Daily Reports

News From The Oil Patch 1/13/2015

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Monday's price at NCRA for Kansas Common was $35.75/bbl.  That's the lowest price in Kansas since March 13, 2009.
 
There was a dramatic increase in the number of drilling permits statewide last year, but dramatically lower numbers in December.  last year there were 7,031 permits issued across Kansas, compared to 6,310 in 2013, according to the Independent Oil & Gas Service.  These numbers usually go down in December.  But last December's count was the lowest for at least the last three years, just 288, compared to 369 a year earlier, and 448 two years earlier.  For the year, there were 147 new drilling permits issued in Barton County, 122 in Ellis County, 97 in Russell County and 80 in Stafford County.  
 
Weekly new permit counts in Kansas continued a downward plunge that started in October: 62 permits to drill were filed statewide including three in Barton County, one each in Ellis and Russell County. 
 
The year-end completion numbers do not reflect the downturn in production activity in Kansas.  2014 saw 5,832 wells completed in Kansas, up from 5,538 the year before.  Kansas producers completed 468 wells statewide in December, compared to just 233 a year ago and 419 two years ago. The annual total for Barton County last year was 148 completed wells.  Ellis County saw 155 completions in 2014, Russell County had 105 and there were 90 in Stafford County.  Last week there were 51 new well completions, including one in Russell County.  There were nine dry holes completed last week.
 
Out of 5,832 completed wells in Kansas last year, there were 1,041 dry holes.  That's 17% of the completed wells in Kansas without meaningful pay dirt.
 
With oil prices plunging producers are beginning to slash the number of drilling rigs around the country. An announcement by the contract rig company Helmerich & Payne sent shudders through the industry. The company plans to idle another four dozen rigs or more over the next month on top of 11 rigs that it has already mothballed.  The company stated that drilling activity and rig dayrates are expected to witness a significant decline owing to low crude prices. The weakness extends to the pricing market as well. Helmerich & Payne said that second quarter spot pricing for its FlexRigs have gone down about 10% from that of the current quarter. This trend is likely to continue through the next month.  To make matters worse, the company received early termination notice for four of its long-term contracts. 
 
Baker Hughes reports another downturn in the national rig count.  There were 1,750 active rigs last week, down 61 from the week before. The count in Canada was 366 rigs, up 158.  There were 26 active rigs in Kansas, down three.  Independent Oil & Gas Service reported fewer active rigs in eastern Kansas, but more west of Wichita.  Independent's total was 87 rigs, 15 east of Wichita, and 72 west of Wichita.  There are 56 rigs listed as pending.
 
Lawmakers in North Dakota fully expect depressed oil prices to trigger a tax exemption February 1 for newly drilled oil wells. Budget analysts estimated it would cause the state to miss out on an estimated $120 million to $205 million in revenue through June.  But lawmakers are far more concerned about the “large trigger” exemption that could mean billions rather than millions in uncollected oil-extraction taxes.  According to the Dickinson Press, the small trigger is pulled when the price of West Texas Intermediate crude at Cushing averages less than $55 a barrel for a single calendar month. The large trigger is hit when the WTI price averages less than $52.59 for five consecutive months.  The large trigger cuts the tax to zero for all wells during their first two years of production. 
 
A Republican Senator is calling for an increase in the federal gasoline tax.  Senator Bob Corker of Tennessee told CNBC this week that Congress has engaged in "generational theft" by paying for infrastructure out of its general funds.  That instead of the gas tax, created to fund infrastructure repairs and improvements, which hasn't been raised since 1993.  Senator Corker says it's time to "actually solve a fiscal problem instead of kicking the can down the road."
 
A decade after expanding its grain business during a price slump, one of the richest families in Canada is making a similar bet on oil.  Bloomberg reports the Richardson family of Winnipeg agreed to buy 550 wells in Manitoba, part of a $410 million divestiture of Canadian assets by EOG Resources. The family's Tundra Oil & Gas will boost its output this year by one-third to 32,000 barrels a day.  Chief Executive Officer Ken Neufeld says he remains on the lookout for more deals.

News From The Oil Patch 1/5/2015

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Another bellwether low-price for oil Monday.  Late in the day we spotted $49.91 per barrel for the Nymex near-month contract down $2.78.  London Brent was off more than six percent, down $3.52 at $52.90 per barrel.
 
Crude prices at NCRA are at their lowest levels since April of 2009.  Friday's post (1/2/15) was $42.50 per barrel.
 
The Kansas Corporation Commission offers evidence the Kansas oil & gas industry is slowing down.  The KCC reported just 290 new intent-to-drill notices filed in the month of December.  That's dramatically lower than the 469 intents filed the month before, and the 410 filed the year before. There were three new intents filed in Barton County last month, four in Ellis County, six in Russell County and seven in Stafford County.  Year-end numbers were higher.  There were 7,104 intents filed statewide last year, up from 6,395 the year before.
 
Kansas continues to offer some of the cheapest gasoline in the country.  As of Jan. 5, the nationwide average for a gallon of regular was $2.199, but across the midwest its cheaper: $1.92/gallon Monday across Kansas, $1.893 on average across Oklahoma, and $1.859 in Missouri (AAA). 
 
The Obama administration has opened a new front in the global battle for oil market share, effectively clearing the way for the shipment of as much as a million barrels per day of ultra-light U.S. crude to the rest of the world.  Reuters reports the administration began approving a backlog of requests to sell processed light oil abroad. 
 
According to the monthly survey by the Federal Reserve Bank of Dallas, manufacturing activity in Texas has increased even as demand slowed.  But several manufacturing executives were worried about how the falling price of oil would affect their businesses next year,  especially those serving the oil patch will likely be affected by dropping prices and declining drilling activity.
 
Anadarko Petroleum and Exco Resources will pay $5 million into a fund for public education under a settlement approved by the Oklahoma Commissioners of the Land Office.  The Land Office manages mineral rights on public land, overseeing a trust fund that has grown to $2.3 billion. According to the Daily Oklahoman newspaper, there are about 6,000 oil and gas wells on this land, with most paying three-sixteenths of production to the trust, or more than $50 million a year.  Office staff, which monitors these wells for compliance, found the underpayment.
 
The collapse in oil prices over the past several months won't derail the railroads' profit engine even if it does slow the tremendous growth in crude shipments seen in recent years.  The AP reports crude oil rail shipments spiked by well over 4,000 percent between 2008 and last year, from 9,500 carloads to 435,560 — as production boomed and the cost for a barrel of oil soared into the triple digits.  But even with oil prices falling off a cliff, industry analysts and railroad executives point out that crude shipments still make up just a sliver of the overall freight delivered by rail. What's more, because fuel costs are such a large part of their budgets, railroads benefit directly from falling prices.
 
Alaska’s new governor, Bill Walker has less than two months to reveal how Alaska will manage the massive drop in oil prices.  Alaska's economy is more dependent on it than that of any other state. With no sales or personal income tax, the bulk of state revenue is tied to natural resources.  At the same time, the state woefully misread the direction of oil prices, predicting they would remain at over $100 per barrel for fiscal 2015. For now, they are counting on $14 billion in rainy day funds — double those of any other state, but analysts say that might not be enough.
 
The North Dakota Legislature begins its legislative session on Tuesday, and observers expect a lot of scrutiny on spending.  State budgets have grown by ten billion dollars in ten years, and the state has enjoyed a two-billion dollar surplus.  But now with low prices comes lowered expectations of future revenue.
 
Last month, when oil magnate Harold Hamm was ordered to pay his ex-wife $1 billion in their divorce, he called the ruling "fair and equitable, publicly thanked the judge and said he was happy to have the case behind him.  Now, with his estimated $19 billion personal fortune having fallen by half amid a rout in oil prices, the chief executive of Continental Resources has changed his mind.  CNBC reports Hamm has appealed the divorce ruling, which he now considers erroneous and inequitable, according to filings in Oklahoma County Court.  The appeal, and an earlier one by ex-wife Sue Ann Arnall, will be heard by the Oklahoma Supreme Court.

News From The Oil Patch 12/29/2014

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Dueling conspiracy theories continue about why the Saudis and OPEC are not moving to support oil prices.  Russian President Vladimir Putin said the Saudis and the US are conspiring to hurt his economy, and that of other beligerent nations. Others insist that the Saudis are trying to put large, US shale producers out of business.  But despite sanctions from the west, Russia's biggest oil producer Rosneft says it has fulfilled a $7 billion loan repayment for its acquisition of TNK-BP last year.  The company is paying off lenders for money it borrowed when it acquired the joint venture in March 2013.   The ongoing plunge in global oil prices is pushing Venezuela toward economic collapse.  The Washington Times reports President Nicolas Maduro is clinging to power in a country on the edge of becoming a failed state.
 
Russia may help OPEC to prop up global oil prices by slightly cutting exports in favour of domestic refining.  The country's former energy minister and OPEC negotiator Igor Yusufov led a delegation which discussed cooperation with OPEC in 2001-2002 to support global oil prices and agreed to modest cuts although Russian state and private producers never followed through.  According to reporting from Reuters, they increased exports instead.  Yusufov, who says he is still regularly meets Gulf OPEC oil ministers, no longer holds any major official position and runs an energy investment company.  Moscow needs oil prices of $100 a barrel and above to balance its budget. Its finances have been severely hit by Western sanctions over the Russian role in the Ukraine crisis.
 
If the Saudis hope to drive Texas shale producers out of business, it's not working.  According to the Texas Railroad Commission, there were 1,508 permits approved by the oil and gas regulator for wells in new locations last month, just slightly lower than the figure from November of last year.  Well completions so far this year are more than four thousand above the year-ago figure.   
 
In Oklahoma, the oil giant Continental Resources said this week it will slash its 2015 drilling budget by about 40% from its earlier forecast.  This and other similar announcements are causing ripples in the support industries that depend on the patch for contracts.
 
The Forum News Service reports a different jobs picture in North Dakota that the rosy view of two years ago.  Preliminary stats show November unemployment was at 2.4% in the state, still the lowest in the nation, but up from October and from year-ago numbers.  Initial jobless claims increased by 23.8 percent over a year ago.
 
Gasoline prices were down to $2.10/gallon in Great Bend and $2.04 in Hays on Monday.  There are currently more than 30 states across the US with at least one station offering gas at less than two dollars a gallon.  AAA reports the national average is $2.28 per gallon, down a penny on the day, and more than a dollar a gallon cheaper than a year ago at this time.   The statewide average in Kansas is just over $2.02/gallon.
 
A dramatic drop in active drilling rigs in Kansas last week, down 21 to 82 total rigs.  Independent oil and gas service reports 24 in eastern Kansas, down five, and 58 west of Wichita, down 14.  A total of 70 rigs are listed as pending their next location assignment. Baker Hughes reported 1,840 active rigs nationwide last week, down 35 from the week before.  In Canada, the count was down 135 rigs at 256.  There were 29 in Kansas, down one, according to Baker Hughes.
 
Independent Oil & Gas Service Inc reports 121 new well completions statewide last week, for a year-to-date total of 5,832.  There were 39 completions reported east of Wichita.  Of the 82 completions in western Kansas, 19 were dry holes.  There was one new completion reported in Russell County and two in Stafford County.
 
There were 38 drilling permits filed for new locations across Kansas last week.  That's 6,976 so far this year.  There were 16 permits filed in eastern Kansas and 22 west of Wichita including one in Stafford County.
 
The state of North Dakota approaches an important milestone based on the falling price of crude oil.  A decades-old law would see that state waive its 6.5% oil extraction tax if the average monthly price for West Texas Intermediate at Cushing falls below $52.59 next year.  The average price is still above $61/bbl, but if low prices continue, Reuters reports the target would be within reach by next June. Industry representatives in North Dakota say that tax break could be an important incentive for continued investment, but experts say that tax cut would cause big problems with the states budget, taking new schools, water pipeline and other infrastructure projects off the table.
 
An ongoing scandal in the oil patch in Brazil is delaying the quarterly profit reports of the state-run oil firm Petrobras, prompting talk of resignations among the company's top executives.  But it appears the Chief Executive Maria das Gracas Foster will weather the storm.  Prosecutors accused company contractors of forming a cartel that overcharged for construction and engineering projects, inflated the value of assets and funneled kickbacks to executives and political parties.  So far about 40 people have been charged with crimes in the case, including some former executives.  The current president of Brazil was the chairwoman of the board of directors of the company during the time when much of the crimes allegedly took place.
 
A former Oklahoma based CEO who scammed hundreds of people in a Ponzi scheme was recaptured earlier this month after his escape from a federal prison in Central Texas.  Jimmy Morrisett was found in an abandoned house in his hometown of Burnet, Texas.  Morrisett walked away from the satellite prison camp in Bastrop, Texas, about 70 miles away.  He is the former chief executive officer of Red Earth Resources and Alpine Petroleum, both based in Tulsa.  In 2013, Morrisett pleaded guilty to engaging in unlawful monetary transactions and was sentenced to nine years in prison. Prosecutors say he organized a nearly $7 million Ponzi scheme involving U.S. and Canadian investors.  Some of the more than 200 victims were elderly and lost their life savings.

News From The Oil Patch 12/22/2014

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Kansas oil prices have reached depths some producers have never experienced.  Old hands in the patch are reminded of those the bust years of 2008 and 2009 nearly every day as NCRA prices continue to plunge.  On December 18 the price for a barrel of Kansas Common was $43.75, the lowest in McPherson since May 5, 2009.  On Friday, December 19, prices rebounded, and the NCRA price jumped $2.50 to $46.25/bbl.
 
The drop in crude prices this year has hurt the economies of oil-producing countries, thus reducing demand.  Current Brent prices are too low for ten of OPEC's 12 members to balance their budgets, yet not low enough to force producers to scale back output.  The U.S. is producing the most oil in three decades while OPEC members have pumped more than the group’s target level for each of the past six months.
 
The monthly demand forecast from OPEC is contributing to the continuing oil-price slump.  The cartel now predicts demand for its product will fall to its lowest point in more than a decade next year, to 28.92 million barrels a day.  That's more than a million barrels less than OPEC's current output.
 
Plunging crude prices are hitting some oil producers especially hard in Kansas, where the industry is dominated by smaller, independent operators who depend heavily on the cash flow from producing wells to pay for drilling new ones.  The AP quotes Osage Resources President Robert Murdock saying if prices continue to decrease, he may not drill any new wells next year.  When prices were higher, Murdock had plans to drill 20 wells in 2015.  The Hutchinson producer says it costs between $2 million and $3 million to drill a horizontal well a mile deep with a lateral of one mile.
 
Tulsa-based Triple Crown Energy announced plans to drill up to 24 new wells in the Mississippian Lime play in Kansas within the next year.  The company says the deals could lead to further development of some 40,000 net acres in Kansas.Joint ventures were set up with US Energy Development Corp and Millenial Energy Partners, which bought working interests in the projects in Hodgeman, Ness and Gove counties.  The company says drilling operations are already underway.
 
The Federal Reserve Bank in Dallas says a prolonged oil price slump could cost the state of Texas 128,000 jobs by the middle of next year.  But the Fed also said that would not be enough to slow the state's job growth to zero.  Texas is on track to add 390,000 jobs this year, so the job losses in the patch would amount fto about 1.1 percent of the state's non-farm employment of more than 11.6 million jobs.
 
Declines in oil and gas severance taxes contributed to large drops in overall revenues for Alaska and North Dakota in the third quarter. The Rockefeller Institute of Government, a public policy research group, reported that Alaska saw its total tax collections drop 74.3 percent.  In North Dakota tax revenues fell 46.7 percent.  Revenues rose from year-ago levels in many other states where energy production helps power the economy, including Texas, West Virginia, Pennsylvania and Oklahoma. Most states saw tax collections rise in the third quarter, and overall state revenue was up 4 percent from the same period in 2013, according to data collected from 48 states.
 
A new law in Oklahoma to reduce income taxes does not kick in until state revenues grow.  But Secretary of Finance and Revenue Preston Doerflinger tells the Daily Oklahoman that "it's iffy at best" whether the state will see the required income growth.  Gross production tax receipts dropped below prior year collections in November for the first time in 19 months, based on a price of $93/bbl in September.  The price is now MUCH lower, so tax colletions are expected to drop.  
 
More than a dozen states now have gasoline stations boasting prices below $2 a gallon, with Oklahoma leading the way.  The Sooner State's average price is just over $2.27/gallon.  That's the second-lowest statewide average in the US and the least expansive average in Oklahoma since 2009. The average in OK has dropped for 48 consecutive days.
 
North Dakota Governor Jack Dalrymple expects the global oil market to rebalance next year.  Dalrymple told Reuters express confidence his state will "comfortably" ride out OPEC'sw attempts to squeeze other producers.  Dalrymple calls it a "clear, classic, commodity market shake-out."
 
The Kansas Corporation Commission reports 469 new intent-to drill notices filed statewide in November, a seasonal dip from October's 662 filings and a fairly steep drop from the 502 intents reported in November of last year.  There were 23 intents filed in Barton County, but just six in Ellis County, eight in Russell County and two in Stafford County.
 
Baker Hughes reports 1,875 active drilling rigs nationwide last week, down 18 for the week.  In Canada there were 391, down 40.  The count in Kansas was 30 rigs actively drilling for oil and gas, up two.  Independent Oil & Gas Service reports 101 active rigs across Kansas.  The count east of Wichita was unchanged at 29.  There were 72 active rigs in western Kansas, down eight, and 49 rigs await their next location.
 
The State of Kansas issued 80 permits for drilling in new locations last week, 48 in eastern Kansas and 80 west of Wichita.  There was one new permit issued in Ellis County, one in Russell County and five in Stafford County.
 
Independent Oil & Gas Service reports 130 new well completions across Kansas last week.  68 were east of Wichita.  Of the 62 in western Kansas, 15 were dry holes.

News From The Oil Patch 12/8/2014

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The oil price plunge continues.  At NCRA on Monday, the price for a barrel of Kansas Common Crude was $52.75.  We had to go back to July of 2009 to find it at that price or cheaper. 
 
In North Dakota a barrel of crude oil is bring less than $50.  The price for Bakken crude fell below $50/bbl for some producers on November 28th.  That's nearly 30% cheaper than the price of Brent Crude on London's ICE exchange.  Bloomberg reports difficulties for some producers getting their product to refining hubs.   At least one analyst says if you're selling at the wellhead, you're getting a very low price compared to West Texas Intermediate Crude.  North Dakota produces more than one million barrels per day, but pipeline capacity is currently just 583,000 barrels.  That's expected to grow significantly by the end of the year.
 
Also from North Dakota: slipping prices already means fewer rigs operating in that state's Bakken Shale, according to the Associated Press.  The rig count during the last weekend in November was 185 for the entire state, down from 191 for the same date a year earlier. 
 
How many ways are there to say "North Dakota oil boom"?  Here's one more.  Reported income by all North Dakotans has more than doubled to a record $30.4 billion since the infancy of the state's oil boom in 2006.  Tax Department figures released to the Associated Press show the number of taxpayers in the state has jumped 37 percent since the state's oil bonanza began, from 339,000 in 2006 to 466,000 in 2013. Slightly more than 440,000 tax returns were filed in 2012.
 
Analysts are offering a wide range of opinions about how falling oil prices will affect production in the US.  The Wall Street Journal reported that OPEC's decision last week NOT to cut production to prop up prices may not affect American output anytime soon.  Experts tell the journal that come companies loaded with debt or operating in fringe locations could face big trouble if US prices remain at $65 to $70 per barrel for long.  But many shale drillers are likely to cut spending while still pumping from cheap-to-produce ares like the Eagle Ford and Permian Basin plays in Texas.  Some other companies have oil-price hedges in place that will buoy profits even if crude continues selling at four-year lows.
 
T. Boone Pickens predicted last week that prices would rebound to $100 a barrel in the next 12 to 18 months.  Pickens also said he expects the Organization of the Petroleum Exporting Countries will eventually move to slash oil production, possibly in the first half of 2015.
 
Exxon Mobil's CEO Rex Tillerson tells CNBC the firm can weather the downturn in oil prices even if prices sink to $40 per barrel. He says massive projects in liquefied natural gas and deepwater drilling are decade-long investments, and says they have been tested to perform across a broad range of price ranges, from $40 to $120 per barrel.
 
Baker Hughes reports 1,920 active drilling rigs nationwide, up three, and 422 in Canada, down 16.  The count in Kansas was 26 rigs actively drilling for oil and gas, five higher than last week.  Independent Oil & Gas reports 115 active rigs in Kansas.  There were 30 east of Wichita, down six and 85 in western Kansas, unchanged.  38 were listed as pending.
 
Kansas operators filed 93 drilling permits for new locations across Kansas last week, 6,809 year-to-date.  There were 52 new permits filed in eastern Kansas, and 38 west of Wichita, including four in Barton County, two in Ellis County, and one in Stafford County.
 
Independent Oil & Gas Service reports 67 newly-completed wells in Kansas last week, for ayear-to-date total of 5,431.  Of the 15 completions in western Kansas six were dry holes.  There were 52 completions east of Wichita last week.
 
Houston-based Kinder Morgan is rekindling discussions aimed at opening an oil pipeline from Texas's Permian Basin to southwestern Kern County, California.  The proposal would then tie into an existing oil pipeline to access refineries in northern and southern California.  No oil pipelines currently cross the Rocky Mountains.  According to reporting by the Bakersfield Californian newspaper, the project would transit 200,000 barrels of crude per day to California, plus 100,000 barrels per day of liquid petroleum condensate for export to Asia.

News From The Oil Patch 12/1/2014

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There was a dramatic drop in oil prices last week. At NCRA on Friday Kansas Common dropped to $56/bbl.  That's the lowest price in McPherson since September, 2009.  
 
Baker Hughes reported 1,917 active drilling rigs this week, down 12.  Canada had 438 +4, and the count in Kansas was 21, down four.  Independent Oil & Gas Service reported 121 active rigs statewide and 33 pending their next assignment. There were 36 in eastern Kansas and 85 west of Wichita, both unchanged.
 
Independent Oil & Gas reported 76 drilling permits issued last week in new locations across Kansas and 6,716 thus far this year.  There were 34 east of Wichita, and 42 in western Kansas, including five in Barton County, one in Ellis County, and three in Russell County.
 
There were 131 new well completions across Kansas, for a year-to-date total of 5,364.  Of the 70 completions located in western Kansas, 8 were dry holes.  There were 61 east of Wichita.
 
Eighty percent of Texas voters approved a measure this month to increase transportation funding without raising taxes or fees. Proposition 1 is expected to add billions to the state highway fund by dedicating some of the tax revenue from the oil boom to road construction and maintenance.  Now they have to decide how to spend that windfall.  The first payment, an estimated $1.7 billion, is likely to be deposited in the state highway fund next month.
 
Another Texas town is taking steps to ban fracking.  Reno, Texas, west of Dallas, was shaken by its first recorded earthquake last year, and has had hundreds since then.  Reno took the first step toward what could become an outright ban by passing a law in April limiting disposal well activity to operators who can prove the injections won't cause earthquakes, a tall order.  The City of Denton passed a fracking ban earlier this year, but it is still unclear whether cities can regulate oil and gas drilling in Texas.   That ban is scheduled to take effect Tuesday, but a court hearing on a proposed injunction against Denton's ban is pending.  Under state law, property rights are separate from mineral rights, making it possible to own one but not the other. 
 
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The Kansas Geological Survey and the Wichita oil firm Berexco plan to drill an injection well between two nearly played-out oil wells near Wellington, with the intention of injecting compressed CO2. Senior Scientific Fellow Lynn Watney at the KGS tells us their goals are twofold: two enhance production in the nearby oil wells, and to sequester the carbon dioxide underground.
 
Before the drilling can begin, Watney says they are setting up the oil field for scientific observation, installing monitoring equipment prior to the injection of the carbon in a "pilot scale."
 
"This is not a full-field scale, but it's to monitor the injection of the CO2, to learn about its effectiveness to recover oil in this kind of formation," Watney said. "This particular project is public information that we'll be sharing with oil companies, with others that are interested in the effectiveness.  And with the techniques that we're employing to monitor we hope to learn specifics about recovery factors and efficiencies that are going to ultimately effect the economics."
 
Watney says the compressed, liquid CO2 will create a "miscible flood," that will act a lot like a dry-cleaning fluid, where it reduces the stickiness of the oil to release it from small pores in the rock formation and create a bank of oil that will be pumped to the surface by the nearby wells.
 
It is actually an inefficiency that keeps the CO2 underground.
 
"What happens to that CO2 is that it either goes into solution in the brine, it becomes trapped in the pore spaces, or it can react with the rock," Watney said. "Where the CO2 isn't doing the work to release the oil it's getting trapped in everything else.  The idea that, once the oil is being produced, and you exhaust the mechanism to release that oil, the rest of the CO2 would stay in the ground."
 
Watney says they'll inject about eight truckloads a day for a period of nine months, or 26,000 tons of CO2 total.  The drilling is scheduled to begin this spring.