CO₂ enhanced oil recovery has a long track record of success in many North American oil reservoirs, but implementation of new floods has slowed for the past 15 years because horizontal drilling offers faster returns on capital. General inflation and the cost to purchase carbon dioxide have also contributed to the slowdown, but the killer factor for individual EOR projects is almost always the distance between the CO₂ source and the field. If they are more than 10 miles apart, building a CO₂ pipeline only makes sense for particularly large fields.

Despite these challenges, several signs suggest that CO₂ EOR is poised for renewal. To qualify for tax credits and meet the environmental expectations of their investors and customers, industrial plants are increasingly looking at capturing the CO₂ they would otherwise emit. Many ethanol plants already do so in order to “clean” and market their primary products.

Today, refineries, coal and cement plants, and existing and new natural gas power generation plants are also considering or investing in emission capture equipment in response to demands from their funding sources to operate more cleanly.

As expanding applications for artificial intelligence drive construction of data centers that demand 24/7 reliable and low-emission electricity, the chance that an oil field has a nearby power plant capturing CO₂ should grow. With CO₂ sources more abundant, even remote EOR projects that would have once been prohibitively expensive could transform into attractive investments.

Important Changes

The proliferation of CO₂ sources is being driven partly by changes to the 45Q tax credit that encourage companies to sequester CO₂. In the past, the credit for sequestering CO₂ through EOR projects was only $60 a ton, $25 less than the credit for waste disposal storage. But thanks to the One Big Beautiful Bill Act, EOR now awards the same credit as the CO₂ dumping forms of sequestration.

The tax code change works alongside another factor leading to new CO₂ EOR projects: a reset of the default reservoirs used for discarding captured CO₂. Historically, plants would usually inject CO₂ into nearby deep saline, non-hydrocarbon-bearing formations. These formations’ proximity made them more affordable than transporting CO₂ to an oil field.

But with the volume of captured CO₂ growing, concern has mounted that too much injection will exceed the capacity of those formations and induce seismicity. Like operators in the Permian Basin who are looking for new ways to use produced water, industrial facilities that would traditionally dispose of carbon dioxide are seeking better outlets for it.

Enter CO₂ EOR. History shows that CO₂ EOR projects have not led to significant reservoir over-pressurization, meaning they are unlikely to induce seismicity or find vertical pathways to shallower aquifers or the surface. Thus, the default and popular path of injecting CO₂ into deep saline formations is no longer the preferred or sole option.

EOR can be an appealing alternative not only for individual companies, but also for society at large. It has the advantage of 50 years of history, during which time the industry has demonstrated that CO₂ pipelines and injection wells can operate safely and reliably. It produces oil that has, considering the CO₂ stored, very low net carbon emissions. That makes the case for EOR strong even before considering the severance taxes the incremental oil production contributes to state coffers.

Deal Structures

Given the many trends driving stronger interest in CO₂ EOR, deals between CO₂ sources and producers are moving forward. They generally adopt one of three structures:

• The capture entity shares a portion of the 45Q tax credit, which now stands at $85 a metric ton, with the injecting company.
• The capture entity takes the full value of the tax credit but delivers CO2 at a significantly discounted price or even pays to have its CO2 stored.
• The new project is integrated into an enterprise that spans CO2 capture to transportation to injection, with all parties sharing the tax credit and oil revenues based on their ownership percentages in the enterprise.

The tax credit can be significant. To put it in more familiar terms, $85 a metric ton is about equal to $4.40 an Mcf. For comparison, naturally sourced CO₂ generally costs no more than $2.00 an Mcf even when oil is priced near $100.

Expedited Permits

One factor deserving early planning in new EOR projects is injection well permitting. If the sole purpose of a well is to permanently sequester CO₂, it is classified as a Class VI injection well.

By law, the Environmental Protection Agency has the authority to approve or deny permits for Class VI wells. However, states can ask EPA to delegate some of its authority by requesting primacy over those wells. As of early October, only Arizona, Wyoming, North Dakota, Louisiana, and West Virginia have succeeded at getting it, though Texas is close to doing so. Primacy matters, because states tend to review permits more quickly than the EPA.

Almost every state has primacy over permitting for Class II wells, the ones used to inject CO₂ during EOR projects. The process for permitting these wells tends to be well-known and relatively easy since such a long history has shown their ability to operate safety and protect the environment.

Both Class II and Class VI injection wells require measurement, monitoring and verification plans to assure regulators and the capture entity that the reported volume of CO₂ has been securely stored. EPA is directed to review the plans, usually accomplished in an expedited way, and the Department of Treasury uses that reporting system to award the taxpayer credits.

A Valued Conference

With easier access to CO₂, larger tax credits encouraging companies to evaluate EOR opportunities, and CO₂ emitting companies announcing capture plans, I am seeing increased interest in the CO₂ Conference, a yearly event in Midland that covers the financial, legal and practical aspects of carbon capture and storage. This year’s iteration, which will take place Dec. 8-11 at the Bush Convention Center, will continue the conference’s 30-year legacy of sharing case studies and best practices for maximizing CO₂ EOR projects’ potential.

This year’s event is set to be particularly exciting. The new funds flowing into CO₂ capture and injection are expanding products and services in a way not seen for many years, and operators are applying some of the new techniques to make their EOR projects more efficient. The CO₂ business is changing, and this year’s conference will explore the whys and hows.