Part of what makes Denbury unique among domestic oil and gas companies is our historical focus on developing significant and otherwise stranded reserves of oil from depleted reservoirs through CO₂ EOR.

In many U.S. oil fields, it is estimated that only about 30% to 40% of the original oil in place (“OOIP”) is recoverable through primary and secondary methods. Our experience has shown that CO₂ EOR can recover another 10% to 20% of the OOIP. While the technology used in CO₂ EOR may not be considered new, we apply several concepts learned over time to improve and increase CO₂ utilization efficiency within the reservoirs. For example, we are focused on using CO₂ more efficiently in our operations which allows us to decrease the amount of naturally-occurring CO₂ injected in our operations, thereby increasing the proportion of industrial-sourced CO₂ utilized in EOR. Implementing this strategy improves the economics of the process and makes CO₂ EOR operations economically viable on a wider scale, even in a lower oil price environment.

We began our CO₂ EOR operations in 1999 when we acquired Little Creek Field in Mississippi, followed by our acquisition of Jackson Dome CO₂ reserves and the Northeast Jackson Dome (“NEJD”) Pipeline in 2001. Based upon our success at Little Creek and the ownership of significant CO₂ reserves at Jackson Dome, we began to transition our capital spending and acquisition efforts to focus predominantly on CO₂ EOR. Today, our asset base primarily consists of current CO₂ EOR projects, future CO₂ EOR projects and assets that produce, process and transport much of the CO₂ that we use.

Our oil and natural gas properties are concentrated in the Gulf Coast and Rocky Mountain regions of the United States.

   

For many years, oil has been produced from the earth using a variety of different production techniques, typically occurring in three phases: primary, secondary and tertiary oil recovery. Primary oil recovery is limited to hydrocarbons that naturally rise to the surface, or those that use artificial lift devices, such as pump jacks. In secondary production, water is typically injected to re-pressure the target formation, providing energy and mobility to sweep the remaining recoverable liquids to the wellbore for recovery. Utilizing only primary and secondary recovery methods can leave up to 70% of the OOIP.

Tertiary production occurs after both primary and secondary recovery production is complete. This phase of production requires a catalyst that will interact with the stranded oil so that it will flow through the rock reservoir to the wellbore. Pressurized CO₂ injection is a proven tertiary EOR technique and can recover, on average, an additional 10% to 20% of the OOIP.

In 2020, CO₂ EOR accounted for approximately 2.8% of average U.S. daily production, or approximately 323,000 barrels of oil per day or over 115 million barrels per year. CO₂ transportation pipelines currently cover over 5,000 miles.

EOR Can Deliver Almost as Much Oil as Primary and Secondary Recovery¹

¹ Based on original oil in place at Denbury’s Little Creek Field.

Financial Impacts of Tertiary Recovery

The economics of a tertiary field differ from conventional oil and gas plays. While it is difficult to accurately forecast future production, tertiary recovery operations provide significant long-term growth potential at reasonable return metrics, with relatively low risk, assuming crude oil prices are at levels that support the development of those projects. Denbury’s tertiary operations represent a significant portion of our overall operations. We have been developing tertiary oil properties for over 20 years, and the financial impact of such operations is reflected in our historical financial statements. For more information on how tertiary operations have impacted our financial statements, see Annual Report on Form 10-K: Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Overview of Tertiary Operations.

Denbury is currently party to several contracts to purchase CO₂ from industrial sources (CO₂ from these sources is also known as anthropogenic or man-made CO₂) to use in our EOR operations. We have contracts to purchase CO₂ from an industrial facility in Port Arthur, Texas, an ammonia plant in Geismar, Louisiana and the Lost Cabin Gas Plant in Wyoming. Between 2019 and 2020, these three sources supplied over 55 MMcf/d of CO₂ for our EOR operations. Denbury also owns an interest in the CO₂ produced at the LaBarge Field in Wyoming, which is captured from the Shute Creek Plant. Between 2019 and 2020, this source supplied approximately 90 MMcf/d of CO₂ for our EOR operations. The CO₂ captured from these industrial sources could otherwise be released into the atmosphere. Additionally, we are in ongoing discussions with other parties who have plans to construct plants or capture facilities near the Green Pipeline.

We continue to have ongoing discussions with owners of existing plants of various types that emit CO₂ that we may be able to transport and store. In order to capture such volumes, we (or the plant owner) would need to install additional processing equipment. The capture of CO₂ could be influenced by potential federal legislation, which could include incentives for capturing CO₂ emissions. For example, Section 45Q of the Internal Revenue Code (Title 26 of U.S. Code) is expected to result in significant increased capture of industrial-sourced CO₂. We believe that we can play a significant role in the capture, transportation and storage of CO₂ because of the scale of our tertiary operations, our CO₂ pipeline infrastructure, and our expertise.

*In this section any references to “Denbury,” “our” or “we” refers to Denbury Onshore, LLC, or in case of references to CO₂ pipeline infrastructure, an affiliate of Denbury Onshore, LLC.