UPDATE 2-US natgas rig count climbs for 1st time in 12 weeks

Fri Mar 30, 2012 3:20pm EDT

Related Topics

* Natural gas-directed rig count at 658, up 6
    * Horizontal rig count gains for second time in 3 weeks
    * Oil rigs again hit 25-year high


    By Joe Silha	
    NEW YORK, March 30 (Reuters) - U.S. energy producers this
week boosted the number of rigs drilling for natural gas for the
first time in 12 weeks despite historically low prices for the
fuel that have squeezed profit margins and forced some to curb
dry gas drilling operations.	
    The gas-directed rig count climbed by six to 658, after
hitting a 10-year low of 652 last week, data from oil services
firm Baker Hughes released on F riday showed.	
    However, the gain in rigs was too small to impact prices,
gas traders said. Natural gas produced during development of
more-lucrative liquids-based plays is likely bolstering gas
output despite the rig count drop over the last three months.	
    "Today's rise could be a dead-cat bounce, but as long as oil
is at $100 a barrel, drilling for liquids is going to keep gas
drilling high," said Phil Flynn, analyst at PFGBest in Chicago.	

    One of the mildest winters on record slowed demand for gas
and has kept prices on the defensive this year, with front-month
futures hitting another 10-year low of $2.11 on F riday, a
price that should make some drilling operations uneconomic.	
    While low prices have been good news for homeowners and
businesses, they have hurt dry gas producers that have been 
forced to sell at below cost.	
    Producers such as Chesapeake, the country's
second-largest gas company, and Encana, Canada's
largest 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 traders noted other drillers have remained quiet
and announced cuts so far have not been enough to tighten a
market saddled with record supplies.	
    Separately, the oil-focused rig count hit another 25-year
high this week after five more rigs came online, bringing the
total count to 1,318.
    There were 50 percent more rigs drilling for oil in the
United States last week than a year earlier.
    U.S. energy companies have shifted focus from dry shale gas
plays such as Haynesville in Louisiana to shale oil patches in
North Dakota, south Texas, Colorado and Ohio.	
    	
    GAS COUNT STILL DOWN SHARPLY THIS YEAR 	
    The gas-directed rig count is down nearly 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 force producers to slow output.	
    But the recent slide in gas-directed drilling has yet to be
reflected in pipeline flows, which are still estimated to be at
or near record highs.	
    U.S. Energy Information Administration production data on 
Thursday offered little hope for the bulls, with January gross
gas output climbing to a record of 72.85 billion cubic feet per
day, eclipsing the previous peak of 72.68 bcfd from November.	
    The slight production drop the agency reported for December,
the first measurable decline since well freeze-offs curbed
output in January and February 2011, had raised expectations
that producers might finally be curtailing output.	
    Front-month natural gas futures on the New York Mercantile
Exchange, which were up 0.1 cent at $2.15 per mmBtu just
before the report was released at 1 p.m. EDT (1700 GMT), showed
little reaction to the Baker Hughes data.	
    Some analysts say the gas-directed rig count may have to
drop below 600 to reduce flowing supplies significantly, noting
the producer 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.    	
    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, rose for the second time in three weeks,
climbing by six to 1,180, just shy of the all-time high of 1,185
hit 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).	
    While low gas prices 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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