While legislation driven by the rapid growth of horizontal drilling and hydraulic fracturing has dominated oil and gas legislation in recent years, this week, Michigan lawmakers considered bills to enhance viability of other extraction processes: so-called enhanced or secondary production techniques using carbon dioxide injection and similar methods. At the Michigan House Energy and Technology Committee hearing on Tuesday, Michigan legislators considered the three complementary bills, HB 4885, HB 5254 and HB 5255, which would, collectively, (1) reduce the severance tax on oil and gas extracted by those methods, (2) include CO2 pipelines used in recovery operations in existing oil and gas transportation and sale laws and (3) permit the acquisition of rights-of-way for the installation and maintenance of CO2 pipelines by eminent domain.
The debated process involves injecting compressed carbon dioxide or other gases near an existing oil or gas well as a means to push additional oil or gas to a production well. The method, having been used since the 1970s, has recently drawn significant market attention as technological advanceshave permitted the process to become more mobile and broadly applicable to a wide range of oil and gas sources. Significant improvements in production efficiencies have drawn the support of oil and gas producers, while environmental groups are finding comfort in the method’s ability to capture and use CO2 that might otherwise be released into the atmosphere.
H.B. 4885 would amend the Michigan Severance Tax Act (M.C.L. § 483.2a), which levies a 6.6 percent severance tax (4 percent for certain smaller wells) on the value of extracted oil and a 5 percent tax on natural gas. Under the bill, a rate of 3.3 percent for oil and 3 percent for gas would apply to oil and gas severed using “secondary or enhanced production” methods designated and approved by the Department of Environmental Quality, including CO2 injection techniques. Notably,hydraulic fracturing is not one of the covered production methods.
The other two bills weave CO2 transmission pipelines into the existing oil and gas construction, transportation and sales laws. H.B. 5254 proposes to amend Section 2a of Public Act 16 of 1929 (M.C.L. § 483.2a) to incorporate CO2 pipelines into provisions regulating the construction of crude oil and petroleum pipelines. H.B. 5255 also amends M.C.L. § 483.2a to allow authorized entities to acquire necessary rights-of-way by eminent domain and to use state highways to transport CO2 to be used to produce oil and gas by pipelines, and to construct and maintain such pipelines.
Together, these bills create the potential for a boost in Michigan oil and gas production by making it more economical and efficient for oil and gas producers to use enhanced production techniques being leveraged in other large oil and gas markets across the United States. We will continue to monitor the progress of the legislation through the House and Senate.