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UPDATE 2-US natgas drilling rig count at 32-month low
March 9, 2012 / 7:01 PM / 6 years ago

UPDATE 2-US natgas drilling rig count at 32-month low

* Natural gas-directed rig count at lowest since July 2009
    * Gas rig count falls for ninth straight week
    * Horizontal rig count drops, first time in 3 weeks
    * Oil rigs again climb to 25-year high


    By Joe Silha	
    NEW YORK, March 9 (Reuters) - U.S. energy producers
scaled back the number of rigs drilling for natural gas for the
ninth straight week this week as low gas prices continued to
squeeze profits and force some to curb dry gas drilling
operations.	
    The gas-directed rig count slid by 21 to 670, its lowest
since July 2009. A break below 665 would put the count at a near
10-year low, back to 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 hovering near the 10-year low hit
in January, prompting several producers to cut back.
    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 remain skeptical that will have an
impact, noting planned cuts so far were not enough to tighten a
market over supplied by up to 3 bcfd, or more than 4 percent.
    Most analysts do not see any major slowdown in dry gas
output until late this year, noting the recent slowdown in
drilling has not yet been reflected in pipeline flows.	
    Separately, the number of drilling rigs focused on oil rose
to another 25-year high this week, up by three to 1,296, data
from Baker Hughes showed.
    The oil rig count this week is 61 percent higher than a year
earlier.
    U.S. energy firms have heated up their search for oil in
unconventional prospects from North Dakota to Texas after
shifting their resources away from some dry shale gas plays like
Haynesville in Louisiana.	
    	
    GAS PRICES FAIL TO REACT 	
    The gas-directed rig count is down 28 percent since peaking
last year at 936 in October. The decline has stirred talk that
low gas prices, off more than a third in the last five months,
might finally be forcing producers to slow output.	
    But in a recent report, Bernstein Research said the
gas-directed rig count would have to drop to about 600 before
they would be comfortable forecasting flat to falling
production.	
    Front-month natural gas futures on the New York Mercantile
Exchange, which were up 3.4 cents at $2.306 per mmBtu
just before the report was released at 1 p.m. EST (1800 GMT),
showed little reaction to the data.	
    The near contract hit a 10-year low of $2.23 in late January
and has been hovering just above that level this week after an 8
percent slide earlier. That should be well below the cost of
most dry gas output.
    Gas prices have been weighed down for the past year by
record high gas production, primarily from shale. 	
    Horizontal rigs, the type most often used to extract oil or
gas from shale, fell for the first time in three weeks, dropping
by six to 1,164. 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, noting the producer shift in
spending to higher-value oil and gas liquids plays still
produces plenty of associated gas that partly offsets any
reductions in pure dry gas output.

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