COALBED NATURAL GAS (METHANE) UNITS FROM THE BLM PERSPECTIVE
| Jurisdiction | United States |
(Nov 2006)
COALBED NATURAL GAS (METHANE) UNITS FROM THE BLM PERSPECTIVE
Senior Petroleum Engineer
Bureau of Land Management
Wyoming State Office - Reservoir Management Group
Casper, Wyoming
LARRY CLAYPOOL
Larry Claypool is a Senior Petroleum Engineer for the Bureau of Land Management's (BLM) Wyoming State Office Reservoir Management Group, in Casper, Wyoming. He has worked for the BLM for 23 years and began his career in Rawlins, Wyoming working on approval and monitoring of Federal oil and gas operations. Larry has over 20 years of experience in Federal agreements and is currently involved in the administration of Federal Oil and Gas Agreements in Wyoming and Nebraska which includes over 600 Federal Unit Agreements; over 2,500 Communitization Agreements; 8 Gas Storage Agreements; and 6 Development Contracts.
Larry graduated from the University of Wyoming with Bachelor of Science degrees in Microbiology (1974), Medical Technology (1975), and Petroleum Engineering (1984). In addition, Larry is an instructor in Federal Oil and Gas Agreements for the Bureau's National Training Center.
Introduction
Coalbed Natural Gas (CBNG) development activity in the Powder River Basin (PRB), located in northeast Wyoming, started in 1987, and began to significantly accelerate in early 1999. With the benefits that unit agreements provide, agreement applications for the exploration and development of CBNG became necessary. The idea of drilling and producing CBNG under a unit agreement is relatively new. Three exploratory units were approved under the model form of unit agreement for exploratory units for CBNG production in Wyoming in the 1980s. These units had limited success due to a lack of knowledge of CBNG reservoir characteristics and the most effective production methods. This paper discusses the history and design of Wyoming's new CBNG exploratory form of agreement, how this unit form differs from the conventional model exploratory unit form, issues encountered with the new CBNG unit form of agreement from the BLM perspective, and the current status of CBNG units.
History of the Wyoming Version CBNG Unit
Higher gas prices, improved shallow drilling and completion technology, and substantial CBNG reserves estimates in the PRB (25 trillion cubic feet recoverable reserves) made CBNG an economically viable resource in the late 1990s. To put this recoverable reserve estimate in perspective, the U.S. consumes approximately 22.5 trillion cubic feet per year. Currently, the PRB is the largest CBNG play in the world. As with conventional deeper gas development, operators were again looking to produce shallow CBNG with all the lease, environmental, and reservoir advantages that a model form exploratory unit agreement provides. Consequently, the Wyoming State Office -- Reservoir Management Group (RMG) received the initial request for a new Wyoming version CBNG exploratory unit in the PRB (Williams Draw) on March 24, 1999, and subsequently approved it on May 21, 1999.
CBNG Unit Design Considerations
Recent studies and experience pertaining to CBNG reservoir characteristics along with previous experience with model form units that produced CBNG dictated a novel approach to certain exploratory unit provisions and needed modifications to the model exploratory unit form. CBNG unit agreement design was based on the following factors:
[Page 20B-2]
1. CBNG Reservoir Characteristics
Statement: PRB CBNG reservoir and production characteristics are very different from conventional gas well reservoirs.
Question: How do the reservoir and production characteristics differ?
Determination: Typically, shallow PRB CBNG reservoirs initially produce water with little or no gas production. After a period of time, the water production decreases and gas production usually begins at low rates, increases to a stable production plateau for a period of time, and subsequently declines. The graph (Figure No. 1) below represents typical PRB CBNG reservoir production behavior.
Figure No. 1: Graph of an actual CBNG well production curve that shows the typical PRB, Wyoming CBNG reservoir characteristics of water and gas production.
This typical CBNG reservoir performance characteristic has an impact on the standard process of analyzing unit paying well determinations because the well may initially produce water without resulting income for an extended period of time prior to gas production. In addition, the production behavior can be highly variable making it difficult to predict the ultimate reserves necessary for an economic evaluation. Experience has shown that CBNG is most efficiently produced in a well pod or cluster in order to adequately dewater the coals and subsequently lower the water pressure necessary to initiate CBNG production.
[Page 20B-3]
2. Wells Producing Water (dewatering wells)
Statement: As discussed above, some dewatering is necessary to initiate gas production.
Question: How will the CBNG unit language address wells drilled under the terms of the agreement which may only produce water for long periods of time?
Determination: The CBNG unit language should treat dewatering wells just like wells which produce CBNG because dewatering wells are necessary to enhance the production of CBNG from the well pod.
3. "Divided Interest" Versus "Undivided Interest" Unit Format
Statement: The new CBNG unit form could utilize a "divided" or an "undivided" interest format.
Question: Which interest format, "divided" or "undivided", will be most appropriate for the CBNG unit form?
Determination: The model exploratory unit form uses the "divided" interest format whereby production and costs are allocated based on surface acreage within a participating area (PA). Conversely, enhanced recovery unit agreements use the "undivided" interest format whereby production and costs are allocated to all lands within the unit boundary based on a set formula from the effective date of the agreement.
The "divided" format will be used for the CBNG unit form because this interest format (PA approach) more closely mirrors the way that the CBNG reservoir will be developed and produced. That is, the CBNG production will be similar to production for conventional model form PAs.
4. Participating Area Boundary Definition
Statement: The new CBNG unit form will need to utilize a method to define PA boundaries.
Question: What method of defining PA boundaries will be most appropriate for the CBNG unit form?
Determination: Typically, model form exploratory unit PAs are defined by either: spacing unit, geologic and geophysical analysis, or a mechanical circle-tangent approach.
The participating area boundaries will be defined using the mechanical circle concept. This approach was chosen because it provides a method that is: 1) simple, 2) equitable, and 3) well accepted by industry.
[Page 20B-4]
5. Initial Drilling Obligation
Statement: The model form exploratory agreement may require a one well initial drilling obligation for a conventional oil and/or gas reservoir.
Question: What initial drilling obligation is most appropriate for the CBNG unit form?
Determination: Instead of a one well obligation for CBNG units, we would focus on an obligation that was in accord with the number of wells necessary to efficiently develop CBNG. For example, an initial drilling obligation for the PRB CBNG unit would typically be nine (9) wells because coal beds in a new area can usually be dewatered and efficiently produced by a nine (9) well pod. None of the benefits of the CBNG unit would be earned until the entire well pod is drilled.
6. Unit Size and Boundary
Statement: Model form exploratory unit boundaries are defined and based on an entire, or part of, a geologic play.
Question: What unit size and boundary will be utilized for CBNG units when areas, such as the PRB (millions of acres in areal extent) are entirely underlain by coal beds capable of producing CBNG.
Determination: CBNG unit size will follow the accepted practice used for a one-well obligation, conventional exploratory unit agreement. That is, CBNG units should be a maximum of 25,000 acres. We also determined that the unit applicant could "block up" the unit area as much as is reasonable for CBNG development and the unit area could be limited to the unit applicant's leasehold interest.
7. Timely Unit Development
Statement: Under the model exploratory unit form which is dependent on geology, the agreement requires the unit operator to develop the lands outside of any existing PAs within five (5) years of the effective date of the initial PA.
Question: How will the CBNG unit form ensure timely development of the unit when geology is not a dependent factor?
Determination: The coal geology of the areas where CBNG units are approved are usually fairly well known. As a result, the unit operator is not forced to reevaluate the unit geology after each well is drilled, to the extent needed for conventional units.
A yearly drilling requirement will be utilized to ensure timely development of the unit. This requirement will be required, whether or not an initial PA is established.
[Page 20B-5]
8. Area and Depth Meetings
Statement: Area and depth meetings for model form exploratory units are held prior to unit designation to discuss target formation geology, the unit boundary, and the obligation well location(s) prior to official unit designation.
Question: Since the coal geology in CBNG unit areas is fairly well known and the unit boundary is not dependent on geology, is an area and depth meeting necessary prior to CBNG unit designation?
Determination: Area and depth meetings would not be required prior to CBNG unit designation because the unit geology is fairly well known and the unit boundary is not dependent on geology.
9. Flexibility
Statement: The preparation...
To continue reading
Request your trial