Pecos project still on

Despite a reduction in oil and gas prices and cuts in drilling rigs and budgets, a $1.15 billion plant is still on track to be built in Pecos County.

Dirt work has started on the Century Plant, said Doug May, Fort Stockton economic development director. A groundbreaking ceremony is expected on the project in February, with mechanical work starting in April.

SandRidge Energy is building the plant to extract carbon dioxide from the natural gas it drills in the area. Once complete, it will convey the plant to Occidental Petroleum, which will use the CO2 in enhanced oil recovery.

Oxy will operate the plant and treat the gas under a 30-year contract.

The Fort Stockton Independent School District approved a payment in lieu of taxes agreement for the companies. According to Texas Local Government Code, such payments are allowed as long as the sum is "adequate and just under the circumstances of the case considering the school district's needs."

"It gives us some relief from property taxes for 10 years," said Kevin White, SandRidge senior vice president. "It's essentially an economic incentive to build."

The companies also received a tax abatement from Pecos County commissioners.

The companies will bring in 500 construction workers by September, who will be paid $75 million in salaries during construction, May said.

"When you have that much salary coming into your community, you can expect that some of it will be spent here," he said.

In a news release, SandRidge Chief Executive Officer Tom Ward said the company was on schedule to start the Century Plant in the second quarter of 2010, despite cutting planned 2009 expenditures from $2 billion to $500 million. It has also reduced drilling rigs from 47 in September to 12 at the end of the year.

White said half the plant would go online next year (2010), with the rest being operational by the first half of 2011. Both sections will be able to produce 400 million cubic feet of gas per day.

May said SandRidge would likely increase drilling in the area again once the plant is online.

"I don't know a drilling company in the United States that doesn't have rigs stacked right now," he said.

White said that, even with reduced drilling, SandRidge should be able to fill the gas needs of the first half of the plant and meet Oxy's requirements for CO2.

"Like any other oil and gas company, we hope the economy and capital markets get better," he said.

Ben Shepperd, executive vice president of the Permian Basin Petroleum Association, said that, with many older oilfields in the Permian Basin that are tough to extract oil from, there would be demand for CO2 in the area even if oil prices stay down.

"I think that without a doubt, the demand for CO2 remains at an all-time high," he said. "I believe that this is a very valuable project in this economy and better economies."