Capitalizing on Enhanced Oil Recovery in CCUS Projects

Enhanced Oil Recovery

Enhanced Oil Recovery (“EOR”) has become a regularly employed advanced recovery method throughout the country. To that end, EOR operations account for most CCUS operations currently being conducted in the United States. EOR is a method used to recover oil from fields that are no longer producing using conventional recovery methods. EOR uses CO2 as a gas injection to expand inside a reservoir and stimulate additional oil production from a wellbore, lowering oil viscosity and improving the overall flow rate. As of the writing of this article, gas injection utilizing CO2 accounts for a majority of all EOR in the United States and around 6% of all US onshore production daily. 

The practice of using CO2 for EOR is well-established and has been a mainstay of the industry for over 40 years; however, new financial incentives are driving EOR programs in CCUS to new levels of activity. To that end, EOR operations are also receiving a substantial increase in the monetary value of the associated credits with the implementation of the IRA under 45Q. Prior to the IRA’s passage, the tax credit amount was $35 per metric ton of CO2 captured in connection with an EOR operation. The tax credit for EOR operations currently is valued at $60 per metric ton captured using conventional capture methods and $130 per metric ton of captured CO2 using Direct Air Capture methods. 

While the credit value is less than the value for CCUS projects injecting CO2 for permanent storage, the increase is still quite substantial, considering the regularity at which EOR operations are conducted and the costs associated with permanent storage facilities. EOR operations are a low-cost addition to regular oil and gas operations, as operators only need to integrate EOR equipment into their current operations and will not have to construct additional recovery facilities to take advantage of the tax credit. EOR represents an easy way to increase domestic oil supplies while working towards carbon neutrality. 

Nevertheless, the EOR process is still a source of regulatory uncertainty. Even though CO2 EOR does not require extensive leasing programs or land damage concerns because it is primarily applied to existing oil fields, critical conflicts arise between surface owners and subsurface owners in the development process. Additionally, there are concerns regarding leaks and chemical reactions subsurface relating to CO2 combined with underground saltwater and creating carbonic acid. In the absence of legal clarity, RR&A has sought to create forms and a framework for drafting that helps to moderate the potential for liability and losses within the context of an operator’s development of CO2 EOR projects. We continue to follow new developments in EOR specific case law and regulations and to advise our clients in conducting operations with an eye toward profitability and risk mitigation. 

Please call RR&A to discuss further how we can effectively integrate your EOR activities into the existing regulatory and legal framework in order to protect your operations and maximize your eligibility for tax incentives. 

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