Economic-Contribution CO2-EOR_Benjamin R. Cook

1

The Economic Contribution of CO2 Enhanced

Oil Recovery in Wyomings Economy

Benjamin R. Cook, PhD*

University of Wyoming

Department of Economics & Finance

Enhanced Oil Recovery Institute

June 2012

*Benjamin R. Cook, PhD, College of Business, Economics & Finance, Dept. 3985,

1000 E. University Ave., Laramie, WY 82071. Office: College of Business #379W.

Email: [email protected]

Funding for this study was provided by the Enhanced Oil Recovery Institute

(EORI), part of the School of Energy Resources at the University of Wyoming. The

author would like thank Professor David Tex Taylor from the University of

Wyoming Department of Agricultural and Applied Economics for his helpful

guidance creating a customized IMPLAN model for Wyoming and providing

feedback on this study. Additional feedback and data support were provided by Dr.

Glen Murrell, Associate Director (EORI), Nick Jones, Senior Geologist (EORI),

Vanessa Onacki, Research Assistant, and Professor Owen R. Phillips, Department of

Economics & Finance, University of Wyoming.

2

TABLE OF CONTENTS

ES Executive Summary ................................................................................. 3

1 Introduction .............................................................................................. 9

2 CO2 Enhanced Oil Recovery in Wyoming ........................................... 12

3 Regional Economic Model ..................................................................... 13

3.1 Study Area & Industry Mapping ................................................ 14

4 Revenues, Royalties, Taxes & Expenditures ........................................ 18

5 Economic Contribution .......................................................................... 26

5.1 Incremental Oil & CO2 Supply Costs ......................................... 26

5.2 Royalties, Severance and Ad Valorem Taxes ............................. 28

5.3 Total Economic Contribution ...................................................... 30

6 Conclusion ............................................................................................... 32

APPENDIX A IMPLAN Customization ..................................................... 33

APPENDIX B Incremental Oil Decline Analysis ....................................... 40

3

The Economic Contribution of CO2 Enhanced

Oil Recovery in Wyomings Economy

ES EXECUTIVE SUMMARY

Introduction

Wyomings economy and state & local government budgets depend heavily

on the states mineral wealth, which are then by extension sensitive to price

swings in the markets for those minerals. Mineral related payments are

roughly 65% of Wyoming State revenues, with severance taxes and royalties

alone accounting for 51% of the State budget.

An economic contribution analysis of Wyomings oil and gas (O&G) industry

commissioned by the Wyoming Heritage Foundation found that for 2007 oil

and gas activities accounted for 32% of economic output, and 20% of

employment. Further, a recent and similar study commissioned by the

American Petroleum Institute (API) found that for 2009 (during the recession)

the oil and gas industrys operational impact on Wyomings economy as share

of the state was effectively higher than for any other state.

The booming supply of natural gas coming from shale plays combined with

mineral price declines following the 2008 financial crisis have dealt a

significant blow to public funds. Peaking in 2008, Wyoming mineral royalties

and severance tax collections are projected to drop 26% by 2013.

In addition to diversifying Wyomings economy so that it is less exposed to

mineral price risk, pursuing other value-added activities for minerals and

energy within the state (such as gas and/or coal to liquids) and encouraging

the development of existing resources are of fundamental importance.

The strength of oil prices relative to other minerals highlights the importance

of enhanced oil recovery within the state. While oil prices themselves face

4

renewed pressure from economic troubles in Europe and slow recovery at

home, improved oil recovery has the potential to delivery hundreds of

millions of barrels of additional production from Wyoming oil fields.

In 2004 the Wyoming State Legislature passed legislation establishing the

Wyoming Enhanced and Improved Oil Recovery Commission, along with the

Enhanced Oil Recovery Institute (EORI) at the University of Wyoming

EORIs primary mission being to work with oil operators to maximize the

potential of Wyomings oil resources through enhanced recovery

technologies.

Utilizing a similar approach to the economic impact assessments already

mentioned, the objective of the present study is to investigate the current

(2011) economic contributions attributable to CO2 enhanced oil recovery in

Wyoming. CO2-EOR operations include the combined impact of incremental

oil production, CO2 purchased for injection, and the associated royalties,

severance and ad valorem taxes.

Collectively, the five oil fields with active CO2 floods in 2011 produced

7,866,664 barrels of oil 14.4% of 2011 Wyoming crude production. After

estimating the production level without CO2 approximately 6,592,427 barrels

can be directly attributed to CO2-EOR 12.1% of WY production. Through

the end of 2011 the combined total incremental oil1 produced using CO2 in

Wyoming approached 86.5 million barrels.

1 Incremental oil is the additional oil production recovered through injecting CO2 net of the

expected production level without CO2 flooding.

5

Regional Economic Model

A regional input-output (IO) economic model, IMPLAN, is customized to

more accurately reflect Wyomings oil and gas industry and then used to

assess the employment, labor earnings, and other factors due to CO2-EOR.

The IMPLAN modeling system estimates the ripple effect of economic

activity referred to as direct, indirect and induced impacts.

Direct impacts in terms of employment, earnings, output and value-

added related to oil extraction, CO2 recycling, drilling and support

services, wholesale equipment merchants and construction services.

Indirect impacts as measured by the employment, earnings, output

and value-added resulting from payments to supply chain industries

(production function or intermediate goods) to the oil extraction and

capital expense industries.

Induced impacts as measured by the employment, earnings, output

and value-added coming from the expenditure of incomes earned from

direct and indirect employment, and for the purposes of this study,

also includes the expenditure of mineral payments to governments and

royalty owners.

Economic Impacts

In 2011 the EIA reported an average first-purchase price of $83.45/barrel for

Wyoming, and the operational supply cost of purchased CO2 was assumed to

be $2.17/Mcf.2 This leads to an estimated value of $550,138,016 for the

incremental oil, and an annual cost of $175,043,050 to supply the 221 MMcfd

of CO2 purchases.

2 Assumes that CO2 is tied at 2% of the oil price plus a $0.50 transportation charge. i.e. $0.50

+ 2% X $83.45 = $2.17/Mcf.

6

The $550.14 million in oil revenues generates substantial mineral payments in

the form of royalties, severance, and ad valorem (property) taxes. Using

estimates of the various tax and royalty rates and approximate distribution of

mineral leases for each CO2 project this amounts to $54.56 million in

government royalties, $27.73 million in private royalties, $28.07 million in

severance tax, and $33.57 million in ad valorem/property taxes to counties.

Of this $143.93 million, approximately $92.75 million (64.4%) was assumed

spent within Wyoming, and $12.33 million (8.6%) saved in the Permanent

Wyoming Mineral Trust Fund (PWMTF). The remaining 27% was assumed

to be divided between the Federal Government, and private royalties paid

outside of Wyoming - $19.46 and $20.52 million respectively.

The oil revenues, CO2 purchases and mineral payments are summarized in

Table ES-1 below and modeled within the IMPLAN system to estimate the

combined economic contribution to Wyoming in 2011.

As summarized in Table ES-2 the five CO2 fields in Wyoming are estimated

to account for 1,716 jobs paying a total of $95.29 million of labor income

($55,527/job) and representing $615.99 million of WY Gross State Product

(or value added). While only 191 of those jobs occur directly in the oil

industry, another 729 are supported in the extraction supply chain and induced

business. Further still, the substantial mineral payments and associated

expenditures by state/local government account for another 795 jobs. Overall,

this means an additional 9 jobs are created throughout Wyoming for every 1

job directly involved with the CO2 extraction operation.

With around 260 jobs for every 1 million barrels of incremental production at

existing CO2-EOR projects it is clear that EOR technologies can contribute

thousands of Wyoming jobs annually in coming decades.

7

Table ES-1 Incremental Oil Fiscal Profile & In-State Spending Assumptions by FRC

Fiscal Item Beaver Creek

Madison

Patrick Draw Monell Unit

Salt Creek Wall Creek 2

Lost Soldier &

Wertz Total CO2-EOR

Est. Incremental Oil 1,270,471 1,251,992 2,154,691 1,915,272 6,592,427

Est. Oil Price $83.45 $83.45 $83.45 $83.45 $83.45

Incremental Revenue $106,020,813 $104,478,767 $179,809,005 $159,829,431 $550,138,016

Estimated CO2 Purchases 36 MMcfd 41 MMcfd 114 MMcfd 30 MMcfd 221 MMcfd

CO2 Delivery Cost $2.17/Mcf $2.17/Mcf $2.17/Mcf $2.17/Mcf $2.17/Mcf

CO2 Supply Cost $28,513,800 $32,474,050 $90,293,700 $23,761,500 $175,043,050

Royalties to Fed Govt $1,447,184 $3,687,578 $9,081,254 $5,246,032 $19,462,048

Royalties to WY $15,295,269 $3,734,768 $11,229,672 $4,842,491 $35,102,200

Private Royalties to HHs $0 $8,580,319 $4,315,416 $14,835,234 $27,730,969

Severances to WY $5,356,702 $5,308,566 $9,310,960 $8,094,340 $28,070,568

Ad Valorem to Counties $6,466,789 $6,411,644 $10,835,343 $9,854,358 $33,568,133

Total Mineral Payments $28,565,944 $27,722,875 $44,772,644 $42,872,455 $143,933,918

State/Local Education $10,245,017 $6,089,304 $12,041,127 $9,039,435 $37,414,883

State/Local General $12,056,738 $6,082,590 $12,995,531 $8,851,371 $39,986,229

State/Local Investment $2,679,298 $1,164,586 $2,623,577 $1,670,162 $8,137,622

Private HHs 75-100k $0 $2,230,883 $1,122,008 $3,857,161 $7,210,052

In-State Mineral Payments $24,981,052 $15,567,363 $28,782,242 $23,418,129 $92,748,786

Share Spent In-State 87.45% 56.15% 64.29% 54.62% 64.44%

8

Table ES-2 Total Economic Contribution of CO2-EOR Incremental Oil Extraction

Type of Impact Beaver Creek

Madison

Patrick Draw

Monell Unit Salt Creek Wall

Creek 2

Lost Soldier &

Wertz Total

Contribution

Direct

Employment 35.5 36.1 71.3 48.5 191.4

Labor Income $4,134,264 $4,208,527 $8,299,819 $5,641,985 $22,284,594

Value Added $90,875,267 $92,507,639 $182,438,339 $124,016,481 $489,837,726

Indirect

Employment 89.9 91.5 180.4 122.6 484.3

Labor Income $5,417,366 $5,514,677 $10,875,735 $7,393,020 $29,200,798

Value Added $10,776,919 $10,970,503 $21,635,406 $14,707,144 $58,089,972

Induced (Industry Activity)

Employment 45.5 46.3 91.3 62.1 245.1

Labor Income $1,471,999 $1,498,440 $2,955,138 $2,008,820 $7,934,397

Value Added $3,074,839 $3,130,072 $6,172,951 $4,196,199 $16,574,061

Induced (Mineral Payments)

Employment 215.9 132.2 249.1 198.1 795.3

Labor Income $9,896,325 $5,877,262 $11,336,824 $8,764,450 $35,874,861

Value Added $13,926,129 $8,583,631 $16,098,067 $12,876,491 $51,484,319

Total Impact/Contribution

Employment 386.7 306.1 592.1 431.3 1716.2

Labor Income $20,919,954 $17,098,905 $33,467,516 $23,808,276 $95,294,651

Income per Job $54,097 $55,859 $56,524 $55,206 $55,527

Value Added $118,653,155 $115,191,844 $226,344,762 $155,796,316 $615,986,077

Multipliers

Employment 10.89 8.47 8.31 8.90 8.97

Labor Income 5.06 4.06 4.03 4.22 4.28

Value Added 1.31 1.25 1.24 1.26 1.26

9

1 INTRODUCTION

The vast mineral resources in the State of Wyoming play a significant in

states economy and are a pivotal source of revenue for the state and

municipal governments. The State of Wyoming is the largest producer of both

coal and soda ash (trona) in the United States, the 4th

largest source of natural

gas, and consistently ranks as the 8th

largest domestic producer of crude oil.

Mineral related payments are roughly 65%3 of Wyoming State revenues, with

severance taxes and royalties alone accounting for 51%4 of the State budget.

An in-depth economic contribution analysis of Wyomings oil and gas (O&G)

industry by Booz-Allen-Hamilton (2008) was commissioned by the Wyoming

Heritage Foundation (WHF). This study indicated that for 2007 (pre-

recession) the total contribution of oil and gas activities (both direct and

downstream) accounted for 32 percent of the states total economic output or

gross revenues, 20 percent of employment, 25 percent of total earnings, and

43 percent of Gross State Product.

A more recent and similar study by PriceWaterhouseCoopers (PwC) (2011)

was commissioned by the American Petroleum Institute (API) to investigate

the economic contribution of the oil and gas industry to the U.S. economy as a

whole. Although not as detailed as the above model, their analysis found that

for 2009 (during the recession) the oil and gas industrys operational impact

on Wyomings economy as share of the state was effectively higher than for

any other state.

3 As reported by Brian Jeffries, Executive Director of the WY Pipeline Authority (WPA) May

15th, 2012. Data Source: WY Dept. of Revenue, Fiscal Year 2010 Data. Presentation slides

available at

http://www.wyopipeline.com/information/presentations/2012/Wyoming%20Pipeline%20Corr

idor%20Initiative%20copy.pdf

4 Based on the Wyoming Consensus Revenue Estimating Group (CREG) January 2012

CREG Forecast for FY2012-FY2016 available at http://eadiv.state.wy.us/creg/GreenCREG_Jan12.pdf

10

The results were more conservative than the WHF report, but this analysis

still found that O&G accounted for 15.8% of Wyomings total employment,

19.9% of labor income, and 24.3% of Gross State Product.

Despite being the 8th largest domestic source of oil Wyomings annual

crude production has fallen 61% from a peak of 136 million barrels annually

(mmb/yr) in 1978 to just over 54.5 mmb/yr in 2011 (WOGCC). This fall in

production, lower oil prices from the mid-1980s through the 1990s and the

increasing importance of natural gas led to declining severance tax revenues

from crude oil; crude oil's share of total severance tax revenue fell from

around 40% in the early nineties to only 15% by 1999.

After two decades of production declines, high oil prices have led to increased

oil production activity including investments in so-called tertiary methods

such as CO2 Enhanced Oil Recovery (CO2-EOR). Aggregate oil production

has been rising since 2006 and is projected to continue increasing over the

coming years.

Peaking in 2008, Wyoming mineral royalties and severance tax collections are

projected to drop 26% by 2013 driven primarily by natural gas prices (see

Figure 1). Higher oil prices relative to natural gas, and the potential for

increased oil production through advanced methods such as CO2-EOR mean

that crude oil has an increasingly important role in Wyomings economy.

In 2004 the Wyoming State Legislature passed legislation establishing the

Wyoming Enhanced and Improved Oil Recovery Commission, along with the

Enhanced Oil Recovery Institute (EORI) at the University of Wyoming

EORIs primary mission being to work with oil operators to maximize the

potential of Wyomings oil resources through enhanced recovery

technologies.

11

Figure 1 Wyoming Royalties & Severances Collections

Utilizing a similar approach to the economic impact assessments already

mentioned, the objective of the present study is to investigate the current

(2011) economic contributions attributable to CO2 enhanced oil recovery in

Wyoming. CO2-EOR operations include the combined impact of incremental

oil production,5 CO2 purchased for injection, and the associated royalties,

severance and ad valorem taxes.

5 Incremental oil is the additional oil production recovered through injecting CO2 net of the

expected production level without CO2 flooding.

$-

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

Oil/G

as Price

($/M

cfe)

Ro

yalt

y an

d S

eve

ran

ce R

eve

nu

es

($M

M)

Wyoming Mineral Royalties & Severance TaxesContribution of Oil and Gas

WY Gas Prices (Mcf)

WY Crude Prices (Mcfe)

26% Drop inSeverance & Royalties by

2013

NG Severance

Oil Severance

Mineral Royalties & Severance

Sources: WY CREG (Jan. 2012)DOE-EIA Mineral Prices

12

A regional input-output (IO) economic model, IMPLAN, is customized to

more accurately reflect Wyomings oil and gas industry and then used to

assess the employment, earnings, and Gross State Product (value-added)

associated with the revenues and expenditures of CO2-EOR extraction

operations.6

2 CO2 ENHANCED OIL RECOVERY IN WYOMING

Wyomings primary experience with CO2 flooding goes back to the 1980s

when Amoco began employing the technique on oil units (primary the

Tensleep formation) within the Lost Soldier and Wertz fields. Both projects

utilized CO2 shipped via pipeline from ExxonMobils Shute Creek Gas Plant

in southwestern Wyoming. Three additional projects have since come online

utilizing the CO2 from the Shute Creek facility; Anadarko began CO2 flooding

in both the Salt Creek field and the Monell Unit of the Patrick Draw field in

2003, and Devon Energy Corp initiated CO2 flooding at the Beaver Creek

Madison unit in 2008.7

More recently, significant investments have been made by Denbury Resources

Inc. to build their 20-inch 232-mile long Greencore Pipeline to transport

CO2 from Lost Cabin in central Wyoming up through the Powder River Basin

to the Bell Creek field in Montana. Along with several other investments and

contracts to develop or secure CO2 sources within Wyoming, Denbury has

also entered an agreement with Elk Petroleum Inc. to jointly develop the

Grieve Field providing substantial development capital, access to CO2 and

operating experience in exchange for a 65% working interest.

6 IMPLAN is an input-output modeling system utilized by both public and private entities to

assess economic impacts and contributions of various economic activities. IMPLAN is

produced by MIG, Inc.

7 Although not included in this study one additional project in northwestern Colorado receives

CO2 from Shute Creek facility the Rangely Weber Sand Unit operated by ChevronTexaco which began CO2 flooding in 1986.

13

Collectively, the five oil fields with active CO2 floods in 2011 produced

7,866,664 barrels of oil 14.4% of 2011 Wyoming crude production. After

estimating the production level without CO2 approximately 6,592,427 of those

barrels can be directly attributed to CO2-EOR 12.1% of WY production.

Through the end of 2011 the combined total incremental oil produced using

CO2 in Wyoming approached 86.5 million barrels.

3 REGIONAL ECONOMIC MODEL

Following the WHF and PwC studies this analysis makes use of the

IMPLAN input-output (IO) economic modeling system, but utilized the

most recent Software Version 3.0 and the associated Wyoming database for

year 2010 (released October 2011). The IMPLAN model is widely used by

both public and private entities to study the composition and connections

within domestic economies, and the economic impacts resulting from changes

in industry and policy.

Such input-output systems rely on the construction of matrices (tables)

relating purchases in one industry to expenditures and output values across all

other industries or entities. For example, in order for Denbury to build their

Greencore Pipeline through Wyoming they must purchase steel pipe,

probably from an out-of-state manufacturer, and also hire local labor and

contractors, lease various types of equipment and utilize other in-state and

out-of-state suppliers. Those suppliers then have their own associated

expenses and wages and so on throughout the economy.

This chain of economic activity results in both direct and indirect effects

through the primary industry and the associated supply chain (inter-industry

linkages) with expenditures outside of the studied economy constituting

leakages. Further still, the income and benefits of employees within the

economy, how those households spend their earnings, as well as the

expenditure of tax revenues by government lead to yet a third layer of effects

called induced effects (or impacts).

14

The IMPLAN modeling system allows for the construction and customization

of multipliers that describe this ripple effect of economic activity as direct,

indirect and induced impacts. As applied to understanding the influence of

CO2-EOR extraction activities, capital expenditures, and mineral payments

these impacts can be described as follows:

Direct impacts in terms of the employment, earnings, output and

value-added related immediately to the oil extraction operators and

CO2 providers.8

Indirect impacts as measured by the employment, earnings, output

and value-added resulting from payments to supply chain industries

for the oil operators and CO2 providers.

Induced impacts as measured by the employment, earnings, output

and value-added coming from the expenditure of incomes earned from

direct and indirect employment, and the expenditure of mineral

payments made to governments and private royalty owners.9

3.1 STUDY AREA & INDUSTRY MAPPING

The 2010 IMPLAN database for Wyoming includes county-level data for

each of Wyomings 23 counties consisting of spending patterns (or production

functions) for 440 industries plus various levels of government and household

types. These 23 counties can then be modeled individually, or combined to

create sub-state regions or an aggregate statewide model.

8 While the results of this study can be broken down by operator and all CO2 is supplied by

one company it is not necessarily the case that the direct employment means employment at those companies. In principle that is the general idea, but the model itself merely calculates

the proportion of employment in the oil and gas extraction sector supported by a given value of oil/gas production.

9 Including mineral payments as part of the induced impacts is a slightly different approach

than is typically used in similar studies. Other studies will report such impacts separately, as

opposed to part of the induced effects, and then add them to the total. It seems more natural to

think of these expenditures as an induced effect either way they are added to the total. The primary difference that may be noticed is the size of the multipliers as typically calculated

(total impact divided by direct impact).

15

Because substantial royalty and severance payments accrue to the state

government and CO2 activity occurs and is expected to develop all around

Wyoming, the IMPLAN study area is modeled at the state level (a composite

of all 23 counties).

In order to study the contribution of existing10

CO2-EOR operations the only

activities considered are the extraction of the oil, a charge for the purchased

CO2 and the expenditure of mineral payments by governments and private

royalty owners. Expenditures on electricity are ignored as it is assumed that

once the electrical lines are built to the oil field the incremental employment

effects (above and beyond standard operations) are insignificant.

The modeling of CO2 purchases is more nuanced. The purchase of CO2 for

injection into the oil reservoir constitutes a substantial and ongoing

operational expense. For projects purchasing CO2 from a third party, and

depending on the source of the CO2, the operator will pay a $0.50-$1.00/Mcf

delivery charge plus 1.3-2.6% of the current oil price.11

In the case of

vertically integrated operators who own their CO2 resource the internal cost

(what they charge themselves as an accounting basis) is perhaps closer to the

delivery charge.

Denbury Resources Inc. is a relative newcomer to Wyoming, but has

extensive experience with EOR and has moved quickly to secure CO2 and

construct a pipeline through the Powder River Basin. Primarily functioning as

10

There are many other oil units across Wyoming that have the potential to economically

employ CO2-EOR technology. Assessing the economic contribution of these projects can be

done using a CO2-EOR Economic Scoping Model, but is beyond the scope of the present

study.

11 van t Veld, K. and Phillips, O.R. (2009). Pegging Input Prices to Output Prices in Long-

Term Contracts: CO2 Purchase Agreements in Enhanced Oil Recovery. Department of

Economics & Finance, Enhanced Oil Recovery Institute, University of Wyoming, Laramie,

WY. DOE (2006). National Strategic Unconventional Resource Model: A Decision Support

System. U.S. Department of Energy, Office of Petroleum Reserves, Office of the naval

Petroleum and Oil Shale Reserves (DOE/NPOSR), Washington, DC.

16

a vertically integrated operator rather than purchasing CO2 from a third-party,

Denburys reported CO2 expenses serve as a good proxy for the internal

operational cost of supplying CO2. For 2011 Denbury reported an average

quarterly CO2 charge of $5.06 per barrel of oil equivalent (boe) $0.39/Mcf

assuming a utilization rate of 13 Mcfs/bbl.13

Depending on the source of purchased CO2 it could be studied in several

different ways: out-state purchases treated as 100% leakage (money flowing

out of the state with no multiplier effect), industrial sources modeled as

industrial gas manufacturing, conventional gas byproducts modeled as gas

extraction, or simply regarded as the pipeline delivery of a commodity.

Current and planned CO2 sources within Wyoming are the commingled

byproduct of helium and natural gas extraction. The CO2 is separated from

these primary products regardless, but additional facilities are required to

purify and compress the CO2 for pipeline delivery. Once the separation,

compression, and pipeline are in place it is unclear how to disentangle the

employment from the primary gas products from the CO2 sales (i.e. the

marginal increase in employment attributable to those CO2 operations).

Given the nature of current Wyoming CO2 supply coming from the Shute

Creek helium facility, and absent more detailed knowledge about the

incremental impact on operations, the economic impact of CO2 expenditures

will be modeled through the oil and gas extraction sector which includes

processing and compression the same sector as used for the incremental oil

production.

13

BOE prices are from the Denbury Resources Inc. Corporate Presentation, May 2012.

http://www.denbury.com/Theme/Denbury/files/2012-05%20IR%20Presentation.pdf

17

The various CO2-EOR related activities considered in this study are mapped

to IMPLAN sectors as outlined in Table 1. Oil and CO2 production are

assumed to be 100% from in-state locations, and the local demand (or

purchase) percentages (LPP) for government and private household spending

is determined within IMPLAN.

3.2 CUSTOMIZING THE IMPLAN MODEL FOR WYOMING

The off-the-shelf IMPLAN database is constructed from a variety of

published and essentially public data sources which are reconciled to create a

consistent set of multipliers consistent in the sense that the sub-regions

(county/zip code) add up to and equal higher levels of aggregation

(state/national).

IMPLAN sources include Bureau of Economic Analysis (BEA) Regional

Economic Accounts (REA) and National Income and Product Accounts

(NIPA), the Census Bureau's County Business Patterns (CBP), and the

Bureau of Labor Statistics' Census of Employment and Wages (CEW).

The IMPLAN database for most sectors is left untouched, but is then

customized further for certain oil and gas industries in order to match

Wyomings industrial experience as close as possible. Additional industry

data was collected and used to modify the output, employment and value-

added components for the following three oil and gas industry sectors:

Oil and gas extraction (sector 20)

Drilling oil and gas wells (sector 28)

Support activities for oil and gas operations (sector 29)

A detailed description of the customization methodology and resulting

industry study area parameters is provided in Appendix A and Table A-3.

18

Table 1 CO2-EOR Activity Mapping to IMPLAN

Fiscal Item IMPLAN Sector Title IMPLAN

Sector

Local Purchase

or Production

Incremental Oil

Production & Injectable

CO2 Production

Oil and gas extraction 20 100%

Mineral Royalties,

Severance and Ad

Valorem Taxes

State/Local Government

Education

Spending

Pattern

Varies across

consumption

within the

spending pattern


Non-Education

Spending

Pattern


Investment

Spending

Pattern

Private Royalties to In-

State Households Households 75-100k

Spending

Pattern

4 REVENUES, ROYALTIES, TAXES & EXPENDITURES

The five oil fields with active CO2 floods in Wyoming are located in four

counties, have different CO2 purchase levels and produce oil from a mix of

federal, state and private mineral leases. Further, ad valorem (property) taxes

are charged net of royalties and have different mill levies in each county.

Although there are some exceptions made with respect to state severance

taxes, for this study it is assumed to be a constant 6% across the CO2 projects.

Incremental Oil & Revenues

Only the portion of each oil units production arising from CO2 injection, the

incremental oil, is included in the analysis. For each field-reservoir

combination (FRC) the monthly production history was obtained from the

Wyoming Oil & Gas Conservation Commission (WOGCC), and used to

estimate a pre-CO2 production decline path. The incremental oil was then

determined by subtracting the predicted pre-CO2 production from the total

FRC production in 2011. The production decline analysis is illustrated

graphically for each FRC in Appendix B.

19

According to the U.S. Energy Information Administration (EIA) domestic

crude oil prices averaged $95.73 per barrel in 2011, but Wyoming oil

typically sells at a discount to this price likely due to quality and

transportation constraints selling for an average of $83.45 per barrel in

2011. While there may be some variation in the sold price across CO2 projects

the production revenue is simply estimated using the WY average of $83.45

per barrel.14

These incremental oil production and revenue estimates for 2011 are

summarized in Table 2.

Table 2 Estimated 2011 Incremental Oil and Revenues by FRC

Oil Unit (FRC) Incremental Oil (bbls) Incremental Revenue

Beaver Creek-Madison 1,270,471 $106,020,813

Lost Soldier-Darwin/Madison 434,770 $36,281,529

Lost Soldier-Flathead 276,333 $23,059,956

Lost Soldier-Tensleep 582,883 $48,641,576

Patrick Draw-Almond (Monell) 1,251,992 $104,478,767

Salt Creek-Wall Creek 2 2,154,691 $179,809,005

Wertz-Darwin/Madison 259,052 $21,617,852

Wertz-Tensleep 362,235 $30,228,518

Total 6,592,427 $550,138,016

CO2 Purchases

As discussed earlier the CO2 pricing is typically pegged to the oil price with

oil operators entering into a combination of short-term and long-term

14

U.S. Energy Information Administration (EIA), Annual Domestic Crude Oil First Purchase Prices by Area http://www.eia.gov/dnav/pet/pet_pri_dfp1_k_a.htm accessed April 2012.

20

contracts (up to 15 years) to ensure a reliable supply meeting their injection

requirements.15

The market price of Denver City (New Contract) injectable CO2 as a share of

the oil price has varied from just below 2% to as high as 4% in the last

decade. The most recent year publicly reported, 2010, being closer to 2% of

the WTI price of $79.48 per barrel that year.16

Although data is available on the average daily CO2 purchase rates for

Wyoming projects, neither the contract pricing, production or delivery

expenses are currently available. In order to assess the economic contribution

of these activities the operational cost of supplying this CO2 must be

estimated.

Consistent with the recent reports on new contracts prices this study assumes

a CO2 charge of $2.17/Mcf a delivery charge of $0.50/Mcf + 2% of the

$83.45 average Wyoming oil price in 2011. The daily CO2 purchase rates and

estimated annualized operational CO2 supply expenditures are reported in

Table 3.

15

van t Veld Klaas T. & Phillips, Owen R., Pegging Input Prices in Long-Term Contracts: CO2 Purchase Agreements in Enhanced Oil Recovery. July 2009. http://www.uwyo.edu/owenphillips/papers/CO2pegging071509.pdf

16 Presentation by Steve Wehner, Sr. VP Chaparral Energy, 17

th Annual CO2 Flooding

Conference in Midland, TX, December 6th

, 2011. http://co2conference.net/pdf/1.1-

Moore_CMWorkshop_Summary2011-CO2FloodingConf.pdf

21

Table 3 Estimated 2011 CO2 Purchases by FRC18

Oil Unit (FRC) Daily CO2 Rate (MMcfd) Operational Supply Cost

Beaver Creek-Madison 36 $28,513,800

Lost Soldier-Darwin/Madison 6.81 $5,393,897

Lost Soldier-Flathead 4.33 $3,428,274

Lost Soldier-Tensleep 9.13 $7,231,439

Patrick Draw-Almond (Monell) 41 $32,474,050

Salt Creek-Wall Creek 2 114 $90,293,700

Wertz-Darwin/Madison 4.06 $3,213,880

Wertz-Tensleep 5.67 $4,494,009

Total 221 $175,043,050

Lease Distribution, Royalty Rates, and Ad Valorem Taxes

The location and cumulative oil for each well were used to estimate the

distribution of production between federal, state and private lands.19

Royalties

on federal mineral leases are 12.5% of the production value with a 52/48 split

between federal and state. The current royalty rate on state leases is capped at

16.67% but can be higher on private lands.

In June of 2011 Laramie County leased land to Anadarko for oil development

at a royalty rate of 18.75% and not long after the State Lands and Investments

Board discussed a proposal to raise the maximum state royalty rate to the

same 18.75% level (which was ultimately defeated).

18

Data on the average daily purchase rate was obtained from Glen Murrell, PhD, Associate

Director, Enhanced Oil Recovery Institute based on monthly CO2 sales data for Shute Creek.

The combined average daily purchase rate for Lost Soldier and Wertz were estimated at 30

MMcfd and then allocated proportionately between the individual FRCs based on their level

of incremental oil production.

19 Mineral lease shares estimated by Nick Jones, Senior Geologist, Enhanced Oil Recovery

Institute, and Vanessa Onacki, Undergraduate Research Assistant, using EORI/WOGCC well

locations, BLM land ownership and production data from the WOGCC and IHS/PI Dwights

Rocky Mountain Region.

22

A private rate of 18.75% would be in-line with the private royalty estimates

used in the WHF report20

and lacking the actual private royalty information

this study will assume the same.

Counties collect ad valorem taxes on mineral properties with mill levies on

100% of the assessed value (value of production in the previous year). The

majority of EOR activity was located in three counties Fremont (7.2% rate),

Natrona (6.8% rate) and Sweetwater (6.6% rate) with a portion of the Wertz

field in Carbon County (6.4% rate). For simplicity it is assumed that Wertz is

charged the two-county average of 6.5%.21

The royalty/tax rates and the mineral lease distribution by field-reservoir

combination are summarized in Table 4.

State/County Budgets & Private Households

Having determined the breakdown of severance, ad valorem and royalty

payments for each FRC, for the purposes of economic contribution the key

question is how and on what are those mineral payments spent within the

Wyoming economy. The primary institutional spending patterns included in

IMPLAN involve state/local expenditures on education, non-education, and

capital investment (infrastructure) related activities.

20

The WHF study assumed $863,412,137 in private mineral royalties on $13,661,277,948 of

revenue in 2007. With about 33.64% of WYs cumulative oil produced on private land this equates to a private royalty rate of 18.79%.

21 Wyoming State Board of Equalization, 2011 Wyoming Abstract & Mill Levy Report.

http://taxappeals.state.wy.us/2011%20Abstract%20and%20Mill%20Levy%20Report.xls

23

Table 4 Royalty/Tax Rates & Mineral Lease Distribution by FRC

Field-Reservoir Combination

Royalty/Tax Rates

Lease Distribution

Federal

Royalty

State

Royalty

Private

Royalty

Severance

Tax

Property

Tax

Federal

Share

State

Share

Private

Share

Beaver Creek Madison 12.50% 16.67% 18.75% 6.00% 7.24% 21.00% 79.00% 0.00%

Lost Soldier - Darwin/Madison 12.50% 16.67% 18.75% 6.00% 6.61% 22.00% 0.00% 78.00%

Lost Soldier - Flathead 12.50% 16.67% 18.75% 6.00% 6.61% 12.50% 0.00% 87.50%

Lost Soldier - Tensleep 12.50% 16.67% 18.75% 6.00% 6.61% 37.00% 0.00% 63.00%

Patrick Draw Monell 12.50% 16.67% 18.75% 6.00% 6.61% 54.30% 1.90% 43.80%

Salt Creek Wall Creek 2 12.50% 16.67% 18.75% 6.00% 6.79% 77.70% 9.50% 12.80%

Wertz - Darwin/Madison 12.50% 16.67% 18.75% 6.00% 6.52% 100.00% 0.00% 0.00%

Wertz - Tensleep 12.50% 16.67% 18.75% 6.00% 6.52% 100.00% 0.00% 0.00%

24

Using information from the Wyoming Economic Analysis Division24

it was

determined that for 2011 around 35.59% of royalties were allocated to

education, 51.36% to general spending, and the remaining 13.05% going to

capital investments.

For severance taxes, around 39.91% is saved in the Permanent Wyoming

Mineral Trust Fund with 56.09% allocated to general spending accounts (non-

education spending), and 4.01% to capital investments.

Although there are differences across counties, on average 74.24% of all Ad

Valorem collections go to education related activities, 18.52% to general

spending and roughly 7.24% to capital investment.25

Tracking the royalties paid to private households and determining how those

royalties are spent is particularly challenging. In the WHF study it was

assumed that only 26% of private royalties remained in Wyoming, and

followed the IMPLAN spending pattern for households earning $75,000 to

$100,000. The same approach is utilized here for assessing private royalty

payments linked to CO2-EOR.

The incremental oil fiscal profile and the associated in-state spending of

mineral payments by category are summarized by FRC in Table 5.

24

Wyoming Consensus Revenue Estimating Group (CREG), January 2012 CREG Forecast

for FY2012-FY2016, http://eadiv.state.wy.us/creg/GreenCREG_Jan12.pdf

25 At the county level it is a bit unclear how much of divisional budgets goes to capital

investment/infrastructure and what is purely operational. This study assumes that school

construction amounts and all special district levies well allocated to capital investments.

Wyoming State Board of Equalization, 2011 Wyoming Abstract & Mill Levy Report. http://taxappeals.state.wy.us/2011%20Abstract%20and%20Mill%20Levy%20Report.xls

25

Table 5 Incremental Oil Fiscal Profile & In-State Spending Assumptions by FRC

Fiscal Item Beaver Creek

Madison



Lost Soldier &

Wertz Total CO2-EOR

Est. Incremental Oil 1,270,471 1,251,992 2,154,691 1,915,272 6,592,427

Est. Oil Price $83.45 $83.45 $83.45 $83.45 $83.45

Incremental Revenue $106,020,813 $104,478,767 $179,809,005 $159,829,431 $550,138,016

Estimated CO2 Purchases 36 MMcfd 41 MMcfd 114 MMcfd 30 MMcfd 221 MMcfd

CO2 Delivery Cost $2.17/Mcf $2.17/Mcf $2.17/Mcf $2.17/Mcf $2.17/Mcf

CO2 Supply Cost $28,513,800 $32,474,050 $90,293,700 $23,761,500 $175,043,050

Royalties to Fed Govt $1,447,184 $3,687,578 $9,081,254 $5,246,032 $19,462,048 Royalties to WY $15,295,269 $3,734,768 $11,229,672 $4,842,491 $35,102,200

Private Royalties to HHs $0 $8,580,319 $4,315,416 $14,835,234 $27,730,969

Severances to WY $5,356,702 $5,308,566 $9,310,960 $8,094,340 $28,070,568

Ad Valorem to Counties $6,466,789 $6,411,644 $10,835,343 $9,854,358 $33,568,133

Total Mineral Payments $28,565,944 $27,722,875 $44,772,644 $42,872,455 $143,933,918

State/Local Education $10,245,017 $6,089,304 $12,041,127 $9,039,435 $37,414,883

State/Local General $12,056,738 $6,082,590 $12,995,531 $8,851,371 $39,986,229

State/Local Investment $2,679,298 $1,164,586 $2,623,577 $1,670,162 $8,137,622

Private HHs 75-100k $0 $2,230,883 $1,122,008 $3,857,161 $7,210,052

In-State Mineral Payments $24,981,052 $15,567,363 $28,782,242 $23,418,129 $92,748,786

Share Spent In-State 87.45% 56.15% 64.29% 54.62% 64.44%

26

5 ECONOMIC CONTRIBUTION

The contribution of CO2-EOR extraction to the Wyoming economy in 2011 is

assessed using the customized IMPLAN model and fiscal parameters outlined

in the preceding sections. Because this study is focused on the year-year

regular contribution of sustained EOR operations, intermittent and limited

duration EOR related capital investment activity, such as Denburys

Greencore Pipeline, are not included in this analysis.26

The estimated value of incremental oil production, the operational supply cost

of purchased CO2, and the associated royalty, severance and ad valorem

payments, are all assumed to be in 2011 dollars. The IMPLAN model has a

base year of 2010, thus IMPLAN initially deflates figures to 2010, and then

reflates the results back to 2011 dollars.

5.1 INCREMENTAL OIL & CO2 SUPPLY COSTS

The total value of incremental oil in 2011 was estimated at $83.45 and the

annual operational cost of supplying 221 MMcfd of CO2 purchases was

estimated at $2.17/Mcf. Both the oil revenues and the operational CO2

expenditures were processed through the customized oil and gas extraction

sector 20 in IMPLAN.

The economic contributions of these activities are summarized in Table 6 by

field. The incremental extraction and supplied CO2 added roughly $564.5

million to WY State Gross Product (value added) and supported 921 jobs in

Wyoming with $59.4 million in labor earnings 191 jobs directly and 729 in

downstream and induced activity an employment multiplier of 4.81.

26

Denburys Greencore Pipeline is a 232-mile 20-inch CO2 pipeline which will run from the Lost Cabin gas plant in central Wyoming and initially terminate at the Bell Creek field just

across the border in Montana. The first half of the Greencore Pipeline was completed in 2011,

and when finished, will have a maximum capacity of 725 MMcfd. The total capital

investment was projected at $275-$325M an expenditure that would clearly support many additional jobs within Wyoming.

27

Table 6 Economic Contribution of Incremental Production & CO2 Supply Costs


Madison

Lost Soldier CO2 Units



Wertz - CO2

Units

Total

Contribution

Direct

Employment 35.5 32.7 36.1 71.3 15.7 191.4

Labor Income $4,134,264 $3,811,806 $4,208,527 $8,299,819 $1,830,179 $22,284,594

Earnings per Job $116,447 $116,447 $116,447 $116,447 $116,447 $116,447

Value Added $90,875,267 $83,787,317 $92,507,639 $182,438,339 $40,229,164 $489,837,726

Indirect

Employment 89.9 82.8 91.5 180.4 39.8 484.3

Labor Income $5,417,366 $4,994,831 $5,514,677 $10,875,735 $2,398,190 $29,200,798

Earnings per Job $60,292 $60,292 $60,292 $60,292 $60,292 $60,292

Value Added $10,776,919 $9,936,358 $10,970,503 $21,635,406 $4,770,786 $58,089,972

Induced

Employment 45.5 41.9 46.3 91.3 20.1 245.1

Labor Income $1,471,999 $1,357,188 $1,498,440 $2,955,138 $651,632 $7,934,397

Earnings per Job $32,367 $32,367 $32,367 $32,367 $32,367 $32,367

Value Added $3,074,839 $2,835,013 $3,130,072 $6,172,951 $1,361,187 $16,574,061

Totals

Employment 170.8 157.5 173.9 343.0 75.6 920.8

Labor Income $11,023,629 $10,163,825 $11,221,644 $22,130,692 $4,880,001 $59,419,790

Earnings per Job $64,528 $64,528 $64,528 $64,528 $64,528 $64,528

Value Added $104,727,025 $96,558,687 $106,608,213 $210,246,695 $46,361,137 $564,501,758

Multipliers

Employment 4.81 4.81 4.81 4.81 4.81 4.81

Labor Income 2.67 2.67 2.67 2.67 2.67 2.67

Value Added 1.15 1.15 1.15 1.15 1.15 1.15

28

5.2 ROYALTIES, SEVERANCE AND AD VALOREM TAXES

The incremental oil production from CO2-EOR generated an estimated

$143.93 million in mineral payments - $54.56 million in government

royalties, $27.73 million in private royalties, $28.07 million in severance tax,

and $33.57 million in ad valorem/property taxes to counties.

Approximately 64.4% of those payments, or $92.75 million, were spent

within Wyoming; $12.33 million saved in the Permanent Wyoming Mineral

Trust Fund (PWMTF), $19.46 million staying with the Federal Government,

and $20.52 million to royalty owners outside Wyoming.

The economic contribution of in-state mineral payments was evaluated using

IMPLANs representative spending patterns for state/local government

expenditures on education and non-education activities, as well for

households with annual income in the $75,000 to $100,000 range.

Of the $92.75 million spent within Wyoming it was assumed that $37.41

million was spent on education activities, $39.99 million on non-education

government activities, $8.14 million on capital investments, and $7.21 million

by private households.

The entire impact of these mineral payment expenditures are treated as a

component of induced effects in this study to be added to those already

reported.27

The induced contributions of these activities are summarized in Table 7 by

field. The $92.75 million of in-state mineral payments supported roughly 795

jobs with $35.87 million in total labor income - representing $51.48 million of

WY Gross State Product (value added).

27

As noted earlier (footnote 5) many other economic impact studies simply label government

expenditures as separate impacts the only real difference in this study is that we label them as induced impacts. Treating the total contribution of mineral payment expenditures as part of induced seems more consistent with the spirit of what is meant by an induced impact.

29

Table 7 Economic Contribution of In-State Mineral Payments


Madison Lost Soldier

CO2 Units

Patrick Draw

Monell Unit Salt Creek Wall Creek 2

Wertz - CO2

Units

Total

Contribution

Induced (Government Expenditures)

Employment 215.9 105.5 117.5 241.7 67.2 747.8

Labor Income $9,896,325 $4,858,627 $5,402,677 $11,098,135 $3,085,275 $34,341,039

Income per Job $45,842 $46,066 $45,976 $45,910 $45,880 $45,920

Value Added $13,926,129 $6,804,963 $7,580,629 $15,593,613 $4,337,354 $48,242,688

Induced (Private Royalties)

Employment -- 25.4 14.7 7.4 -- 47.5

Labor Income -- $820,549 $474,584 $238,689 -- $1,533,822

Income per Job -- $32,291 $32,291 $32,291 -- $32,291

Value Added -- $1,734,175 $1,003,002 $504,454 -- $3,241,631

Total Royaly, Severance, Ad Valorem

Employment 215.9 130.9 132.2 249.1 67.2 795.3

Labor Income $9,896,325 $5,679,176 $5,877,262 $11,336,824 $3,085,275 $35,874,861

Income per Job $45,842 $43,392 $44,455 $45,506 $45,880 $45,106

Value Added $13,926,129 $8,539,138 $8,583,631 $16,098,067 $4,337,354 $51,484,319

30

5.3 TOTAL ECONOMIC CONTRIBUTION OF CO2-EOR INCREMENTAL OIL

The combined total contribution of incremental oil production, CO2 supply

costs, and associated royalties, severance and ad valorem payments are

summarized in Table 8. Altogether, the incremental oil from the five CO2

fields in Wyoming is estimated to account for 1,716 jobs paying a total of

$95.29 million of labor income and representing $615.99 million of WY

Gross State Product (GSP, or value added).

While only 191 of those jobs occur directly in the oil and gas extraction sector

with 729 from the extraction supply chain and induced business another 795

arise from mineral payments leading to an overall employment multiplier of

8.97. The substantial mineral payments to state and local governments are

primarily spent in Wyoming on education and public services, which of

course support additional induced employment.

Thinking in terms of incremental production and CO2 purchase rates these 5

CO2-EOR fields are supporting around 260 jobs for every 1 million barrels of

incremental production or 7.8 jobs per MMcfd of purchased CO2.

2011 nonfarm employment for WY averaged 285,70028

meaning that CO2-

EOR accounted for 0.60% of total Wyoming employment in that year. The

$96.74 million in estimated royalties, severance and ad valorem payments

made to state and local governments represent 2% of the total state budget and

local mill levies.29

It is also important to keep in mind that this analysis does not capture the full

economic contribution of CO2-EOR capital investments as it is primarily

focused on extraction operations. It also does not account for any

reinvestment of the oil profits into other projects within Wyoming.

28

http://doe.state.wy.us/lmi/CES/naanav9002.htm

29 The Wyoming State Budget for 2011 was $3,160,374,710 and the combined total local

government mill levies were $1,545,643,127 - a total of $4,706,017,837

31

Table 8 Total Economic Contribution of CO2-EOR Incremental Oil Extraction


Madison



Lost Soldier &

Wertz

Total

Contribution

Direct

Employment 35.5 36.1 71.3 48.5 191.4

Labor Income $4,134,264 $4,208,527 $8,299,819 $5,641,985 $22,284,594

Value Added $90,875,267 $92,507,639 $182,438,339 $124,016,481 $489,837,726

Indirect

Employment 89.9 91.5 180.4 122.6 484.3

Labor Income $5,417,366 $5,514,677 $10,875,735 $7,393,020 $29,200,798

Value Added $10,776,919 $10,970,503 $21,635,406 $14,707,144 $58,089,972

Induced (Industry Activity)

Employment 45.5 46.3 91.3 62.1 245.1

Labor Income $1,471,999 $1,498,440 $2,955,138 $2,008,820 $7,934,397

Value Added $3,074,839 $3,130,072 $6,172,951 $4,196,199 $16,574,061

Induced (Mineral Payments)

Employment 215.9 132.2 249.1 198.1 795.3

Labor Income $9,896,325 $5,877,262 $11,336,824 $8,764,450 $35,874,861

Value Added $13,926,129 $8,583,631 $16,098,067 $12,876,491 $51,484,319

Total Impact/Contribution

Employment 386.7 306.1 592.1 431.3 1716.2

Labor Income $20,919,954 $17,098,905 $33,467,516 $23,808,276 $95,294,651

Income per Job $54,097 $55,859 $56,524 $55,206 $55,527

Value Added $118,653,155 $115,191,844 $226,344,762 $155,796,316 $615,986,077

Multipliers

Employment 10.89 8.47 8.31 8.90 8.97

Labor Income 5.06 4.06 4.03 4.22 4.28

Value Added 1.31 1.25 1.24 1.26 1.26

32

6 CONCLUSION

Wyomings economy and state & local government budgets depend heavily

on the states mineral wealth, which are then by extension sensitive to price

swings in the markets for those minerals. The booming supply of natural gas

coming from shale plays combined with near across the board mineral price

declines following the 2008 financial crisis have dealt a significant blow to

public funds.

In addition to diversifying Wyomings economy so that is less exposed to

mineral price risk, pursuing other value-added activities for mineral and

energy within the state (such as gas and/or coal to liquids) and encouraging

the development of existing resources are both of fundamental importance.

The strength of oil prices relative to other minerals highlights the importance

of Wyomings support for and deployment of enhanced oil recovery

technologies within the state. While oil prices themselves face renewed

pressure from economic troubles in Europe and the slow recovery at home,

improved oil recovery has the potential to delivery hundreds of millions of

barrels of additional production from Wyoming oil fields.

In this study for 2011 it is estimated that every 1 million barrels of

incremental oil produced with CO2 at existing EOR projects supported about

260 jobs within Wyoming. Although this number is sensitive to the lease

ownership and pricing of the produced oil, it is clear that EOR technologies

can contribute thousands of Wyoming jobs annually in coming decades.

33

APPENDIX A IMPLAN Customization

This study primarily relies on IMPLANs county-level Wyoming database for

year 2010, but is customized further for certain oil and gas industries in order

to more closely match Wyomings economy in those sectors. Industry data

was collected and used to modify the output, employment and value-added

components for the following three oil and gas industry sectors:

Oil and gas extraction (sector 20)

Drilling oil and gas wells (sector 28)

Support activities for oil and gas operations (sector 29)

In order to maintain consistency with the 2010 IMPLAN database, all values

for customization were either collected for 2010, or adjusted to 2010 using the

corresponding GDP deflator from IMPLAN. A detailed explanation of the

methodology used and the resulting model parameters is provided in the

following sections (refer to the final Table A-3 for final sector parameters). .

A.1 Oil and Gas Extraction (Sector 20)

Output (Value of Production): The total industry output for the extraction

sector was based on the 2010 production of oil (58,303,404 barrels) and gas

(2,523,493,504 Mcfs) as reported by the Wyoming Oil and Gas Conservation

Commission (WOGCC).32

The average annual 2010 prices for Wyoming

crude oil ($68.10/barrel)33

and wellhead gas ($4.30/Mcf)34

provided by the

U.S. Energy Information Administration (EIA).

32

Wyoming Oil and Gas Conservation Commission (WOGCC). Online Stats Book - County

Production Report, 2010 County Report (as of 04/18/12),

http://wogcc.state.wy.us/online_stats_bk/main_menu.cfm (accessed April 18th 2012).

33 Average annual 2010 domestic first purchase price of crude oil for Wyoming (EIA.gov).

January 1983-present: Form EIA-182, "Domestic Crude Oil First Purchase Report",

http://www.eia.gov/dnav/pet/pet_pri_dfp1_k_a.htm (accessed April 16th 2012).

34

Employment & Labor Income: 2010 average employment (4,197 employees)

and total wages ($399,494,000) for the extraction sector were obtained from

the Bureau of Labor Statistics (BLS) Quarterly Census of Employment and

Wages (QCEW)35

under the North American Industry Classification System

(NAICS) code 211. Total wages were then adjusted to account for benefits

using the ratio of total compensation to wages (1.199) for oil and gas

extraction reported by the Bureau of Economic Analysis (BEA) Survey of

Current Business.36

Cost of Production: The non-labor cost of production for oil and gas was

estimated using the 2009 values for the Rocky Mountain region in the EIAs

Oil and Gas Lease Equipment and Operating Costs report. The EIA reports

the estimated annual lift/operating costs for oil, natural gas and coal bed

methane for a variety of well depths and production levels which were then

adjusted from 2009 to 2010 using the IMPLAN GDP deflator (0.989).

Wyoming oil and gas production, well counts, and well depths were extracted

from the I.H.S. P/I Dwights PLUS Rocky Mountain Production Data37

and

shares of total production were allocated to the corresponding depths and

production rates from the EIA data.

The transportation charge for both crude oil ($1.31/barrel) and natural gas

($0.49/Mcf) was estimated as the average operating revenue per unit for

34 Average annual 2010 wellhead price for Wyoming (EIA.gov). Form EIA-895A, "Annual

Quantity and Value of Natural Gas Report, http://www.eia.gov/dnav/ng/ng_pri_sum_dcu_SWY_a.htm (accessed April 16th 2012).

35 http://www.bls.gov/cew/ (accessed April 18th 2012).

36 Bureau of Economic Analysis Series SA06N and SA07N for Wyoming. LineCode 201 "Oil

and gas extraction" (2010 Compensation = 485,179) / (2010 W&S = 404,769) =

1.19865651767. http://www.bea.gov/iTable/iTable.cfm?ReqID=70&step=1 (accessed April

18th

2012).

37 IHS (IHS). 2011. PI/Dwights Plus Rocky Mountain Production Data, Volume 21, Issue 11,

Released: November 30, 2011.

35

Wyoming pipelines found in the PennEnergy Research US Pipeline

Economics Study 2011.38

A gas processing charge of ($0.49/Mcf) was

imputed by assuming a 15-percent 10-year return on plant capital and

additions for those same Wyoming gas pipeline operators, and finally an

additional ($0.30/Mcf) was included for gathering gas from the wellhead to

the major pipeline.39

The lift/operating costs from EIA report were allocated to Wyomings

production according to the proportions found in the I.H.S. data and then

added to the transportation, processing and gathering fees. On average the

cost of production for 2010 was determined to be roughly $1.49 per Mcf

equivalent (Mcfe).40

These costs are summarized in Tables A-1 and A-2.

Table A-1 Non-Labor Basic Production Costs Per Unit

Production

Cost

Oil: Primary

(per barrel)

Oil: Secondary

(per barrel)

Natural Gas

(per Mcf)

Coalbed (per

Mcf)

Lift Cost $0.42-$1.28 $1.64-$3.94 $0.19-$1.13 $0.36

Gathering -- -- $0.30 $0.30

Transport $1.31 $1.31 $0.49 $0.49

Processing -- -- $0.49 $0.49

Totals $1.72-$2.58 $2.95-$5.25 $1.47-$2.41 $1.64

38

The Oil & Gas Journal's Pipeline Economics Report and FERC filings are the source for

this survey. Data is current to 2010. http://ogjresearch.stores.yahoo.net/us-pipeline-

economics-study.html

39 Such gathering charges are frequently mentioned in articles about the break-even price of

natural gas. See for example the article, What is the breakeven price for natural gas producers? by Keith Schaefer, ResourceInvestor.com, April 30, 2009. http://www.resourceinvestor.com/2009/04/30/what-is-the-breakeven-price-for-natural-gas-

produc

40 Even after adjusted for inflation, this production cost is slightly higher than the $1.15

(2007=$1.10) per Mcfe used by Booz-Allen-Hamilton in the WHF (2008) study.

36

Table A-2 Total Non-Labor Production Costs by Product

Product Volume Avg. Cost per Unit Non-Labor Costs

Crude Oil (barrels) 58,303,404 $3.75/barrel $218,916,875

Nat. Gas/Coalbed (Mcf) 2,523,493,504 $1.61/Mcf $4,073,814,109

Totals (Mcfe) 2,873,313,928 $1.49/Mcfe $4,292,730,983

Total Value Added and Value Added Components: Total value added for the

extraction sector was calculated as the difference the total value of production

($14,821,483,880) and the non-labor production costs from Table A-2. After

deducting total employee compensation ($478,993,306) from total value

added, the remaining amount was divided between Other Property Type

Income and Indirect Business Tax according the existing IMPLAN ratios for

sector 20.

A.2 Drilling Oil and Gas Wells (Sector 28)

Employment & Labor Income: Average employment for 2010 (2,376

employees) and total wages ($191,365,000) for the drilling sector were

obtained from the Bureau of Labor Statistics (BLS) Quarterly Census of

Employment and Wages (QCEW)41

under the North American Industry

Classification System (NAICS) code 213111. The level of employment was

then adjusted (2,561) to account for self-employment using the ratio (1.078)

of total employment in support activities for mining from the Bureau of

Economic Analysis (BEA) Survey of Current Business, and BLS employment

in the same sector (NAICS code 213).42

41

http://www.bls.gov/cew/ (accessed April 18th 2012)

42 Total employment from BEA series SA25N LineCode 203 Support activities for mining

divided by BLS employment in the same sector NAICS 213 (2010 BEA Employment

=12,137) / (2010 BLS Employment = 11,262) = 1.07769490321.

37

Finally, the total wages paid to the adjusted employee count were modified to

account for benefits using the ratio of total compensation to total wages

(1.145) for support activities for mining in the BEA Survey of Current

Business.43

Output (Value of Production): The value of production was determined by

first calculating the output per worker for the drilling sector ($228,763)

reported in the 2007 Economic Census44

and inflating to 2010 ($239,041 per

worker) using the IMPLAN GDP deflator (0.957). The total value of output in

the drilling sector was then estimated as the product of this output per worker

and the adjusted employee count ($612,187,396).

Total Value Added and Value Added Components: The total value added for

drilling was calculated using the ratio of value added to output for the existing

IMPLAN sector 28. Likewise, the individual components of value added were

subsequently allocated according to their corresponding ratios from the in-

built IMPLAN drilling sector.

A.3 Support Activities for Oil and Gas Operations (Sector 29)

The support sector was customized using the same basin methodology as

described for the drilling sector.

Employment & Labor Income: Average employment for 2010 (8,433

employees) and total wages ($569,094,000) for oil and gas support operations

were obtained from the Bureau of Labor Statistics (BLS) Quarterly Census of

Employment and Wages (QCEW) under the North American Industry

Classification System (NAICS) code 213112. The level of employment was

43

Bureau of Economic Analysis Series SA06N and SA07N for Wyoming. LineCode 203

"Support activities for mining (2010 Compensation = 890,999) / (2010 W&S = 778,037) = 1.1451884679. http://www.bea.gov/iTable/iTable.cfm?ReqID=70&step=1 (accessed April

18th 2012).

44 http://www.census.gov/econ/census07 (accessed April 18th 2012).

38

then adjusted (9,091) to account for self-employment using the ratio (1.078)

of total employment in support activities for mining from the Bureau of

Economic Analysis (BEA) Survey of Current Business, and BLS employment

in the same sector (NAICS code 213).

Finally, the total wages paid to the adjusted employee count were modified to

account for benefits using the ratio of total compensation to total wages

(1.145) for support activities for mining in the BEA Survey of Current

Business.

Output (Value of Production): The value of production was determined by

first calculating the output per worker for oil and gas support operations

($172,120) reported in the 2007 Economic Census and inflating to 2010

($179,854 per worker) using the IMPLAN GDP deflator (0.957). The total

value of output in the support sector was then estimated as the product of this

output per worker and the adjusted employee count ($1,635,012,138).

Total Value Added and Value Added Components: The total value added for

oil and gas support operations was calculated using the ratio of value added to

output for the existing IMPLAN sector 29. Likewise, the individual

components of value added were subsequently allocated according to their

corresponding ratios from the in-built IMPLAN drilling sector.

39

Table A-3 Customized Sectors for Wyoming versus IMPLAN Database

Study Area Data

Customized

Extraction

(20)

Customized

Drilling

(28)

Customized

Support

(29)

IMPLAN

Extraction

(20)

IMPLAN

Drilling

(28)

IMPLAN

Support

(29)

Employment

4,197 2,561 9,091

9,957 2,672 9,683

Output (Value of Production)

$14,821,483,880 $612,187,396 $1,635,012,138

$2,509,661,696 $1,122,572,544 $1,907,591,424

Employee Compensation

$478,993,306 $206,348,956 $613,654,289

$483,882,720 $217,921,824 $648,745,088

Proprietor Income

$0 $29,854,777 $88,784,127

$521,046,016 $31,529,154 $97,826,832

Other Property Type Income

$6,587,422,618 $225,549,296 $3,900,353

$542,430,080 $592,214,976 $4,550,596

Indirect Business Tax

$3,462,336,985 $6,381,536 $27,495,314

$285,100,224 $16,755,722 $32,079,162

Total Value Added

$10,528,752,896 $468,134,565 $733,834,082

$1,832,459,040 $858,421,676 $783,201,678

Total Labor Earnings

$478,993,306 $236,203,733 $702,438,415

$1,004,928,736 $249,450,978 $746,571,920

Cost of Production w/o Labor

$4,292,730,983

$677,202,656

Output/Worker

$3,531,447 $239,041 $179,854

$252,062 $420,187 $196,998

40

APPENDIX B Incremental Oil Decline Analysis

Figure B - 1 Beaver Creek Madison

Figure B - 2 Lost Solider Darwin/Madison

0

500

1,000

1,500

2,000

2,500

3,000

0

20

40

60

80

100

120

140

CO

2/N

at. G

as In

jectio

n (M

Mcf)

Oil

Pro

du

cti

on

(1,0

00 B

bls

)

Month-Year

Beaver Creek - Madison (Fremont County)Monthly Oil & Pre-CO2 Decline Path

Monthly Oil Production

Pre-CO2 Decline Path

CO2/Gas Inj (Since '91)

Incremental Oil2011 = 1,270,471Total = 2,459,387

Begin CO2 Flooding2008

0

200

400

600

800

1,000

1,200

1,400

0

20

40

60

80

100

120

140

CO

2/G

as In

jectio

n (M

Mcf)

Oil

Pro

du

cti

on

(1,0

00 B

bls

)

Month-Year

Lost Soldier - Darwin/Madison (Sweetwater County)Monthly Oil & Pre-CO2 Decline Path



CO2/Gas Inj (Since '91)Begin CO2 Flooding

1989

Incremental Oil2011 = 434,770

Total = 11,945,204

41

Figure B - 3 Lost Solider Flathead/Cambrian

Figure B - 4 Lost Solider Tensleep

0

100

200

300

400

500

600

700

0

10

20

30

40

50

60

CO

2/G

as In

jectio

n (M

Mcf)

Oil

Pro

du

cti

on

(1,0

00 B

bls

)

Month-Year

Lost Soldier - Flathead/Cambrian (Sweetwater County)Monthly Oil & Pre-CO2 Decline Path






Total = 4,951,520

0

1,000

2,000

3,000

4,000

5,000

6,000

0

50

100

150

200

250

300

350

CO

2/G

as In

jectio

n (M

Mcf)

Oil

Pro

du

cti

on

(1,0

00 B

bls

)

Month-Year

Lost Soldier - Tensleep (Sweetwater County)Monthly Oil & Pre-CO2 Decline Path






Total = 27,596,919

42

Figure B - 5 Patrick Draw Monell Unit

Figure B - 6 Salt Creek Wall Creek 2

0

500

1,000

1,500

2,000

2,500

3,000

3,500

0

20

40

60

80

100

120

140

CO

2/N

at. G

as In

jectio

n (M

mcf)

Oil

Pro

du

cti

on

(1,0

00 B

bls

Month-Year

Patrick Draw - Monell Unit (Sweetwater County)Monthly Oil & Pre-CO2 Decline Path





Incremental Oil2011 = 1,251,992Total = 7,481,084

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

0

50

100

150

200

250

300

350

400

450

CO

2/N

at. G

as In

jectio

n (M

Mcf)O

il P

rod

ucti

on

(1,0

00 B

bls

)

Month-Year

Salt Creek - Wall Creek 2 (Natrona County)Monthly Oil & Pre-CO2 Decline Path





Incremental Oil2011 = 2,154,691

Total = 10,699,231

43

Figure B - 7 Wertz Darwin/Madison

Figure B - 8 Wertz Tensleep

0

200

400

600

800

1,000

1,200

1,400

0

10

20

30

40

50

60

70

CO

2/G

as In

jectio

n (M

Mcf)

Oil

Pro

du

cti

on

(1,0

00 B

bls

)

Month-Year

Wertz - Darwin/Madison (Carbon/Sweetwater County)Monthly Oil & Pre-CO2 Decline Path






Total = 4,475,320

0

500

1,000

1,500

2,000

2,500

3,000

0

50

100

150

200

250

300

350

400

CO

2/G

as In

jectio

n (M

Mcf)

Oil

Pro

du

cti

on

(1,0

00 B

bls

)

Month-Year

Wertz - Tensleep (Carbon/Sweetwater County)Monthly Oil & Pre-CO2 Decline Path






Total = 16,837,516

Economic-Contribution CO2-EOR_Benjamin R. Cook

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