February 15, 2018 / 8:51 PM / 4 months ago

CORRECTED-U.S. spending bill expands carbon tax credit, boosting oil producers

(Corrects timing of credit to 12 years, not permanent)

By Ernest Scheyder

HOUSTON, Feb 15 (Reuters) - A little-noticed addition to the U.S. budget deal approved last week will help Occidental Petroleum Corp and other oil producers by more than tripling a tax credit for injecting carbon dioxide back into the earth to increase crude output.

The tax-credit expansion, although supported by environmentalists and energy producers, had failed to move out of Congress during the 2016 presidential election. Its passage now likely will further boost already surging U.S. oil output in a year that production is forecast to hit 11 million barrels per day.

The injection process, used for more than 40 years to prolong output from traditional oil wells, also is being tested by Oxy and others as a way to speed more oil production from shale wells.

President Donald Trump last week signed the spending plan into law. It boosts for 12 years an existing tax credit to $35 per metric ton of carbon dioxide injected underground, up from $10 per ton.

"This will be an economic driver for our nation," said North Dakota Senator Heidi Heitkamp, a Democrat who had pushed for the credit's expansion with a bipartisan group of senators. "It will hopefully push a lot of innovative technologies across a range of industries, not just in coal or oil."

Oxy, Denbury Resources Inc and others inject more than 2 billion cubic feet of carbon dioxide each day into traditional oil wells, many of which came online more than 75 years ago.

The method harnesses the carbon dioxide produced during the extraction of oil or from electric-power plants, and forces it back into the fields. That helps drive more oil to the surface.

The technique, one of several enhanced oil recovery (EOR) strategies that can prolong the productive life of oilfields, underpins more than five percent of U.S. oil output, or about 450,000 barrels per day, according to energy consultancy Advanced Resources International.

EOR can help firms extract between 30 percent and 60 percent of all the oil held in a reservoir. That's far more than the 10 percent usually recovered from initial traditional drilling, according to the U.S. Department of Energy.

"This legislation helps to ensure domestic energy security," Vicki Hollub, Oxy's chief executive, said in a statement.

EOR increases a producer's costs, but because EOR wells pump consistently for decades, their value over time can exceed shale wells, whose production quickly tapers off.

Oxy has not published anticipated financial benefits from the tax credit's expansion, and Wall Street analysts who track the company have not offered any estimates. But partly because of its carbon operations, Oxy was able to raise its dividend during the oil price downturn from 2014 to 2016.

Oxy this week swung to a fourth-quarter profit that met Wall Street's expectations. (Reporting by Ernest ScheyderEditing by Chizu Nomiyama)

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