UPDATE 1-US natgas drilling rig count hits new 10-yr low
* Natural gas-directed rig count at lowest since May 2002 * Gas rig count falls for 11th straight week * Horizontal rig count drops for second time in 3 weeks * Oil rigs fall slightly from 25-year high By Joe Silha NEW YORK, March 23 (Reuters) - U.S. energy producers this week scaled back the number of rigs drilling for natural gas for the 11th straight week, as low gas prices kept squeezing profits, forcing some to curb dry gas drilling operations. The gas-directed rig count slid by 11 to 652, its lowest since May 2002 when there were 640 gas rigs operating, according to data from Houston-based oil services firm Baker Hughes on Friday. Weak demand during one of the mildest winters on record has helped keep gas prices on the defensive this year, hitting another 10-year low of $2.204 just last week and keeping pressure on producers to cut back uneconomic operations. Producers like Chesapeake, the nation's second-largest gas producer, and Encana, Canada's largest gas producer, have said they will shut in some gas output or trim spending in pure dry gas plays due to the price slide. The announced reductions so far total more than 1 billion cubic feet per day, or nearly 2 percent of estimated annual production, but many traders noted planned cuts so far were not enough to tighten a market saddled with record supplies. Separately, the oil-focused rig count fell by 4 to 1,313 this week, Baker Hughes data showed. The oil-rig count is 54 percent more than a year earlier and just below the 25-year record high hit last week. U.S. energy firms have heated up their search for oil in unconventional prospects from North Dakota to Texas after shifting resources away from some dry shale gas plays like Haynesville in Louisiana. GAS PRICES FAIL TO REACT The gas-directed rig count is down 30 percent since peaking last year at 936 in October. The decline has stirred talk that low gas prices, off more than 40 percent in the last five months, might finally be forcing producers to slow output. But the decline in gas-directed drilling has yet to be reflected in pipeline flows which are still estimated to be at or near record levels. Front-month natural gas futures on the New York Mercantile Exchange, which were up 3.1 cents at $2.30 per mmBtu just before the report was released at 1 p.m. EDT (1700 GMT), showed little reaction to the data. Some analysts say the gas-directed rig count may have to drop below 600 to reduce flowing supplies significantly, noting the producer's shift to higher-value oil and gas liquids plays still produces plenty of associated gas that partly offsets any reductions in pure dry gas output. Most analysts do not expect any major slowdown in gas output until later this year, adding it will be difficult to balance the gas market without serious production cuts. Gas prices have been weighed down for the past year by record high gas production, primarily from shale, and should be well below the cost of most dry gas output. Horizontal rigs, the type most often used to extract oil or gas from shale, fell for the second time in three weeks, dropping by six to 1,174. The horizontal count hit an all-time high of 1,185 in late January. The share of horizontal rigs drilling for dry gas has fallen sharply over the last two years due to much higher prices for oil and natural gas liquids (NGLs). Horizontals labeled as gas dropped to just 47 percent of the total at the end of last year. That was down from 80 percent just two years prior. While low gas price should attract more demand from utilities and industry, most analysts agree it will be difficult to balance the gas market without more serious production cuts. Analysts say it can take months for a slowdown in drilling to translate into lower production.
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