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1
The Economic Contribution of CO2 Enhanced
Oil Recovery in Wyoming’s Economy
Benjamin R. Cook, PhD*†
University of Wyoming
Department of Economics & Finance
Enhanced Oil Recovery Institute
June 2012
*Benjamin R. Cook, PhD, College of Business, Economics & Finance, Dept. 3985,
1000 E. University Ave., Laramie, WY 82071. Office: College of Business #379W.
Email: [email protected]
†Funding for this study was provided by the Enhanced Oil Recovery Institute
(EORI), part of the School of Energy Resources at the University of Wyoming. The
author would like thank Professor David “Tex” Taylor from the University of
Wyoming Department of Agricultural and Applied Economics for his helpful
guidance creating a customized IMPLAN model for Wyoming and providing
feedback on this study. Additional feedback and data support were provided by Dr.
Glen Murrell, Associate Director (EORI), Nick Jones, Senior Geologist (EORI),
Vanessa Onacki, Research Assistant, and Professor Owen R. Phillips, Department of
Economics & Finance, University of Wyoming.
2
TABLE OF CONTENTS
ES Executive Summary ................................................................................. 3
1 Introduction .............................................................................................. 9
2 CO2 Enhanced Oil Recovery in Wyoming ........................................... 12
3 Regional Economic Model ..................................................................... 13
3.1 Study Area & Industry Mapping ................................................ 14
4 Revenues, Royalties, Taxes & Expenditures ........................................ 18
5 Economic Contribution .......................................................................... 26
5.1 Incremental Oil & CO2 Supply Costs ......................................... 26
5.2 Royalties, Severance and Ad Valorem Taxes ............................. 28
5.3 Total Economic Contribution ...................................................... 30
6 Conclusion ............................................................................................... 32
APPENDIX A IMPLAN Customization ..................................................... 33
APPENDIX B Incremental Oil Decline Analysis ....................................... 40
3
The Economic Contribution of CO2 Enhanced
Oil Recovery in Wyoming’s Economy
ES EXECUTIVE SUMMARY
Introduction
Wyoming’s economy and state & local government budgets depend heavily
on the state’s mineral wealth, which are then by extension sensitive to price
swings in the markets for those minerals. Mineral related payments are
roughly 65% of Wyoming State revenues, with severance taxes and royalties
alone accounting for 51% of the State budget.
An economic contribution analysis of Wyoming’s oil and gas (O&G) industry
commissioned by the Wyoming Heritage Foundation found that for 2007 oil
and gas activities accounted for 32% of economic output, and 20% of
employment. Further, a recent and similar study commissioned by the
American Petroleum Institute (API) found that for 2009 (during the recession)
the oil and gas industry’s operational impact on Wyoming’s economy as share
of the state was effectively higher than for any other state.
The booming supply of natural gas coming from shale plays combined with
mineral price declines following the 2008 financial crisis have dealt a
significant blow to public funds. Peaking in 2008, Wyoming mineral royalties
and severance tax collections are projected to drop 26% by 2013.
In addition to diversifying Wyoming’s economy so that it is less exposed to
mineral price risk, pursuing other value-added activities for minerals and
energy within the state (such as gas and/or coal to liquids) and encouraging
the development of existing resources are of fundamental importance.
The strength of oil prices relative to other minerals highlights the importance
of enhanced oil recovery within the state. While oil prices themselves face
4
renewed pressure from economic troubles in Europe and slow recovery at
home, improved oil recovery has the potential to delivery hundreds of
millions of barrels of additional production from Wyoming oil fields.
In 2004 the Wyoming State Legislature passed legislation establishing the
Wyoming Enhanced and Improved Oil Recovery Commission, along with the
Enhanced Oil Recovery Institute (EORI) at the University of Wyoming –
EORI’s primary mission being to work with oil operators to maximize the
potential of Wyoming’s oil resources through enhanced recovery
technologies.
Utilizing a similar approach to the economic impact assessments already
mentioned, the objective of the present study is to investigate the current
(2011) economic contributions attributable to CO2 enhanced oil recovery in
Wyoming. CO2-EOR operations include the combined impact of incremental
oil production, CO2 purchased for injection, and the associated royalties,
severance and ad valorem taxes.
Collectively, the five oil fields with active CO2 floods in 2011 produced
7,866,664 barrels of oil – 14.4% of 2011 Wyoming crude production. After
estimating the production level without CO2 approximately 6,592,427 barrels
can be directly attributed to CO2-EOR – 12.1% of WY production. Through
the end of 2011 the combined total incremental oil1 produced using CO2 in
Wyoming approached 86.5 million barrels.
1 Incremental oil is the additional oil production recovered through injecting CO2 net of the
expected production level without CO2 flooding.
5
Regional Economic Model
A regional input-output (IO) economic model, IMPLAN, is customized to
more accurately reflect Wyoming’s oil and gas industry and then used to
assess the employment, labor earnings, and other factors due to CO2-EOR.
The IMPLAN modeling system estimates the ripple effect of economic
activity referred to as direct, indirect and induced impacts.
Direct impacts in terms of employment, earnings, output and value-
added related to oil extraction, CO2 recycling, drilling and support
services, wholesale equipment merchants and construction services.
Indirect impacts as measured by the employment, earnings, output
and value-added resulting from payments to supply chain industries
(production function or intermediate goods) to the oil extraction and
capital expense industries.
Induced impacts as measured by the employment, earnings, output
and value-added coming from the expenditure of incomes earned from
direct and indirect employment, and for the purposes of this study,
also includes the expenditure of mineral payments to governments and
royalty owners.
Economic Impacts
In 2011 the EIA reported an average first-purchase price of $83.45/barrel for
Wyoming, and the operational supply cost of purchased CO2 was assumed to
be $2.17/Mcf.2 This leads to an estimated value of $550,138,016 for the
incremental oil, and an annual cost of $175,043,050 to supply the 221 MMcfd
of CO2 purchases.
2 Assumes that CO2 is tied at 2% of the oil price plus a $0.50 transportation charge. i.e. $0.50
+ 2% X $83.45 = $2.17/Mcf.
6
The $550.14 million in oil revenues generates substantial mineral payments in
the form of royalties, severance, and ad valorem (property) taxes. Using
estimates of the various tax and royalty rates and approximate distribution of
mineral leases for each CO2 project this amounts to $54.56 million in
government royalties, $27.73 million in private royalties, $28.07 million in
severance tax, and $33.57 million in ad valorem/property taxes to counties.
Of this $143.93 million, approximately $92.75 million (64.4%) was assumed
spent within Wyoming, and $12.33 million (8.6%) saved in the Permanent
Wyoming Mineral Trust Fund (PWMTF). The remaining 27% was assumed
to be divided between the Federal Government, and private royalties paid
outside of Wyoming - $19.46 and $20.52 million respectively.
The oil revenues, CO2 purchases and mineral payments are summarized in
Table ES-1 below and modeled within the IMPLAN system to estimate the
combined economic contribution to Wyoming in 2011.
As summarized in Table ES-2 the five CO2 fields in Wyoming are estimated
to account for 1,716 jobs paying a total of $95.29 million of labor income
($55,527/job) and representing $615.99 million of WY Gross State Product
(or value added). While only 191 of those jobs occur directly in the oil
industry, another 729 are supported in the extraction supply chain and induced
business. Further still, the substantial mineral payments and associated
expenditures by state/local government account for another 795 jobs. Overall,
this means an additional 9 jobs are created throughout Wyoming for every 1
job directly involved with the CO2 extraction operation.
With around 260 jobs for every 1 million barrels of incremental production at
existing CO2-EOR projects it is clear that EOR technologies can contribute
thousands of Wyoming jobs annually in coming decades.
7
Table ES-1 Incremental Oil Fiscal Profile & In-State Spending Assumptions by FRC
Fiscal Item Beaver Creek –
Madison
Patrick Draw –
Monell Unit
Salt Creek – Wall
Creek 2
Lost Soldier &
Wertz Total CO2-EOR
Est. Incremental Oil 1,270,471 1,251,992 2,154,691 1,915,272 6,592,427
Est. Oil Price $83.45 $83.45 $83.45 $83.45 $83.45
Incremental Revenue $106,020,813 $104,478,767 $179,809,005 $159,829,431 $550,138,016
Estimated CO2 Purchases 36 MMcfd 41 MMcfd 114 MMcfd 30 MMcfd 221 MMcfd
CO2 Delivery Cost $2.17/Mcf $2.17/Mcf $2.17/Mcf $2.17/Mcf $2.17/Mcf
CO2 Supply Cost $28,513,800 $32,474,050 $90,293,700 $23,761,500 $175,043,050
Royalties to Fed Gov’t $1,447,184 $3,687,578 $9,081,254 $5,246,032 $19,462,048
Royalties to WY $15,295,269 $3,734,768 $11,229,672 $4,842,491 $35,102,200
Private Royalties to HHs $0 $8,580,319 $4,315,416 $14,835,234 $27,730,969
Severances to WY $5,356,702 $5,308,566 $9,310,960 $8,094,340 $28,070,568
Ad Valorem to Counties $6,466,789 $6,411,644 $10,835,343 $9,854,358 $33,568,133
Total Mineral Payments $28,565,944 $27,722,875 $44,772,644 $42,872,455 $143,933,918
State/Local Education $10,245,017 $6,089,304 $12,041,127 $9,039,435 $37,414,883
State/Local General $12,056,738 $6,082,590 $12,995,531 $8,851,371 $39,986,229
State/Local Investment $2,679,298 $1,164,586 $2,623,577 $1,670,162 $8,137,622
Private HHs 75-100k $0 $2,230,883 $1,122,008 $3,857,161 $7,210,052
In-State Mineral Payments $24,981,052 $15,567,363 $28,782,242 $23,418,129 $92,748,786
Share Spent In-State 87.45% 56.15% 64.29% 54.62% 64.44%
8
Table ES-2 Total Economic Contribution of CO2-EOR Incremental Oil Extraction
Type of Impact Beaver Creek –
Madison
Patrick Draw –
Monell Unit Salt Creek – Wall
Creek 2
Lost Soldier &
Wertz Total
Contribution
Direct
Employment 35.5 36.1 71.3 48.5 191.4
Labor Income $4,134,264 $4,208,527 $8,299,819 $5,641,985 $22,284,594
Value Added $90,875,267 $92,507,639 $182,438,339 $124,016,481 $489,837,726
Indirect
Employment 89.9 91.5 180.4 122.6 484.3
Labor Income $5,417,366 $5,514,677 $10,875,735 $7,393,020 $29,200,798
Value Added $10,776,919 $10,970,503 $21,635,406 $14,707,144 $58,089,972
Induced (Industry Activity)
Employment 45.5 46.3 91.3 62.1 245.1
Labor Income $1,471,999 $1,498,440 $2,955,138 $2,008,820 $7,934,397
Value Added $3,074,839 $3,130,072 $6,172,951 $4,196,199 $16,574,061
Induced (Mineral Payments)
Employment 215.9 132.2 249.1 198.1 795.3
Labor Income $9,896,325 $5,877,262 $11,336,824 $8,764,450 $35,874,861
Value Added $13,926,129 $8,583,631 $16,098,067 $12,876,491 $51,484,319
Total Impact/Contribution
Employment 386.7 306.1 592.1 431.3 1716.2
Labor Income $20,919,954 $17,098,905 $33,467,516 $23,808,276 $95,294,651
Income per Job $54,097 $55,859 $56,524 $55,206 $55,527
Value Added $118,653,155 $115,191,844 $226,344,762 $155,796,316 $615,986,077
Multipliers
Employment 10.89 8.47 8.31 8.90 8.97
Labor Income 5.06 4.06 4.03 4.22 4.28
Value Added 1.31 1.25 1.24 1.26 1.26
9
1 INTRODUCTION
The vast mineral resources in the State of Wyoming play a significant in
state’s economy and are a pivotal source of revenue for the state and
municipal governments. The State of Wyoming is the largest producer of both
coal and soda ash (trona) in the United States, the 4th
largest source of natural
gas, and consistently ranks as the 8th
largest domestic producer of crude oil.
Mineral related payments are roughly 65%3 of Wyoming State revenues, with
severance taxes and royalties alone accounting for 51%4 of the State budget.
An in-depth economic contribution analysis of Wyoming’s oil and gas (O&G)
industry by Booz-Allen-Hamilton (2008) was commissioned by the Wyoming
Heritage Foundation (WHF). This study indicated that for 2007 (pre-
recession) the total contribution of oil and gas activities (both direct and
downstream) accounted for “32 percent of the state’s total economic output or
gross revenues, 20 percent of employment, 25 percent of total earnings, and
43 percent of Gross State Product.”
A more recent and similar study by PriceWaterhouseCoopers (PwC) (2011)
was commissioned by the American Petroleum Institute (API) to investigate
the economic contribution of the oil and gas industry to the U.S. economy as a
whole. Although not as detailed as the above model, their analysis found that
for 2009 (during the recession) the oil and gas industry’s operational impact
on Wyoming’s economy as share of the state was effectively higher than for
any other state.
3 As reported by Brian Jeffries, Executive Director of the WY Pipeline Authority (WPA) May
15th, 2012. Data Source: WY Dept. of Revenue, Fiscal Year 2010 Data. Presentation slides
available at
http://www.wyopipeline.com/information/presentations/2012/Wyoming%20Pipeline%20Corr
idor%20Initiative%20copy.pdf
4 Based on the Wyoming Consensus Revenue Estimating Group (CREG) “January 2012
CREG Forecast for FY2012-FY2016” available at
http://eadiv.state.wy.us/creg/GreenCREG_Jan12.pdf
10
The results were more conservative than the WHF report, but this analysis
still found that O&G accounted for 15.8% of Wyoming’s total employment,
19.9% of labor income, and 24.3% of Gross State Product.
Despite being the 8th largest domestic source of oil – Wyoming’s annual
crude production has fallen 61% from a peak of 136 million barrels annually
(mmb/yr) in 1978 to just over 54.5 mmb/yr in 2011 (WOGCC). This fall in
production, lower oil prices from the mid-1980s through the 1990s and the
increasing importance of natural gas led to declining severance tax revenues
from crude oil; crude oil's share of total severance tax revenue fell from
around 40% in the early nineties to only 15% by 1999.
After two decades of production declines, high oil prices have led to increased
oil production activity including investments in so-called tertiary methods
such as CO2 Enhanced Oil Recovery (CO2-EOR). Aggregate oil production
has been rising since 2006 and is projected to continue increasing over the
coming years.
Peaking in 2008, Wyoming mineral royalties and severance tax collections are
projected to drop 26% by 2013 driven primarily by natural gas prices (see
Figure 1). Higher oil prices relative to natural gas, and the potential for
increased oil production through advanced methods such as CO2-EOR mean
that crude oil has an increasingly important role in Wyoming’s economy.
In 2004 the Wyoming State Legislature passed legislation establishing the
Wyoming Enhanced and Improved Oil Recovery Commission, along with the
Enhanced Oil Recovery Institute (EORI) at the University of Wyoming –
EORI’s primary mission being to work with oil operators to maximize the
potential of Wyoming’s oil resources through enhanced recovery
technologies.
11
Figure 1 Wyoming Royalties & Severances Collections
Utilizing a similar approach to the economic impact assessments already
mentioned, the objective of the present study is to investigate the current
(2011) economic contributions attributable to CO2 enhanced oil recovery in
Wyoming. CO2-EOR operations include the combined impact of incremental
oil production,5 CO2 purchased for injection, and the associated royalties,
severance and ad valorem taxes.
5 Incremental oil is the additional oil production recovered through injecting CO2 net of the
expected production level without CO2 flooding.
$-
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
Oil/G
as Price
($/M
cfe)
Ro
yalt
y an
d S
eve
ran
ce R
eve
nu
es
($M
M)
Wyoming Mineral Royalties & Severance TaxesContribution of Oil and Gas
WY Gas Prices (Mcf)
WY Crude Prices (Mcfe)
26% Drop inSeverance & Royalties by
2013
NG Severance
Oil Severance
Mineral Royalties & Severance
Sources: WY CREG (Jan. 2012)DOE-EIA Mineral Prices
12
A regional input-output (IO) economic model, IMPLAN, is customized to
more accurately reflect Wyoming’s oil and gas industry and then used to
assess the employment, earnings, and Gross State Product (value-added)
associated with the revenues and expenditures of CO2-EOR extraction
operations.6
2 CO2 ENHANCED OIL RECOVERY IN WYOMING
Wyoming’s primary experience with CO2 flooding goes back to the 1980s
when Amoco began employing the technique on oil units (primary the
Tensleep formation) within the Lost Soldier and Wertz fields. Both projects
utilized CO2 shipped via pipeline from ExxonMobil’s Shute Creek Gas Plant
in southwestern Wyoming. Three additional projects have since come online
utilizing the CO2 from the Shute Creek facility; Anadarko began CO2 flooding
in both the Salt Creek field and the Monell Unit of the Patrick Draw field in
2003, and Devon Energy Corp initiated CO2 flooding at the Beaver Creek
Madison unit in 2008.7
More recently, significant investments have been made by Denbury Resources
Inc. to build their 20-inch 232-mile long “Greencore Pipeline” to transport
CO2 from Lost Cabin in central Wyoming up through the Powder River Basin
to the Bell Creek field in Montana. Along with several other investments and
contracts to develop or secure CO2 sources within Wyoming, Denbury has
also entered an agreement with Elk Petroleum Inc. to jointly develop the
Grieve Field – providing substantial development capital, access to CO2 and
operating experience in exchange for a 65% working interest.
6 IMPLAN is an input-output modeling system utilized by both public and private entities to
assess economic impacts and contributions of various economic activities. IMPLAN is
produced by MIG, Inc.
7 Although not included in this study one additional project in northwestern Colorado receives
CO2 from Shute Creek facility – the Rangely Weber Sand Unit operated by ChevronTexaco
which began CO2 flooding in 1986.
13
Collectively, the five oil fields with active CO2 floods in 2011 produced
7,866,664 barrels of oil – 14.4% of 2011 Wyoming crude production. After
estimating the production level without CO2 approximately 6,592,427 of those
barrels can be directly attributed to CO2-EOR – 12.1% of WY production.
Through the end of 2011 the combined total incremental oil produced using
CO2 in Wyoming approached 86.5 million barrels.
3 REGIONAL ECONOMIC MODEL
Following the WHF and PwC studies this analysis makes use of the
IMPLAN® input-output (IO) economic modeling system, but utilized the
most recent Software Version 3.0 and the associated Wyoming database for
year 2010 (released October 2011). The IMPLAN model is widely used by
both public and private entities to study the composition and connections
within domestic economies, and the economic impacts resulting from changes
in industry and policy.
Such input-output systems rely on the construction of matrices (tables)
relating purchases in one industry to expenditures and output values across all
other industries or entities. For example, in order for Denbury to build their
“Greencore Pipeline” through Wyoming they must purchase steel pipe,
probably from an out-of-state manufacturer, and also hire local labor and
contractors, lease various types of equipment and utilize other in-state and
out-of-state suppliers. Those suppliers then have their own associated
expenses and wages and so on throughout the economy.
This chain of economic activity results in both direct and indirect effects
through the primary industry and the associated supply chain (inter-industry
linkages) with expenditures outside of the studied economy constituting
leakages. Further still, the income and benefits of employees within the
economy, how those households spend their earnings, as well as the
expenditure of tax revenues by government lead to yet a third layer of effects
called induced effects (or impacts).
14
The IMPLAN modeling system allows for the construction and customization
of multipliers that describe this ripple effect of economic activity as direct,
indirect and induced impacts. As applied to understanding the influence of
CO2-EOR extraction activities, capital expenditures, and mineral payments
these impacts can be described as follows:
Direct impacts in terms of the employment, earnings, output and
value-added related immediately to the oil extraction operators and
CO2 providers.8
Indirect impacts as measured by the employment, earnings, output
and value-added resulting from payments to supply chain industries
for the oil operators and CO2 providers.
Induced impacts as measured by the employment, earnings, output
and value-added coming from the expenditure of incomes earned from
direct and indirect employment, and the expenditure of mineral
payments made to governments and private royalty owners.9
3.1 STUDY AREA & INDUSTRY MAPPING
The 2010 IMPLAN database for Wyoming includes county-level data for
each of Wyoming’s 23 counties consisting of spending patterns (or production
functions) for 440 industries plus various levels of government and household
types. These 23 counties can then be modeled individually, or combined to
create sub-state regions or an aggregate statewide model.
8 While the results of this study can be broken down by operator and all CO2 is supplied by
one company – it is not necessarily the case that the “direct” employment means employment
at those companies. In principle that is the general idea, but the model itself merely calculates
the proportion of employment in the “oil and gas extraction” sector supported by a given
value of oil/gas production.
9 Including mineral payments as part of the induced impacts is a slightly different approach
than is typically used in similar studies. Other studies will report such impacts separately, as
opposed to part of the induced effects, and then add them to the total. It seems more natural to
think of these expenditures as an induced effect – either way they are added to the total. The
primary difference that may be noticed is the size of the multipliers as typically calculated
(total impact divided by direct impact).
15
Because substantial royalty and severance payments accrue to the state
government and CO2 activity occurs and is expected to develop all around
Wyoming, the IMPLAN study area is modeled at the state level (a composite
of all 23 counties).
In order to study the contribution of existing10
CO2-EOR operations the only
activities considered are the extraction of the oil, a charge for the purchased
CO2 and the expenditure of mineral payments by governments and private
royalty owners. Expenditures on electricity are ignored as it is assumed that
once the electrical lines are built to the oil field the incremental employment
effects (above and beyond standard operations) are insignificant.
The modeling of CO2 purchases is more nuanced. The purchase of CO2 for
injection into the oil reservoir constitutes a substantial and ongoing
operational expense. For projects purchasing CO2 from a third party, and
depending on the source of the CO2, the operator will pay a $0.50-$1.00/Mcf
delivery charge plus 1.3-2.6% of the current oil price.11
In the case of
vertically integrated operators who own their CO2 resource the internal cost
(what they charge themselves as an accounting basis) is perhaps closer to the
delivery charge.
Denbury Resources Inc. is a relative newcomer to Wyoming, but has
extensive experience with EOR and has moved quickly to secure CO2 and
construct a pipeline through the Powder River Basin. Primarily functioning as
10
There are many other oil units across Wyoming that have the potential to economically
employ CO2-EOR technology. Assessing the economic contribution of these projects can be
done using a CO2-EOR Economic Scoping Model, but is beyond the scope of the present
study.
11 van ‘t Veld, K. and Phillips, O.R. (2009). Pegging Input Prices to Output Prices in Long-
Term Contracts: CO2 Purchase Agreements in Enhanced Oil Recovery. Department of
Economics & Finance, Enhanced Oil Recovery Institute, University of Wyoming, Laramie,
WY. DOE (2006). National Strategic Unconventional Resource Model: A Decision Support
System. U.S. Department of Energy, Office of Petroleum Reserves, Office of the naval
Petroleum and Oil Shale Reserves (DOE/NPOSR), Washington, DC.
16
a vertically integrated operator rather than purchasing CO2 from a third-party,
Denbury’s reported CO2 expenses serve as a good proxy for the internal
operational cost of supplying CO2. For 2011 Denbury reported an average
quarterly CO2 charge of $5.06 per barrel of oil equivalent (boe) – $0.39/Mcf
assuming a utilization rate of 13 Mcfs/bbl.13
Depending on the source of purchased CO2 it could be studied in several
different ways: out-state purchases treated as 100% leakage (money flowing
out of the state with no multiplier effect), industrial sources modeled as
industrial gas manufacturing, conventional gas byproducts modeled as gas
extraction, or simply regarded as the pipeline delivery of a commodity.
Current and planned CO2 sources within Wyoming are the commingled
byproduct of helium and natural gas extraction. The CO2 is separated from
these primary products regardless, but additional facilities are required to
purify and compress the CO2 for pipeline delivery. Once the separation,
compression, and pipeline are in place it is unclear how to disentangle the
employment from the primary gas products from the CO2 sales (i.e. the
marginal increase in employment attributable to those CO2 operations).
Given the nature of current Wyoming CO2 supply coming from the Shute
Creek helium facility, and absent more detailed knowledge about the
incremental impact on operations, the economic impact of CO2 expenditures
will be modeled through the oil and gas extraction sector which includes
processing and compression – the same sector as used for the incremental oil
production.
13
BOE prices are from the Denbury Resources Inc. Corporate Presentation, May 2012.
http://www.denbury.com/Theme/Denbury/files/2012-05%20IR%20Presentation.pdf
17
The various CO2-EOR related activities considered in this study are mapped
to IMPLAN sectors as outlined in Table 1. Oil and CO2 production are
assumed to be 100% from in-state locations, and the local demand (or
purchase) percentages (LPP) for government and private household spending
is determined within IMPLAN.
3.2 CUSTOMIZING THE IMPLAN MODEL FOR WYOMING
The off-the-shelf IMPLAN database is constructed from a variety of
published and essentially public data sources which are reconciled to create a
consistent set of multipliers – consistent in the sense that the sub-regions
(county/zip code) add up to and equal higher levels of aggregation
(state/national).
IMPLAN sources include Bureau of Economic Analysis (BEA) Regional
Economic Accounts (REA) and National Income and Product Accounts
(NIPA), the Census Bureau's County Business Patterns (CBP), and the
Bureau of Labor Statistics' Census of Employment and Wages (CEW).
The IMPLAN database for most sectors is left untouched, but is then
customized further for certain oil and gas industries in order to match
Wyoming’s industrial experience as close as possible. Additional industry
data was collected and used to modify the output, employment and value-
added components for the following three oil and gas industry sectors:
Oil and gas extraction (sector 20)
Drilling oil and gas wells (sector 28)
Support activities for oil and gas operations (sector 29)
A detailed description of the customization methodology and resulting
industry study area parameters is provided in Appendix A and Table A-3.
18
Table 1 CO2-EOR Activity Mapping to IMPLAN
Fiscal Item IMPLAN Sector Title IMPLAN
Sector
Local Purchase
or Production
Incremental Oil
Production & Injectable
CO2 Production
Oil and gas extraction 20 100%
Mineral Royalties,
Severance and Ad
Valorem Taxes
State/Local Government
Education
Spending
Pattern
Varies across
consumption
within the
spending pattern
State/Local Government
Non-Education
Spending
Pattern
State/Local Government
Investment
Spending
Pattern
Private Royalties to In-
State Households Households 75-100k
Spending
Pattern
4 REVENUES, ROYALTIES, TAXES & EXPENDITURES
The five oil fields with active CO2 floods in Wyoming are located in four
counties, have different CO2 purchase levels and produce oil from a mix of
federal, state and private mineral leases. Further, ad valorem (property) taxes
are charged net of royalties and have different mill levies in each county.
Although there are some exceptions made with respect to state severance
taxes, for this study it is assumed to be a constant 6% across the CO2 projects.
Incremental Oil & Revenues
Only the portion of each oil units’ production arising from CO2 injection, the
incremental oil, is included in the analysis. For each field-reservoir
combination (FRC) the monthly production history was obtained from the
Wyoming Oil & Gas Conservation Commission (WOGCC), and used to
estimate a pre-CO2 production decline path. The incremental oil was then
determined by subtracting the predicted pre-CO2 production from the total
FRC production in 2011. The production decline analysis is illustrated
graphically for each FRC in Appendix B.
19
According to the U.S. Energy Information Administration (EIA) domestic
crude oil prices averaged $95.73 per barrel in 2011, but Wyoming oil
typically sells at a discount to this price likely due to quality and
transportation constraints – selling for an average of $83.45 per barrel in
2011. While there may be some variation in the sold price across CO2 projects
the production revenue is simply estimated using the WY average of $83.45
per barrel.14
These incremental oil production and revenue estimates for 2011 are
summarized in Table 2.
Table 2 Estimated 2011 Incremental Oil and Revenues by FRC
Oil Unit (FRC) Incremental Oil (bbls) Incremental Revenue
Beaver Creek-Madison 1,270,471 $106,020,813
Lost Soldier-Darwin/Madison 434,770 $36,281,529
Lost Soldier-Flathead 276,333 $23,059,956
Lost Soldier-Tensleep 582,883 $48,641,576
Patrick Draw-Almond (Monell) 1,251,992 $104,478,767
Salt Creek-Wall Creek 2 2,154,691 $179,809,005
Wertz-Darwin/Madison 259,052 $21,617,852
Wertz-Tensleep 362,235 $30,228,518
Total 6,592,427 $550,138,016
CO2 Purchases
As discussed earlier the CO2 pricing is typically pegged to the oil price with
oil operators entering into a combination of short-term and long-term
14
U.S. Energy Information Administration (EIA), Annual “Domestic Crude Oil First
Purchase Prices by Area” http://www.eia.gov/dnav/pet/pet_pri_dfp1_k_a.htm accessed April
2012.
20
contracts (up to 15 years) to ensure a reliable supply meeting their injection
requirements.15
The market price of Denver City (New Contract) injectable CO2 as a share of
the oil price has varied from just below 2% to as high as 4% in the last
decade. The most recent year publicly reported, 2010, being closer to 2% of
the WTI price of $79.48 per barrel that year.16
Although data is available on the average daily CO2 purchase rates for
Wyoming projects, neither the contract pricing, production or delivery
expenses are currently available. In order to assess the economic contribution
of these activities the operational cost of supplying this CO2 must be
estimated.
Consistent with the recent reports on new contracts prices this study assumes
a CO2 charge of $2.17/Mcf – a delivery charge of $0.50/Mcf + 2% of the
$83.45 average Wyoming oil price in 2011. The daily CO2 purchase rates and
estimated annualized operational CO2 supply expenditures are reported in
Table 3.
15
van ‘t Veld Klaas T. & Phillips, Owen R., “Pegging Input Prices in Long-Term Contracts:
CO2 Purchase Agreements in Enhanced Oil Recovery.” July 2009.
http://www.uwyo.edu/owenphillips/papers/CO2pegging071509.pdf
16 Presentation by Steve Wehner, Sr. VP Chaparral Energy, 17
th Annual CO2 Flooding
Conference in Midland, TX, December 6th
, 2011. http://co2conference.net/pdf/1.1-
Moore_CMWorkshop_Summary2011-CO2FloodingConf.pdf
21
Table 3 Estimated 2011 CO2 Purchases by FRC18
Oil Unit (FRC) Daily CO2 Rate (MMcfd) Operational Supply Cost
Beaver Creek-Madison 36 $28,513,800
Lost Soldier-Darwin/Madison 6.81 $5,393,897
Lost Soldier-Flathead 4.33 $3,428,274
Lost Soldier-Tensleep 9.13 $7,231,439
Patrick Draw-Almond (Monell) 41 $32,474,050
Salt Creek-Wall Creek 2 114 $90,293,700
Wertz-Darwin/Madison 4.06 $3,213,880
Wertz-Tensleep 5.67 $4,494,009
Total 221 $175,043,050
Lease Distribution, Royalty Rates, and Ad Valorem Taxes
The location and cumulative oil for each well were used to estimate the
distribution of production between federal, state and private lands.19
Royalties
on federal mineral leases are 12.5% of the production value with a 52/48 split
between federal and state. The current royalty rate on state leases is capped at
16.67% but can be higher on private lands.
In June of 2011 Laramie County leased land to Anadarko for oil development
at a royalty rate of 18.75% and not long after the State Lands and Investments
Board discussed a proposal to raise the maximum state royalty rate to the
same 18.75% level (which was ultimately defeated).
18
Data on the average daily purchase rate was obtained from Glen Murrell, PhD, Associate
Director, Enhanced Oil Recovery Institute based on monthly CO2 sales data for Shute Creek.
The combined average daily purchase rate for Lost Soldier and Wertz were estimated at 30
MMcfd and then allocated proportionately between the individual FRCs based on their level
of incremental oil production.
19 Mineral lease shares estimated by Nick Jones, Senior Geologist, Enhanced Oil Recovery
Institute, and Vanessa Onacki, Undergraduate Research Assistant, using EORI/WOGCC well
locations, BLM land ownership and production data from the WOGCC and IHS/PI Dwights
Rocky Mountain Region.
22
A private rate of 18.75% would be in-line with the private royalty estimates
used in the WHF report20
and lacking the actual private royalty information
this study will assume the same.
Counties collect ad valorem taxes on mineral properties with mill levies on
100% of the assessed value (value of production in the previous year). The
majority of EOR activity was located in three counties – Fremont (7.2% rate),
Natrona (6.8% rate) and Sweetwater (6.6% rate) – with a portion of the Wertz
field in Carbon County (6.4% rate). For simplicity it is assumed that Wertz is
charged the two-county average of 6.5%.21
The royalty/tax rates and the mineral lease distribution by field-reservoir
combination are summarized in Table 4.
State/County Budgets & Private Households
Having determined the breakdown of severance, ad valorem and royalty
payments for each FRC, for the purposes of economic contribution the key
question is how and on what are those mineral payments spent within the
Wyoming economy. The primary institutional spending patterns included in
IMPLAN involve state/local expenditures on education, non-education, and
capital investment (infrastructure) related activities.
20
The WHF study assumed $863,412,137 in private mineral royalties on $13,661,277,948 of
revenue in 2007. With about 33.64% of WY’s cumulative oil produced on private land this
equates to a private royalty rate of 18.79%.
21 Wyoming State Board of Equalization, “2011 Wyoming Abstract & Mill Levy Report”.
http://taxappeals.state.wy.us/2011%20Abstract%20and%20Mill%20Levy%20Report.xls
23
Table 4 Royalty/Tax Rates & Mineral Lease Distribution by FRC
Field-Reservoir Combination
Royalty/Tax Rates
Lease Distribution
Federal
Royalty
State
Royalty
Private
Royalty
Severance
Tax
Property
Tax
Federal
Share
State
Share
Private
Share
Beaver Creek – Madison 12.50% 16.67% 18.75% 6.00% 7.24% 21.00% 79.00% 0.00%
Lost Soldier - Darwin/Madison 12.50% 16.67% 18.75% 6.00% 6.61% 22.00% 0.00% 78.00%
Lost Soldier - Flathead 12.50% 16.67% 18.75% 6.00% 6.61% 12.50% 0.00% 87.50%
Lost Soldier - Tensleep 12.50% 16.67% 18.75% 6.00% 6.61% 37.00% 0.00% 63.00%
Patrick Draw – Monell 12.50% 16.67% 18.75% 6.00% 6.61% 54.30% 1.90% 43.80%
Salt Creek – Wall Creek 2 12.50% 16.67% 18.75% 6.00% 6.79% 77.70% 9.50% 12.80%
Wertz - Darwin/Madison 12.50% 16.67% 18.75% 6.00% 6.52% 100.00% 0.00% 0.00%
Wertz - Tensleep 12.50% 16.67% 18.75% 6.00% 6.52% 100.00% 0.00% 0.00%
24
Using information from the Wyoming Economic Analysis Division24
it was
determined that for 2011 around 35.59% of royalties were allocated to
education, 51.36% to general spending, and the remaining 13.05% going to
capital investments.
For severance taxes, around 39.91% is saved in the Permanent Wyoming
Mineral Trust Fund with 56.09% allocated to general spending accounts (non-
education spending), and 4.01% to capital investments.
Although there are differences across counties, on average 74.24% of all Ad
Valorem collections go to education related activities, 18.52% to general
spending and roughly 7.24% to capital investment.25
Tracking the royalties paid to private households and determining how those
royalties are spent is particularly challenging. In the WHF study it was
assumed that only 26% of private royalties remained in Wyoming, and
followed the IMPLAN spending pattern for households earning $75,000 to
$100,000. The same approach is utilized here for assessing private royalty
payments linked to CO2-EOR.
The incremental oil fiscal profile and the associated in-state spending of
mineral payments by category are summarized by FRC in Table 5.
24
Wyoming Consensus Revenue Estimating Group (CREG), January 2012 CREG Forecast
for FY2012-FY2016, http://eadiv.state.wy.us/creg/GreenCREG_Jan12.pdf
25 At the county level it is a bit unclear how much of divisional budgets goes to capital
investment/infrastructure and what is purely operational. This study assumes that school
construction amounts and all special district levies well allocated to capital investments.
Wyoming State Board of Equalization, “2011 Wyoming Abstract & Mill Levy Report”.
http://taxappeals.state.wy.us/2011%20Abstract%20and%20Mill%20Levy%20Report.xls
25
Table 5 Incremental Oil Fiscal Profile & In-State Spending Assumptions by FRC
Fiscal Item Beaver Creek –
Madison
Patrick Draw –
Monell Unit
Salt Creek –
Wall Creek 2
Lost Soldier &
Wertz Total CO2-EOR
Est. Incremental Oil 1,270,471 1,251,992 2,154,691 1,915,272 6,592,427
Est. Oil Price $83.45 $83.45 $83.45 $83.45 $83.45
Incremental Revenue $106,020,813 $104,478,767 $179,809,005 $159,829,431 $550,138,016
Estimated CO2 Purchases 36 MMcfd 41 MMcfd 114 MMcfd 30 MMcfd 221 MMcfd
CO2 Delivery Cost $2.17/Mcf $2.17/Mcf $2.17/Mcf $2.17/Mcf $2.17/Mcf
CO2 Supply Cost $28,513,800 $32,474,050 $90,293,700 $23,761,500 $175,043,050
Royalties to Fed Gov’t $1,447,184 $3,687,578 $9,081,254 $5,246,032 $19,462,048
Royalties to WY $15,295,269 $3,734,768 $11,229,672 $4,842,491 $35,102,200
Private Royalties to HHs $0 $8,580,319 $4,315,416 $14,835,234 $27,730,969
Severances to WY $5,356,702 $5,308,566 $9,310,960 $8,094,340 $28,070,568
Ad Valorem to Counties $6,466,789 $6,411,644 $10,835,343 $9,854,358 $33,568,133
Total Mineral Payments $28,565,944 $27,722,875 $44,772,644 $42,872,455 $143,933,918
State/Local Education $10,245,017 $6,089,304 $12,041,127 $9,039,435 $37,414,883
State/Local General $12,056,738 $6,082,590 $12,995,531 $8,851,371 $39,986,229
State/Local Investment $2,679,298 $1,164,586 $2,623,577 $1,670,162 $8,137,622
Private HHs 75-100k $0 $2,230,883 $1,122,008 $3,857,161 $7,210,052
In-State Mineral Payments $24,981,052 $15,567,363 $28,782,242 $23,418,129 $92,748,786
Share Spent In-State 87.45% 56.15% 64.29% 54.62% 64.44%
26
5 ECONOMIC CONTRIBUTION
The contribution of CO2-EOR extraction to the Wyoming economy in 2011 is
assessed using the customized IMPLAN model and fiscal parameters outlined
in the preceding sections. Because this study is focused on the year-year
regular contribution of sustained EOR operations, intermittent and limited
duration EOR related capital investment activity, such as Denbury’s
Greencore Pipeline, are not included in this analysis.26
The estimated value of incremental oil production, the operational supply cost
of purchased CO2, and the associated royalty, severance and ad valorem
payments, are all assumed to be in 2011 dollars. The IMPLAN model has a
base year of 2010, thus IMPLAN initially deflates figures to 2010, and then
reflates the results back to 2011 dollars.
5.1 INCREMENTAL OIL & CO2 SUPPLY COSTS
The total value of incremental oil in 2011 was estimated at $83.45 and the
annual operational cost of supplying 221 MMcfd of CO2 purchases was
estimated at $2.17/Mcf. Both the oil revenues and the operational CO2
expenditures were processed through the customized oil and gas extraction
sector 20 in IMPLAN.
The economic contributions of these activities are summarized in Table 6 by
field. The incremental extraction and supplied CO2 added roughly $564.5
million to WY State Gross Product (value added) and supported 921 jobs in
Wyoming with $59.4 million in labor earnings – 191 jobs directly and 729 in
downstream and induced activity – an employment multiplier of 4.81.
26
Denbury’s Greencore Pipeline is a 232-mile 20-inch CO2 pipeline which will run from the
Lost Cabin gas plant in central Wyoming and initially terminate at the Bell Creek field just
across the border in Montana. The first half of the Greencore Pipeline was completed in 2011,
and when finished, will have a maximum capacity of 725 MMcfd. The total capital
investment was projected at $275-$325M – an expenditure that would clearly support many
additional jobs within Wyoming.
27
Table 6 Economic Contribution of Incremental Production & CO2 Supply Costs
Type of Impact Beaver Creek –
Madison
Lost Soldier –
CO2 Units
Patrick Draw –
Monell Unit
Salt Creek –
Wall Creek 2
Wertz - CO2
Units
Total
Contribution
Direct
Employment 35.5 32.7 36.1 71.3 15.7 191.4
Labor Income $4,134,264 $3,811,806 $4,208,527 $8,299,819 $1,830,179 $22,284,594
Earnings per Job $116,447 $116,447 $116,447 $116,447 $116,447 $116,447
Value Added $90,875,267 $83,787,317 $92,507,639 $182,438,339 $40,229,164 $489,837,726
Indirect
Employment 89.9 82.8 91.5 180.4 39.8 484.3
Labor Income $5,417,366 $4,994,831 $5,514,677 $10,875,735 $2,398,190 $29,200,798
Earnings per Job $60,292 $60,292 $60,292 $60,292 $60,292 $60,292
Value Added $10,776,919 $9,936,358 $10,970,503 $21,635,406 $4,770,786 $58,089,972
Induced
Employment 45.5 41.9 46.3 91.3 20.1 245.1
Labor Income $1,471,999 $1,357,188 $1,498,440 $2,955,138 $651,632 $7,934,397
Earnings per Job $32,367 $32,367 $32,367 $32,367 $32,367 $32,367
Value Added $3,074,839 $2,835,013 $3,130,072 $6,172,951 $1,361,187 $16,574,061
Totals
Employment 170.8 157.5 173.9 343.0 75.6 920.8
Labor Income $11,023,629 $10,163,825 $11,221,644 $22,130,692 $4,880,001 $59,419,790
Earnings per Job $64,528 $64,528 $64,528 $64,528 $64,528 $64,528
Value Added $104,727,025 $96,558,687 $106,608,213 $210,246,695 $46,361,137 $564,501,758
Multipliers
Employment 4.81 4.81 4.81 4.81 4.81 4.81
Labor Income 2.67 2.67 2.67 2.67 2.67 2.67
Value Added 1.15 1.15 1.15 1.15 1.15 1.15
28
5.2 ROYALTIES, SEVERANCE AND AD VALOREM TAXES
The incremental oil production from CO2-EOR generated an estimated
$143.93 million in mineral payments - $54.56 million in government
royalties, $27.73 million in private royalties, $28.07 million in severance tax,
and $33.57 million in ad valorem/property taxes to counties.
Approximately 64.4% of those payments, or $92.75 million, were spent
within Wyoming; $12.33 million saved in the Permanent Wyoming Mineral
Trust Fund (PWMTF), $19.46 million staying with the Federal Government,
and $20.52 million to royalty owners outside Wyoming.
The economic contribution of in-state mineral payments was evaluated using
IMPLAN’s representative spending patterns for state/local government
expenditures on education and non-education activities, as well for
households with annual income in the $75,000 to $100,000 range.
Of the $92.75 million spent within Wyoming it was assumed that $37.41
million was spent on education activities, $39.99 million on non-education
government activities, $8.14 million on capital investments, and $7.21 million
by private households.
The entire impact of these mineral payment expenditures are treated as a
component of “induced” effects in this study – to be added to those already
reported.27
The induced contributions of these activities are summarized in Table 7 by
field. The $92.75 million of in-state mineral payments supported roughly 795
jobs with $35.87 million in total labor income - representing $51.48 million of
WY Gross State Product (value added).
27
As noted earlier (footnote 5) many other economic impact studies simply label government
expenditures as separate impacts – the only real difference in this study is that we label them
as “induced” impacts. Treating the total contribution of mineral payment expenditures as part
of induced seems more consistent with the “spirit” of what is meant by an induced impact.
29
Table 7 Economic Contribution of In-State Mineral Payments
Type of Impact Beaver Creek
– Madison
Lost Soldier –
CO2 Units
Patrick Draw
– Monell Unit
Salt Creek –
Wall Creek 2
Wertz - CO2
Units
Total
Contribution
Induced (Government Expenditures)
Employment 215.9 105.5 117.5 241.7 67.2 747.8
Labor Income $9,896,325 $4,858,627 $5,402,677 $11,098,135 $3,085,275 $34,341,039
Income per Job $45,842 $46,066 $45,976 $45,910 $45,880 $45,920
Value Added $13,926,129 $6,804,963 $7,580,629 $15,593,613 $4,337,354 $48,242,688
Induced (Private Royalties)
Employment -- 25.4 14.7 7.4 -- 47.5
Labor Income -- $820,549 $474,584 $238,689 -- $1,533,822
Income per Job -- $32,291 $32,291 $32,291 -- $32,291
Value Added -- $1,734,175 $1,003,002 $504,454 -- $3,241,631
Total Royaly, Severance, Ad Valorem
Employment 215.9 130.9 132.2 249.1 67.2 795.3
Labor Income $9,896,325 $5,679,176 $5,877,262 $11,336,824 $3,085,275 $35,874,861
Income per Job $45,842 $43,392 $44,455 $45,506 $45,880 $45,106
Value Added $13,926,129 $8,539,138 $8,583,631 $16,098,067 $4,337,354 $51,484,319
30
5.3 TOTAL ECONOMIC CONTRIBUTION OF CO2-EOR INCREMENTAL OIL
The combined total contribution of incremental oil production, CO2 supply
costs, and associated royalties, severance and ad valorem payments are
summarized in Table 8. Altogether, the incremental oil from the five CO2
fields in Wyoming is estimated to account for 1,716 jobs paying a total of
$95.29 million of labor income and representing $615.99 million of WY
Gross State Product (GSP, or value added).
While only 191 of those jobs occur directly in the oil and gas extraction sector
with 729 from the extraction supply chain and induced business – another 795
arise from mineral payments leading to an overall employment multiplier of
8.97. The substantial mineral payments to state and local governments are
primarily spent in Wyoming on education and public services, which of
course support additional induced employment.
Thinking in terms of incremental production and CO2 purchase rates – these 5
CO2-EOR fields are supporting around 260 jobs for every 1 million barrels of
incremental production or 7.8 jobs per MMcfd of purchased CO2.
2011 nonfarm employment for WY averaged 285,70028
meaning that CO2-
EOR accounted for 0.60% of total Wyoming employment in that year. The
$96.74 million in estimated royalties, severance and ad valorem payments
made to state and local governments represent 2% of the total state budget and
local mill levies.29
It is also important to keep in mind that this analysis does not capture the full
economic contribution of CO2-EOR capital investments as it is primarily
focused on extraction operations. It also does not account for any
reinvestment of the oil profits into other projects within Wyoming.
28
http://doe.state.wy.us/lmi/CES/naanav9002.htm
29 The Wyoming State Budget for 2011 was $3,160,374,710 and the combined total local
government mill levies were $1,545,643,127 - a total of $4,706,017,837
31
Table 8 Total Economic Contribution of CO2-EOR Incremental Oil Extraction
Type of Impact Beaver Creek –
Madison
Patrick Draw –
Monell Unit
Salt Creek – Wall
Creek 2
Lost Soldier &
Wertz
Total
Contribution
Direct
Employment 35.5 36.1 71.3 48.5 191.4
Labor Income $4,134,264 $4,208,527 $8,299,819 $5,641,985 $22,284,594
Value Added $90,875,267 $92,507,639 $182,438,339 $124,016,481 $489,837,726
Indirect
Employment 89.9 91.5 180.4 122.6 484.3
Labor Income $5,417,366 $5,514,677 $10,875,735 $7,393,020 $29,200,798
Value Added $10,776,919 $10,970,503 $21,635,406 $14,707,144 $58,089,972
Induced (Industry Activity)
Employment 45.5 46.3 91.3 62.1 245.1
Labor Income $1,471,999 $1,498,440 $2,955,138 $2,008,820 $7,934,397
Value Added $3,074,839 $3,130,072 $6,172,951 $4,196,199 $16,574,061
Induced (Mineral Payments)
Employment 215.9 132.2 249.1 198.1 795.3
Labor Income $9,896,325 $5,877,262 $11,336,824 $8,764,450 $35,874,861
Value Added $13,926,129 $8,583,631 $16,098,067 $12,876,491 $51,484,319
Total Impact/Contribution
Employment 386.7 306.1 592.1 431.3 1716.2
Labor Income $20,919,954 $17,098,905 $33,467,516 $23,808,276 $95,294,651
Income per Job $54,097 $55,859 $56,524 $55,206 $55,527
Value Added $118,653,155 $115,191,844 $226,344,762 $155,796,316 $615,986,077
Multipliers
Employment 10.89 8.47 8.31 8.90 8.97
Labor Income 5.06 4.06 4.03 4.22 4.28
Value Added 1.31 1.25 1.24 1.26 1.26
32
6 CONCLUSION
Wyoming’s economy and state & local government budgets depend heavily
on the state’s mineral wealth, which are then by extension sensitive to price
swings in the markets for those minerals. The booming supply of natural gas
coming from shale plays combined with near across the board mineral price
declines following the 2008 financial crisis have dealt a significant blow to
public funds.
In addition to diversifying Wyoming’s economy so that is less exposed to
mineral price risk, pursuing other value-added activities for mineral and
energy within the state (such as gas and/or coal to liquids) and encouraging
the development of existing resources are both of fundamental importance.
The strength of oil prices relative to other minerals highlights the importance
of Wyoming’s support for and deployment of enhanced oil recovery
technologies within the state. While oil prices themselves face renewed
pressure from economic troubles in Europe and the slow recovery at home,
improved oil recovery has the potential to delivery hundreds of millions of
barrels of additional production from Wyoming oil fields.
In this study for 2011 it is estimated that every 1 million barrels of
incremental oil produced with CO2 at existing EOR projects supported about
260 jobs within Wyoming. Although this number is sensitive to the lease
ownership and pricing of the produced oil, it is clear that EOR technologies
can contribute thousands of Wyoming jobs annually in coming decades.
33
APPENDIX A IMPLAN Customization
This study primarily relies on IMPLAN’s county-level Wyoming database for
year 2010, but is customized further for certain oil and gas industries in order
to more closely match Wyoming’s economy in those sectors. Industry data
was collected and used to modify the output, employment and value-added
components for the following three oil and gas industry sectors:
Oil and gas extraction (sector 20)
Drilling oil and gas wells (sector 28)
Support activities for oil and gas operations (sector 29)
In order to maintain consistency with the 2010 IMPLAN database, all values
for customization were either collected for 2010, or adjusted to 2010 using the
corresponding GDP deflator from IMPLAN. A detailed explanation of the
methodology used and the resulting model parameters is provided in the
following sections (refer to the final Table A-3 for final sector parameters). .
A.1 Oil and Gas Extraction (Sector 20)
Output (Value of Production): The total industry output for the extraction
sector was based on the 2010 production of oil (58,303,404 barrels) and gas
(2,523,493,504 Mcfs) as reported by the Wyoming Oil and Gas Conservation
Commission (WOGCC).32
The average annual 2010 prices for Wyoming
crude oil ($68.10/barrel)33
and wellhead gas ($4.30/Mcf)34
provided by the
U.S. Energy Information Administration (EIA).
32
Wyoming Oil and Gas Conservation Commission (WOGCC). Online Stats Book - County
Production Report, 2010 County Report (as of 04/18/12),
http://wogcc.state.wy.us/online_stats_bk/main_menu.cfm (accessed April 18th 2012).
33 Average annual 2010 domestic first purchase price of crude oil for Wyoming (EIA.gov).
January 1983-present: Form EIA-182, "Domestic Crude Oil First Purchase Report",
http://www.eia.gov/dnav/pet/pet_pri_dfp1_k_a.htm (accessed April 16th 2012).
34
Employment & Labor Income: 2010 average employment (4,197 employees)
and total wages ($399,494,000) for the extraction sector were obtained from
the Bureau of Labor Statistics (BLS) Quarterly Census of Employment and
Wages (QCEW)35
under the North American Industry Classification System
(NAICS) code 211. Total wages were then adjusted to account for benefits
using the ratio of total compensation to wages (1.199) for “oil and gas
extraction” reported by the Bureau of Economic Analysis (BEA) Survey of
Current Business.36
Cost of Production: The non-labor cost of production for oil and gas was
estimated using the 2009 values for the Rocky Mountain region in the EIA’s
“Oil and Gas Lease Equipment and Operating Costs” report. The EIA reports
the estimated annual lift/operating costs for oil, natural gas and coal bed
methane for a variety of well depths and production levels which were then
adjusted from 2009 to 2010 using the IMPLAN GDP deflator (0.989).
Wyoming oil and gas production, well counts, and well depths were extracted
from the I.H.S. P/I Dwights PLUS Rocky Mountain Production Data37
and
shares of total production were allocated to the corresponding depths and
production rates from the EIA data.
The transportation charge for both crude oil ($1.31/barrel) and natural gas
($0.49/Mcf) was estimated as the average operating revenue per unit for
34 Average annual 2010 wellhead price for Wyoming (EIA.gov). Form EIA-895A, "Annual
Quantity and Value of Natural Gas Report”,
http://www.eia.gov/dnav/ng/ng_pri_sum_dcu_SWY_a.htm (accessed April 16th 2012).
35 http://www.bls.gov/cew/ (accessed April 18th 2012).
36 Bureau of Economic Analysis Series SA06N and SA07N for Wyoming. LineCode 201 "Oil
and gas extraction" (2010 Compensation = 485,179) / (2010 W&S = 404,769) =
1.19865651767. http://www.bea.gov/iTable/iTable.cfm?ReqID=70&step=1 (accessed April
18th
2012).
37 IHS (IHS). 2011. PI/Dwights Plus Rocky Mountain Production Data, Volume 21, Issue 11,
Released: November 30, 2011.
35
Wyoming pipelines found in the PennEnergy Research US Pipeline
Economics Study 2011.38
A gas processing charge of ($0.49/Mcf) was
imputed by assuming a 15-percent 10-year return on plant capital and
additions for those same Wyoming gas pipeline operators, and finally an
additional ($0.30/Mcf) was included for gathering gas from the wellhead to
the major pipeline.39
The lift/operating costs from EIA report were allocated to Wyoming’s
production according to the proportions found in the I.H.S. data and then
added to the transportation, processing and gathering fees. On average the
cost of production for 2010 was determined to be roughly $1.49 per Mcf
equivalent (Mcfe).40
These costs are summarized in Tables A-1 and A-2.
Table A-1 Non-Labor Basic Production Costs Per Unit
Production
Cost
Oil: Primary
(per barrel)
Oil: Secondary
(per barrel)
Natural Gas
(per Mcf)
Coalbed (per
Mcf)
Lift Cost $0.42-$1.28 $1.64-$3.94 $0.19-$1.13 $0.36
Gathering -- -- $0.30 $0.30
Transport $1.31 $1.31 $0.49 $0.49
Processing -- -- $0.49 $0.49
Totals $1.72-$2.58 $2.95-$5.25 $1.47-$2.41 $1.64
38
The Oil & Gas Journal's Pipeline Economics Report and FERC filings are the source for
this survey. Data is current to 2010. http://ogjresearch.stores.yahoo.net/us-pipeline-
economics-study.html
39 Such gathering charges are frequently mentioned in articles about the break-even price of
natural gas. See for example the article, “What is the breakeven price for natural gas
producers?” by Keith Schaefer, ResourceInvestor.com, April 30, 2009.
http://www.resourceinvestor.com/2009/04/30/what-is-the-breakeven-price-for-natural-gas-
produc
40 Even after adjusted for inflation, this production cost is slightly higher than the $1.15
(2007=$1.10) per Mcfe used by Booz-Allen-Hamilton in the WHF (2008) study.
36
Table A-2 Total Non-Labor Production Costs by Product
Product Volume Avg. Cost per Unit Non-Labor Costs
Crude Oil (barrels) 58,303,404 $3.75/barrel $218,916,875
Nat. Gas/Coalbed (Mcf) 2,523,493,504 $1.61/Mcf $4,073,814,109
Totals (Mcfe) 2,873,313,928 $1.49/Mcfe $4,292,730,983
Total Value Added and Value Added Components: Total value added for the
extraction sector was calculated as the difference the total value of production
($14,821,483,880) and the non-labor production costs from Table A-2. After
deducting total employee compensation ($478,993,306) from total value
added, the remaining amount was divided between Other Property Type
Income and Indirect Business Tax according the existing IMPLAN ratios for
sector 20.
A.2 Drilling Oil and Gas Wells (Sector 28)
Employment & Labor Income: Average employment for 2010 (2,376
employees) and total wages ($191,365,000) for the drilling sector were
obtained from the Bureau of Labor Statistics (BLS) Quarterly Census of
Employment and Wages (QCEW)41
under the North American Industry
Classification System (NAICS) code 213111. The level of employment was
then adjusted (2,561) to account for self-employment using the ratio (1.078)
of total employment in “support activities for mining” from the Bureau of
Economic Analysis (BEA) Survey of Current Business, and BLS employment
in the same sector (NAICS code 213).42
41
http://www.bls.gov/cew/ (accessed April 18th 2012)
42 Total employment from BEA series SA25N LineCode 203 “Support activities for mining”
divided by BLS employment in the same sector NAICS 213 (2010 BEA Employment
=12,137) / (2010 BLS Employment = 11,262) = 1.07769490321.
37
Finally, the total wages paid to the adjusted employee count were modified to
account for benefits using the ratio of total compensation to total wages
(1.145) for “support activities for mining” in the BEA Survey of Current
Business.43
Output (Value of Production): The value of production was determined by
first calculating the output per worker for the drilling sector ($228,763)
reported in the 2007 Economic Census44
and inflating to 2010 ($239,041 per
worker) using the IMPLAN GDP deflator (0.957). The total value of output in
the drilling sector was then estimated as the product of this output per worker
and the adjusted employee count ($612,187,396).
Total Value Added and Value Added Components: The total value added for
drilling was calculated using the ratio of value added to output for the existing
IMPLAN sector 28. Likewise, the individual components of value added were
subsequently allocated according to their corresponding ratios from the in-
built IMPLAN drilling sector.
A.3 Support Activities for Oil and Gas Operations (Sector 29)
The support sector was customized using the same basin methodology as
described for the drilling sector.
Employment & Labor Income: Average employment for 2010 (8,433
employees) and total wages ($569,094,000) for oil and gas support operations
were obtained from the Bureau of Labor Statistics (BLS) Quarterly Census of
Employment and Wages (QCEW) under the North American Industry
Classification System (NAICS) code 213112. The level of employment was
43
Bureau of Economic Analysis Series SA06N and SA07N for Wyoming. LineCode 203
"Support activities for mining” (2010 Compensation = 890,999) / (2010 W&S = 778,037) =
1.1451884679. http://www.bea.gov/iTable/iTable.cfm?ReqID=70&step=1 (accessed April
18th 2012).
44 http://www.census.gov/econ/census07 (accessed April 18th 2012).
38
then adjusted (9,091) to account for self-employment using the ratio (1.078)
of total employment in “support activities for mining” from the Bureau of
Economic Analysis (BEA) Survey of Current Business, and BLS employment
in the same sector (NAICS code 213).
Finally, the total wages paid to the adjusted employee count were modified to
account for benefits using the ratio of total compensation to total wages
(1.145) for “support activities for mining” in the BEA Survey of Current
Business.
Output (Value of Production): The value of production was determined by
first calculating the output per worker for oil and gas support operations
($172,120) reported in the 2007 Economic Census and inflating to 2010
($179,854 per worker) using the IMPLAN GDP deflator (0.957). The total
value of output in the support sector was then estimated as the product of this
output per worker and the adjusted employee count ($1,635,012,138).
Total Value Added and Value Added Components: The total value added for
oil and gas support operations was calculated using the ratio of value added to
output for the existing IMPLAN sector 29. Likewise, the individual
components of value added were subsequently allocated according to their
corresponding ratios from the in-built IMPLAN drilling sector.
39
Table A-3 Customized Sectors for Wyoming versus IMPLAN Database
Study Area Data
Customized
Extraction
(20)
Customized
Drilling
(28)
Customized
Support
(29)
IMPLAN
Extraction
(20)
IMPLAN
Drilling
(28)
IMPLAN
Support
(29)
Employment
4,197 2,561 9,091
9,957 2,672 9,683
Output (Value of Production)
$14,821,483,880 $612,187,396 $1,635,012,138
$2,509,661,696 $1,122,572,544 $1,907,591,424
Employee Compensation
$478,993,306 $206,348,956 $613,654,289
$483,882,720 $217,921,824 $648,745,088
Proprietor Income
$0 $29,854,777 $88,784,127
$521,046,016 $31,529,154 $97,826,832
Other Property Type Income
$6,587,422,618 $225,549,296 $3,900,353
$542,430,080 $592,214,976 $4,550,596
Indirect Business Tax
$3,462,336,985 $6,381,536 $27,495,314
$285,100,224 $16,755,722 $32,079,162
Total Value Added
$10,528,752,896 $468,134,565 $733,834,082
$1,832,459,040 $858,421,676 $783,201,678
Total Labor Earnings
$478,993,306 $236,203,733 $702,438,415
$1,004,928,736 $249,450,978 $746,571,920
Cost of Production w/o Labor
$4,292,730,983
$677,202,656
Output/Worker
$3,531,447 $239,041 $179,854
$252,062 $420,187 $196,998
40
APPENDIX B Incremental Oil Decline Analysis
Figure B - 1 Beaver Creek – Madison
Figure B - 2 Lost Solider – Darwin/Madison
0
500
1,000
1,500
2,000
2,500
3,000
0
20
40
60
80
100
120
140
CO
2/N
at. G
as
Inje
ctio
n (M
Mc
f)O
il P
rod
uc
tio
n (
1,0
00
Bb
ls)
Month-Year
Beaver Creek - Madison (Fremont County)Monthly Oil & Pre-CO2 Decline Path
Monthly Oil Production
Pre-CO2 Decline Path
CO2/Gas Inj (Since '91)
Incremental Oil2011 = 1,270,471Total = 2,459,387
Begin CO2 Flooding2008
0
200
400
600
800
1,000
1,200
1,400
0
20
40
60
80
100
120
140
CO
2/G
as
Inje
ctio
n (M
Mc
f)O
il P
rod
uc
tio
n (
1,0
00
Bb
ls)
Month-Year
Lost Soldier - Darwin/Madison (Sweetwater County)Monthly Oil & Pre-CO2 Decline Path
Monthly Oil Production
Pre-CO2 Decline Path
CO2/Gas Inj (Since '91)Begin CO2 Flooding
1989
Incremental Oil2011 = 434,770
Total = 11,945,204
41
Figure B - 3 Lost Solider – Flathead/Cambrian
Figure B - 4 Lost Solider – Tensleep
0
100
200
300
400
500
600
700
0
10
20
30
40
50
60
CO
2/G
as
Inje
ctio
n (M
Mc
f)O
il P
rod
uc
tio
n (
1,0
00
Bb
ls)
Month-Year
Lost Soldier - Flathead/Cambrian (Sweetwater County)Monthly Oil & Pre-CO2 Decline Path
Monthly Oil Production
Pre-CO2 Decline Path
CO2/Gas Inj (Since '91)
Begin CO2 Flooding1995
Incremental Oil2011 = 276,333
Total = 4,951,520
0
1,000
2,000
3,000
4,000
5,000
6,000
0
50
100
150
200
250
300
350
CO
2/G
as
Inje
ctio
n (M
Mc
f)O
il P
rod
uc
tio
n (
1,0
00
Bb
ls)
Month-Year
Lost Soldier - Tensleep (Sweetwater County)Monthly Oil & Pre-CO2 Decline Path
Monthly Oil Production
Pre-CO2 Decline Path
CO2/Gas Inj (Since '91)
Begin CO2 Flooding1989
Incremental Oil2011 = 582,883
Total = 27,596,919
42
Figure B - 5 Patrick Draw – Monell Unit
Figure B - 6 Salt Creek – Wall Creek 2
0
500
1,000
1,500
2,000
2,500
3,000
3,500
0
20
40
60
80
100
120
140
CO
2/N
at. G
as
Inje
ctio
n (M
mc
f)O
il P
rod
uc
tio
n (
1,0
00
Bb
ls
Month-Year
Patrick Draw - Monell Unit (Sweetwater County)Monthly Oil & Pre-CO2 Decline Path
Monthly Oil Production
Pre-CO2 Decline Path
CO2/Gas Inj (Since '91)
Begin CO2 Flooding2003
Incremental Oil2011 = 1,251,992Total = 7,481,084
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
0
50
100
150
200
250
300
350
400
450
CO
2/N
at. G
as In
jectio
n (M
Mcf)O
il P
rod
ucti
on
(1,0
00 B
bls
)
Month-Year
Salt Creek - Wall Creek 2 (Natrona County)Monthly Oil & Pre-CO2 Decline Path
Monthly Oil Production
Pre-CO2 Decline Path
CO2/Gas Inj (Since '91)
Begin CO2 Flooding2004
Incremental Oil2011 = 2,154,691
Total = 10,699,231
43
Figure B - 7 Wertz – Darwin/Madison
Figure B - 8 Wertz – Tensleep
0
200
400
600
800
1,000
1,200
1,400
0
10
20
30
40
50
60
70
CO
2/G
as
Inje
ctio
n (M
Mc
f)O
il P
rod
uc
tio
n (
1,0
00
Bb
ls)
Month-Year
Wertz - Darwin/Madison (Carbon/Sweetwater County)Monthly Oil & Pre-CO2 Decline Path
Monthly Oil Production
Pre-CO2 Decline Path
CO2/Gas Inj (Since '91)
Begin CO2 Flooding1996
Incremental Oil2011 = 259,052
Total = 4,475,320
0
500
1,000
1,500
2,000
2,500
3,000
0
50
100
150
200
250
300
350
400
CO
2/G
as
Inje
ctio
n (M
Mc
f)O
il P
rod
uc
tio
n (
1,0
00
Bb
ls)
Month-Year
Wertz - Tensleep (Carbon/Sweetwater County)Monthly Oil & Pre-CO2 Decline Path
Monthly Oil Production
Pre-CO2 Decline Path
CO2/Gas Inj (Since '91)
Begin CO2 Flooding1986
Incremental Oil2011 = 362,235
Total = 16,837,516