Drilling in Eastern Tennessee’s dry gas Chattanooga Shale play has ceased due to low natural gas prices, so the focus has shifted to extracting oil from the state’s Fort Payne formation, which lies atop the Chattanooga. Miller Energy Resources, Inc. this week is shipping its first tanker truckload of oil produced from the Fort Payne’s only unconventional well, according to Gary Bible, vice president of geology for the Knoxville, TN-based firm.

Earlier this month Miller announced that the CPP-H-1 well, which has a 2,500 foot lateral, is capable of producing 365 bbl/d of oil and 730Mcf/d of natural gas. “The successful development of CPP-H-1 is a game changer for oil production in the state of Tennessee and the whole Appalachian Basin,” said Miller CEO Scott Boruff in a statement. Bible expects the company to receive about $85/bbl for the oil.

The Fort Payne formation is similar to Kansas’s Mississippian Lime, but contains no water. It occurs at depths of 1,300-2,000 feet. The eastern part of the formation is deeper, said Bill Goodwin, the former president of the Tennessee Oil & Gas Association. It lies on Eastern Tennessee’s Cumberland Plateau, which includes Scott, Morgan, Frentress, Anderson, Cumberland and Campbell counties. “The truth is we don’t know the exact location [of the Fort Payne] because a lot of the counties haven’t seen a drill bit.”

Miller has identified 25 sites on which it plans to build similar wells on 40,000 acres held by lease or by production in Tennessee. It has recovered about 10% of its acreage’s oil, and expects to recover more using horizontal drilling. The company hasn’t yet found another site that holds the same promise as CPP-H-1’s, but Bible said that his mapping of the region indicates that it contains “extensive” oil deposits in geological formations known as Bryozoan reefs. “It takes a lot of work to find these reefs in the first place,” Bible said.

Other activity in Tennessee’s Fort Payne formation consists of conventional wells drilled by small independents, Goodwin said.

Companies including Chesapeake Energy Corp. and Range Resources had an interest in Tennessee’s Chattanooga Shale natural gas deposits prior to gas’s sudden price decline in 2009. Consol Energy Inc. and Atlas Energy LP own acreage in the region. The U.S. Energy Information Administration estimates the Chattanooga contains 2 Tcf of unproved technically recoverable natural gas (see Shale Daily, July 24, 2012).

“The price doesn’t make drilling in the Chattanooga Shale economical,” Goodwin said. Not only that, but oil producers in the Fort Payne have begun to vent rather than sell their associated gas production. Miller is awaiting permission from U.S. Environmental Protection Agency to reinject the associated gas from CPP-H-1 into the well to maintain reservoir pressure.

Last fall Tennessee Gov. Bill Haslam merged the state’s oil and gas and water quality boards to streamline governance of the industry, a move that Goodwin said “makes no sense.”

Renee Hoyos, executive director of the Tennessee Clean Water Network, wasn’t pleased with the state government either. She said the regulations on hydraulic fracking (fracking) aren’t sufficient and don’t meet the American Petroleum Institute’s recommended guidelines. Hoyos was especially critical of a rule that drillers need to notify nearby residents of activity only if they pump in more than 200,000 gallons of water.

Goodwin said that in Tennessee nitrogen is used for fracking instead of water for environmental and geological reasons, and because the region contains fewer reserves than its more well known counterparts. Only larger drilling operations such as those in the Marcellus would require more than 200,000 gallons of water, he said.