American Oil and Gas Reporter - September 2018 - 99

SpecialReport: Reservoir Modeling & EUR
with separate systems producing both oil
and natural gas.
45Q Tax Credits
Changes in the U.S. Tax Code may
provide additional incentive for operators
to consider developing CO2 EOR projects.
The Bipartisan Budget Act of 2018 amended the federal tax code to expand and extend Section 45Q tax credits for carbon
storage. These 45Q credits were created
to incentivize investments in carbon capture technologies in order to reduce the
nation's carbon footprint.
The value of the tax credit varies,
based on whether the CO2 is captured
specifically for sequestration, where eliminating anthropogenic CO2 emissions is
the primary purpose, or whether anthropogenic CO2 storage occurs as a result
of an EOR operation.
At present, the 45Q credit for CO2
used in a qualified EOR project is $15.29
a tonne. The credit increases linearly on
an annual basis until 2026, when it reaches
a maximum of $35.00 a tonne.
The credit for CO2 injected into deep
saline formations as part of a qualified
geologic storage project is set at $25.70
a tonne presently. It increases linearly to
a maximum of $50.00 a tonne in 2026.
After 2026, these amounts are to be adjusted for inflation. Only CO2 that is
stored within the formation may benefit
from the tax credit.
45Q tax credits can be claimed for 12
years after operations begin for qualified
projects that begin construction before
Jan. 1, 2024. The credits may be claimed
by the taxpayer capturing the emissions,
but emitters may be able to transfer them
to the operators of intentional storage or
CO2 EOR sites.
One key element of the revised 45Q
rules is that participation thresholds for
non-electricity-generating industrial facilities have been lowered from a minimum
of 500,000 tonnes a year to 100,000
tonnes. This lower threshold allows additional industrial sources, such as many
ethanol plants, to be eligible for the tax
credits. These incentives may contribute
to an increased supply of CO2 at a competitive price for use in EOR.
Work to make the credits more readily
usable and aligning required reporting
with applicable federal regulations and
state resource conservation laws likely
will contribute to faster proliferation and
use of CO2 for EOR applications. Furthermore, clarifying the transferability of

the tax credit likely will enable development of innovative business models that
can realize the tax incentives and help finance new CCUS projects.
Reservoir Surveillance
Earning the 45Q tax credits requires
an accounting of the stored CO2. The
amount of CO2 stored during an EOR
project can be calculated by monitoring
CO2 production and injection rates, and
subsequent validation through reservoir
surveillance. EERC has been working
with Denbury to better understand and
account for CO2 storage associated with
the Bell Creek EOR project.
Those efforts have resulted in reservoir
surveillance techniques that can help meet
the accounting requirements necessary to
realize 45Q tax credits cost-effectively,
but that also allow for the more prudent
management of commercial EOR operations and improving project performance
through better oversight and management.
CO2 EOR has the potential to partially
address the energy demand/carbon intensity
challenge by creating an energy system
J. GREG SCHNACKE is executive director, governmental relations for Denbury
Resources Inc., in Plano, Tx. He coordinates government affairs activities for
Denbury's senior executive team at the
federal, state and local levels. Prior to
joining Denbury, Schnacke was the chief
executive for the Colorado Oil & Gas
Association. He also served on the senior
staff of former U.S. Senate Majority Leader
Bob Dole, R-Ks., both in Kansas and in
Washington, holding several positions including legislative director and deputy
administrative assistant. Schnacke is a
graduate of the University of Kansas and
the University of Tulsa College of Law.
JOHN HARJU is vice president for
strategic partnerships at the Energy &
Environmental Research Center, where
he leads efforts to build and grow dynamic
partnerships with industry, government
and research entities in support of EERC's
mission to provide practical, pioneering
solutions to the world's energy and environmental challenges. He is a member
of the National Petroleum Council.
JOHN HAMLING is assistant director
for integrated projects at EERC, where
he brings scientific and engineering innovation to field demonstrations. His

with a lower CI than one based on hydrocarbon energy produced through more conventional means. Deploying carbon capture
technology at a greater scale can lead to
proliferating both the number and geographical distribution of CO2 EOR operations. Applying industrially sourced CO2
EOR on a nationwide scale can produce a
significant volume of incremental oil with
an overall reduction in GHG emissions.
Although not the primary purpose of
CO2 used in enhanced oil recovery, the
value of associated storage may be increased significantly by the Section 45Q
tax credits. Programs such as these have
the potential to incentivize capture and
storage of CO2 from anthropogenic sources
as a way to reduce carbon emissions.
Expanding and clarifying the transferability of the tax incentives may enable
the development of innovative business
models that can realize these incentives
to generate financing for new CCUS projects. And increased CCUS activity will
diversify and boost domestic oil production, improving the nation's energy security
and sustainability profile.
r
role is to implement pioneering solutions
that facilitate the prudent development
and use of fossil energy. One of Hamling's primary focuses is to advance
the commercial application of geologic
carbon dioxide utilization and improved
oil recovery in both conventional and
unconventional oil plays.
JAMES SORENSEN is assistant director for subsurface strategies at EERC.
His primary responsibilities are to conceive and conduct research projects related to oil and gas resource assessment,
enhanced oil recovery, and geologic
storage of CO2. Sorensen's project experience includes working on CO2 EOR
pilot tests in conventional and unconventional wells in the Williston Basin,
and commercial-scale demonstrations
in the Powder River Basin and Alberta.
NEIL WILDGUST is assistant director
for geoscience and engineering at EERC,
where he leads efforts to characterize
and model the subsurface to support a
portfolio of energy projects. Wildgust
has more than a decade of experience
in research management, including the
Plains CO2 Reduction Partnership and
IEAGHG's Weyburn-Midale CO2 Monitoring and Storage Project.
SEPTEMBER 2018 99

American Oil and Gas Reporter - September 2018

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