Opinion ID: 388136
Heading Depth: 2
Heading Rank: 1

Heading: EHF Model

Text: 26 South Dakota argues that the sole justification for the settlement figures rest upon the EHF model. The depreciation rates which flowed from the EHF projections represent the high end of what the FERC maintains is a zone of reasonableness. This is because the EHF model produced the lowest reserves estimates of the two studies and consequently, the highest depreciation rates. 8 27 The EHF model is statistically based 9 and predicts annual reserves based on a theory that relates drilling efforts to results. This study uses historical data to project future reserves. Feinstein, a petroleum engineer employed by the FERC, testified that the theory behind the EHF model is that for any finite depletable natural resource the large high-grade, easy-to-find deposits are discovered during the early years of the depletion cycle and that the mature years are marked by the discovery of smaller, scattered and lower grade deposits. He stated that both the Hugoton-Anadarko and Permian Basin fields had entered mature stages so this type of analysis would produce reliable results in this case. 28 Feinstein based his predictions on statistics from 1967-1976. He compared cumulative exploratory drilling footage to cumulative reserve additions. 10 He extrapolated this historical data to predict the potential gas recoverable and the reserves discovered annually. This pattern was extended to the point where the productivity of efforts to results is negligible. 11 As part of this process, Feinstein calculated a figure referred to as effectiveness of exploration which was a comparison of new field drilling footage to new field discoveries. He next plotted the effectiveness of exploration data in relation to exploratory footage and time in separate graphs, and then compared cumulative reserve additions to cumulative exploratory footage. This information was compiled for each of the supply areas and was used to determine the respective depreciation rates. 29 South Dakota primarily attacks the EHF model because it does not include developmental drilling. Feinstein testified that his model considers new field drilling which he defined as efforts undertaken to discover new fields not directly related to those already in service. South Dakota argues that this approach ignores reserves added after the initial discovery of a field and as used in the Feinstein model represents a significant reduction in the amount of potential reserves. They argue, and Feinstein agreed, that developmental drilling would account for more activity than exploratory drilling in mature fields such as the Permian Basin and the Hugoton-Anadarko. Feinstein nevertheless maintained that this was not a serious omission. In support of his study, Feinstein constructed a second model based upon the same theory which separately calculated future additions from three categories: new fields, pre-1966 existing fields and existing fields more recently discovered. This second EHF model reached a result that differed by only three percent in total reserves from the first. The FERC also noted that a study conducted by Northern which took developmental drilling into account produced results very similar to the EHF model. Although it is not made clear in the record, at oral argument counsel for the FERC and Northern asserted that although developmental drilling is not included in the efforts side of the EHF relationship, it is a part of the results figures. 30 We cannot say that the FERC's conclusion that the EHF study was reliable is not supported by substantial record evidence. Both the South Dakota and Feinstein positions are plausible and in light of our standard of review we defer to the expert judgment of the FERC. The FERC's opinion demonstrates that the Commission has not ignored South Dakota's arguments but has given reasoned consideration to all the pertinent factors. We are not required to find more. 12 31 South Dakota claims further that the EHF study cannot be relied upon because the PGC estimates reserves three times larger than those predicted by the EHF model. This difference in estimates is so large, in South Dakota's view, that the EHF model cannot be used as substantial evidence. The FERC responds by suggesting that such seemingly inconsistent estimates are not uncommon. The Commission points to estimates for the United States ranging from 496 trillion cubic feet (Tcf) to 2250 Tcf. Again, we are constrained to affirm the FERC's conclusion. It is clear, as the evidence in this record suggests, that estimating natural gas reserves is not an exact science. In such areas where technical expertise is the basis for decision making and where the question is purely factual, courts must be mindful of their role. We think that the following quotation is pertinent: 32 (I)n the end it was for the Commission, not us, to evaluate the respective justifications put forth on the record, and to choose between two divergent theories in setting the amount of the challenged factor. A conclusion on conflicting engineering and economic issues is precisely that which the Commission exists to determine, so long as it cannot be said ... that the judgment which it exercised had no basis in evidence and so was devoid of reason. 33 City of Cleveland v. Federal Power Commission, 525 F.2d 845, 849 n.36 (D.C.Cir.1976), (quoting United States ex rel. Chapman v. FPC, 345 U.S. 153, 171, 73 S.Ct. 609, 619, 97 L.Ed. 918 (1953)). 13