Kinder Morgan Energy Partners (NYSE: KMP) recently announced it was ramping up investments in the enhanced oil recovery (EOR) space by spending $671 million to further develop CO2 operations in Colorado and New Mexico. The ultimate goal is for Kinder Morgan Energy Partners to route more CO2 to the Permian Basin.

CO2 is a crucial part of an EOR technique known as CO2 injection. Occidental Petroleum (OXY 0.82%) sees EOR via CO2 injection boosting the estimated ultimate recovery rate by 10%-25% for its Permian Basin assets. 

It's not all gone yet
Occidental Petroleum owns 2.5 million net acres in the Permian Basin, and a large chunk of its operations are devoted to EOR via CO2 injection. While horizontal drilling has opened up new parts of the play to Occidental Petroleum such as the Wolfcamp and Cline shale, EOR via CO2 injection remains the source of ~60% of Occidental Petroleum's production from the Permian Basin. 

Last year, Occidental Petroleum completed roughly 550 wells in the Permian Basin. As long as there is an ample supply of CO2, Occidental Petroleum can continue to grow production from its Permian Basin assets using EOR techniques. In 2013, $615 million was spent on EOR techniques in the Permian Basin, and this year that is going to grow to $660 million.

This is one reason Kinder Morgan Energy Partners is expanding its CO2 business. While EOR techniques don't offer the highest production growth rates, wells "revived" by CO2 injection have very shallow decline rates compared to the very high decline rates of shale wells. As long as EOR techniques remain profitable, there will always be demand for CO2; this is what Kinder Morgan Energy Partners is banking on. 

Move over conventional drilling
Last year, $1.107 billion of Occidental's overall capex budget was spent developing the unconventional plays in the Permian, and the company is going to spend $1.53 billion on these plays this year. 

Several dvelopments have made the Permian Basin an area of focus for Occidental Petroleum. Production is expected to rise from 212,000 boe/d last year to 222,000 boe/d this year. It also seems that costs are trending lower. From 2012 to 2013, operating expenses in the Permian decreased by 17%. Better drilling techniques, a milder winter, and economies of scale will all help keep pushing that lower, which is why management sees $1.8 billion in cash flow after capital expenditures this year.

This time, however, it will do so with a focus on unconventional drilling. The Wolfcamp and Cline shales offers much larger growth prospects for shareholders, which is why it's great to see Occidental Petroleum stepping up its game in the area. A balance of slow growth, shallow-decline EOR operations combined with high-growth, rapid decline shale wells will reward investors with both stability and growth. 

Foolish conclusion
Enhanced oil recovery techniques are here to stay, so Occidental Petroleum should enjoy the free cash flow generation and low decline rates that wells "revived" by EOR offer. Increasing CO2 operations is a great move by Kinder Morgan Energy Partners. It diversifies its offerings in the sense that Kinder Morgan Energy Partners can cater to both the booming shale plays, and the increase in EOR operations on old wells, which is being aided by oil prices remaining around $100 a barrel.