The “Prize” ” Becomes Larger - CO2 Conference...Jan 03, 2015 · oil from the Orinoco Oil Belt now accounts for about half of Venezuela’s oil production. Use of hydrocarbon

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The “Prize” Becomes Larger

Prepared for:The 12th Annual (2014) EOR Carbon Management Workshop

Part of the Annual CO2 Conference Week December 8-12, 2014

Prepared By: Vello A. Kuuskraa, PresidentAdvanced Resources International, Inc.

December 9, 2014Midland, TX

The The ““PrizePrize”” Becomes LargerBecomes Larger

| JAF2014_095.PPT | December 1, 2014 | www.adv-res.com

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Conventional onshore and offshore oil and gas have served, and still serve, as the foundation for the world’s hydrocarbon supplies.

However, in my view, the world’s supply of hydrocarbons is in the midst of a major transition - - a transition from today’s comfortable, though increasingly challenging, conventional supplies to a “brave new world” of even more challenging unconventional resources.

Successfully making this transition - - by E&P companies and hydrocarbon producing countries alike - - will require a “step change” in the availability of scientific knowledge and the access to advanced extraction technologies.

New Resources for a New Resources for a New Age of HydrocarbonsNew Age of Hydrocarbons


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Two countries - - notably the U.S. and Canada - - who draw on unconventional resources for significant portions of their oil production - - have already made this transition.

U.S. Shale and Tight Oil/Enhanced Oil Recovery. Shale and “tight” oil, from the Bakken, the Eagle Ford, the Permian and other plays and basins, provide 3.7 million barrels of crude oil per day. Enhanced oil recovery provides 0.8 MMB/D. Together these sources account for more than half of today’s U.S. crude oil production of 8.5 MMB/D.

Canada’s Oil Sands, Tight Oil and Enhanced Oil Recovery. With continued development of oil sands, augmented by CO2 , hydrocarbon miscible and thermal enhanced oil recovery, Canada today produces 80% of its crude oil from “unconventional” sources.

Transition from Conventional to Transition from Conventional to Unconventional HydrocarbonsUnconventional Hydrocarbons


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U.S. Shale and U.S. Shale and ““Tight OilTight Oil”” ProductionProduction

Source: Advanced Resources Int. “Tight Oil” Database, 2014.

JAF2014_032.XLS

U.S. “tight oil” production - - from shales (Eagle Ford), tight sandstones (Sprayberry), and tight carbonates (Bakken) - - has increased six-fold in five years.

From a base of 0.6 MMB/D five years ago (2009), shale and “tight oil” now provide 3.7 MMB/D.

With continued active drilling in the Bakken and Eagle Ford plus strong growth in the Permian, “tight oil” will provide over 4 MMB/D in 2015.

*

U.S. “Tight Oil” Production

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Several other countries - - notably Argentina, Colombia and Venezuela - - are also on the path of relying on unconventional resources for the majority of their oil and gas production.

Argentina. With declining production from conventional gas fields, Argentina is investing heavily in its tight and shale gas resources, particularly in the Neuquen Basin and its Vaca Muerta Shale.

Colombia. With steadily maturing conventional oil fields, Colombia is turning to enhanced oil recovery to boost oil recovery from its large heavy and light oil fields.

Venezuela. The production of 1.2 million barrels per day of “extra-heavy” oil from the Orinoco Oil Belt now accounts for about half of Venezuela’s oil production. Use of hydrocarbon miscible and thermal enhanced oil recovery at its traditional oil fields add to this total.



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World Shale Gas and Shale Oil ResourcesWorld Shale Gas and Shale Oil Resources

Advanced Resources Int’l, with sponsorships from the U.S. Energy Information Administration, conducted an assessment of shale gas and shale oil resources for 137 formations and 95 basins in 41 countries, plus the U.S.


*Updated in 2014 by Advanced Resources Int’l to 63 billion barrels.Source: Advanced Resources International Internal Shale Database, 2014.

Technically Recoverable

(Billion Barrels)

1. Russia 75

2. U.S. 48*

3. China 32

4. Argentina 27

5. Libya 26

6. Australia 18

7. Venezuela 13

8. Mexico 13

9. Pakistan 9

10. Canada 9

11. Others 65

TOTAL 335JAF2014_036.XLS

Country

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While “tight oil” has gained most of the headlines, other hydrocarbon sources are also driving the transition from conventional to unconventional hydrocarbons.

“Stranded” Oil in Discovered Fields. Enhanced oil recovery, particularly CO2 -EOR, is being increasingly used to produce more oil from already discovered conventional oil fields.

Residual Oil Below and Beyond Discovered Oil Fields (ROZ). A major, previously overlooked oil resource - - the Residual Oil Zone (ROZ) - - offers significant size and promise.



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The The ““StrandedStranded”” Oil ResourceOil Resource

Proved Reserves 22 Billion Barrels

Target for EOR396 Billion Barrels

Cumulative Production 182 Billion Barrels

Source: Advanced Resources Int’l. (2011)

Nearly 400 Billion Barrels of Oil “Left Behind”

| JAF2014_082.PPT | DRAFT September 29, 2014 | www.adv-res.com

Original Oil InOriginal Oil In--Place: 600 B BarrelsPlace: 600 B Barrels ““StrandedStranded”” Oil InOil In--Place: 396 B BarrelsPlace: 396 B Barrels

Traditional primary recovery and waterflooding have recovered only about a third of the oil in-place in discovered U.S. oil fields, leaving behind a target of nearly 400 billion barrels.

A variety of enhanced oil recovery technologies are being used to recover this “stranded” oil, including:

Miscible/immiscible CO2 injection

Hydrocarbon miscible flooding

Steam injection

Chemical flooding

In the U.S., these methods currently provide 0.8 million barrels per day.


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The discovery of large natural sources of CO2 in Colorado (McElmo Dome, Doe Canyon), in New Mexico (Bravo Dome) and in Mississippi (Jackson Dome) established the foundation for the CO2 -EOR industry.


COCO22 Enhanced Oil Recovery: A Look at TodayEnhanced Oil Recovery: A Look at Today

The 136 significant CO2 - EOR projects currently produce 300,000 barrels per day from injecting 3.5 Bcfd (68 million/yr) of CO2 , with 0.7 Bcfd (14 million/yr) from industrial sources.

Lack of reliable, affordable supplies of CO2 is the major constraint to more intensive use of this technology.

Current CO2 -EOR Operations and CO2 Sources (2014)

Source: Advanced Resources International based on Oil & Gas Journal and other industry data, 2014.

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With increased supplies of CO2 , oil production using CO2 -EOR is projected to double by the end of this decade:

300,000 B/D in 2013

600,000+ B/D by 2020


COCO22 Enhanced Oil Recovery:Enhanced Oil Recovery:The Next Domestic Oil Supply Surprise?The Next Domestic Oil Supply Surprise?

Projected CO2 -EOR Production by Region

Key Question: Should policies or incentives be provided to CO2

capture, utilization and storage (CCUS), how much additional CO2

-EOR based oil production and CO2

storage would result?Source: Advanced Resources International based on Oil & Gas Journal and other industry data, 2014.

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Advanced Resources International recently completed a rigorous estimate of the resource in-place for a portion of the San Andres ROZ “fairways” of the Permian Basin.

That study* is focused on a four county area within the Texas portion of the Permian Basin - - Dawson, Gaines, Terry and Yoakum counties.

The study used a substantial data set of logs, calibrated to core and water salinity data, to establish gross and net thickness, porosity and residual oil saturation for the ROZ interval. These data were then used to estimate the oil in-place for the San Andres ROZ “fairway” in the four county area.

*The study was conducted by Advanced Resources International for RPSEA (Research Partnership to Secure Energy for America) as part of a subcontract with the University of Texas of the Permian Basin, Center for Energy and Economic Diversification.

The The ““Residual Oil ZoneResidual Oil Zone”” ResourceResource


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Key Permian Basin FeaturesKey Permian Basin Features

From: Robert F. Ward, Christopher G. St. C. Kendall, and Paul M. Harris, 1986, “Upper Permian (Guadalupian) facies and their association with hydrocarbons; Permian Basin, West Texas and New Mexico”, AAPG Bulletin, , v. 70, no. 3, p. 239-262.


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Work by Melzer, Trentham and others has established that a widely distributed oil resource exists in the ROZ “fairways” surrounding the structurally defined oil fields of the Permian Basin.

Mapping by Melzer and others has identified four of these ROZ “fairways”: (1) Slaughter Fairway; (2) Roswell Fairway; (3) Artesia Fairway; (4) Capitan Fairway and (5) Other Merged Fairways.

The four county ROZ resource assessments being conducted by Advanced Resources International targets the Slaughter and Roswell Fairways in the northern portion of the larger Permian Basin ROZ “fairway”.

Studies indicate that additional resources likely exist within other ROZ “fairways” with of the Permian Basin.1,2

Permian Basin ROZ Permian Basin ROZ ““FairwaysFairways””


1 Robert Trentham, L. Steven Melzer, David Vance, Commercial Exploitation and the Origin of Residual Oil Zones: Developing a Case History in the Permian Basin of New Mexico and West Texas, Research Partnership to Secure Energy for America, Contract 81.089 08123-19-RPSEA, June 28, 2012.2 Potential extended eight county ROZ “fairway” study of the Permian Basin.

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Mapping of Residual Oil Zone Fairways in the Permian Basin Mapping of Residual Oil Zone Fairways in the Permian Basin and Active Major COand Active Major CO22 EOR Projects EOR Projects


The four county ROZ “fairway” resource assessment addresses the Slaughter and Roswell Fairways on the northern portion of the Permian Basin, where they merge with the Artesia Fairway.

A series of major oil fields - - Wasson, Seminole, Robertson, among others - - are located within these four counties.

The areas underneath the structural closure of these fields have been excluded from the ROZ “fairway” resource assessment.

YoakumYoakumYoakum TerryTerryTerry

DawsonDawsonDawsonGainesGainesGaines

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Four County Study Area, Permian Basin, West TexasFour County Study Area, Permian Basin, West Texas

YoakumPartition 2

Yoak

um P

artit

ion

1

YoakumPartition 3

YoakumPartition 4

Terry Partition 1 Fairway Boundary

TerryPartition 3

TerryPartition 4

DawsonPartition 1

DawsonPartition 2

DawsonPartition 3

Gaines Partition 1

Gaines Partition 2

Gaines Partition 3

Gaines Partition 4

Gaines Partition 5

ROZ Study Wells, Fairways and Partitions

Yoakum County

Yoakum Yoakum CountyCounty

GainesCountyGainesGainesCountyCounty

Terry CountyTerry Terry

CountyCounty

DawsonCounty

DawsonDawsonCountyCounty

Contains 121 study area logs, with 88 logs in the “fairway”.

Logs are calibrated to three detailed sets of core analyses to establish values for using the Archie Equation for fluid saturations.

Includes crossplot of porosity and permeability from San Andres Fm. data sets.

Terry

Partition 2

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Stratigraphic Chart Stratigraphic Chart –– San Andres FormationSan Andres Formation


The San Andres Formation in the study area is 1,200’ to 1,600’ thick and ranges in age from upper Leonardian to Guadalupian.

The San Andres Formation is underlain by the Glorieta/ San Angelo Formation and overlain by the Grayburg Formation.

Series

Tansill

Yates

Seven Rivers

Queen

GrayburgUpper

Lower

Upper Clearfork

Tubb

Lower Clearfork

WolfcampAboWolfcamp

Ochoan

Artesia

Group

Absent

PERM

IAN

SYSTEM

Glorieta/ San AngeloClearfork

Grou

p

San Andres

Leon

ardian

Guadalup

ian

LOWER

UPP

ERPermian Basin ‐ Northwest Shelf

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ThreeThree--Well ROZ Stratigraphic Cross Section ExampleWell ROZ Stratigraphic Cross Section Example

ROZ “1” represents the upper part of the Lower San Andres porous dolomite.

ROZ “2” represents the lower part of the San Andres porous dolomite; often thinner- bedded and more shaley than ROZ “1”.

Significant porosity and oil saturation are periodically observed in the ROZ “2” interval.

Base of ROZ “2” is defined by the underlying Glorieta Fm. or the tight Lower San Andres limestone.

ROZ Net Pay

Significant porosity & calculated oil saturation

are periodically observed in ROZ 2.

ROZ “1”

ROZ “2”

Calc.Oil Sat.

Calc.Oil Sat.

Calc.Oil Sat.

PorousDolomite

PorousDolomite

Lower San AndresLimestone

Lower San AndresLimestone

Porosity Porosity Porosity

(Low Porosity, “Tight”; not “Pay”)

ROZ Net Pay

ROZ Net Pay

SN

Gaines

NW ShelfYoakum

Dawson

Terry

Fairway

Fairway

CBP

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Results of ROZ Results of ROZ ““FairwayFairway”” Resource AssessmentResource Assessment


The ROZ “fairway” resource quality and concentrations vary widely in the four county study area.

Yoakum County. Except along its western border, Yoakum County has a thick package of ROZ net pay.* In the Northwest Shelf portion of the county, net ROZ pay averages 260 feet. To the east, while net pay thickens, it tends to have lower oil saturations.

Terry County. The ROZ interval in Terry County is thick, with 200 to 400 feet of net pay. However, much of the net pay is low in oil saturation. Still, significant pockets of higher resource quality exist in Terry County.

Dawson County. The ROZ interval is extensive in central Dawson County with over 350 feet of net pay. However, net pay thins to the northeast and to the south. While much of Dawson County has low ROZ oil saturations, pockets of higher oil saturation exist in the southern Dawson County.

*Net pay cut-off of 6% for porosity; no cut-off for oil saturation.

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ROZ Fairway of Gaines CountyROZ Fairway of Gaines County


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Results of ROZ Results of ROZ ““FairwayFairway”” Resource AssessmentResource Assessment


Gaines County (“ROZOPOLIS”). The ROZ interval and net pay in Gaines County is widespread but varies greatly - - from 200 feet in the northwest to over 350 feet in the southwest Central Basin Platform portion of the county. Oil saturations and porosity also tend to be relatively favorable within the Central Basin Platform.

Outside the current limits of the Central Basin Platform, in the eastern half of the county, net pay becomes thinner and, except for selected pockets, tends to have lower oil saturation.

Numerous CO2 EOR ROZ projects are underway in Gaines County. All but one are “brownfields”, one is a partial fairway “greenfield,” and another very large “greenfield” project is readying for injection in 2015.

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Type Log For Type Log For Gaines CountyGaines County

ROZ “1”

ROZ “2”

Log shows lithology-corrected neutron (red dash) and density (blue) porosity. Density-neutron cross-plot porosity shown in black.

ROZ “1”, below the main pay zone, has favorable oil saturation.

ROZ “2” contains more shale and thinner porous dolomite intervals.

Porosity development is uniform through the ROZ until a sharp change at the base of ROZ 2.

Oil saturation diminishes with depth, particularly in ROZ “2”.

San AndresPorous

Dolomite

Source: Petrusak, R. and V.A. Kuuskraa, 2014, ROZ Fairway Resources of the Permian Basin: A Four County Resource Assessment, slide no. 97, presentation prepared for Research Partnership to Secure Energy for America (RPSEA), June 25, 2014

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Gaines County Partitions and Study WellsGaines County Partitions and Study Wells


The Gaines County map shows: (1) the location of 60 study wells; 39 wells were included in the resource assessment; (2) the location of five ROZ “fairway” partitions; (3) the boundaries of the current ROZ “fairway”; and (4) the boundaries of the NW Shelf and Central Basin Platform, Permian Basin.

The map also shows location of the major San Andres oil fields excluded from the ROZ “fairway” assessment.

Partition 1

Partition 2

Partition 3

Partition 5

Fairw

ay B

ound

ary

NW Shelf

Central Basin Platform

San Simon Chan

nel

SeminoleW. Seminole

AdairTLOC

Cedar Lake

GMK & GMK So.

Robertson

Fairway

Boundary

HanfordODCRussell So.

Havemeyer

N

Seminole E

S

Carm-Ann

Jenkins

Black Watch

Homann

Middle

San And

res She

lf Margi

n

Lower San Andres Shelf Margin

Partition 4

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The ROZ “fairway” in Gaines County is partitioned into five distinct areas. Individual ROZ “fairway” resource assessments were undertaken for each of the five partitioned areas.

Partition #1. Covers 34,000 acre (53 mi2) area of northwest Gaines County on the Northwest Shelf. A portion of the Wasson field, covering 11,200 acres (18 mi2), has been excluded from the resource assessment for Partition #1.

Partition #2. Covers a 75,000 acre (117 mi2) area of northwest Gaines County in the San Simon Channel. Three small San Andres oil fields - - Russell, South (1,700 acres), Havemeyer (1,200 acres) and ODC (2,800 acres) have been excluded from the resource assessment for Partition #2.

Partition #3. Covers a 142,000 acre (222 mi2) area of western Gaines County on the northern portion of the Central Basin Platform. Seminole Field (23,700 acres) and its extensions (13,200 acres) have been excluded from the resource assessment for Partition #3, as well as Blackwatch Field (2,000 acres) and a portion of Hanford Field (2,200 acres).

Partition #4. Covers a 183,000 acre (288 mi2) area of southern Gaines County. A 15,500 acre (24 mi2) area, encompassing Robertson, No. Robertson, Jenkins and Carm-Ann Fields, has been excluded from the resource assessment for Partition #4.

Partition #5. Covers a 423,000 acre (661 mi2) area encompassing the eastern half of Gaines County beyond the extent of the Central Basin Platform. A total of 30,500 acres (48 mi2) from five oil fields (Hanford, GMK, Adair/TLOC, Cedar Lake and Homann) have been excluded from the resource assessment for Partition #5.

Partitioning the ROZ Partitioning the ROZ ““FairwayFairway”” ResourceResource


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The ROZ 1 and ROZ 2 “type wells” and average reservoir properties for the six San Andres ROZ wells in Partition #3 of Gaines County are as follows:

The ROZ The ROZ ““FairwayFairway”” of Gaines Countyof Gaines County


Partition #3: West Central Gaines County – Central Basin Platform

“Type Well” Average Reservoir PropertiesROZ 1 ROZ 2 ROZ 1 ROZ 2

Gross Thickness (ft) 223 188 243 243Net Pay (ft) 207 155 202 214Avg. Porosity (fraction) 0.094 0.102 0.100 0.094Avg. Oil Saturation (fraction) 0.34 0.32 0.33 0.32OIP (B/AF, for net pay) 194 198 201 183OIP (B/Acre) 40,100 30,700 40,600 39,200

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The ROZ resource in Partition #3 of Gaines County contains 11.33 billion barrels of oil in-place (OIP).

The bulk of the ROZ “fairway” resource in Partition #3 is higher quality, with porosity greater than 8% and oil saturation greater than 25%.

The ROZ The ROZ ““FairwayFairway”” of Gaines Countyof Gaines County


Partition #3: West Central Gaines County – Central Basin Platform

ROZ 1 ROZ 2 Total

(billion barrels) (billion barrels) (billion barrels)

Higher Quality ROZ Resource 3.96 5.30 9.26

Lower Quality ROZ Resource 1.80 0.27 2.07

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Total ROZ Total ROZ ““FairwayFairway”” Resources:Resources:Four Counties of the Permian BasinFour Counties of the Permian Basin


The ROZ “fairway” oil in-place in the four county area of the Permian Basin totals 107.1 billion barrels.

More than half, 66.5 billion barrels, of the ROZ “fairway” resource is higher quality, having an oil saturation greater than 25% and porosity greater than 8%.

The remaining portion, 40.6 billion barrels of the ROZ “fairway” resource, is lower quality, having an oil saturation less than 25% and/or porosity less than 8%.

Use of additional logs and data points would, no doubt, modify the above resource assessment values.

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Summary of ROZ Summary of ROZ ““FairwayFairway”” Resources: Resources: Four Counties of the Permian BasinFour Counties of the Permian Basin


Higher Quality Lower Quality TotalCounty ROZ Resources ROZ Resources ROZ Resources

(Billion Bbls) (Billion Bbls) (Billion Bbls)Yoakum 16.32 4.83 21.15

ROZ 1 9.17 3.06 12.23ROZ 2 7.15 1.77 8.92

Terry 9.88 7.51 17.39ROZ 1 1.27 4.69 5.96ROZ 2 8.61 2.82 11.43

Dawson 12.30 14.18 26.48ROZ 1 6.96 6.41 13.37ROZ 2 5.34 7.77 13.11

Gaines 28.02 14.11 42.13ROZ 1 14.17 7.23 21.40ROZ 2 13.85 6.88 20.73

Total 66.52 40.63 107.15Total ROZ 1 31.57 21.39 52.96Total ROZ 2 34.95 19.24 54.19

JAF2014_017.XLS

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The volumes of unconventional oil and gas resources of the world are massive. With advances in economically viable, sustainable extraction technologies, these new resources will provide a platform for a “new age of hydrocarbons.”

Successfully transitioning into this “new age of hydrocarbons” will also require placing greater emphasis on the environmental and climate effects of producing unconventional resources:

Reduced land and environmental footprint,

Alternatives to use of fresh water, and

Lower emissions of greenhouse gases (methane, CO2 ).

Closing ThoughtsClosing Thoughts

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Office LocationsWashington, DC4501 Fairfax Drive, Suite 910Arlington, VA 22203Phone: (703) 528-8420Fax: (703) 528-0439

Houston, Texas11931 Wickchester Ln., Suite 200 Houston, TX 77043-4574 Phone: (281) 558-9200Fax: (281) 558-9202

Cincinnati, Ohio1282 Secretariat CourtBatavia, OH 45103Phone: (513) 460-0360

AdvancedAdvancedResourcesResources

InternationalInternationalwww.advwww.adv--res.comres.com


Slide Number 1Slide Number 2Slide Number 3Slide Number 4Slide Number 5Slide Number 6Slide Number 7Slide Number 8Slide Number 9Slide Number 10Slide Number 11Slide Number 12Slide Number 13Slide Number 14Slide Number 15Slide Number 16Slide Number 17Slide Number 18ROZ Fairway of Gaines CountySlide Number 20Slide Number 21Slide Number 22Slide Number 23Slide Number 24Slide Number 25Slide Number 26Slide Number 27Slide Number 28Slide Number 29

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The “Prize” ” Becomes Larger - CO2 Conference...Jan 03, 2015 · oil from the Orinoco Oil Belt now accounts for about half of Venezuela’s oil production. Use of hydrocarbon