Commodity CO2-EOR-Greenhouse Gas-Economic Development-Sequestration

Michael E. MooreManaging Partner

Falcon ES/GHG Partners/CO2 NorwayHouston

November 18, 2004

White House Agrees that Science Supports Man-Made CO2 is

Impacting the ClimateNew York Times Aug 26th, 2004

White House Shifts Its Focus on Climate

• By ANDREW C. REVKIN August 26, 2004 New York Times

• “In a striking shift in the way the Bush administration has portrayed the science of climate change, a new report to Congress focuses on federal research indicating that emissions of carbon dioxide and other heat-trapping gases are the only likely explanation for global warming over the last three decades.

• In delivering the report to Congress yesterday, an administration official, Dr. James R Mahoney, said it reflected "the best possible scientific information" on climate change. Previously, President Bush and other officials had emphasized uncertainties in understanding the causes and consequences of warming as a reason for rejecting binding restrictions on heat-trapping gases.”

Primary Sequestration

• Geologic

• Terrestrial

• Ocean

Geologic Sequestration of CO2 - Today’s Most Viable Option

Geologic sequestration may be most viable option in the near- to mid-term

Technology basically proven• Costs and economics of long-term

storage uncertain

• Monitoring, verification, and safety need to be included

Additional value from incremental oil and gas recovery

Incentives and tradable credits will help offset sequestration costs

Carbon/CO Seques tration P athw ays2

JA F0 19 01.C D R

Carbon Sequestration Leadership Forum Source: http://www.cslforum.org

Magnitude of Current Geologic Sequestration Work

Source:www.cslforum.org

Kyoto, EU ETS and RGGI

• Signed by Putin, Kyoto kicks into action within 90 days.

• The European Union’s “Emission Trading Scheme” starts trading on January 1, 2005

• The “Regional Greenhouse Gas Initiative” comprising of 10 New England states, is slated to start mid 2005

• California Mandates

Gulf Coast Carbon Center:Developing a Business Plan for Carbon Use and Sequestration in

the US Gulf Coast

Lead: Susan Hovorka, Ian Duncan, Mark H. Holtz, and Eugene KimMichael Moore-Advisor

Gulf Coast Carbon CenterBureau of Economic Geology

The John A. and Katherine G. Jackson School of GeosciencesThe University of Texas at Austin

GCCC Infrastructure

Pilot site

Power plants

Industrial sources

High sand tre

nd

in the Frio

Houston

20 miles

Regional Setting of Frio Brine Pilot Site

Significance to US carbon program:

Potential toupscale to impact

US releases

FutureGen in TexasSource: www.cleancoalfoundation.org

• Texas Clean Coal Technology Council Announces Bid to Bring Billion Dollar, Zero-Emission Power Plant Prototype to Texas

• The Governor’s Clean Coal Technology Council announced on July 28, 2004 that it will lead the effort to bring FutureGen – a billion dollar, 10-year project to create the world’s first coal-based, zero-emission power plant designed to capture and permanently sequester carbon dioxide – to Texas. In addition to improving air emissions globally, FutureGen could be used to spur enhanced oil and gas recovery in Texas where 31 billion barrels of crude oil could be recovered though CO2 flooding.

Texas Railroad Commissioner Michael L. Williams, who serves as chair of the Governor’s Council, has already sent a preliminary letter to the Department of Energy (DOE) notifying it of Texas intention to host FutureGen. Since the project was initially announced by President George W. Bush early in 2003, DOE has approved the first round of funding for the prototype and is scheduled to name an industry consortium that will partner in the project later this year. The industry consortium is required to put up $200 million for FutureGen funding, and the project is also expected to attract international participation.

Texas, with an ample supply of coal, unmatched geology for sequestering carbon dioxide and the need for enhanced oil recovery, ready markets for the energy produced and a transmission grid capable of handling the increased load, would be the ideal location for FutureGen according to the chairman of the Governor’s Clean Coal Technology Council.

“Bringing FutureGen to Texas is a perfect fit,” Williams said. “For this prototype to be successful, it is going to have to be profitable. That means that enhanced oil recovery can help us produce affordable, clean energy.”

CO2 Driven EOR and GHG Sequestration

How CO2 Works

• CO2 mixes with oil much like turpentine cleans paint from a brush• Inter-phase mass transfer typically yields NGL rich gas production• Chase water injection helps control mobility and gas recycle

Texas Permitted CO2 Wells and30+ Years Regulatory Experience

• 9279 Wells permitted for CO2 injection in Texas

• 9176 of these in RRC Dist 8/8A (Permian Basin)

• Public acceptance is high• Regulatory experience deep• HSE issues well defined• Knowledge base developed in Texas

US CO2 driven EOR Projects and Infrastructure

Source: Denbury Resources, Inc., 2004

IEA US 2002 GHG Statistics

Storage Potential

Global Capacity

Storage

OptionGigatons CO2

Oil and Gas

Fields920

Deep saline formations

400 – 10,000

Unminable coal

>15

Data source : IEA Greenhouse Gas R&D Programme

U.S. Basins very Mature, Production Peaked in 1970

4,500

5,500

6,500

7,500

8,500

9,500

1950 1960 1970 1980 1990 2000

MB

bl/d

ay

Annual Domestic Crude Oil Production

Source: API, DE, Bloomberg, Raymond James Research Report

Texas Oil Production CurveDeeper Dependence on Foreign Crude Economically and

Strategically Dangerous for Nation and Texas The green represents estimated production 2005-2015

Louisiana Oil Production CurveSource: ARI/Reeves

Identified Recoverable Texas Crude Oil—Only with CO2

Source: Texas BEG/GCCC

80 Billion Barrels Residual Oil in Significant TX Reservoirs

31 Billion BarrelsCO2 EOR Candidate Target

10% of Target to Economic Model

10 Year Forward Price Curve WTI Source: Barclays Bank, NYMEX Futures, IPE Brent Futures and Derivatives Market Nov 16, 2004

These values now have banks seriously looking into financing long term CO2 driven EOR floods, required capture technology financing and infrastructure project financing as

well as the future potential Emission Reduction Credits markets

ResearchGrants

Federal &State

EconomicDev Funds

Offsets$1.00-2.00

ton

Crude OilWTI

$35.0010 yrs

CommodityCO2

$25.00/tn10 yrs

Tax Incentives

Sec 29Sec 43

$

Potential Sequestration Volume through

CO2-EOR in TexasSource: Texas BEG/GCCC

Percent Recovery

CO 2 -EOR Resource (B bbls)

CO 2 Sequestered (tons)

CO 2 Sequestered (metric tons, tonnes)

CO 2

Sequestered (Gigatonne, Gt)

10% 3.7 522,474,000 473,883,918 0.47

20% 7.4 1,044,948,000 947,767,836 0.95

30% 11.2 1,567,422,000 1,421,651,754 1.42

40% 14.9 2,089,896,000 1,895,535,672 1.90

50% 18.6 2,612,370,000 2,369,419,590 2.37

60% 22.3 3,134,844,000 2,843,303,508 2.84

70% 26.0 3,657,318,000 3,317,187,426 3.32

80% 29.8 4,179,792,000 3,791,071,344 3.79

90% 33.5 4,702,266,000 4,264,955,262 4.26

100% 37.2 5,224,740,000 4,738,839,180 4.74

Direct Economic Impacts of Crude Production in Texas

Source: Texas BEG/GCCC

Percent Recover

y

CO 2 -EOR

Resource (B

Oil Price

($/bbl)

Wellhead Value (B

$)

Severance Taxes ($B,

4.6%)

Ad Valorem Taxes ($B,

3.95%)

J obs Created (19.1 jobs per $1MM

Wellhead Value)

Economic Value (Wellhead

Valuex2.91)

Franchise Taxes ($B,

0.18%)

Sales Taxes ($B,

2%)

10% 3.1 25 $78 $4 $3 1,480,250 $226 $0.4 $5

20% 6.2 25 $155 $7 $6 2,960,500 $451 $0.8 $9

30% 9.3 25 $233 $11 $9 4,440,750 $677 $1.2 $14

40% 12.4 25 $310 $14 $12 5,921,000 $902 $1.6 $18

50% 15.5 25 $388 $18 $15 7,401,250 $1,128 $2.0 $23

60% 18.6 25 $465 $21 $18 8,881,500 $1,353 $2.4 $27

70% 21.7 25 $543 $25 $21 10,361,750 $1,579 $2.8 $32

80% 24.8 25 $620 $29 $24 11,842,000 $1,804 $3.2 $36

90% 27.9 25 $698 $32 $28 13,322,250 $2,030 $3.7 $41

100% 31.0 25 $775 $36 $31 14,802,500 $2,255 $4.1 $45

*Calculations based on the TX RRC's "General Model of Oil and Gas Impact on the Texas Economy" derived from the Comptroller's Input-Output model of the Texas economy. Severance and Ad Valorem Taxes from Wellhead Value; Indirect Taxes from Economic Value.

CO2 EOR is Important to TexasHence, so is the CO2 Source

Source: ARI/Kuuskraa

GROWTH OF CO2 EOR PRODUCTION IN TEXAS AS A PERCENTAGE OF STATEWIDE PRODUCTION

0%

4%

8%

12%

16%

20%

1970 1975 1980 1985 1990 1995 2000 2005

YEAR

CO

2 E

OR

AV

E. Y

RLY

P

RO

DU

CT

ION

IN

BB

LS

/DA

Y

CO2 Demand Keeps RisingSource: ARI/Kuuskraa-Reeves

Growing Demand for CO2Source: Steve Melzer/Melzer consulting

New 125 Mile CO2 LineNew 125 Mile CO2 Line

MonellMonell

Salt CreekSalt Creek

Rawlins

Rock Springs

Cody

Gillette

Casper

Cheyenne

Anadarko’s Salt Creek and Monell135 mmcf/d CO2 used in EOR from Exxon-Mobil Labarge Gas Processing Plant

Sequestration Protocols developed by Battelle

Existing CO2 Line

Point of Sale for CO2 to Monell

Point of Sale for CO2 to Salt Creek

Potential Offsets for Market

• Timeline

– Field Operations: Underway

– Protocol: Completed

– Implementation: Underway

– Certification: Buyer Driven

• CO2 Offset/ERC Inventory

Project Historical 2004 Annual to 2020

Lindsey 600,000 tons 300,000 tons 300,000 tons

Monell 50,000 tons 1.0 million tons 1.1 million tons

Salt Creek None 1.8 million tons 2.6 million tons

Total 650,000 tons 3.1 million tons 4 million tons

Conclusion• Gulf Coast Carbon Center delivers a win-win opportunity• GHG issues are accelerating, GCCC provides solutions• CO2 is as a valuable commodity to Texas, Louisiana, Kansas, Oklahoma,

Kansas, Illinois, Mississippi, California, New Mexico & Wyoming• Geologic Sequestration works for large scale abatement of CO2/GHG

development globally via CSLF• Supporting the Texas FutureGen initiative• Huge opportunity for regional emitters and sinks as well as technology,

equipment, and service providers• States benefit from positive economic impacts and extended asset life as

well as job growth

• Michael E. Moore • Advisor Gulf Coast Carbon Center• Managing Partner GHG Partners dba Falcon Environmental Services • Director Commodity Markets for CO2 Norway • Emerging energy commodity market development for past 20 years. • 1776 Yorktown, Suite 500

Houston, Texas 77056Main: 713-961-3204Fax: 713-961-2676

• mmoore@falcongasstorage.com