MILBANK ADVISES SENIOR LENDERS ON FINANCING OF A LANDMARK CARBON CAPTURE/ENHANCED OIL RECOVERY PROJECT IN TEXAS

When completed, the $1 billion Petra Nova project will be world’s largest operation using captured carbon dioxide to enhance oil extraction as well as the world’s largest implementation of post-combustion carbon capture technology to an existing power plant; Tokyo-based Milbank team advised senior lenders including Japanese commercial and export credit agency lenders

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., who 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 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.

Milbank’s Mr. Borisoff said, “We’re excited to be helping facilitate financing for a sustainable energy project of such unprecedented size and sophistication.  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 Mr. 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.