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What’s special about Denbury Resources’s oil recovery method?

Manas Chowgule, CFA - Author
By

Feb. 27 2015, Published 12:26 p.m. ET

Types of recovery methods

Denbury Resources (DNR) is distinctive among its peers in that it mainly uses a different type of oil recovery method. Oil producers like ConocoPhillips (COP) or Occidental Petroleum (OXY) mainly produce oil and gas via primary or secondary recovery methods. Denbury Resources mainly uses a tertiary or enhanced oil recovery (or EOR) method to produce its oil.

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Primary and secondary oil recovery

When oil either flows up by natural pressure, or can be pumped up easily, it’s called primary recovery. When it’s necessary to artificially increase the pressure in the reservoir, or displace the oil in the reservoir to make it flow up, it’s called secondary recovery. This is achieved by injecting something else—like gas or water—into the reservoir.

However, only a part of the oil in a reservoir is extracted via primary and secondary extraction methods.

Tertiary oil recovery

While the extent of recovery can vary depending on the reservoir, Denbury estimates that primary recovery can extract ~20% of the oil originally in place (or OOIP), and secondary recovery can extract up to another ~20% of OOIP for US oil fields. These reservoirs are then considered as “depleted” from a primary and secondary recovery standpoint.

However, that still leaves behind a large chunk (~60%) of oil originally in place. Denbury calls this “stranded reserves” and estimates that its tertiary method of extraction can recover up to another ~20% of OOIP.

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CO2 enhanced oil recovery

Denbury injects carbon dioxide (or CO2) into these depleted reservoirs. The CO2 bonds with the oil in the reservoir, making it more mobile. This freer oil can then flow up more easily, increasing the amount of oil recoverable from the reservoir.

This additional need for CO2 obviously increases extraction costs, but Denbury prides itself on owning its own sources and transportation pipelines for its CO2 needs.

Indeed, the process is not exclusively used by Denbury. Other American energy companies like Occidental Petroleum (OXY), Apache Corp. (APA), and Anadarko Petroleum (APC) also use CO2 EOR.

Key ETFs

Investment in Denbury Resources and other American energy companies we discussed here can be accessed with an ETF like the iShares US Energy ETF (IYE).

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