Incentives, Technology, and EOR at Lower Oil Prices
Authors: Brashear J.P. , Becker A. , Biglarbigi K. , Ray R.M. 
Published: December 2007

Tax incentives, price supports, and technology advances can all stimulate reserve additions from EOR. This paper estimates incremental EOR reserves and their direct impacts on the treasuries of the incentive-granting government and on the public sector in general as a function of these three policy variables. New Mexico, Oklahoma. and the U.S. as a whole are examined by detailed reservoir-by-reservoir technological and economic analyses. The evaluations rely on methods developed by the Natl. Petroleum Council (NPC) and are conducted for a large. representative sample of the reservoirs in the U.S. The major findings include the following:at oil prices below $28/bbl [$176/m3]. tax incentives result in significant incremental EOR reserves and at lower prices are necessary to make EOR viable;if properly designed. incentives can stimulate enough new projects to yield a net "profit" to both the public sector and the incentive-granting government;incentives granted by one level of government benefit the other level at no cost;incentives to the point of project "payback" are always more cost-effective than incentives for the project life;technology advances resulting from focused public and private R and D synergistically amplify tax-incentive effects, making both highly cost-effective; andthe combination of tax incentives and technology advances can add significantly to the U.S. oil reserves by effectively reducing the oil price required to support many future EOR projects.

Introduction

The U.S. will abandon in known reservoirs an amount of oil nearly 12 times its current proved reserves. At the end of 1985, the U.S. had produced 139 billion bbl [22.1 X 10-m3] of oil and had proved reserves of approximately 28 billion bbl [4.4 X 10-m3]. Nearly 325 billion bbl [51.7 X 109 m3], or two-thirds of the oil ever discovered in the U.S., will remain in reservoirs because of the absence of technologies that can produce this resource economically (Fig. 1). Of this unrecovered oil, 70% is held in reservoir rock by viscous and capillary forces and cannot be mobilized by conventional recovery techniques. This resource is the target for EOR. At current low oil prices, relatively untested recovery techniques like EOR may not provide adequate financial incentive for operators to justify the cost and risk associated with these methods. The objective of this paper is to investigate the potential of reserve additions by EOR through properly designed tax incentives and focused R and D, either of which could have the same effect as higher oil prices on EOR investment. Both state (New Mexico and Oklahoma) and federal incentives are examined. The tax incentives analyzed in this study include reduced production and corporate income taxes on the state level and the reinstated percentage-depletion allowance on the national level. Advances in EOR technology through R and D include potential improvements in process performance, cost, and predictability over currently implemented methods that are likely to become available over the next decade if R and D is pursued aggressively. The principal dependent variables presented in this paper are incremental EOR reserves and direct revenues and costs to the state and federal governments. No estimates of revenues from indirect economic activities are included.

Approach

Methodology.

In 1984, the NPC mounted a 2-year effort to analyze EOR potential in the U.S. Experts from all pans of industry, university, government. and private nonprofit organizations contributed. This effort resulted in the development of an analytical system that is now called the Tertiary Oil Recovery Information System (TORIS). The Bartlesville Project Office of the U.S. DOE currently maintains and operates TORIS. The system consists of a detailed data base containing rock and fluid properties and production and injection information for nearly 3,500 individual reservoirs, representing about 74% of the oil discovered in the U.S. The system's analytical capability includes screening. process. and economic models for various EOR techniques. This study analyzes gas-miscible (CO2 and N2), thermal (steamdrive and in-situ combustion), and chemical (polymer, alkaline and micellar/polymer flooding) EOR processes. The TORIS screening models examine key reservoir and fluid properties to identify which reservoirs are technically amenable to the respective TORIS processes. Parameters examined with TORIS include oil gravity, insitu oil viscosity, formation depth, net pay thickness, formation temperature, matrix porosity, effective permeability, reservoir pressure, formation-water salinity, and lithology. Ref. 1 gives a more detailed description of the screening criteria. Given the applicability of a specific EOR technique, the process models predict incremental EOR production in each reservoir as a function of critical reservoir and fluid properties, conventional recovery efficiency, and process design at the level of a single pattern. Pattern performance is then scaled up to the entire reservoir in the economic models by use of pattern-development schedules appropriate to the process for individual projects. The economic models estimate the discounted net present value of revenues (oil and gas). investments, operating costs, and state. local, and federal taxes as a function of process design and performance. Projects that meet the minimum real rate of return assumed to stimulate investor interest are carried forward to the final analysis. When two or more EOR techniques are projected to be economically viable for the same reservoir, the model selects for implementation the process with the highest incremental recovery. Finally, the analysis aggregates the results for individual projects to the state or national totals. Separate analyses are conducted to estimate systematically the effects of variations in the level of technology performance and tax treatments across a range of oil prices. All results are reported at real (inflation-adjusted) 1986 oil prices. Costs associated with the application of EOR are adjusted to be consistent with the oil prices used in the analysis on the basis of the energy-related component of these costs.

Scope of the Analysis.

This study analyzed 97 New Mexico reservoirs (81 % of the state's known oil in place), 129 Oklahoma reservoirs (70%). and more than 3,500 reservoirs for the U.S. as a whole (74%). The results presented include only those reservoirs that were analyzed explicitly; no extrapolations were made to reservoirs not included in the data base. The analyses are presented for three oil prices: $20, $24, and $28/bbl [$126, $151, and $176/m3]. At each oil price, two technology levels, "implemented" and "advanced," are analyzed. The implemented technology reflects the applicability and level of performance of the respective EOR processes used routinely today. The advanced technology is the likely improvement in process performance and applicability that can be achieved within the next decade if a focused R and D program is successfully concluded. The detailed definitions of the two levels of technology were taken from the earlier NPC study.