (EOR) technologies, America may be able to replace the ~3.3-million barrels a day of foreign oil that we currently import from OPEC countries – which harms our economy by sending more than $115-billion a year in American fuel-dollars overseas to countries that threaten our national security interests
During primary recovery, when oil is discovered in a new reservoir, the natural pressure of the reservoir, or gravity, drive oil into the wellbore, combined with artificial lift techniques (such as pumps) which bring the oil to the surface. But only about 10 percent of a reservoir’s original oil in place is typically produced during primary recovery.
Secondary recovery techniques extend a field’s productive life by injecting water (“water-floods”) or natural gas to displace oil and push/drive it to a production wellbore, resulting in the recovery of an additional 20 percent of the original oil in place.
In order to recover 30 to 60 percent, or more, of the reservoir’s original oil in place a number of ‘tertiary’ recovery methods have been developed to mobilize crude oil trapped in rock formations and to re-pressurize the reservoir by replacing the volume of gas and oil extracted during primary and secondary water-flood production. Two major categories of such Tertiary EOR methods have been found to be commercially successful to varying degrees:
- Thermal recovery, which involves the introduction of heat such as the injection of steam to lower the viscosity, or thin, the heavy viscous oil, and improve its ability to flow through the reservoir. Cyclic Steam Stimulation and Steam Flooding thermal techniques account for over 40 percent of U.S. EOR production, primarily in California.
- The problem with Thermal Recovery is the high cost of energy to boil the water to make steam and the availability (and cost) of
fresh-water in remote locations subject to environmental restrictions due to drought conditions.
- Gas injection, which uses gases such as natural gas, nitrogen, or carbon dioxide that expand in a reservoir to push additional oil to a production wellbore, or other gases that dissolve in the oil to lower its viscosity and improves its flow rate. Gas injection accounts for nearly 60 percent of EOR production in the United States.
- The problem with pure CO2 gas injection is the high cost and lack of availability of CO2 by pipeline to oil fields that could benefit from gas injection EOR.
In the U.S., there are about 114 active commercial CO2 injection projects that together inject over 2 billion cubic feet of CO2 and produce over 300,000 barrels of oil per day, representing approximately 5% of current U.S. oil production. By 2035, the Energy Information Administration estimates that 25 percent of U.S. oil production will be produced through CO2 EOR.
CO2 gas floods, however, are restricted to fields where large quantities of CO2 can be supplied from natural sources or industrial sources, by pipeline. CO2 pipelines are costly, resulting in up-front capital expenses in the hundreds of millions, and billions, of dollars. As the map below shows, only certain areas of the USA are equipped with CO2 pipelines
- Due to the cost of transporting CO2, only the largest oil fields in certain geographic areas in close proximity to CO2 pipelines and CO2 sources will be developed. Both the capital required for CO2 flooding, as well as the scarcity of natural or industrial sources of CO2 result in a significant gap in the industry’s ability to optimize crude oil production in the world’s known reserves.
Vast, oil-rich areas, ripe for EOR in South Texas, California, Michigan, Kentucky, Kansas, etc, are unserved by CO2 pipelines and therefore need alternative Tertiary EOR technologies other than pipeline-based CO2-EOR.
EOR Is A Low Risk, High ROI, Tax-Advantaged Investment
While America’s Oil companies and Investors spend billions of dollars exploring for, and drilling, new oil and gas fields – they all share the same risk: Drilling a dry-hole
EOR Projects, on the other hand, have no dry-hole risk. The production of oil in EOR Projects can actually be quantified by past oil field performance:
- If an oil field originally produced 1-million barrels of oil using just Primary Recovery means, it can produce an additional 1-million barrels of oil using Secondary Recovery water-flooding. Likewise, such an oil field could conceivably produce another 1-million barrels of oil using Exhaust Gas Injection EOR.
EOR Projects that re-enter and re-work old wells to produce new oil supplies offer Oil Companies and Investors a lower-risk way to invest in Oil and Gas Projects than conventional oil and gas deals that have a historically high risk of Dry Holes or marginal production.
EOR Projects also enjoy significant Congressional and IRS pass-through risk-reduction incentives to reward Tax Payers for helping America produce new domestic sources of oil to displace foreign oil imports.
- For example, in a $5-million EOR project, if the IDC Intangible Drilling Costs and Qualified Tertiary Injectant costs, as expected, add up to $3.5-million, for example, then the at-risk Working Interest Owners of that EOR project can deduct 100% of those $3.5-million in IDC/EOR-Injectant expenses from their ordinary incomes on their personal 1040 tax-filings (courtesy of Congress encouraging domestic oil production).
If >65% pass-through tax-deductions against regular income are not enough to motivate investment in an EOR Project, then surely the low-cost nature of this form of Oil Production should motivate its adoption by a growing number of oil companies eager to make a profit in today’s low oil-price world — because the average Exhaust Gas Injection EOR Project (depending on reservoir depth but still including the cost of drilling a new gas-injection well and a horizontal production well) can produce a new barrel of oil for less than $15-$25 a barrel. (This is low enough to produce meaningful profits and high ROIs even with oil priced below $40 a barrel.)
These are the reasons why Exhaust Gas Injection EOR should become the next big thing in the Oil Industry – because the per-Project risk is low, the profit-potential is high, the tax-deductions are substantial, and so are the number of abandoned, dormant and marginal oil fields that are perfect candidates for EOR revitalization.
Over the coming months, we hope to demonstrate and commercialize these technologies in active EOR projects of our making.
Fossil Bay Energy co-founder and chairman, Mike McGhan, was co-founder and CEO of Hanover Compressor in 1990 (now “Exterran”) and Valerus Compression Services in 2004. McGhan will oversee the Company’s manufacturing and exploitation of its N2+CO2 Exhaust Gas Injection EOR equipment in EOR-worthy oil fields throughout the U.S.
For more information, contact Larry@FossilBayEnergy.com
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