Gas/Electric Partnership CO 2 EOR Compression & Transportation

Transcription

1 Gas/Electric Partnership CO 2 EOR Compression & Transportation February 8, 2012 NYSE: DNR

2 About Forward Looking Statements The data contained in this presentation that are not historical facts are forward-looking statements that involve a number of risks and uncertainties. Such statements may relate to, among other things, forecasted capital expenditures, dates of pipeline construction commencement and completion, drilling activity, acquisition and dispositions plans, development activities, timing of CO 2 injections and initial production response in tertiary flooding projects, estimated costs, production rates and volumes or forecasts thereof, hydrocarbon reserve quantities and values, CO 2 reserves, potential reserves from tertiary operations, future hydrocarbon prices or assumptions, liquidity, cash flows, availability of capital, borrowing capacity, finding costs, rates of return, overall economics, net asset values, potential reserves and anticipated production growth rates in our CO 2 models, 2011 and 2012 estimated production, 2011, 2012 and future production and expenditure estimates, and availability and cost of equipment and services. These forward-looking statements are generally accompanied by words such as estimated, projected, potential, anticipated, forecasted or other words that convey the uncertainty of future events or outcomes. These statements are based on management s current plans and assumptions and are subject to a number of risks and uncertainties as further outlined in our most recent Form 10-K and Form 10-Q filed with the SEC. Therefore, the actual results may differ materially from the expectations, estimates or assumptions expressed in or implied by any forward-looking statement made by or on behalf of the Company. Cautionary Note to U.S. Investors Current SEC rules regarding oil and gas reserve information allow oil and gas companies to disclose in filings with the SEC not only proved reserves, but also probable and possible reserves that meet the SEC s definitions of such terms. We disclose only proved reserves in our filings with the SEC. Denbury s proved reserves as of December 31, 2010 were estimated by DeGolyer & MacNaughton, an independent petroleum engineering firm. In this presentation, we make reference to probable and possible reserves, some of which have been prepared by our independent engineers and some of which have been prepared by Denbury s internal staff of engineers. In this presentation, we also refer to estimates of resource potential or other descriptions of volumes potentially recoverable, which in addition to reserves generally classifiable as probable and possible (2P and 3P reserves), include estimates of reserves that do not rise to the standards for possible reserves, and which SEC guidelines strictly prohibit us from including in filings with the SEC. These estimates, as well as the estimates of probable and possible reserves, are by their nature more speculative than estimates of proved reserves and are subject to greater uncertainties, and accordingly the likelihood of recovering those reserves is subject to substantially greater risk. 2

3 Defining Denbury Who Who We We Are: Are: Denbury is the Leading CO 2 Enhanced Oil Recovery (CO 2 EOR) Company in the Gulf Coast Region, with an Emerging Presence in the Rocky Mountains We are the Largest Equity Owner/User of CO 2 in the Gulf Coast Region We are one of the Largest Oil-Focused Independent Energy Companies What What We We Do: Do: Denbury is Aggressively Exploiting Our Large Inventory of Gulf Coast and Rocky Mountain CO 2 EOR Development Opportunities 3

4 What is CO 2 EOR & How Much Does It Recover? Secure CO 2 Supply Safely Transport via Pipeline Inject into Oilfield CO 2 PIPELINE from source INJECTION WELL Injects CO 2 in dense phase PRODUCTION WELLS Produce oil, water and CO 2 (CO 2 is recycled) Oil Formation Model for Oil Recovery Using CO 2 is +/- 17% of Original Oil in Place (Based on Little Creek) CO 2 moves through formation mixing with oil droplets, expanding them and moving them to producing wells. Primary recovery = +/- 20% Secondary recovery (waterfloods) = +/- 18% Tertiary (CO 2 ) = +/- 17% 4

5 Gulf Coast Region: Control of CO 2 Sources & Pipeline Infrastructure Provides a Strategic Advantage Summary (1) Proved 148 Probable (2) 339 Produced-to-Date 58 5 Delhi 36 MMBbls Tinsley 3 Jackson Dome Tinsley 46 MMBbls Total (2) 545 (2) 4 31 MMBbls Delhi Lake St. John Sonat MS Pipeline Free State Pipeline Davis Quitman Heidelberg Martinville Summerland Sandersville Soso Eucutta Cypress Creek Yellow Creek 9 Conroe 130 MMBbls 1 82 MMBbls Cranfield Brookhaven Mallalieu Olive Little Creek Smithdale McComb 2 83 MMBbls Citronelle Conroe Green Pipeline Lockhart Crossing Donaldsonville 6 Citronelle 26 MMBbls Fig Ridge Oyster Bayou 7 Hastings Area MMBbls Hastings 1) Proved plus probable tertiary oil reserves as of 12/31/11. 2) Using mid-points of range. 8 Oyster Bayou MMBbls Cumulative Production MMBoe MMBoe > 100 MMBoe Denbury Owned Fields Fields Owned by Others CO 2 EOR Candidates 5

6 Rockies Region: Control of CO 2 Sources & Pipeline Infrastructure Provides a Strategic Advantage CO 2 Sources Existing Anthropogenic (Man-made) Proposed Coal to Gas or Liquids Existing or Proposed CO 2 Source Owned or Contracted Many Star MONTANA Cedar Creek Anticline 197 MMBbls (1) Cedar Creek Anticline DGC Beulah NORTH DAKOTA Quintana Elk Basin Riley Ridge (2) 415 BCF Nat Gas 12.0 BCF Helium 2.2 TCF CO 2 Refined Energy LaBarge WYOMING Riley Ridge Lost Cabin Anadarko CO2 Pipeline DKRW Gas Tech 1) Probable and possible reserve estimates as of 12/31/11, based on a variety of recovery factors. 2) Proved reserves as of 12/31/2011 Bell Creek Grieve Field 6 MMBbls (1) Greencore Pipeline 232 Miles Bell Creek 30 MMBbls (1) SOUTH DAKOTA Cumulative Production MMBoe MMBoe > 100 MMBoe Denbury Owned Fields Fields Owned by Others CO 2 EOR Candidates Pipelines Denbury Pipelines in Process Denbury Proposed Pipelines Pipelines Owned by Others 6

7 Uncertain Times for Carbon Capture and Sequestration Economic uncertainty and volatility Climate change legislation Create a different CCS plan to achieve CO 2 emission reductions Identify and model oil reservoirs for EOR CCS Identify Industrial CO 2 producers and co-locate next to transportation Install CO 2 pipeline transportation systems CO 2 EOR is a viable, economical and technologically feasible way to produce significant oil resources utilizing anthropogenic CO 2 in a safe and secure manner under a known and proven regulatory system 7

8 CO 2 EOR Potential 2008 & 2011 Reports DOE/NETL Report CO 2 enhanced oil recovery (CO 2 EOR) offers the potential for storing significant volumes of carbon dioxide emissions while increasing domestic oil production Next generation technology offers potential for recovering more stranded oil and storing significantly more CO DOE/NETL Report Next Generation CO 2 EOR can provide 137 billion barrels of additional technically recoverable domestic oil, with about half (67 billion barrels) economically recoverable at an oil price of $85 per barrel. Technical CO 2 storage capacity offered by CO 2 EOR would equal 45 billion metric tons. The market for captured CO 2 emissions from power plants created by economically feasible CO 2 EOR projects would be sufficient to permanently store the CO 2 emissions from 93 large one GW size coal-fired power plants operated for 30 years. 8

9 Federal Government Determines CO 2 is a Pollutant Under Clean Air Act and Massachusetts vs. EPA (2007) The atmospheric release of Greenhouse Gases (CO 2 ) fit well within the [Clean Air] Act s definition of air pollution On January 2, 2011, EPA provided guidance that CO2 was a regulated New Source Review Pollutant (NSR) and therefore, subject to requirements that major emitters apply Best Available Control Technology Supreme Court ruled in June of 2011 the EPA was authorized to regulate CO 2 Under Federal Law CO 2 is now a regulated air pollutant for all major emitters Takeaways: EPA determines CCS to be a pollution control technology for Greenhouse CO 2 EPA recognized a CO 2 pipeline as a main component of CCS Control System 9

10 Best Available Control Technology (BACT) EPA classifies CCS as an add-on pollution control technology that is available for facilities emitting CO 2 in large amounts. Carbon Capture and Storage must be included in the initial stages of the BACT review and the CO 2 pipeline is one of the main components of the control system. EPA guidance specifically considers CO 2 pipeline to be part of the CCS Pollution Control System, as it views CCS systems as a composed of three main components ; CO 2 Capture and/or Compression, Transport and Storage. 10

11 Denbury CO 2 Compression During 1999, Denbury acquired Little Creek Field in SW Mississippi From 2002 to 2004, Denbury purchased nine CO 2 recycle compressors During 2004, Denbury growth plans suggested that 150 additional compressors would be required over ten years at units per year Today, Denbury operates 84 units totaling 184,000 Hp Denbury will continue to expand compression fleet during next 5 to 10 years 11

12 Engineering Challenges CO 2 Properties CO 2 is miscible in oil Good for EOR Bad for elastomers; Preferred - Peroxide cured buna, urethane and teflon - 90 durometer Bad for conventional compressor lubrication. Preferred -Mineral Oil (Conoco RNO460) or Synthetic Oil (Summit NGL-888) Reduced compressor speed to maintain lubrication CO 2 is a small molecule Good for EOR Will find a leak where other materials will stay confined CO 2 and Water = Carbonic Acid Material selection is important if free water is present CO 2 has the density of oil at higher pressure Impact on rod load 12

13 CO 2 Compression CO 2 requires slower speed operation Longer stroke with speeds from rpm on a typical high speed machine - HOS or HOSS Better for lubrication Requires larger cylinders and valves. Better for CO 2 service due to dense phase compression Higher rod loads must be managed Preventative maintenance procedures need to be followed Minor inspections at 5,000 hrs - 10,000 hours; cylinder and valves Major inspection at 15,000 to 20,000 hours; overhaul Beta analysis Oil analysis and history Good alignment will save future cost CO 2 can carry more contaminates due to higher density Vane pack design Filtration or centrifugal separation Vibration is more of a concern due the higher density of CO 2 Heavier skids and foundations More off skid clamping Need to measure vibration after installation 13

14 CO 2 Pipelines: Transportation is Essential The 320 mile Green Pipeline & Green Pipeline Texas is strategic to our long-term growth plans and success in the Gulf Coast region. Total Investment $884 million Capacity 800 MMCFD Strategically routed along Gulf Coast area to allow us to capture anthropogenic sources of CO 2 from various sources CO 2 Capture and EOR-CCS represents a win-win for the environment and domestic oil production 14

15 Gulf Coast Industrial Partners Lake Charles Air Products Air Products Port Arthur, Texas Retrofit of a Hydrogen Plant Capture Date January 2013 Quantity 52 Mmcfd Lake Charles Cogeneration Lake Charles, Louisiana New Construction of a Pet Coke to Methanol Plant Capture Date 2015 Quantity 240 Mmcfd 15

16 Greencore Pipeline Rocky Mountains Greencore Pipeline (Lost Cabin, WY to Bell Creek, MT) 232-mile pipeline route, Estimated $275 to $325 Million 16

17 Potential Carbon Gasification Projects Denbury purchase contracts (contingent on plants being completed) Initial production expected +/- 4 years after construction begins (not before 2015) Gulf Coast Sources ($0.29 to $60 Oil) MMCFD Mississippi Power (4) (2014) +/- 115 Air Products (Port Arthur, TX) (4) (Q1 2013) 50 Lake Charles Cogeneration LLC (3) Mississippi Gasification of Mississippi (SNG) (1) (2) (3) Faustina (Donaldsonville, LA) Rentech (Natchez, MS) Midwest Sources $60 Oil) Currently Under Construction MMCFD Indiana Gasification (SNG) (1) (2) Power Holdings of Illinois (SNG) (1) Christian County Generation/Tenaska of Illinois (SNG) (1) (2) (5) Cash Creek Kentucky (SNG) (1) (1) Requires additional supplies and additional pipeline. (2) In term sheet negotiation phase under the U.S. Department of Energy Loan Guarantee Program. (3) Denbury and Producer selected for DOE Grant FOA (grant dollars, not loan guarantees). (4) Under Construction (5) Contingent on having pipeline capacity. 17

18 Rockies Anthropogenic CO 2 Rocky Mountain Purchase Contracts MMCFD COP Lost Cabin (Central Wyoming) (Q1 2013) +/- 50 Currently Under Construction XOM LaBarge (SW Wyoming) (1) (Q3 2012) +/- 50 DKRW Medicine Bow (SE Wyoming) (2) (+/- 2016) +/- 100 Rocky Mountain CO 2 Ownership MMCFD Riley Ridge Unit - LaBarge (SW Wyoming) (2016) +/- 200 (4) Rocky Mountain Potential Sources MMCFD GasTech (NE Wyoming) +/- 115 Quintana South Heart Project (SW North Dakota) +/- 100 Dakota Gasification (SW North Dakota) (3) +/- 250 (1) Grieve Field Contract Potential for more XOM supply. (2) In term sheet negotiation phase under the U.S. Department of Energy Loan Guarantee Program. (3) Includes volumes currently under contract by third parties (4) Initial capacity, potential to increase to +/- 600 MMCFD by

19 What s Needed and Can Be Done Today Federal/State Law and Policy should recognize that CO 2 EOR is CCS 40 years of safe and secure experience Only CCS strategy that can be done today Incentives, not regulations, will encourage deployment of CCS technology IRS 45Q Tax Credits ($10/ton for EOR and $20/ton for Saline) Tie to domestic energy development (both new coal, biofuels, natural gas and oil) EOR is the only financial engine available to develop a CO 2 pipeline system EPA MVA rule needs to be workable (Class VI vs. Class II UIC wells) States/EPA need to certify CO 2 volumes as being sequestered Pore Space Ownership issues Mechanism needed to aggregate large areas of underground storage space While developing, oilfield can provide early CCS for decades 19

20 CO 2 EOR will Capture & Sequester Advancing U.S. Energy Production CO 2 EOR can recover billions of barrels of identified oil from existing US oilfields, and offers production without additional exploration and development lead times The environmental impact of every barrel of recovered US oil from CO 2 EOR could be offset by carbon capture and storage (CCS) Infrastructure for Future CCS Solutions CO 2 pipeline networks will enable large-scale CCS during enhanced oil recovery and in post-production utilization of underlying saline formations CO 2 pipeline networks provide the basic infrastructure needed for development of carbon solutions for environmentally-sensitive industrial developments including existing power plants, industrial sites, innovative gasification projects that can produce transportation fuels, power, substitute natural gas, fertilizer and chemicals from plentiful U.S. natural resources 20

21 Contact Information Corporate Headquarters Denbury Resources Inc Legacy Drive Plano, Texas Ph: (972) Fax: (972) denbury.com Contact Information Bob Cornelius Sr. VP, CO 2 Production Operations (972) robert.cornelius@denbury.com Jack Collins Executive Director, Investor Relations (972) jack.collins@denbury.com 21