Milbank advises on financing of Petra Nova carbon capture/enhanced oil recovery project in Texas

Milbank, Tweed, Hadley & McCloy Petra Nova Carbon Capture Project EOR carbon capture
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Milbank, Tweed, Hadley & McCloy LLP represented the lenders in connection with the senior debt financing for the Petra Nova Carbon Capture Project, a groundbreaking $1 billion carbon capture-and-sequestration (CCS) and enhanced oil recovery (EOR) project that 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.

A Milbank team led by Tokyo-based global project finance partner Alec Borisoff advised the senior lenders, including Japan Bank for International Cooperation (JBIC) and Mizuho Bank Ltd., which is backed by insurance provided by Nippon Export and Investment Insurance (NEXI).

The senior lenders’ financing was supplemented by a $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 U.S. energy resources.

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

Some 27 miles southwest of Houston in Fort Bend County, Texas, the Petra Nova Carbon Capture Project will capture some 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 then will be processed and transported via a new 82-mile pipeline to the West Ranch oil field in neighboring Jackson County, 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 involves the construction of a 78-MW power plant on the Parish site to provide auxiliary power for CCS operations.

“We’re excited to be helping facilitate financing for a sustainable energy project of such unprecedented size and sophistication,” Milbank’s Borisoff said. “By combining CCS and EOR operations, the project demonstrates a commercially viable method of adding large-scale carbon-capture facilities to existing power plants while providing a solid model for creating the additional revenue streams necessary to make the future implementation of carbon capture technologies economic. This project is a win for the companies involved, for the environment and for energy customers and will lead the way for the successful development of similar projects in the future.”

In addition to Borisoff, the Milbank team representing the lenders included global project finance partner Dan Bartfeld, Tokyo-based associates Daniel Lin and Brett Gilbert and New York-based associates Sara Thompson and Jennie DiFiore. Also working on the deal were of counsel Matthew Ahrens, special counsel Drew Batkin, regulatory advisor James Liles and associates Lisa Brabant and Meghan Gabriel.

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October 2014
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