Upstream Fiscal Regime Incentives for Captured CO2-EOR

Abstract

Several preliminary scoping studies have identified a significant potential for captured CO2 for enhanced oil recovery (EOR) projects outside North America. In countries where severe upstream fiscal terms can constitute an obstacle for such projects when they are profitable before tax, incentives should be considered. We compare several incentive schemes by running simulations on a realistic CO2-EOR project inspired by the Denver unit of the Wasson US field. The economic approach is based on incremental net present values (NPV). This requires dual simulations of a base case and a CO2-EOR case because the calculus is not linear and cannot be run on a single incremental costs and production case. The design of the incentive package is challenging for the host country. The incentive package should sufficiently improve the company NPV without reducing the State NPV in most situations that are likely to occur. By looking at both oil company and host country incremental NPV, we show that improvements in cost deductions, through accelerated capital expenses depreciation and uplift, are better suited for the host country than tax rate reductions. We also explore an upstream tax recycling scheme for financing CO2 purchase costs.