Induced Austerity in CO 2 EOR: A Look to Crashes of the Past 1, What is Happening Today 2 and What May Come in the Future 3

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1 1 Induced Austerity in CO 2 EOR: A Look to Crashes of the Past 1, What is Happening Today 2 and What May Come in the Future 3 CO 2 Flooding Conference; December 11, L. Stephen Melzer, Melzer Consulting 2 Gary Bullock, Whiting Petroleum 3 Charles Fox, Windy Cove Midland Center Midland, Texas

2 2 A Look to Oil Price Crashes of the Past

3 3 In the world of oil prices: It is déjà vu all over again * * Quote attributed to an American sports icon, Yogi Berra (we ll miss you)

4 The Range of Impacts of Oil Price Crashes on CO 2 EOR 4 What History Tells us About Oil Price Crashes on CO 2 EOR Activity Impacts on Oil Production, Flood Starts, CO 2 Sales, Flood Longevity, Innovation, etc.

5 West Texas Intermediate Oil Price vs. Year and Oil Price Crashes Over the Last Four Decades AVE. WTI CRUDE OIL PRICE, $/bbl $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $ AVE. WTI POSTED CRUDE OIL PRICE Source: Energy Information Agency % 30% % % 2014 YEAR

6 CO 2 EOR and its Steady Growth (Production) 6 CO2 EOR PRODUCTION - kbopd WW, U.S., & PB CO2 EOR PRODUCTION Worldwide U.S. Permian Basin * Ref: O&GJ Biennial EOR Editions & UTPB Petr Industry Alliance YEAR

7 7 History of CO 2 EOR Project Growth* GROWTH OF U.S. and PERMIAN BASIN CO2 EOR PROJECTS U.S. Projects Permian Basin Projects 120 NO. OF PROJECTS Growth but CO 2 Supply Limitations, Stifled the Permian Basin s Growth * Oil & Gas Journal EOR Edition & Petr Industry Alliance Ref: Biennial OGJ EOR Surveys and UTPB/PIA YEAR

8 8 Worldwide and PB Project Growth*) GROWTH OF WW and PB CO2 EOR PROJECTS Worldw ide Projects Permian Basin Projects NO. OF PROJECTS * Oil & Gas Journal EOR Edition & Petr Industry Alliance YEAR

9 ..and Growth Even with Languishing Oil Pricing 9 NO. OF PROJECTS GROWTH OF PERMIAN BASIN & WORLDWIDE CO2 PROJECTS WW Projects PB Projects Average Growth > 2 Projects/Yr YEAR Melzer Consulting - 8/04 WTI Posted Oil Prices OIL PRICES IN $/bbl $40 $30 $20 $10 $ Average Price = $18.80 (U.S.) YEAR Conclusion: CO 2 EOR Technology had Matured

10 10 Oil Prices Do Affect CO 2 Flood Starts The History of Newly Implemented Floods (PB) 8 PERMIAN BASIN CO2 EOR PROJECT STARTS 80 YEARLY PROJECT STARTS Project Starts Cum Project Starts (Rt Scale) s CUM PROJECT STARTS 0 YEAR

11 11 THE PHASES OF CO 2 ENHANCED OIL RECOVERY* Demonstration/Observational Phase I Commercial Deployment Phase 1st Oil Price Crash II III IV Maturation/ Renewed Deployment V 2nd Oil Price Crash VI CO 2 Supply-Constrained Expansion? 8 PERMIAN BASIN CO2 EOR PROJECT STARTS 80 7 Project Starts 70 YEARLY PROJECT STARTS The Start: North Cross and SACROC Cum Project Starts (Rt Scale) s CUM PROJECT STARTS Major CO2 Pipelines Built YEAR * as Benchmarked to the Permian Basin Region of the SW U.S.

12 12 A New Day This Time Around?

13 Apr-84 Apr-85 Apr-86 Apr-87 Apr-88 Apr-89 Apr-90 Apr-91 Apr-92 Apr-93 Apr-94 WTI ($/bbl) 13 First, About Oil Supply in General, What is the Same? Oversupply of Oil When Compared to Demand Drop in Oil Price is Dramatic (about 45-50%) ~ Same as 1986 Crash We Might Look at the 1986 Crash as the Best Analogue? $50.00 $45.00 WTI Crude Prices Energy Information Agency Data WTI EIA $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 Mo-Yr

14 But What is Different? Oil Supply and Oil Demand 14 Excess WW Production Capacity Today is Very Limited (~2 Million bbls/day) In 1986, Just before Crash, it was in excess of 9 Million bbls/day Much of the Incremental Oil Creating the Surplus in Supply Will Decline Rapidly Maybe Early to Tell Yet but Demand Elasticity (to Oil Price) was Greater in the Past

15 15 What is Different? CO 2 EOR in Particular The World Places a Higher Value on Clean Energy than in the Past Can CO 2 EOR Play a Role in the Clean Energy Transformation? We Entered the Current Oil Price Bust Short of CO 2 for EOR

16 What is Different? CO 2 Supply and Demand in the PB INCREMENTAL CO2 SUPPLY AND DEMAND IN THE PERMIAN BASIN 3.00 CO2 Volumes in bcfpd Crossover Excess Supply Demand Supply Shortfall New Territory Year Melzer Consulting - 4/15

17 17 Chaos often breeds life, when order breeds habit Henry Adams We should be breeding a lot of new life at $45/bbl

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