Gareth Roberts didn’t need much to persuade a governor and a congressman to turn out for the coming-out party of his 320-mile “Green Pipeline” on Thursday — not after his company decided to invest $750 million in one of the more unusual pipelines to traverse south Louisiana.

In late 2010, Denbury Resources Inc. will begin pumping up to 800 million cubic feet of carbon dioxide a day along a pipeline from Donaldsonville to a rejuvenated oilfield west of Houston, to points between and — eventually — to the Midwest on future pipeline legs.

“I think today no longer can we be considered a conventional oil and gas company,” said Roberts, the Denbury chief executive who worked for Texaco Inc. and Marathon Oil Corp. before joining the now-publicly traded company in 1990.

“We’re at the forefront of enhanced oil recovery.”

It’s the latest frontier for a production technique pioneered in the Permian Basin of West Texas in the early 1970s and little-used through much of the 1980s and 1990s, when oil prices were depressed.

Beginning a decade ago, Denbury tapped a natural formation of subsurface carbon dioxide near Jackson, Miss., to become that state’s biggest oil and gas producer.

Construction began on the east end of the Green Pipeline early this year and about 100 miles have been completed.

Along the way, 800 construction workers will have a hand in building the 24-inch diameter pipeline.

“For too long, we as a country have become too dependent on foreign oil,” Gov. Bobby Jindal said at a Denbury-sponsored event Thursday at the Crowne Plaza Hotel in Baton Rouge. “The best place to recover oil is where we’ve already (found it).”

Dubbed a “green” pipeline because it captures carbon dioxide that might otherwise be released to the atmosphere and aggravate global warming, the project represents a model Denbury has pursued earnestly for a decade: taking old oilfields idled by major oil companies after they were depleted with conventional drilling and pushing carbon dioxide underground to flush out more oil.

About 15.7 billion barrels of oil lay stranded in Louisiana oilfields, and enhanced oil recovery can help production companies like Plano, Texas-based Denbury get 6 billion more barrels, Jindal said, citing Louisiana Department of Natural Resources research.

According to DNR, Louisiana producers mine about 80 million barrels of oil a year in the state, a shadow of the 566 million barrels extracted in the peak year of 1970.

Denbury has reached seven contract agreements with gasification plants in Texas, the Midwest and Louisiana, where the first contract is with a planned $1.6 billion Faustina Hydrogen Products LLC project downriver from Donaldsonville near the Sunshine Bridge.

Gasification plants, most of them in the blueprint and fundraising stage, take raw products like coal, burn them at extremely high temperatures to create a natural gas equivalent and move that gas into further chemical production. The process captures manmade carbon dioxide that Denbury will be buying along the pipeline and transporting to oil wells, along with underground sources of the gas.

Denbury is spending about 25 percent of its field operating costs on enhanced oil recovery assets that include the Green Pipeline and 420 miles of existing pipelines, said Tracy Evans, an engineering executive who’ll become Denbury’s president in July.

A lateral line off an existing 182-mile pipeline from Jackson, Miss., to White Castle is supplying Denbury oil production at the Lockhart Crossing field near Denham Springs, and Denbury will begin enhanced oil recovery this summer at the Delhi Field near Monroe.

“Louisiana will become more and more important for us,” said Evans, with the company completing enhanced oil recovery projects itself or as a partner in joint ventures.

Any heavy industrial plant that produces significant sources of carbon dioxide — something President Barack Obama and many members of Congress would like to cap — can be a potential supplier for Denbury, Evans said, with contracts typically drawn in 15-year terms. Capturing carbon dioxide from a potential Nucor Corp. pig iron mill in St. James Parish would be a possibility, he said, with Denbury paying for pipeline extensions in exchange for long-term contracts.

Tied to the price of oil, the contracts avert losses for both parties down to the mid-$30 range and can generate significant supplier profits when prices climb beyond current levels in the low $60s, Evans said.

Plans to launch carbon dioxide transmission remain largely in line with projections Denbury gave to The Advocate in a February profile of the pipeline. Enhanced oil recovery will begin in 2011 at the crown jewel of the project, the Hastings Field southwest of Houston, where another 100 million barrels of oil could be produced.

Initial injection of carbon dioxide will begin in Chambers County, east of Galveston Bay in late 2010, Evans said. Already, Denbury uses enhanced oil recovery in about half of its daily output equivalent of 51,000 barrels. About one-third of Permian Basin oil is recovered the same way.

“The question is can we increase U.S. production to that same 33 percent or 50 percent,” Evans said.

PRESS RELEASE

LOGA Leads Opposition to Federal Energy Policy Proposals

A Louisiana trade association is taking a leading role in speaking out against President Obama’s vision for reshaping energy policy in the U.S.

Since the President’s inauguration in January, the Louisiana Oil and Gas Association (LOGA), which consists of more than 1,000 independent oil and natural gas operators in the state, has consistently highlighted the potential impacts of proposed federal energy policy changes, sought partners in forming a broader coalition against those changes and even used
social media tools in an attempt to broadcast the anticipated impacts on Louisiana and the oil and
gas industry.

“Given the proposals we’ve seen from the Obama administration and Congress, we believe we are in a fight for our right to explore and produce America’s oil and natural gas resources,” said LOGA President Don Briggs. “Domestic energy sources have an important role to play in our country’s energy security. Not to mention the profound impact oil and gas exploration has on Louisiana’s economy. The Obama administration’s approach is, quite frankly, shocking to us.”

LOGA points to the Fiscal Year 2010 federal budget outline as evidence that the Obama administration has targeted the oil and gas industry. According to industry analysis, the proposed budget contains several onerous provisions that could cripple the industry:

• Repeal expensing of intangible drilling costs;
• Repeal of percentage depletion;
• Repeal of the passive loss exemption;
• Repeal of the marginal well tax credit;
• Repeal of the enhanced oil recovery credit;
• Repeal deduction for tertiary injectants;
• Repeal of the Manufacturing Tax Deduction (Section 199)
• Repeal royalty incentives, impose new inspection fees and special fees for nonproducing leases;
• Increase of geological and geophysical amortization costs;
• Increase APD permitting fees in the Department of the Interior proposed budget; and
• Phase out and eventually eliminate the Department of Energy’s unconventional natural gas and ultra-deep offshore research and development programs.

In March, LOGA created the Energy Security Alliance, a group of trade associations, chambers of commerce and individual businesses, to broaden the opposition to President Obama’s energy policies. More than 100 businesses quickly signed on, along with more than 20 associations and economic development groups. It started an online petition that currently has more than 37,000 signatures and also turned to the social network site Facebook to extend its reach and highlight the proposals in the federal budget framework.

“With a struggling economy and millions of Americans out of work, there’s never been a more important time to put our nation’s energy resources to good use,” Briggs said. “And thanks to recent advances in new technology such as horizontal drilling and a deep energy recovery technique known as hydraulic fracturing, there’s also never been a time when acquiring those resources was as safe and efficient as it is today. Concern for the environment, responsible use of our energy resources and pursuit of domestic energy can co-exist and provide the energy security that so many of our citizens want.”

Natural Gas Supply Association President R. Skip Horvath recently said President Obama’s budget was bad news for American consumers and worse news for American jobs.

“People don’t appreciate how big the gas industry is in this country,” Horvath said. “Four million Americans depend on domestic gas for their livelihoods, both those who work directly in the industry as well as those in second jobs, such as steel and concrete and retailing.”

Established in 1992, LOGA (known before 2006 as the Louisiana Independent Oil and Gas Association) represents the independent and service sectors of the oil and gas industry in Louisiana. For more information, please visit www.loga.la or www.energysecurityalliance.org for additional information about the Energy Security Alliance.