Financing of a Landmark Carbon Capture/Enhanced Oil Recovery Project in Texas

Japan Bank for International Cooperation (JBIC) and Mizuho Bank, backed by insurance provided by Nippon Export and Investment Insurance (NEXI), have financed the Petra Nova Carbon Capture Project, a groundbreaking US$1 billion carbon capture and sequestration (CCS) and enhanced oil recovery (EOR) project in Texas, USA.

The project is expected to be the world’s largest facility using captured carbon dioxide from an existing power facility to assist in extracting otherwise difficult-to-reach oil.

Milbank, Tweed, Hadley & McCloy LLP represented the lenders in connection with the senior debt financing for the project. A Milbank team led by Tokyo-based Global Project Finance partner Alec Borisoff advised the senior lenders.

The senior lenders’ financing was supplemented by a US$167 million grant from the U.S. Department of Energy as part of the Clean Coal Power Initiative, which pairs government and industry funding in support of responsible and sustainable development of US energy resources.

The project is sponsored by NRG Energy, Inc. and JX Nippon Oil & Gas Exploration Corporation, and will rely on CCS technology provided by Mitsubishi Heavy Industries.

Located about 27 miles southwest of Houston in Fort Bend County, Texas, the Petra Nova Carbon Capture Project will capture approximately 1.6 million tons of CO2 annually (i.e., gas otherwise vented into the atmosphere) generated by the coal-fired W. A. Parish Power Plant, the state’s largest electricity provider and one of the biggest in the country.

The carbon dioxide extracted from the Parish generating station will then be processed and transported via a newly constructed 82-mile pipeline to the West Ranch oil field in neighboring Jackson County, Texas, where it will be used for enhanced oil operations to recover up to 60 million barrels of previously unrecoverable oil.

The West Ranch oil field is owned through a 50-50 joint venture between Petra Nova and Hilcorp Energy. In addition to the CCS, EOR and pipeline facilities, the project also involves the construction of a 78MW power plant on the Parish site to provide auxiliary power for CCS operations.