If the world has any chance of avoiding the worst fears of peak oilers, it has to pump every possible barrel of oil it can out of fields in the United States and elsewhere. Many exploration and production companies are doing just that, all the way from the largest integrated oil company in the world down to small cap companies. (Learn a little more about the “non” part of this non-renewable resource. Read Peak Oil: Problems And Possibilities.)
Exxon Mobil (NYSE:XOM) was the latest to announce an enhanced oil recovery project at one of its aging fields. The Hawkins Field was discovered in 1940 and has pumped out hundreds of millions of barrels of oil since then. Exxon Mobil will be injecting nitrogen into these old wells to stimulate production.
The company said that an additional investment of $700 million is required to produce an additional 40 million barrels of oil. This is only $17.50 a barrel, and seems to contradict the conventional wisdom that these projects cost so much that a high oil price is needed to make them feasible.
Of course it’s possible that Exxon Mobil was only disclosing part of its cost. Perhaps this is only the capitalcost to construct the pipelines and injection equipment to bring the nitrogen to the field.
One other item to consider is that the Hawkins Field had original oil in reserve of 1.8 billion barrels with total recovery of approximately 50% including this new effort by Exxon Mobil. This still leaves another 900 million barrels to be recovered using a future technology.
While Exxon Mobil is the largest company to do an enhanced oil recovery project, Rex Energy(Nasdaq:REXX) is one of the smallest. Although the company is known mostly for its Marcellus Shale acreage and its joint venture with Williams Cos. (NYSE:WMB), the company also has an enhanced oil project in the Illinois Basin.
Rex Energy is injecting alkaline surfactant polymer (ASP) into these mature wells to recover an additional 39 million barrels of oil. This will be at a higher cost than the Exxon Mobil project and the company estimates its finding and development costs at $22.73 per barrel.
Denbury Resources (NYSE:DNR) is the king of enhanced oil recovery with a large tertiary recovery operation in Mississippi where carbon dioxide is injected into old oil fields. The company uses a breakeven NYMEX oil price per barrel of $34.30 for its operations.
The Bottom Line
Another cherished myth of the peak oil crowd may have fallen by the wayside, as Exxon Mobil has figured out how to pump another 40 million barrels out of an oil field discovered more than 70 years ago, and at a stunningly low price. The industry needs to apply this technological know-how to other fields as well. (Find out which futures, options, or funds will be your perfect commodity portfolio fit).
By Eric Fox
Eric J. Fox, is the founder of Brittain Capital Management, LLC., which manages the Alesia Fund, LP., a Value oriented long/short investment partnership.
