Carbon Dioxide

Highlands acquired leases over 46,000 acres of land in Apache County, Arizona in June 2018, which the Board believes to be prospective for commercial volumes of carbon dioxide (“CO2”). The area sits adjacent to land which was identified as a target for future CO2 production by Kinder Morgan, one of the leading suppliers of CO2 to the Permian Basin. /p>

Plans had been developed to construct a pipeline from Apache County, Arizona to the existing pipeline network that provides CO2 for the Permian Basin. Pricing for CO2 in the Permian Basin is usually linked to the price of WTI oil and that pipeline project was suspended when the oil price declined in 2015.

The Company’s acquisition and maintenance of the leases will be at minimal cost and therefore the Board believes that now is the right time to acquire the CO2 leases given the recent sustained increase in oil prices

CO2 is used in a broad range of applications, as described below, and the Board will commence discussions in due course with a range of potential end users to fund any drilling activity. Producers are often able to negotiate take or pay contracts and pricing floors to ensure recovery of their investment in CO2 supply sources.

Of most immediate relevance to Highlands, CO2 is used in the oil and gas industry to extract in-place oil from pressure depleted wells. Importantly, the United States Department of Energy estimates that there are up to 83 billion barrels of technically recoverable oil in the United States Lower 48 states via CO2 enhanced oil recovery (“EOR”)

There are numerous other applications for carbon dioxide:

  1. Carbon dioxide is used as a cryogenic agent for cooling, chilling, and rapid freezing of food and beverages during transportation
  2. It is a key component in brewing and fizzy drinks
  3. It has several agricultural applications, including the meat industry and as a growth stimulant for plants
  4. It is also used in medical oxygen supplies as a respiratory stimulant
  5. Carbon dioxide is used as a shielding gas in welding
  6. It plays an integral part of rubber production
  7. Carbon dioxide is also a main component of fire extinguishers