Enhanced Oil Recovery Projects

The United States is still generally considered to be a mature oil and gas producing area, notwithstanding all the prolific oil and natural gas shales that have been discovered here over the last decade. To deal with the mature characteristics of many producing basins here, many exploration and production companies employ enhanced oil recovery techniques to get the oil and natural gas out of the ground. These projects are not talked about much because they are not flashy and don't attract investors attention the way that any area with the word shale appended to it does.

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The Players
Anadarko Petroleum (NYSE:APC) has a large enhanced oil recovery project at the Salt Creek field in Wyoming, where the company injects carbon dioxide into wells to stimulate production.

Anadarko Petroleum bought into the field in 2002 through the purchase of Howell Corp, and has put hundreds of millions of capital into this 100 year old oil field to increase production. During the second quarter of 2010, Anadarko Petroleum reported gross production of 10,715 barrels of oil per day from areas of Salt Creek where the company has used carbon dioxide. )

Since enhanced oil recovery is capital intensive, it requires a high oil price to make it cost effective. Denbury Resources (NYSE:DNR) has specialized in enhanced oil recovery projects for years in the Gulf Coast area. It estimates that the company needs a NYMEX oil price of $36 a barrel to break even in its enhanced oil recovery operations. The company would earn a 26% rate of return at a $60 NYMEX oil price. However, this estimate excludes interest and corporate overhead, so a higher price would be needed to cover those expenses.

Whiting Petroleum (NYSE:WLL) has enhanced oil recovery projects in the North Ward Estes and Postle fields. The company has allocated $230 million in capital here in 2010, or nearly 30% of its budget. Both projects use carbon dioxide to increase production. The Postle project is in Oklahoma and reported average production of 9,550 barrels of oil equivalent (BOE) per day in the second quarter of 2010. This is double what the project was producing in early 2007.

The North Ward Estes project is in Texas, and Whiting Petroleum, has eight phases planned here through 2027. The company reported average production of 7,700 BOE per day from the North Ward Estes project in the second quarter of 2010. Another advantage of carbon dioxide injection is that it removes this gas from the environment and helps with reducing greenhouse gas emissions. This may be one of the few instances where environmentalists are in agreement with what the oil and gas industry is doing.

One small cap company involved with enhanced oil recovery is Resolute Energy Corporation (NYSE:REN). The company has a significant operation at the Aneth Field in Utah, and expects to increase its production here at a compound annual growth rate of 15% through 2015 utilizing carbon dioxide injection at this field and others nearby.

The Bottom Line
Enhanced oil recovery is an important part of domestic oil production but doesn't get much attention, as it must compete against the sexier shale plays that have come to dominate development in the United States. (For more stock analysis, see Another Way To Play The Shale Boom.)

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