[Federal Register Volume 59, Number 67 (Thursday, April 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8304]


[[Page Unknown]]

[Federal Register: April 7, 1994]


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DEPARTMENT OF ENERGY
[Docket No. GP94-5-000]

 

Railroad Commission of Texas, Tight Formation Determination--
Texas 156, Spraberry (Trend Area) Formation, FERC No. JD94-02876T; 
Preliminary Finding

Issued April 1, 1994.

    The Railroad Commission of Texas (Texas) determined that the 
Spraberry (Trend Area) Formation (Spraberry Formation), underlying the 
Preston and Shackelford Units in portions of Midland County, Texas, 
qualifies as a tight formation under section 107(c)(5) of the Natural 
Gas Policy Act of 1978.
    For the reasons discussed below, the Commission issues this Notice 
of Preliminary Finding that the determination is not supported by 
substantial evidence.

Background

1. Texas' Determination

    On February 15, 1994, the Commission received Texas' notice 
determining that the Spraberry Formation underlying the Preston and 
Shackelford Units in Midland County, Texas, qualifies as a tight 
formation. Parker & Parsley Development Company (Parker & Parsley) is 
the applicant before Texas. The recommended area is approximately 
52,000 acres in size.
    The record shows that the Spraberry Formation consists of three 
distinct productive intervals--the Upper Spraberry, Lower Spraberry, 
and Dean formations--and that these reservoirs have been producing oil 
and/or gas for more than 40 years. The record further shows that there 
are approximately 182 currently active wells in the Spraberry Formation 
within the recommended area and that at least 100 additional wells have 
been produced to abandonment. The record also indicates that natural 
fractures enhance the permeability of the formation.
    Texas concluded that the Spraberry Formation meets the Commission's 
permeability guideline based on:
    (1) Pre-stimulation pressure buildup test data from one well 
drilled in the recommended area, the Preston Unit Well No. 3414-A 
(#3414-A well);
    (2) Type curve data from 22 stimulated Spraberry wells, 17 of which 
are located outside of the recommended area;
    (3) Core tests from three wells within the recommended area; and
    (4) A table from the ``Atlas of Major Texas Oil Reservoirs'' (1983) 
showing that the average permeability to oil in the Spraberry (Trend 
Area) formation is zero.
    Texas' finding that the formation meets the Commission's oil and 
gas flow rate guidelines is based on pre-stimulation flow test rates 
from the #3414-A well, which was drilled late in 1992.

2. Regulations/Commission Precedents

    To qualify a formation as a tight formation, 
Sec. 271.703(c)(2)(i)(A) of the Commission's regulations requires the 
jurisdictional agency to determine that the expected in situ (matrix 
and natural fracture) gas permeability throughout the pay section is 
0.1 millidarcy (md) or less.1 Sec. 271.703(c)(2)(i)(B) of the 
regulations requires the jurisdictional agency to show that the 
expected pre-stimulation stabilized natural gas flow rate, against 
atmospheric pressure, for wells completed for production in the 
formation is not expected to exceed the applicable maximum flow rate 
specified in the table in that section (290 Mcf per day in this 
case).2 Finally, Sec. 271.703(c)(2)(i)(C) of the regulations 
requires the jurisdictional agency to show that wells completed for 
production in the formation are not expected to produce more than five 
barrels of crude oil per day, prior to stimulation.3 According to 
Texas, the Spraberry Formation meets these guidelines.
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    \1\18 CFR 271.703(c)(2)(i)(A) (1993).
    \2\18 CFR 271.703(c)(2)(i)(B) (1993).
    \3\18 CFR 271.703(c)(2)(i)(C) (1993).
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    However, in Order No. 99, the Commission defined a tight formation 
as ``a sedimentary layer of rock cemented together in a manner that 
greatly hinders the flow of gas through the rock.''4 The 
Commission held in a prior preliminary finding that:
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    \4\Order No. 99, FERC Statutes & Regulations, Regulations 
Preambles (1977-1981) 30,183 at 31,261.
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    The Commission established guidelines on permeability and flow 
rates to be used to evaluate the physical characteristics of the rock 
in the formation in order to show that the formation is tight, which 
should have been the case prior to the onset of sustained production 
from the formation. (emphasis added) Accordingly, the Commission 
further clarified [in Order No. 99] that the objective of the rule was 
to ``provide incentives to develop tight formations, not to provide 
incentives to develop all formations with low pre-stimulation 
production rates.''5 As a result, the Commission did not intend to 
permit a formation that does not actually meet the definition of a 
``tight formation'' to qualify based on currently low permeability and 
flow rate values that are merely a side effect of prior conventional 
levels of production.''6
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    \5\FERC Statutes & Regulations, Regulations Preambles (1977-
1981) 30,183 at 31,276. See also Interim Rule, FERC Statutes & 
Regulations, Regulations Preambles (1977-1981) 30,130 at 30,906.
    \6\Railroad Commission of Texas, 63 FERC 61,067 (1993). A final 
order affirming the tight formation determination was issued by the 
Commission (64 FERC 61,225) after the applicant supplemented the 
record with data showing that original reservoir conditions also met 
the Commission's guidelines.
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    Similarly, the Commission held in another preliminary finding that 
the formation did not qualify as a tight formation because current-day 
qualifying values were the result of water influx due to sustained 
production, not the result of the way the rock was cemented 
together.7
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    \7\Mississippi Oil and Gas Board, 57 FERC 61,129 (1991). The 
Commission did not issue a final order because the applicant 
withdrew the application.
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Discussion

    Based on a review of the current record, the records in another 
proceeding involving the Spraberry Formation,8 and a study by the 
Texas Bureau of Economic Geology addressing the Spraberry Formation 
underlying the recommended area,9 the Commission believes that the 
determination is not supported by substantial evidence, as explained 
below.
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    \8\See 64 FERC 61,004 (1993) where the Commission preliminarily 
found that the Spraberry Formation in the Midkiff Unit did not meet 
the tight formation guidelines because the record did not:
    (1) Reflect natural fracture permeability;
    (2) Contain gas flow rate data that was representative of 
initial conditions in the reservoir; and
    (3) Contain substantial evidence that the formation met the oil 
flow rate guideline. The Commission did not issue a final order 
because the applicant withdrew its application. The acreage covered 
by the current recommendation is contiguous to the Midkiff Unit.
    \9\``Heterogeneous Deep-Sea Fan Reservoirs, Shackelford and 
Preston Waterflood Units, Spraberry Trend, West Texas,'' 1988, Texas 
Bureau of Economic Geology.
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    Commission review shows that the record does not reflect initial 
conditions (i.e., before sustained production, pressure decline, and 
filling of rock pore spaces with water) because virtually all of the 
data wells were completed in the Spraberry Formation from 1980 to 1993, 
long after production from the formation commenced.10 In addition, 
the record does not contain substantial evidence supporting the use of 
oil production type curve analysis as a method to calculate effective 
gas permeability. First, all 22 type curve wells were analyzed with 
equations where current gas-oil rations were used, as well as a single 
current reservoir pressure of 1,000 psia and the corresponding fluid 
properties at that pressure.11 Second, the oil permeabilities used 
in the calculations were derived by the analysis of the 22 wells' 
historical oil production. It is unclear how the oil permeabilities 
thus calculated can apply to the calculation of gas permeability prior 
to sustained production.
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    \1\0The one exception is a 1966 core permeability data well.
    \1\1The Commission also notes that the record does not show how 
current pressures in wells first produced from 1980 to 1988 would be 
the same.
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    Moreover, the Commission believes that the record does not show 
initial conditions since waterflooding projects initiated in 1964 have 
affected most of the recommended area. Specifically, Commission records 
show that the Upper Spraberry formation in the Preston and Shackelford 
Units, the most productive interval of the three productive intervals, 
has undergone unitized waterflooding since 1964.12 These records 
also show that by 1980, the waterflood front had expanded over most of 
the Preston and Shackelford Units and as a result, most wells were 
producing more than 75% water.13
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    \1\2The records show that unitized waterflooding also began in 
the Lower Spraberry in 1964, but was discontinued in 1968 when it 
was determined that 80% of producing capacity was attributable to 
the Upper Spraberry and that water injection did not cause 
additional oil to be produced from the Lower Spraberry. None of the 
records reviewed shows any waterflooding operations in the Dean 
formation.
    \1\3The Commission's records do not show whether the Lower 
Spraberry interval also produces 75% water. However, the record 
contains no evidence showing that hydraulically fractured Lower 
Spraberry wells would not be in communication with the Upper 
Spraberry interval as a result of the extensive system of 
interconnected natural fractures throughout the Spraberry Formation, 
thereby allowing water encroachment.
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    Our review also shows that at original conditions, the Spraberry 
Formation was a crude oil reservoir with a solution gas drive. Such 
reservoirs initially have zero effective gas permeability by virtue of 
the fact that all the gas is dissolved in oil until reservoir pressure 
declines sufficiently, through sustained production, to allow free gas 
to form (known as the ``bubble point''). Thus, it appears that gas 
could not flow at initial conditions because the pores of the rock were 
filled only with oil and water, not because of the way the rock was 
cemented together.
    Finally, we conclude that one oil and gas flow rate data well 
(#3414-A), regardless of its completion date, does not constitute 
substantial evidence showing that the Spraberry Formation meets the 
flow rate guidelines in the recommended area because of the geological 
characteristics of the Spraberry Formation in the recommended area. 
Commission records show that Spraberry sediments in this area were 
deposited along two depositional axes running roughly north-south. The 
records further show that, at initial conditions, wells located along 
the eastern axis produced two to six times as much oil as wells located 
between the two axes, and that wells located along the western axis are 
characterized by high water production. The records also show that 
Spraberry reservoirs in the recommended area are highly 
compartmentalized due to extensive natural fracturing and complex 
depositional boundaries. Accordingly, we conclude that data from the 
#3414-A well does not provide sufficient evidence to support Texas' 
determination that the formation meets the oil and gas flow rate 
guidelines.
    Our review also shows that the record does not reflect the natural 
fracture permeability in the formation.14 The Commission's records 
clearly show that the original permeability of the formation (before 
sustained production and water injection) substantially exceeded 0.1 md 
due to the existence of interconnected, well-developed natural 
fractures that extend throughout the Spraberry Formation within the 
recommended area. The Commission's records also show that wells located 
parallel to the northeast trend of the fractures have substantially 
better reservoir permeability and flow rates than those located 
perpendicular to the trend. Therefore, wells draining sands that do not 
intersect the fracture system would be expected to reflect matrix 
permeability only, the pressure regime of a closed system, and low flow 
rates.
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    \1\4The Interim Rule issued February 20, 1980, in Docket No. 
RM79-76, states that matrix permeability alone ``will not be 
sufficient to qualify a formation, because formations with very low 
matrix permeabilities may be economic to develop if fractures have 
developed naturally. Therefore, to fulfill the guideline containing 
the specific permeability limit, the formation's average effective 
or in situ permeability throughout the pay section must be expected 
to be 0.1 millidarcy, or less.'' FERC Statutes & Regulations, 
Regulations Preambles (1977-1981) 30,130 at 30,906-07.
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    When a well has been cored, natural fracture permeability can only 
be analyzed if the core has intersected a fracture, and the well 
operator requests that vertical permeability be measured. Of the three 
core analyses in the record, only one (the Shackelford No. 138-A well) 
shows both horizontal (matrix) and vertical (fracture) permeability 
values. However, only the horizontal permeability was used by the 
applicant. Although the reported vertical permeabilities in the well 
are lower than the horizontal permeabilities in the majority of the 
core, the vertical permeability is listed as 55.27 md from one zone and 
as ``TBFA'' (too broken for analysis) in another zone. In addition, the 
record contains no evidence showing that the cored intervals in the 
three wells are pay zones that were completed for production.
    Finally, the record includes one data well (#3414-A) where pressure 
buildup calculations found that each of the three producing intervals' 
permeability was less than 0.1 md. We acknowledge that pressure buildup 
test analyses usually reflect total (i.e., matrix and fracture) 
permeability found in a well's drainage area, and that, despite its 
1992 drilling date, initial reservoir pressures in the #3414-A well 
appear to be as high as those found in the Spraberry Formation at 
original conditions. However, the record also shows that the Upper and 
Lower Spraberry intervals produced high volumes of water during the 
tests, and the record contains no evidence that any of the tested 
intervals was actually completed for production. Therefore, we conclude 
that the #3414-A well's high initial pressures and low permeability 
values may be the result of its location in an area of lower reservoir 
quality, and that the well's permeability does not reflect the 
formation's original permeability throughout the recommended area.
    In light of the above, the Commission is issuing this preliminary 
finding since the record:
    (1) Contains only gas permeability and hydrocarbon flow rate data 
that do not represent initial conditions found in the reservoir prior 
to sustained production, pressure decline, and water injection; and
    (2) Does not reflect natural fracture permeability.
    Under Sec. 275.202 (a) of the regulations, the Commission may make 
a preliminary finding, before any determination becomes final, that the 
determination is not supported by substantial evidence in the record. 
Based on the foregoing facts, the Commission hereby makes a preliminary 
finding that Texas' determination is not supported by substantial 
evidence in the record upon which it was made. Texas or the applicant 
may, within 30 days from the date of this preliminary finding, submit 
written comments and request an informal conference with the Commission 
pursuant to Sec. 275.202 (f) of the regulations. A final Commission 
order will be issued within 120 days after the issuance of this 
preliminary finding.

    By direction of the Commission.
Linwood A. Watson, Jr.,
Acting Secretary.
[FR Doc. 94-8304 Filed 4-6-94; 8:45 am]
BILLING CODE 6717-01-P