The Illinois Department of Commerce and Economic Opportunity has financed for the feasibility study of pipeline in the Illinois portion. The feasibility study would determine the possible pipeline route, estimated costs of building such a pipeline, and review regulatory, legal and permitting requirements. The study is expected to be completed by the fourth quarter of 2009, following the company would make a decision as to whether or not they would take initial steps to construct such a pipeline.
Under the U.S. Department of Energy Loan Guarantee Program, two proposed Midwestern gasification plants in Illinois and in Indiana, with which Denbury has CO2 purchase contracts, have been selected to proceed to the term sheet negotiation phase. Governmental guarantees of debt financing for these plants is not assured, and construction of these plants is subject to the term sheet negotiations, normal financing due diligence, loan documentation and various approvals, including state legislative approval.
The study includes multiple routes, scenarios and combinations of the several proposed gasification sites within the area. Thus, the estimated cost, total miles and diameter of pipeline(s) of the final pipeline system could vary significantly. Denbury’s preliminary internal estimates, based on the cost of recently constructed and under construction pipelines by the company, suggest that it would be a 500 to 700 mile pipeline system with an initial estimated cost of around $1.0 billion. The construction of the potential project would take four to five years to complete.
The loan guarantee program has selected a proposed third gasification plant with which Denbury has a CO2 purchase contract. Denbury intends to begin a pipeline study for this plant, which is expected to be a 110 mile pipeline constructed along the Gulf Coast of Mississippi, which would be connected to the existing Free State Pipeline.
Phil Rykhoek, chief executive officer of Denbury Resources: said: “The announcement that multiple proposed gasification plants have been selected for the next phase of the government loan guarantee program is a significant step toward our stated goal of augmenting our natural CO2 with man-made volumes. We see our ability to sequester man-made CO2 to be very timely in view of our government’s goal to reduce CO2 emissions and estimate that our current enhanced oil recovery projects store between 25% and 50% more CO2 than will be emitted from the incremental recovered oil. While there is much work to do before these potential additional sources of CO2 become a reality, we are encouraged by these latest developments.”
