Kinder Morgan Acquires Texas Oilfield to Leverage Carbon Tax Credits, Sources Say

(Reuters) — U.S. pipeline operator Kinder Morgan has acquired oil and gas producing assets in West Texas and is planning to tap U.S. carbon capture incentives to increase output from the properties, according to people familiar with the matter.

The purchase shows how the U.S. Inflation Reduction Act's $60 per metric ton tax credit for carbon sequestration is spurring oil and gas deals by increasing the attractiveness of older oil-producing areas, one of the people said. The company paid about $100 million for the oilfield, according to one of the people, which first produced oil in the 1920s and still pumps about 1,100 barrels per day.

Kinder Morgan has a small oil production business that produces about 50,000 barrels of oil per day by injecting carbon dioxide into the wells to push out more oil. The U.S. tax credit for carbon sequestration made the field more economic, one of the people said.

The deal with closely held Avad Energy Partners includes some 265 wells in a mature area of the largest U.S. oil field, according to Avad marketing documents and people close to the matter.

Kinder Morgan declined to comment. An Avad Energy spokesperson did not immediately reply to a request for comment.

The acquisition includes some 11,600 acres of land that has potential to increase oil production using the enhanced oil recovery technique involving carbon dioxide injection, the people said.

Kinder Morgan separately plans to sell several of its older, conventional oilfields in the area, one of the people said, to concentrate on the higher-potential properties.

"This is showing KMI is staying in E&P business," one of the people said using the acronym for exploration and production. "They have huge CO2 sources in West Texas" that can be used to produce more oil.

Another 100 million to 300 million barrels of oil could be recovered over time from the field by using enhanced oil recovery, that person said.

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