Commodity CO 2 -EORGreenhouse Gas-Economic Development-Sequestration Michael E

Commodity CO 2 -EORGreenhouse Gas-Economic Development-Sequestration Michael E. Moore Managing Partner Falcon ES/GHG Partners/CO 2 Norway Houston November 18, 2004

White House Agrees that Science Supports Man-Made CO 2 is Impacting the Climate New York Times Aug 26 th, 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 CO 2 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 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 Kim Michael Moore-Advisor Gulf Coast Carbon Center Bureau of Economic Geology The John A. and Katherine G. Jackson School of Geosciences The University of Texas at Austin

GCCC Infrastructure

Regional Setting of Frio Brine Pilot Site Significance to US carbon program: Potential to upscale to impact Houston US releases nd tre nd sa rio igh e F H th in Pilot site Power plants 20 miles Industrial sources

Future. Gen in Texas Source: 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 Future. Gen – 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, Future. Gen could be used to spur enhanced oil and gas recovery in Texas where 31 billion barrels of crude oil could be recovered though CO 2 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 Future. Gen. 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 Future. Gen 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 Future. Gen according to the chairman of the Governor’s Clean Coal Technology Council. “Bringing Future. Gen 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. ”

CO 2 Driven EOR and GHG Sequestration

How CO 2 Works • CO 2 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 CO 2 Wells and 30+ Years Regulatory Experience • 9279 Wells permitted for CO 2 injection in Texas • 9176 of these in RRC Dist 8/8 A (Permian Basin) • • Public acceptance is high Regulatory experience deep HSE issues well defined Knowledge base developed in Texas

US CO 2 driven EOR Projects and Infrastructure Source: Denbury Resources, Inc. , 2004

IEA US 2002 GHG Statistics

Storage Potential Global Capacity Storage Option Oil and Gas Fields Deep saline formations Unminable coal Gigatons CO 2 920 400 – 10, 000 >15 Data source : IEA Greenhouse Gas R&D Programme

U. S. Basins very Mature, Production Peaked in 1970 Annual Domestic Crude Oil Production Source: API, DE, Bloomberg, Raymond James Research Report

Texas Oil Production Curve Deeper Dependence on Foreign Crude Economically and Strategically Dangerous for Nation and Texas The green represents estimated production 2005 -2015

Louisiana Oil Production Curve Source: ARI/Reeves

Identified Recoverable Texas Crude Oil—Only with CO 2 Source: Texas BEG/GCCC

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 CO 2 driven EOR floods, required capture technology financing and infrastructure project financing as well as the future potential Emission Reduction Credits markets

Tax Incentives Sec 29 Sec 43 Commodity CO 2 $25. 00/tn 10 yrs Research Grants $ Crude Oil WTI $35. 00 10 yrs Federal & State Economic Dev Funds Offsets $1. 00 -2. 00 ton

Potential Sequestration Volume through CO 2 -EOR in Texas Source: Texas BEG/GCCC

Direct Economic Impacts of Crude Production in Texas Source: Texas BEG/GCCC

CO 2 EOR is Important to Texas Hence, so is the CO 2 Source: ARI/Kuuskraa

CO 2 Demand Keeps Rising Source: ARI/Kuuskraa-Reeves

Growing Demand for CO 2 Source: Steve Melzer/Melzer consulting

Anadarko’s Salt Creek and Monell 135 mmcf/d CO 2 used in EOR from Exxon-Mobil Labarge Gas Processing Plant Sequestration Protocols developed by Battelle Cody Gillette New 125 Mile CO 2 Line Salt Creek Casper Point of Sale for CO 2 to Monell Point of Sale for CO 2 to Salt Creek Existing CO 2 Line Rawlins Rock Springs Cheyenne Monell

Potential Offsets for Market • Timeline – Field Operations: Underway – Protocol: Completed – Implementation: Underway – Certification: Buyer Driven • CO 2 Offset/ERC Inventory Project Historical 2004 Annual to 2020 Lindsey 600, 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 CO 2 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 CO 2/GHG development globally via CSLF Supporting the Texas Future. Gen 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 CO 2 Norway Emerging energy commodity market development for past 20 years. 1776 Yorktown, Suite 500 Houston, Texas 77056 Main: 713 -961 -3204 Fax: 713 -961 -2676 mmoore@falcongasstorage. com