Denbury completes Free State Pipeline

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Published: June 12,2006

On May 30, state and local officials as well as executives with Denbury Resources Inc. gathered in Rankin County and later that day in Jones County to celebrate the completion of Denbury’s new pipeline. Dubbed the Free State Pipeline, the $50-million, 84-mile pipeline will transport carbon dioxide (CO2) from its source in Central Mississippi to Denbury oil fields in Southeast Mississippi to recover additional oil from existing fields in a tertiary recovery process known as CO2 flooding or injection.

Gareth Roberts, CEO of Plano, Texas-based Denbury, said, “We estimate that more than 80 million new barrels of oil will be recovered using carbon dioxide flooding in these and other older Mississippi oil fields. Over the lifetime of the enhanced recovery project, this could generate approximately $90 million in new severance taxes for the state and counties where the production occurs.”

CO2’s day arrives

Mississippi is rich in oil, particularly in the southeastern part of the state. But, it is not possible to get all the oil out of the ground even after extensive drilling activities. Thus, existing, older fields still contain oil after primary and secondary recovery efforts are exhausted, requiring an enhanced, or tertiary, recovery method. CO2 injection/flooding is one of these tertiary recovery methods.

The process involves injecting carbon dioxide into the ground to stimulate oil and gas flow to produce remaining fluids that were not extracted during primary or secondary recovery phases. Now that oil prices have skyrocketed and attention is focused on taking full advantage of domestic sources for oil and gas, CO2 flooding’s day has arrived.

According to Denbury, Mississippi is among the leading states in CO2 production and reserves with an estimated 4.6 trillion cubic feet of proven reserves. The company began its CO2 tertiary recovery program in Mississippi in 1999.

The company will initially focus on oil and gas fields located in Jasper, Smith, Simpson, Jones and Wayne counties for the CO2 flooding. The Free State Pipeline has the capacity to supply approximately 38 million cubic feet of CO2 daily to these Southeast Mississippi fields for injection.

If the 80-million-plus barrel number is realized, it would be very significant. According to Denbury, that would produce enough gasoline and fuel oil to fuel 200,000 vehicles and heat approximately 100,000 homes for 15 years.

Joe Sims, president of the U.S. Oil and Gas Association-Mississippi, said, “This is the most significant event in Mississippi’s oil and gas industry since the early discovery of the large oil fields in the state. At a time when oil production is trending downward in other states, Denbury’s enhanced oil recovery initiative not only keep’s Mississippi’s oil production stable, but also stands to increase it over time, further strengthening the state’s role as a critical part of our nation’s energy infrastructure.”

Sims added that the industry has been attempting to develop Mississippi’s CO2 reserves for decades. Shell began work in that area in the 1980s, and proved it a technical success, but not a profitable one. Denbury eventually bought Shell’s rights, and Sims said Denbury has proven the state’s CO2 holdings a moneymaker.

“Since 2001, Denbury has shown CO2 injection to not only be a technical success, but a financial success, as well,” he said.

Growing investment

Even before the completion of the Free State Pipeline, Denbury was the largest oil and gas producer operating in Mississippi. It produces 8.2 million barrels of oil annually, which is roughly 45% of Mississippi’s total oil production.

This has required a significant in-state investment by the company that holds operating acreage in Louisiana, Alabama and Texas. In 2005 alone, Denbury spent $441 million in Mississippi. This includes $350 million on capital investments and operating costs, $72 million in royalties and $19 million in severance taxes.

More capital expenditures in Mississippi are planned. Denbury, which employs 256 Mississippians with a payroll of approximately $13 million, expects to spend approximately $1 billion in the state over the next 20 years for additional enhanced oil recovery phases.

More phases of the Free State Pipeline are on the books. This could mean that Denbury may supply other oil and gas companies with CO2. According to Tracy Evans, senior vice president of reservoir engineering at Denbury, his company has talked with others in the industry about such an arrangement. Those talks have not resulted in new business, but Evans said Denbury would continue to entertain talks and offers.

And, CO2 has potential uses outside of oil recovery. Denbury is already supplying CO2 for the production of dry ice. And, drink companies may liquefy the CO2 to carbonate beverages.

While Denbury’s investments and assets are a plus for Mississippi, particularly the counties in which operations will occur, Roberts said the state has also been good for and to Denbury.

“We are grateful to Gov. Haley Barbour, Senate and House leadership as well as other state and local officials, who have been extremely supportive of our enhanced oil recovery efforts,” Roberts said. “Mississippi is not only blessed with tremendous energy resources, it is a great place to do business.”

Contact MBJ staff writer Wally Northway at northway@msbusiness.com.

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