Another major oil company has buckled under the weight of its debt during the COVID-19 pandemic and fallen into bankruptcy as depressed fuel demand continue to pummel the nation’s energy giants.
Independent energy firm Denbury Resources, Inc. petitioned for Chapter 11 bankruptcy on July 30, with the aim of shedding about $2.1 billion of its bond debt.
The Texas-based company has claimed a unique niche in the oil and gas market with its focus on recovering stranded oil reserves from mature fields using enhanced oil recovery, including in Wyoming.
Denbury has secured lenders for interim funding and anticipates continuing its operations as the bankruptcy process unfolds, according to a news release. It also intends to continue paying employees wages and benefits, the company said.
“Throughout this process, we are committed to continuing to perform at a high level, remaining focused on safe, responsible and efficient operations,” Denbury’s President and CEO Chris Kendall said in a statement.“ I again want to thank our dedicated team for their hard work and unwavering dedication to the Company’s success. We look forward to emerging a financially stronger company, and we are excited about building on the multiple advantages of our unique CO2 EOR (Enhanced Oil Recovery) focused strategy for many years to come.”
Denbury declined to provide the specific number of workers currently employed in Wyoming. But according to a 2019 annual report, the company employed 806 workers across about a half dozen states.
With operations across the Rocky Mountain and Gulf Coast regions, Denbury has led tertiary oil recovery efforts at some fields in Wyoming.
In a process known as enhanced oil recovery, operators inject pressurized carbon dioxide into reservoirs to remove the remaining oil that traditional drilling processes did not extract.
In 2011, Denbury secured a working interest to develop the Grieve field, approximately 45 miles outside of Casper, according to Mark Watson, supervisor of the Wyoming Oil and Gas Conservation Commission. In 2018, the company began injecting carbon dioxide to extract oil at the site. Last year, Denbury produced nearly 93,000 barrels of oil from the Grieve field, according to data collected by the state.
But Denbury’s oil production at the field dramatically slowed down this past April and came to a sudden halt in May around the time prices for oil tanked due to the precipitous drop in fuel demand worldwide.
Denbury also has acquired interest and permits for the Hartzog Draw field in the Powder River Basin. It produced over 409,000 barrels of oil in 2019 at the field, according to Wyoming Oil and Gas Conservation Commission data.
The firm completed construction of the region’s first carbon dioxide pipeline, called the Greencore Pipeline, in 2012. The 232-mile pipeline runs from the Lost Cabin gas plant in Wyoming up into Montana.
The carbon dioxide Denbury typically uses for the process of enhanced oil recovery in Wyoming is supplied from ExxonMobil’s Schutte Creek gas processing plant at the LaBarge field in southwestern Wyoming. Denbury also collects carbon dioxide the Lost Cabin gas plant owned by ConocoPhillips.
The case for EOR
But as the glut of oil worldwide continues to haunt U.S. energy producers, some industry experts questioned the fiscal feasibility of enhanced oil recovery for the foreseeable future.
The Casper-based Enhanced Oil Recovery Institute did not return requests for comment.
But in an April 14 letter, Director Steven Carpenter urged Wyoming’s governor to consider “immediate, outside-the-box survival” actions to increase support for oil and gas operators with a foothold in Wyoming. He recommended implementing several incentives to spur enhanced oil recovery activity in the state. The ideas ranged from amending idle well-bonding rules to creating incentives for operators to focus resources on stranded oil recovery during low-price environments.
“Conventional reservoirs make up over 90 percent of the oil fields in Wyoming and are capable of being economic at much lower oil prices than unconventional ones,” the report stated. The institute estimates about 1 billion barrels of stranded oil could be recovered, if the state amends its regulations for idle wells.
Denbury, along with several other major oil companies, have long lobbied both state and federal lawmakers to support the expansion of tax credits and the rollback of regulatory hurdles for sequestering carbon dioxide through enhanced oil recovery.
In 2018, the U.S. Congress revised Section 45Q of the tax code to provide more favorable tax incentives to companies engaged in carbon capture and sequestration.
The 45Q federal tax credit is given to companies for each ton of carbon dioxide they sequester in the ground. Since then, the program has faced intense criticism after discrepancies were identified between data held by the Internal Revenue Service and the Environmental Protection Agency. The IRS recently proposed rules to regulate the program.
Some critics of the industrial sequestration of carbon dioxide for enhanced oil recovery also say the process does not necessarily guarantee a net climate benefit and more stringent monitoring requirements are needed.
Denbury’s bankruptcy case will be held in the U.S. Bankruptcy Court for the Southern District of Texas.
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