[Federal Register Volume 59, Number 79 (Monday, April 25, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9874]


[[Page Unknown]]

[Federal Register: April 25, 1994]


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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
[Docket No. GP94-7-000]

 

Railroad Commission of Texas; Tight Formation Determination--
Texas-158, Spraberry (Trend Area) Formation FERC No. JD94-03253T; 
Preliminary Finding

April 19, 1994.
    The Railroad Commission of Texas (Texas) determined that the 
Spraberry (Trend Area) Formation (Spraberry Formation), underlying all 
of the Aldwell Unit and part of the Merchant Unit in Reagan County, 
Texas, qualifies as a tight formation under section 107(c)(5) of the 
Natural Gas Policy Act of 1978 (NGPA).
    For the reasons discussed below, the Commission issues this Notice 
of Preliminary Finding that the determination is not supported by 
substantial evidence.

Background

1. Commission Regulations

    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\ Section 271.703(c)(2)(i)(B) 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 depth-dependent maximum flow rate specified in the table in 
that section (217 Mcf per day in this case).\2\ Finally, 
Sec. 271.703(c)(2)(i)(C) 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\
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    \1\18 CFR 271.703(c)(2)(i)(A).
    \2\18 CFR 271.703(c)(2)(i)(B).
    \3\18 CFR 271.703(c)(2)(i)(C).
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2. Texas' Determination

    On March 7, 1994, the Commission received Texas' notice determining 
that the Spraberry Formation underlying all of the Aldwell Unit and 
part of the Merchant Unit in Reagan County, Texas, qualifies as a tight 
formation. Hardy Oil & Gas U.S.A., Inc. is the applicant before Texas. 
The recommended area, which is approximately 24,136 acres in size, is 
within the same 150-mile long Spraberry Trend Field as the acreage 
involved with two prior proceedings involving the Spraberry Formation 
(Texas-81 and Texas-156).
    The record shows that the Spraberry Formation in the recommended 
area consists of four intervals--the Upper Spraberry, Lower Spraberry, 
JoMill, and Dean--that have been producing oil and/or gas for at least 
30 years. The record also shows that natural fractures are present 
throughout the formation and that approximately 233 wells have 
penetrated the Spraberry Formation within the recommended area.\4\
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    \4\Although Sec. 271.703(c)(4)(iii) requires Texas to include 
the location of all wells producing from the recommended formation, 
the record does not clearly indicate how many of the 233 wells have 
actually produced from the formation.
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    Texas' conclusion that the Spraberry Formation meets the 
Commission's permeability guideline is based on:
    (1) 1992 pre-stimulation pressure buildup (PBU) test data from the 
SAU Well No. 25-2 (#25-2 well), which is within the recommended area;
    (2) Type curve data from two stimulated Spraberry wells within the 
recommended area and thirty-two stimulated Spraberry wells outside the 
recommended area;
    (3) 1992 PBU test data from four wells located from 12.5 to 54 
miles away from the recommended area;\5\ and
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    \5\Two of the PBU test results are from wells located in the 
areas recommended in the Texas-81 and Texas-156 proceedings. The 
applicant incorporated this data to demonstrate that the 
permeability and flow rate characteristics of the Spraberry and Dean 
formations are relatively consistent over a large portion of this 
150-mile long trend.
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    (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 rates from 
the #25-2 well and test results from the four PBU wells mentioned in 
(3) above.

Discussion

    Our review shows that Texas' determination is based on permeability 
and flow rate data from wells that began producing from the Spraberry 
Formation between 1984 to 1992 although the Spraberry Formation has 
been produced for more than 30 years. Moreover, the five 1992 PBU data 
wells represent the initial capabilities of the least permeable lenses 
that ``remain to be produced'' in the Spraberry Formation. In addition, 
the ``near original'' initial pressures in two of these PBU wells show 
that the low permeabilities and flow rates are not the result of 
pressure depletion. However, Commission records show that reservoir 
pressures in the Merchant, Aldwell, and Texas-81 Midkiff Units had 
declined from between 2,000 and 2,200 psi to only 231 psi, 1,000 psi, 
and 1,050 psi, respectively, when unitized water injection commenced in 
the 1960's for the purpose of increasing pressure. Therefore, we find 
that the permeability and flow rate data in the record do not 
demonstrate that the formation meets the Commission's permeability and 
flow rate guidelines.
    In a previous tight formation proceeding, we found that the 
characteristics of a formation before the onset of sustained production 
from that formation should be evaluated to determine whether that 
formation meets the tight formation guidelines.6 We have also held 
that current-day gas permeability and flow rate characteristics which 
are the result of years of sustained production do not demonstrate that 
a formation is a tight formation.7 Accordingly, we find that the 
record lacks evidence showing that ``near original'' pressures are 
found throughout the recommended area and that the 1992 PBU tests do 
not sufficiently represent initial conditions found throughout the 
Spraberry Formation.
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    \6\See 63 FERC 61,067 (1993) at 61,291. The Commission 
subsequently affirmed the tight formation determination after the 
applicant submitted data showing that original reservoir conditions 
also met the Commission's guidelines; 64 FERC 61,225 (1993).
    \7\57 FERC 61,129 (1991).
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    We also note that in Order No. 99, we clarified that the objective 
of the tight formation rule was to ``provide incentives to develop 
tight formations, not to provide incentives to develop all formations 
with low pre-stimulation production rates.''8 Accordingly, we did 
not intend to qualify large, densely drilled areas based on what 
``remains to be produced.''
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    \8\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.
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    Moreover, we have 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.''9 We note, however, that the 
Spraberry Formation originally was a crude oil reservoir with a 
solution gas drive. Therefore, even though the Spraberry may have 
exhibited little or no effective permeability to gas and no gas flow 
prior to the onset of sustained oil production (i.e., at initial 
conditions), our review shows that this is due to the fact that the 
pore spaces within Spraberry reservoirs were filled with oil and 
water.10 Thus, we find that the record does not show that the 
Spraberry meets the Commission's definition of a tight formation (i.e., 
that the Spraberry is cemented together in a manner that greatly 
hinders the flow of gas through the rock).11
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    \9\Order No. 99, FERC Statutes & Regulations, Regulations 
Preambles (1977-1981) 30,183 at p. 31,261.
    \1\0Gas was dissolved in the oil at initial conditions, with a 
resulting effective permeability of zero.
    \1\1We note that the preliminary finding issued in the Texas-156 
proceeding held that, at initial conditions, gas in such reservoirs 
is unable to flow because the pores of the rock are filled only with 
oil and water, not because of the way the rock is cemented together.
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    In addition to concerns that the Spraberry appears to be the type 
of formation that does not meet the intent of the tight formation 
regulations, our review also shows that the record does not reflect the 
natural fracture permeability in the formation.12 The Commission's 
records show that the original permeability of the formation (prior to 
sustained production and pressure depletion) substantially exceeded 0.1 
md due to the existence of interconnected, well-developed natural 
fractures that extend throughout the Spraberry Formation. The 
Commission's records also show that wells located parallel to the trend 
of the fractures have better reservoir permeability than those located 
perpendicular to the trend, but that natural fracture permeability is 
adversely effected by loss of reservoir pressure with sustained 
production. Although the PBU tests in the #25-2 well show a total 
permeability (matrix and fracture) of less than 0.1 md within the 
well's drainage area, the tested intervals produced high volumes of 
water during the tests, the reservoir pressure measured during the 
tests was at least 400-600 psi lower than original pressures found in 
the formation, and the record contains no evidence that any of the 
tested intervals was actually completed for production.13 
Therefore, it appears that the #25-2 well's low permeability is the 
result of its location in an area of lower reservoir quality, and that 
the record does not contain sufficient evidence that the well's 
permeability reflects the formation's original permeability throughout 
the recommended area. We also find that oil and gas flow rate data from 
one well (the #25-2) does not provide sufficient evidence to show that 
the formation meets the oil and gas flow rate guidelines.
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    \1\2The 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.''
    \1\3In the preliminary finding issued in the Texas-156 
proceeding, we held that a Spraberry well's location with respect to 
the northeast trend of the fracture system and the proximity to the 
main sediment depositional channels can substantially affect its 
permeability and hydrocarbon flow rates.
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    In addition, we find that 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 34 type 
curve wells were analyzed with equations where current gas-oil ratios 
were used, as well as a single current reservoir pressure of 1,000 psia 
and the corresponding fluid properties at that pressure.\14\ Second, 
the oil permeabilities used in the calculations were derived by the 
analysis of the historical oil production from the 34 wells. It is not 
clear how the oil permeabilities thus calculated can be used to 
calculate gas permeability before sustained production.
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    \14\The record also does not show how current pressures in wells 
first produced from 1984 to 1988 would be the same.
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    Moreover, the record does not show which of the four productive 
intervals was represented in each type curve well. Our review of the 
record further shows that in seven instances, the gas-oil ratios and 
historical oil production from more than one well were combined to 
arrive at a single permeability value. This method is not supported, 
however, because the record does not explain why these values properly 
reflect the proportion of the permeability and flow rates attributable 
to individual wells. Finally, although the record shows that all 34 
type curve wells were selected based on the criteria that daily oil 
production rates were available, the only two type curve wells within 
the recommended area were analyzed using monthly oil production rates. 
In addition, Texas approved prior Spraberry proceedings in which the 
applicants indicated that daily production was used because monthly 
production did not result in enough definition in the type curve for a 
precise determination of permeability. Therefore, Texas should provide 
additional support showing the basis for its acceptance of the two type 
curve wells within the recommended area as useable permeability data 
wells.
    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 and discussion, 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.
Lois D. Cashell,
Secretary.
[FR Doc. 94-9874 Filed 4-22-94; 8:45 am]
BILLING CODE 6717-01-P