Occidental deal to lift oil output
Giving another boost to its U.S. operations, Occidental Petroleum Corp. said Monday that it would build a $1.1-billion plant and pipeline in West Texas to handle carbon dioxide that would increase the oil company’s production in the region.
The deal with Oklahoma City-based SandRidge Energy Inc. would increase Occidental’s oil and natural gas production in the multistate Permian Basin by the equivalent of at least 50,000 barrels of oil a day within five years. Occidental is the largest producer in the basin, with average daily output of 200,000 barrels of oil.
Although the added oil output isn’t substantial when compared with global production, the Occidental deal represents a welcome bit of news in a world reeling from soaring crude prices and worries about oil supplies.
“It’s not the solution to everybody’s problem . . . but it will help,” said Stephen Chazen, president of Westwood-based Occidental. “It is in the United States, as opposed to some other place, and it creates jobs in the United States . . . and you don’t have to export the money.”
Over the life of the fields, the agreement could produce an extra 500 million barrels from Occidental properties, Chazen said.
Under the agreement, Occidental would pay for construction and then own and operate the plant, which would strip excessive carbon dioxide from natural gas provided by SandRidge. The 30-year agreement gives SandRidge the cleaned-up natural gas; Occidental gets the carbon dioxide, according to the companies.
“You’re taking gas that really isn’t usable because it has so much CO2 in it, and you’re extracting the CO2, and then we’re using it to produce more oil,” Chazen said. “It’s an important thing for us because it allows us to extract more oil from stuff we already own.”
Occidental is a specialist in enhanced oil recovery techniques, and uses the carbon dioxide to tease more oil from aging oil fields in West Texas and elsewhere. Injecting carbon dioxide into the ground helps dissolve thickened oil and push it toward wells, with the secondary benefit of removing the harmful greenhouse gas and encapsulating it underground.
The added supply of carbon dioxide lifts Occidental’s Permian Basin proved reserves by 50% and gives a 15% boost to the company’s overall proved reserves, Chazen said, “which is a pretty big deal for us.”
Occidental shares rose $1.41 to $89.86.
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