Occidental Petroleum Corp. announced yesterday an agreement with SandRidge Energy to develop a West Texas hydrocarbon gas processing plant and related pipeline infrastructure that will provide carbon dioxide (CO2) for use in Occidental's enhanced oil recovery (EOR) projects. The new CO2 resources are expected to expand the company's Permian production by a minimum of 50,000 barrels of oil per day within the next five years.
Subject to approvals, the new gas plant and pipeline are expected to commence operations in 2011 with immediate application to expand existing CO2 EOR operations.
"This project will allow us to exploit at least 3.5 trillion cubic feet of CO2 for our long-term use in enhanced oil recovery projects throughout the Permian Basin and will allow us to develop approximately 500 million barrels of reserves from currently owned assets at an attractive cost," said Dr. Ray R. Irani, Occidental Petroleum's chairman and CEO.
The net cost of the CO2 from the new gas processing plant is attractive. However, Occidental will continue to contract for and seek additional CO2 sources to further develop its existing Permian asset base. Total costs for the oil production from the new field development, including capital and operating costs, transportation, CO2 gas, etc., given the proximity to the Permian basin, are expected to be several dollars below current levels.
Occidental will own and operate the new facilities and will invest approximately $1.1 billion in their development. The gas processing plant, located in Pecos County, Texas, is expected to have a CO2 takeaway capacity of at least 450 million cubic feet per day. In addition, the company will get another 50 million cubic feet per day from existing SandRidge gas processing plants. A new 160-mile long pipeline will be constructed from the plant, through McCamey, Texas, to the industry CO2 hub in Denver City, Texas.
SandRidge's locally produced, high CO2 content natural gas will be processed at the new plant with Occidental oil and gas production wells receiving the CO2 stream that is separated from the natural gas. The company is the largest producer in the Permian Basin with approximately 16% net share of total regional production, and net production currently about 200,000 BOE per day. At the end of 2007, the properties had 1.2 billion BOE in proved reserves.
