Stimulus bill clears committee

CASPER — The Joint Minerals, Business & Economic Development Committee on Monday advanced a stimulus bill that could boost Wyoming’s enhanced oil recovery (EOR), a production method in which carbon dioxide is injected underground to help pressure up latent oil reserves in older fields.

The legislation would pay carbon dioxide suppliers an extra $10 per tonne for CO2 for use in EOR, building on a federal tax policy known as 45Q, which pays producers $65 per tonne of carbon that’s captured and supplied for enhanced oil projects.

By sweetening the pot, lawmakers wager the bill will increase output and generate enough in added tax receipts to cover program costs, and eventually supplement state coffers. Sponsors say the bill is designed to level the playing field for carbon capture incentives.

The 45Q program, signed into law in 2008 and expanded by the current administration, pays more for the permanent storage of captured carbon than it does for its use in EOR; capture projects can cash in on $85 per tonne of permanently stored carbon, but only 65$ when supplying it for use tertiary oil production.

“This is a novel approach that tries to equalize a federal program, 45-Q, that picks a winner, dedicated storage, with a state program that…levels it out,” bill advocate Pete Obermueller, president of the Petroleum Association of Wyoming, told the committee. “It’s Wyoming choosing to invest in a way that pushes back against the policy direction of the federal government.”

Committee members, however, raised concern that the bill might ultimately benefit a large corporation more than local producers, and pointed out that the high volumes of carbon needed to make EOR viable means the program won’t be cheap.

As an example, the Salt Creek Mine in Natrona County now implements around 70 million tonnes of carbon dioxide daily in its EOR production, down from a peak of 250 million tonnes per day in previous years. This means that during peak EOR the company was paying $350,000 per day for that CO2, according to a report from the Wyoming Enhanced Oil Recovery Institute (EORI).

But according to Lon Whitman, director of EORI, who testified during the committee hearing, the expenditures will be recouped overtime as production ramps up. Whitman offered as an example the Patrick Draw Field in the state’s southwest, whose implementation of EOR beginning in 2002 saw production shoot from 10 barrels a day to 7,000 barrels a day.

“It’s a classic example and it’s why CO2 EOR is so valuable, to go from 17 barrels a day to 7,000. Everyone likes that,” Whitman told the committee.

In a whitepaper titled “Analysis of Proposed Incentives for Enhanced Oil Recovery and CCUS,” researchers from EORI present a theoretical case study of a cluster oil field in the Powder River Basin, where they say the state would break even on $26 million worth of carbon purchases over an eight year period, after which EOR associated severance receipts would be “all profit,” according to Whitman, who added that some such fields can produce for more than 30 years.

Still, legislators questioned if the bill wasn’t an undue giveaway to the state’s only producer of carbon dioxide for EOR: Exxon Mobil, who captures carbon at its Shute Creek plant in Lincoln County and transports it via pipeline around the state. Because Exxon is currently limited in permanent storage options, it’s already incentivized to supply carbon for EOR production, lawmakers said.

“These incentives go to Exxon, but they’re already selling all that they can, and this would just provide an increased margin for them,” said Rep. Scott Heiner, R-Afton. “How do we get that benefit to the small operator…and utilize money in the state rather than just for a large corporation?”

Relatedly, Wyoming’s current EOR producers have no problems securing sufficient CO2 supplies, according to Tom Kropatsch, director of the Oil and Gas Conservation Commission, who testified during the hearing. Committee members also questioned if the program was too intertwined with federal law, as it requires suppliers to establish 45Q eligibility as a prerequisite to receiving the Wyoming stimulus.

The bill’s champions responded by saying the legislation would help draw additional CO2 suppliers to the state, which in turn could lower the cost of carbon dioxide independent of subsidies. They also said it may spur the creation of new pipeline infrastructure needed to reach far-flung fields with tertiary potential. They strongly emphasized a belief that the bill brings minimal risk.

“It is extremely low risk for the state of Wyoming,” said Obermueller “If a project doesn’t happen, the state spends no money.”

Oil produced by EOR constitutes about 6% of total in state production and contributes around $26 million in severance tax annually, according to data from EORI, who estimate that a systematic implementation of enhanced recovery techniques at 75 fields across the state could yield up to 2 billion additional barrels of oil and $6 billion in severance tax.

The bill would create a special purpose account with an original outlay of $10 million to get started. Proponents reiterated that while the approach is novel, the purpose is plain.

“The intent of this bill is to level the playing field so that the producer is in the same position as a permanent sequestration facility,” said committee member and bill advocate Sen. Chris Rothfuss, D-Albany. “The capturer will look at the market and say, ‘Okay it’s just as attractive to provide this CO2 to the oil producer as it is to the permanent sequestration.”