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Blackstone to Invest $700M in New EOR Acquisition and Development Firm

Blackstone Energy Partners and funds affiliated with the private equity group Blackstone have committed to invest up to $700 million of equity in the newly formed Windy Cove Energy LLC, which will acquire and develop carbon dioxide (CO2) Enhanced Oil Recovery (EOR) assets in the United States.

Chuck Fox, a former vice president of Kinder Morgan's CO2 company, is founder, president and CEO of Windy Cove, and the Houston-based company's senior team has more than 70 years of combined technical and operational experience in CO2 EOR, primarily from Shell, Texaco, and Kinder Morgan.

"More than 20 billion barrels of oil are estimated to be recoverable from CO2 flooding in the United States," Fox said. "Many fields that are amenable to CO2 EOR are held by operators without the capital, expertise, or desire to execute a CO2 EOR operation. We believe that Windy Cove's extensive CO2 operating experience, together with Blackstone's strong capital base, industry relationships and experience, and successful track record of investing in energy, and the oil and gas sector specifically, will allow Windy Cove to stand apart as the partner of choice for companies seeking joint ventures or exits for their CO2-amenable water flooded assets."

The partnership is consistent with Blackstone's strategy of backing best-in-class managers to build world class companies in the oil and gas industry and across the energy spectrum, according to CEO David Foley. "By providing revenue to providers of CO2 as well as putting that CO2 back deep underground, companies like Windy Cove can play a positive role in encouraging coal-fired power generation facilities and other sources of CO2 emissions to instead capture that CO2 for use in recovering oil from existing mature fields right here in the United States," he said.

Side by side with the growth of production from U.S. shale plays in recent years has come increased investment in EOR projects. In July, NRG Energy Inc. and Japan's JX Nippon Oil & Gas Exploration Corp. said they would fund a $1 billion system near Houston that would be capable of capturing 1.6 million tons of CO2 from an existing coal-burning unit that would be used for EOR in a legacy field (see Shale DailyJuly 16). The system is expected to be operational by the end of 2016. The Department of Energy, which estimates that EOR could produce more than 60 billion bbl in the nation's conventional fields, has provided a $167 million grant for the project through its Clean Coal Power Initiative Program.

Earlier this year, Kinder Morgan Energy Partners LP said it plans to help meet growing demand for CO2 with the new 213-mile, 16-inch diameter Lobos Pipeline in the Permian Basin (see Shale DailyMarch 26). The pipeline would transport CO2 from the company's St. Johns source field in Apache County, AZ, to the Kinder Morgan-operated Cortez Pipeline in Torrance County, NM. Lobos would have an initial capacity of 300 MMcf/d and support EOR projects owned by Kinder Morgan and other operators in the Permian Basin of West Texas and eastern New Mexico. The company plans to invest about $300 million in the pipeline and an additional $700 million to drill wells and build field gathering, treatment and compression facilities at the St. Johns field. The project is expected to be in service by the third quarter of 2016 pending receipt of environmental and regulatory approvals.

According to the U.S. Energy Information Administration, crude oil production using CO2 for EOR "increases appreciably after about 2020," which is when oil prices are expected rise as output from the more profitable tight oil deposits begins declining and affordable anthropogenic sources of CO2 become available.

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