Linking COLinking CO EOR and EOR and Linking COLinking CO22--EOR and EOR and COCO22 Storage in the Offshore Storage in the Offshore 22 ggGulf of MexicoGulf of MexicoOTC-21986-PP

Prepared for:

Off h T h l C fOffshore Technology Conference Houston, Texas

Prepared by:

George Koperna (gkoperna@adv-res.com)Robert Ferguson (rferguson@adv-res.com)Advanced Resources International, Inc.

May 2 - 5, 2011

Introduction and PurposeIntroduction and PurposeIntroduction and PurposeIntroduction and Purpose

The Offshore Gulf of Mexico, including the Shelf (Shallow Water)and Slope (Deep Water), has been endowed with a large, geologicallyattractive oil resource totaling 46 billion barrels of original oil in-place.Of this original resource:Of this original resource:

• Approximately 19 billion barrels (41%) of this resource has beenproduced or proven.

• Capturing a portion of this 27 billion barrels of “stranded” oil canbe achieved using CO2-based enhanced oil recovery.

• In addition, CO2-EOR provides the opportunity for productivelyusing and storing significant volumes of captured CO2 emissionsfrom the large power plants refineries and chemical facilitiesfrom the large power plants, refineries, and chemical facilitiesalong the Gulf Coast.

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Gulf of Mexico Oil Resource BaseGulf of Mexico Oil Resource Base

T t l GOM D t bT t l GOM D t b Assessed GOM DatabaseAssessed GOM Database

Original Oil InOriginal Oil In--Place: 46.1 Billion Barrels*Place: 46.1 Billion Barrels* Original Oil InOriginal Oil In--Place: 29.6 Place: 29.6 BBblsBBbls

Total GOM DatabaseTotal GOM Database Assessed GOM DatabaseAssessed GOM Database(Large Oil Reservoirs in 144 Largest Offshore Oil Fields)

27.2

Stranded Oil (BBbls)

14.1Produced to Date

8.8Produced to Date

(BBbls)(BBbls) (BBbls)

4.8 17.73.1

Remaining Proved 4.8

Remaining Proved Reserves (BBbls) (BBbls)

Remaining Proved Reserves (BBbls)Stranded Oil

*As of 1/1/20053

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Gulf of Mexico Offshore Leasing AreasGulf of Mexico Offshore Leasing AreasGulf of Mexico Offshore Leasing AreasGulf of Mexico Offshore Leasing Areas

Texas Offshore Shelf Louisiana Offshore Shelf

Texas Offshore Slope Louisiana Offshore Slope

Source: U.S. DOI, Bureau of Ocean Energy Management, Regulation and Enforcement – Official Protraction Map4

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Summary of Major FindingsSummary of Major FindingsSummary of Major FindingsSummary of Major Findings

Integrated application of CO2-EOR and CO2 storage in the Gulf ofMexico could technically recover 5.8 billion barrels of domestic oil andstore 1,700 million metric tons of CO2 (32 Tscf)., 2 ( )

However, the offshore GOM is a high cost operating area. At theB C il i f $70 b l d CO t f $45 tBase Case oil price of $70 per barrel and CO2 cost of $45 per tonne,only 730 million barrels of oil is economically recoverable.

To gain half or more of the technically recoverable oil and CO2storage potential in the GOM will require higher oil prices ($100 perbarrel) lower CO costs ($35 per tonne) or other incentives such asbarrel), lower CO2 costs ($35 per tonne) or other incentives such asreduced royalties or credits for storing CO2.

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BackgroundBackgroundBackgroundBackground

Production in the offshore had been stable for some time withdecreasing production in the shelf replaced by new deepwaterdevelopment on the slope. However, with the recent plateau inp p , pdeepwater oil production, the offshore GOM is now in decline. As such,there is urgency for establishing and demonstrating the feasibility ofconducting CO2-EOR in this areaconducting CO2 EOR in this area.

• As the shallower oil fields on the shelf reach maturity,platforms are being dismantled. Removing existing infrastructurebefore these oil fields have been flooded with CO2 could leave theremaining resource stranded.

I th d t d l t it ld b• In the deep water, as new development occurs, it would beprudent to examine the potential for early application of CO2-EORas part of an integrated infrastructure and field developmentstrategystrategy.

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Background (cont’d)Background (cont’d)Off h P d ti 1997 t 2009Off h P d ti 1997 t 2009Offshore Production 1997 to 2009Offshore Production 1997 to 2009

400

450

500

300

350

400

els of Oil

150

200

250

illion Barre

50

100

150

Mi

0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Shallow Water Deep Water

Source: U.S. DOI, Bureau of Ocean Energy Management, Regulation and Enforcement, Deepwater Gulf of Mexico 2009: Interim Report of 2008 Highlights. OCS Report MMS 2009-016, EIA Resource Reports Forecast 2008 and 2009

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Updating and Updating and Selecting Selecting the the Largest Reservoirs Largest Reservoirs d d Fi ld Fi ld f th “L Oilfi ld D t b ”f th “L Oilfi ld D t b ”and and Fields Fields for the “Large Oilfields Database”for the “Large Oilfields Database”

The oilfields and oil reservoirs used for the OffshoreGOM CO2-EOR study have been derived from theBOEMRE “S d D t b ” d t d f d fBOEMRE “Sands Database”, updated as of end of year2004.

This BOEMRE Sands Database was screened toidentify the higher potential reservoirs favorable for CO -identify the higher potential reservoirs favorable for CO2-EOR. Total Database Assessed GOM Database

N f Oil R i 4 500 683*No. of Oil Reservoirs 4,500 683*

Original Oil In-Place(Billion Barrels) 46.1 29.6**Includes largest reservoirs (sands) in 144 fields with at least 10 million barrels OOIP.

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Cumulative Percent Total Reserves by Cumulative Percent Total Reserves by Field Field Size (Size (1,172 Proved Fields)1,172 Proved Fields)The screened database includes reservoirs from the largest 144 fields containingThe screened database includes reservoirs from the largest 144 fields, containing29.6 billion barrels of oil in-place and over 65% of proved reserves.

ARI’s database includes theARI s database includes the largest 144 fields, covering over 65% of proved reserves

Modified from “ Outer Continental Shelf, Estimated Oil and Gas Reserves, Gulf of Mexico, December 31, 2004 ”, U.S. DOI, Bureau of Ocean Energy Management, Regulation and Enforcement, OCS Report MMS 2008-034 9

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Organizing the Vertically Stacked Organizing the Vertically Stacked i i A l i l U ii i A l i l U iReservoirs into Analytical UnitsReservoirs into Analytical Units

Offshore reservoirs in the gulf coast typically consist of a series ofOffshore reservoirs in the gulf coast typically consist of a series ofstacked sands that may be vertically aligned in a structural trap or faultblock setting. These reservoirs are typically produced with as few wells

ibl d th ll ft l t d i lti l das possible, and these wells are often completed in multiple sands.

In order to model this approach the sands within a field are assumedIn order to model this approach, the sands within a field are assumedto be vertically stacked. The largest area sand drives the spacing anddevelopment pace of the field. All other sands within a field aredeveloped on the same spacing as the largest sanddeveloped on the same spacing as the largest sand.

Existing producers within a field are reworked as CO2-EORg p 2producers and can produce from any sand. Alternatively, all injectionwells are newly drilled to ensure that they can properly deliver CO2 to thesands. CO2 injection wells can also be completed in each of the stackedsands. CO2 injection wells can also be completed in each of the stackedsands.

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Example Field: Example Field: S h S h i b lii b li 00South South TimbalierTimbalier 021021

958 Acres

Drilled Depth Sand Area (Acres) OOIP (MMBbls)

9,578 13

3,239 Acres

958 Acres9,5 8 3

10,172 100

1,260 Acres

760 Acres

10,465 20

10,555 12

1,882 Acres11,407 57

11,515 1003,407 Acres

160 Acre Spacing, 31 producers, 21 injectorsp g, p , j

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Reservoir Data Format:Reservoir Data Format:South South TimbalierTimbalier 021021

Basin Name Miscible Y

Field Name

Reservoir

FED-OFF

ST021

1361 ST021 D02UReservoir64

Reservoir Parameters ARI Oil Production ARI Volumes ARIArea (A) 3,239 Producing Wells (active) 37 MMS OOIP (MMbl) 99.9Net Pay (ft) 28 Producing Wells (shut-in) 59 2004 Cum Oil (MMbl) 55.2Drill Depth (ft) 10,172 2004 Production (Mbbl) NA EOY 2004 Reserves (MMbl) 2.7

1361_ST021_D02U

ept ( t) 10,172 00 oduct o ( bb ) NA O 00 ese es ( b ) 2.7Porosity 29% Daily Prod - Field (Bbl/d) NA Ultimate Recovery (MMbl) 57.9Reservoir Temp (deg F) 195 Cum Oil Production (MMbbl) 55 Remaining (MMbbl) 42.0Initial Pressure (psi) 4817 EOY 2004 Oil Reserves (MMbbl) 3 Ultimate Recovered (%) 58%Pressure (psi) -1 Water Cut NA

OOIP Volume CheckBoi 1.454 Water Production Reservoir Volume (AF) 90,886Bo @ So, swept 1.050 2002 Water Production (Mbbl) NA Bbl/AF 1,099Soi 0.71 Daily Water (Mbbl/d) NA OOIP Check (MMbl) 100Sor

Swept Zone So 0.205 Injection SROIP Volume CheckSwi 0.29 Injection Wells (active) 2 Reservoir Volume (AF) 90,886Sw 0.79 Injection Wells (shut-in) 0 Swept Zone Bbl/AF 439

2002 Water Injection (MMbbl) NA SROIP Check (MMbbl) 40API Gravity 31 Daily Injection - Field (Mbbl/d) NAViscosity (cp) 0.61 Cum Injection (MMbbl) NA

Daily Inj per Well (Bbl/d) NA ROIP Volume CheckDykstra-Parsons 0.75 ROIP Check (MMbl) 42

Evaluating Oil Recovery Using a Evaluating Oil Recovery Using a S li i Si l iS li i Si l iStreamline Reservoir SimulationStreamline Reservoir Simulation

The reservoirs evaluated with the CO2-Prophet Model wereexamined using a water-alternating-gas (WAG) flood injecting 1.0HCPV (hydrocarbon pore volume) of CO2.( y ) 2

After comparing model runs in the offshore using 1.0 and 1.5HCPV, it was determined that the incremental oil recovery associated

ith i j ti dditi l 0 5 HCPV f CO d t i thwith injecting an additional 0.5 HCPV of CO2 does not improve theeconomic return for these fields for the following reasons:

• Smaller “stranded” oil target and high primary and secondary• Smaller stranded oil target and high primary and secondaryrecovery efficiencies yield low incremental oil

• Injecting an additional 0.5 HCPV of CO2 requires higher CO2j g 2 q g 2purchase, CO2 recycling, and operating expenditures, whichworsens economic returns.

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Reservoir Performance:Reservoir Performance:South South TimbalierTimbalier 021021

r) Yr)

Oil  (M

bbl/Yr

CO2(M

Mcf/Y

C

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Reservoirs Screening Favorably Reservoirs Screening Favorably f COf CO OOfor COfor CO22--EOREORThe reservoirs have been divided into four area classifications: Louisiana Federal Shelf

Evaluated Reservoirs (Million Barrels)

The reservoirs have been divided into four area classifications: Louisiana Federal Shelf(<200 m), Louisiana Federal Slope (>200 m), Louisiana State, and Texas Federal

( )

LA Federal Offshore LA State TX FederalTotal

1. Screened Offshore Oilfields/Reservoirs Shelf Slope Offshore Offshore

Oil In-Place 14,020 14,025 1,125 407 29,577

Past Production 6,254 2,067 381 125 8,827

Remaining Reserves 281 2,717 38 62 3,098Remaining Reserves 281 2,717 38 62 3,098

Total Ultimate Recovery 6,535 4,784 419 187 11,925

Primary/Secondary Recovery Efficiency 46.6% 34.1% 37.2% 45.9% 40.3%

2. Evaluation of CO2-EOR Potential

EOR Technical Potential 2,846 2,562 249 93 5,750

Number of Fields 94 42 4 4 144

Number of Reservoirs (Sands) 444 169 13 16 64215

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Updating and Applying the Cost Updating and Applying the Cost d E i M d ld E i M d land Economic Modeland Economic Model

A d t il d t d t Off h CO EOR C t M d l d l d fA detailed, up-to-date Offshore CO2-EOR Cost Model was developed forthis study. The model includes costs for: (1) drilling new wells or reworkingexisting wells; (2) providing surface equipment for new wells on an existingplatform (3) installing the CO rec cle plant on the e isting platform (4)platform; (3) installing the CO2 recycle plant on the existing platform; (4)constructing a CO2 spur-line from a main CO2 trunk line to the oil platform; and,(5) various miscellaneous costs.

The cost model also accounts for normal well operation and maintenance(O&M), for lifting costs of the produced fluids, and for costs of capturing,

i d i j i h d d COseparating and reinjecting the produced CO2.

The economic model used by the study is an industry standard cash flowy y ymodel run on a field-wide basis. The economic model accounts for royalties,severance and ad valorem taxes, as well as any oil gravity and market locationdiscounts (or premiums) from the “marker” oil price.

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Discussion of Study FindingsDiscussion of Study FindingsDiscussion of Study FindingsDiscussion of Study Findings

Base Case:

Significant portions of the technically recoverable and economic EORand CO2 storage capacity in the GOM resides in the Louisiana shallow water( h lf) f d l ff h il fi ld Thi i h b l f th b il

Base Case:

(shelf) federal offshore oil fields. This is shown below for the base case oilprice of $70/Bbl and a CO2 cost of $45/mt. Although the Louisiana deepfederal water contains a sizeable technical potential, higher oil prices arerequired to make it and the other areas economic

Louisiana TexasShallow Deep Shallow

required to make it and the other areas economic.

TotalShallowFederal

DeepFederal

ShallowState Federal

Technically Recoverable 2,850 2,560 250 90 5,750Economically RecoverableEconomically Recoverable• Oil 730 - - - 730• CO2 Storage 200 - - - 200(In million barrels of oil; million tonnes of CO )

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(In million barrels of oil; million tonnes of CO2)

Discussion of Study Discussion of Study Findings Findings cont’dcont’dDiscussion of Study Discussion of Study Findings Findings cont dcont d

S iti it C

• The following sensitivity runs showthe increasing economic potential Volume of

Sensitivity Case:

the increasing economic potentialat higher oil prices and especiallyat $100 per barrel. In the high oilprice case, over 2.3 billion barrels Oil Price

Volume of Economically Recoverable

ResourceVolume of Stored

CO2

of resource becomes economic.• In addition, these offshore GOM

oilfields offer significantt iti f d ti l

($/bbl) (million barrels) (million mt)$50* 540 150$70** 730 200

opportunities for productivelyusing and storing CO2. The CO2storage volumes for each of thethree sensitivity runs are shown in

$100*** 2,330 660*Assume delivered CO2 of $35/mt. **Assume delivered CO2 cost of $45/mt.***Assume delivered CO2 cost of $60/mtthree sensitivity runs are shown in

the table.

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Discussion of Study Discussion of Study Findings Findings cont’dcont’dDiscussion of Study Discussion of Study Findings Findings cont dcont d

High Oil / Low CO Cost Case:

The offshore will require high oil prices and low CO2 costs to becomeeconomic. The last price sensitivity case has an oil price of $100/Bbl and a

High Oil / Low CO2 Cost Case:

cheaper CO2 cost of $35/mt. In this case, not only is more of the Louisiana shallowfederal resource economic, but the Louisiana deep water and both Louisiana andTexas state waters contribute to the economically recoverable resource.

Louisiana TexasShallow Deep Shallow

TotalShallowFederal

DeepFederal

ShallowState Federal

Technically Recoverable 2,850 2,560 250 90 5,750Economically Recoverabley• Oil 1,800 760 250 40 2,850• CO2 Storage 490 230 80 10 810(In million barrels of oil; million tonnes of CO2)

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( 2)

Discussion of Study Discussion of Study Findings Findings cont’dcont’dDiscussion of Study Discussion of Study Findings Findings cont dcont d

O BOEMRE d t it d t ilfi ld d t b (t i l d th• Once BOEMRE updates its deepwater oilfields data base (to include thelarge oilfield discoveries in 2005-2008), the technically recoverabledeepwater CO2-EOR potential will, most likely, increase.

• In addition, as the younger deepwater oilfields are more intensively drilledand placed under pressure maintenance or secondary oil recovery, fewernew wells will be required for CO2-EOR and the economics of deepwater2CO2-EOR will improve.

• Additional incentives such as credits for storing CO2 or lower royalty couldalso lead to higher oil recovery and CO2 storage volume The final report willalso lead to higher oil recovery and CO2 storage volume. The final report willinclude an examination of a royalty relief case and its effects on theeconomics of these reservoirs.

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Contact InformationContact Information

Office Locations

Contact InformationContact Information

Office Locations

Washington, DC4501 Fairfax Drive, Suite 910Arlington, VA 22203 USAPh (703) 528 8420Phone: (703) 528-8420Fax: (703) 528-0439

Houston, TX11490 Westheimer Rd., Suite 520Houston, TX 77077 USAPhone: (281) 558-9200Fax: (281) 558-9202

Knoxville TNKnoxville, TN603 W. Main Street, Suite 906Knoxville, TN 37902Phone: (865) 541-4690Fax: (865) 541-4688

Cincinnati, OH 1282 Secretariat CourtBatavia, OH 45103 Phone: (513) 460-0360

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