Talos' Carbon Capture Venture

The energy transition and, perhaps even to a larger degree, the heightened focus on ESG initiatives, are pushing tradi­tional oil and gas operators to reconsider the way they do business and the ways in which they operate. Carbon management is quickly emerging as a method to achieve net-zero goals—if a company has announced such aspi­rations—or enhance ESG performance, and in many cases, both.

Offshore Gulf of Mexico (GoM) producer Talos Energy Inc. announced two major part­nerships this summer, as well as a winning bid for a carbon sequestration project site that po­sitions the company as one of the early-innings leaders in carbon management.

In June, Talos announced a joint venture (JV) with London-based Storegga to source, evaluate and develop carbon capture and stor­age (CCS) projects along the U.S. Gulf Coast and GoM, which includes state and federal waters offshore Texas, Louisiana, Mississippi and Alabama.

Just two months later, Talos reported that it, along with partner Carbonvert, was the winning bid for a Texas General Land Office GLO) carbon storage project for a site located near Beaumont and Port Arthur, Texas.

The JV project with Storegga spanning the Gulf Coast targets the region’s 30-plus giga­tons of potential carbon storage, while the specific GLO project with Carbonvert has the potential to sequester up to 275 million metric tons of CO2 over the life of that project alone.

Talos president and CEO Tim Duncan said the idea to initiate carbon management proj­ects first arose in 2018 when the company be­gan to more closely evaluate its emissions and how to lower those emissions, but the idea in investing in CCS really picked up momentum in the past year.

“CCS is a business to which we can rapid­ly transfer our skill set to develop a material low-carbon business,” Duncan said. “We start­ed talking to banks and our friends in the invest­ing community about some of these initiatives. We were introduced to Carbonvert, which had an experienced team in renewables and CCS with other companies, particularly the majors, and we started talking about the GLO bid pro­cess. Working on that bid convinced us to take a more regional approach and really lean in on the idea.”

GLO project details

The project site for Talos and Carbonvert’s CCS project with the GLO comprises a total land area of more than 40,000 gross acres off­shore Texas state waters in the GoM. Accord­ing to Talos, the project site is 100% covered by the company’s existing seismic database and is located in proximity to a large concen­tration of industrial CO₂ sources along the Texas and Louisiana Gulf Coast.

“We have a lot of seismic and deep under­standing of the geology, as well as experience with the regulatory environment, logistics and all of the things you need to fulfill an offshore operation,” Duncan said. “And we believe that was what the state of Texas found in our bid. They had an area with the right geology that will allow us to create the right storage site, meaning we can put carbon away, monitor it and store it for a long period of time.”

According to Talos, the process has now en­tered into an exclusive phase where Talos and Carbonvert are actively negotiating a lease agreement with the GLO based on the terms of the Talos bid and the terms included in the original request for proposal from the GLO. The final terms of the agreement are subject to the approval of the Texas School Land Board.

Duncan explained that the deal with GLO is a more localized approach to carbon man­agement as compared to the JV with Storegga, which he said was more regional and covers most of the Gulf Coast.

“In the GLO bid, we selected acreage with great geology while limiting potential liability for us and the state, meaning there is the least amount of older wells, plugged wells, in that populated area,” he said. “So, it was the most efficient use of space. This would do the most good from a carbon storage, tracking and mon­itoring [aspect] over the next 30 to 40 years. We want to continue this approach regionally.

Both Duncan and Bob Abendschein, exec­utive vice president and head of operations at Talos Energy, explained that the onset of the project’s operations are still at least a few years away.

“Talos is working to be a first mover in the CCS space and intends to accelerate the pro­cess,” Abendschein said. “Back in April is when the GLO came out with the request for proposal, and the bid award was then presented in August 2021. So, we’ll be working in paral­lel to wrap up the lease while we start to plan the next phase of the project.”

He added, “With engineering and geolog­ical work, coupled with the permitting re­quired for permanent sequestration, there are numerous elements that all need to come to­gether, but we’re definitely aiming to reach a final investment decision on the project as soon as we can.”

Localized CCS

According to Talos, the JV with Storegga will originate and mature CCS ventures with emitters, infrastructure providers, service com­panies and financing partners, among others. The company reported that under the terms of the agreement, as individual CCS projects are matured in the future, each will be ring-fenced with separate operating agreements, financ­ing structures and the possibility of additional working interest partners.

The agreement requires no upfront capital, and Talos and Storegga will share costs in a 50:50 split in the initial phase. And although Talos has been designated as the operating partner in the JV, Duncan said the deals with both Storegga and Carbonvert effectively turn them into a service provider.

“You have to be able to talk to the indus­trial partners and make sure you understand that now they are the customers, and we’re the service provider,” he said. “So it changes the nature of the relationship that we have as an offshore oil and gas operator for us to turn into a service provider. We talk to the custom­er, which is the industrial partner focused on lowering emissions, work with a midstream partner and create the full value chain, and execute the carbon storage and monitoring of the product.”

Duncan added that this type of project is similar to others Storegga is involved with in the U.K.

“They have had the experience of talking to everyone involved in the value chain, includ­ing industrial sources and capture to transpor­tation, to storage and monitoring, and they’ve partnered with Shell, Harbour and now Exxon Mobil [Corp.],” Duncan said. “We get the ben­efit of all the learnings of those projects.”

Improving credits

Established in 2008, the 45Q tax credit pro­vides tax credits to companies capturing, stor­ing and sequestering CO₂. And while the credit increase in 2018 was welcomed by the carbon management community, most in the industry agrees that an increase in the credit may be needed in order to see real movement of the CCS needle.

“Right now, you’re looking at roughly a $50 credit by the time injection commenc­es,” Abendschein said. “Across the spectrum of emitters, if they are what we call Tier One, those credits can be sufficient on their own to incentivize participation in CCS. Separately, an element of our strategy is to aggregate more than just one tenant per project, which should drive costs per unit down.”

He added that because of Talos’ operational skillset in shallow water and being a traditional low-cost operator, the company’s expertise can help bring costs down as well.

Abendschein continued, “When you move to the next tier of emitters, additional sup­port of carbon reduction initiatives, including increasing the tax credits—maybe it’s $85, maybe it’s $100—would help drive CCS par­ticipation across a wider range of industries. Along the value chain there is technology, there is engineering capability, there is mid­stream interest, Talos will have the critically important storage and with broader emitter participation then these types of projects can work for everyone.”