[Federal Register Volume 59, Number 110 (Thursday, June 9, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13977]


[[Page Unknown]]

[Federal Register: June 9, 1994]


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DEPARTMENT OF ENERGY
[Docket No. GP94-10-000]

 

Railroad Commission of Texas, Tight Formation Determinations--
Texas-112, 113, 114, 115, Vicksburg Formation (M, R, S, & T Sands), 
FERC Nos. JD93-04541T, JD93-04589T, JD93-04590T, & JD93-04591T; 
Preliminary Finding

June 2, 1994.
    The Railroad Commission of Texas (Texas) separately determined that 
the M, R, S, and T sands of the Lower Vicksburg Formation (``M sand,'' 
``R sand,'' ``S sand,'' and ``T sand'') underlying parts of the McAllen 
Ranch Field in Hidalgo County, Texas, qualify as tight formations 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 determinations are not supported by 
substantial evidence.

Background

1. Texas' Determinations

    On February 16, 1993, the Commission received Texas' notices 
separately determining that the Vicksburg M, R, S, and T sands 
underlying parts of the McAllen Ranch Field in Hidalgo County, Texas, 
qualify as tight formations. Shell Western E & P Inc. (Shell) is the 
applicant before Texas. Texas' determinations are amendments of an 
earlier notice of determination (Texas-15 Addition 3, JD92-02505T) 
still pending before the Commission after the 45-day period was tolled 
by two staff letters.\1\
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    \1\TX-15 Addition 3 includes the same four sands as well as 
several other Lower Vicksburg sands.
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    The recommended areas for the M, R, S, and T Sands consist of 3,010 
acres, 1,440 acres, 11,700 acres, and 7,320 acres, respectively, with 
parts of the four areas overlapping one another. Texas concluded that 
the sands meet the Commission's permeability guideline based on 
pressure build up (PBU) tests from five M Sand wells, three R Sand 
wells, 27 S Sand wells, and eight T Sand wells.\2\
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    \2\The M sand actually includes the M, N, and O sands. Shell 
refers to them as the M sand because it is the shallowest sand in a 
Texas-designated field consisting of the M, N, and O sands.
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    Texas concluded that the same wells show that the sands meet the 
Commission's gas flow rate guidelines based on calculations using 
standard flow equations requiring, among other things, the permeability 
values calculated from the wells' PBU tests.

2. Staff's Tolling Letter and Texas' Response

    By letter dated April 2, 1993, staff tolled the 45-day review 
period because, in pertinent part, the record did not include the PBU 
tests upon which all four determinations are based, nor was there 
documentation showing that the PBU tests represented initial reservoir 
permeabilities (i.e., prior to sustained production).
    In response to staff's letter, Shell requested an informal 
conference with staff, which was held at the Commission's offices on 
May 4, 1993. At that meeting, staff requested Shell to provide the 
relevant PBU tests, documentation showing that the data wells were 
actually completed in the PBU-tested zones, and geophysical well logs 
showing how net pay thickness values were derived.
    In its reply received October 28, 1993, Texas reaffirmed its 
determinations and provided, in pertinent part, additional 
documentation from Shell, including PBU tests and portions of daily 
drillers' reports for 43 data wells, as well as a narrative discussion 
of how net pay thickness values were derived.

3. Staff's Second Tolling Letter and Texas' Response

    By letter dated December 10, 1993, staff again tolled the 45-day 
review period because, in pertinent part, Texas' October 28, 1993 
response showed that several permeability values were derived from PBU 
tests run from 7 months to 12 years after the tested intervals were 
perforated. Therefore, Texas was requested to explain why it believed 
such permeabilities represented original reservoir conditions, prior to 
sustained production. In addition, staff requested documentation 
showing when the tested wells were initially hydraulically fractured in 
order to clarify whether the permeabilities and flow rates reported on 
PBU tests represented pre-stimulated conditions.
    In its reply received April 18, 1994, Texas reaffirmed its 
determinations and concurred with additional data provided by Shell, 
including well logs for the data wells, a table showing perforation and 
fracturing dates for the data wells, and narrative discussions 
addressing the proper definition of ``in situ.''

Discussion

    To qualify a formation as a tight formation, 
Sec. 271.703(c)(2)(i)(A) of the regulations requires the jurisdictional 
agency to determine that the expected in situ gas permeability 
throughout the pay section is 0.1 millidarcy (md) or less.\3\ Our 
review shows that the PBU tests upon which Texas based its permeability 
finding for each sand include tests that were run from seven months to 
twelve years after the wells were completed and sustained production 
commenced.\4\ Moreover, the records show that permeability in well 
drainage areas declines with production of natural gas. Therefore, for 
the following reasons, we preliminarily find that the permeability data 
in the records do not demonstrate that the sands meet the Commission's 
permeability guideline.
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    \3\18 CFR 271.703(c)(2)(i)(A) (1993).
    \4\Although the M, S, and T sands also include PBU tests run 
shortly after well completion, our review of the records and the 
parent Texas-15 Addition 3 record shows that wells testing below 0.1 
md following sustained production can substantially exceed 0.1 md at 
initial conditions.
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    In previous tight formation proceedings, we held that the 
characteristics of a formation before the onset of sustained production 
from that formation must be evaluated to determine whether that 
formation meets the tight formation guidelines.\5\ 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.\6\ In accordance with these findings, 
the Commission preliminarily found in the Texas-81, Texas-156, and 
Texas-158 tight formation proceedings that the subject formations did 
not qualify as tight formations because current-day test values were 
the result of sustained production and/or water injection and did not 
represent original reservoir conditions.\7\ Accordingly, we find that 
the PBU tests run from seven months to twelve years after the 
commencement of sustained production in wells do not sufficiently 
represent initial conditions found throughout the four sands.
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    \5\See 63 FERC 61,067 (1993) at 61,291. The Commission 
subsequently affirmed the determination after the applicant 
submitted data showing that original reservoir conditions also met 
the Commission's guidelines; 64 FERC 61,225 (1993).
    \6\57 FERC 61,129 (1991).
    \7\See 64 FERC 61,004 (1993), 67 FERC 61,011 (1994), and 67 
FERC 61,073 (1994). Final orders were not issued in Texas-81 and 
Texas-156 because the applicants withdrew the applications. Texas-
158 is still pending before the Commission.
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    Shell asserts that staff has incorrectly defined the term ``in 
situ'' permeability, and that the term simply means ``in place'' 
permeability that exists at the time that wells are drilled. Shell 
further asserts that the initial permeabilities of the sands prior to 
sustained production are immaterial to the delineation of the in situ 
permeabilities. In light of the Commission's previous findings, as 
discussed earlier, we find that Shell's assertions are without merit, 
especially because the records show that permeabilities derived from 
tests run long after production has commenced do not represent the 
permeabilities existing at the time the wells were drilled.
    To qualify a formation as a tight formation, 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 rated specified in 
the table in that section.\8\ Our review of the parent Texas-15 
Addition 3 record shows that wells completed in the four sands 
typically reach stabilized flow approximately 100 days after initial 
production commences. Moreover, the flow rates upon which Texas' 
determinations are based were calculated with equations that include 
the permeability values derived from the PBU tests described earlier. 
Lower permeability values result in lower flow rate values. Therefore, 
we find that the flow rate values calculated in those wells where the 
PBU tests were run from seven months to twelve years after production 
commenced do not represent the initial, pre-stimulation flow rates 
prior to sustained production.
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    \8\18 CFR 271.703(c)(2)(i)(B) (1993). The maximum allowable 
rates for the M, R, S, and T sands are 600 Mcf/day, 927 Mcf/day, 
1,071 Mcf/day, and 1,238 Mcf/day, respectively.
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    In addition, our review shows that many of the M, R, and S sands 
data wells were either never fractured or were not fractured until 
several months to years after the wells were perforated.\9\ Numerous 
pre-fracturing PBU tests in such wells show flow rates occurring after 
the 100-day stabilization dates that substantially exceed the 
stabilized flow rates upon which Texas' determinations are based. 
Therefore, we find that the record does not contain substantial 
evidence in support of the reported stabilized flow rates in such 
wells. We also believe that Texas should examine the actual, metered 
flow rates at or near the 100th production day in such wells, since 
measured flow rates are usually more accurate than calculated flow 
rates.
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    \9\For the M and R Sands, the majority of the data wells were 
not hydraulically fractured for at least two years after 
perforation. We believe that this indicates good permeability in 
these sands.
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    Under 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' determinations are not supported by substantial 
evidence in the records upon which they were 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 section 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. 94-13977 Filed 6-8-94; 8:45 am]
BILLING CODE 6717-01-P