3 Winners Making the Most of the Old Oil Patch

The old Maxwell House Coffee slogan, "good to the last drop," was never meant to be applied to oil production. But as increasing attention is paid to U.S. output, producers are taking those words to heart. Enhanced oil recovery, or EOR, allows exploration and production companies to suck every last drop of oil out of the ground in aging, mature fields. One such field is the Permian Basin, and today we'll take a look at three companies that are profiting from a renewed focus on older fields.

Permian Basin
The Permian Basin is an oil-rich sedimentary basin that stretches across the western part of Texas and southeastern New Mexico, and producers have been pumping black gold out of it since 1923. Right now, the basin is one of the busiest oil plays in the U.S., producing more than 1 million barrels of oil per day. It accounts for 68% of all the oil produced in Texas and 80% of the state's reserves.

Enhanced oil recovery
EOR, sometimes known as tertiary recovery, describes techniques used to maximize hydrocarbon production in reservoirs, specifically in mature or declining fields. Producers use EOR to change the temperature or pressure in a reservoir to maximize the volume of oil to flow to the surface.

EOR is enough of a game changer that companies like Denbury Resources (NYS: DNR) can base their entire business model on tertiary recovery. Denbury is the country's second-largest tertiary producer, and it has been getting a lot of attention lately -- from investors and integrated majors alike.

Though there are several methods of EOR used by producers, and they vary in accordance with local geology, one of the most popular methods in the Permian Basin right now is carbon dioxide injection.

Occidental Petroleum's (NYS: OXY) top U.S. operation is in the Permian Basin. The California-based company is the largest oil producer in the play, and it runs more active carbon dioxide EOR projects than any other operator. The company controls 2,000 drilling locations spread over 3 million net acres, and accounts for roughly 15% of all the oil produced in the basin. Through the second quarter of 2012, Occidental was producing 138,000 barrels of crude oil per day in the Permian, up 2,000 barrels per day from 2011.

But thinking solely of producers in the Permian doesn't take full advantage of the investing opportunity presented by the increasing focus on carbon dioxide EOR; Occidental and the other Permian Basin oil producers aren't the only winners here. Kinder Morgan (NYS: KMI) -- along with its asset-holding master limited partnership, Kinder MorganEnergy Partners (NYS: KMP) -- is having a tremendous year, and much of that is the result of its CO2 business.

The partnership is the country's leading transporter and marketer of carbon dioxide, and through the first nine months of the year, its CO2 segment is up $176 million over last year. Kinder Morgan has an ownership stake in the two largest CO2 domes, which provide a combined 1.5 billion cubic feet of CO2 per day to operators in Utah, Oklahoma, and of course, the Permian Basin.

Things are going so well for Kinder Morgan's CO2 business that the company has had to turn customers away this year. As a result of demand specifically from the Permian Basin, Kinder Morgan acquired and has begun to develop the St. Johns CO2 field. Stretching across Arizona into New Mexico, St. Johns is expected to provide about 400 million cubic feet of CO2 per day to producers in the Permian.

Foolish takeaway
The Permian Basin is yet another energy reserve experiencing success because of improving technique in technologies like horizontal drilling and the use of carbon dioxide in EOR. Until the price of natural gas picks up again, domestic oil plays like the Permian will dominate the focus of production, and companies like the ones outlined above will produce great returns.

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The article 3 Winners Making the Most of the Old Oil Patch originally appeared on Fool.com.

Fool contributor Aimee Duffy has no positions in the stocks mentioned above. Click here to see her holdings and a short bio. If you have the energy, check out what she's keeping an eye on by following her on Twitter, where she goes by @TMFDuffy. The Motley Fool owns shares of Denbury Resources, Imax, and Kinder Morgan. Motley Fool newsletter services recommend Kinder Morgan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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