April 5, 2012 / 5:50 PM / in 6 years

UPDATE 1-US natgas drilling rig count falls to 10-yr low

* Natural gas-directed rig count hits lowest since May 2002

* Horizontal rig count falls for second time in 3 weeks

* Oil rigs again hit 25-year high

By Joe Silha

NEW YORK, April 5 (Reuters) - U.S. energy producers this week trimmed the number of rigs drilling for natural gas to the lowest level in nearly 10 years, as historically low prices continued to crimp profits and force some to curb dry gas drilling operations.

The gas-directed rig count slid by 11 this week to 647, the 12th decline in 13 weeks, data from oil services firm Baker Hughes showed.

The numbers were released a day early on Thursday due to the Good Friday holiday.

The count is at its lowest since May 2002 when there were 640 rigs operating.

One of the mildest winters on record sharply stunted demand for gas and put prices on the defensive this year, with front-month futures hitting another 10-year low of $2.069 on Monday, a level that has made some gas drilling uneconomic.

Low prices have been a boon to homeowners and businesses. They have also attracted more demand from utilities and industry. But they have been bad news for some dry gas producers that have been forced to sell at below cost.

The fairly steady drop in dry gas drilling this year -- the gas rig count is down 31 percent since peaking at 936 in mid-October -- had stirred expectations that low prices had finally prompted producers to slow record gas output.

But the drop has yet to be reflected in pipeline flows, which are still estimated to be at or near record highs, primarily due to rising output from shale.

Horizontal rigs, the type most often used to extract oil or gas from shale, fell for the second time in three weeks, slipping 15 to 1,165, but the count is not far below the all-time high of 1,185 hit in late January.

Separately, the oil-focused rig count rose to another 25-year high this week after 11 more rigs came online, bringing the total count to 1,329, Baker Hughes data showed.

The number of oil rigs this week is 52 percent higher than during the same period last year, when 877 rigs were drilling for oil in the United States.


Front-month natural gas futures on the New York Mercantile Exchange, which were down 5 cents at $2.091 per mmBtu just before the report was released at 1 p.m. EDT (1700 GMT), showed little reaction to the Baker Hughes data.

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.

But the announced reductions so far total just over 1 billion cubic feet per day, or less than 2 percent of estimated annual production, not enough to tighten a market saddled with record supplies.

Analysts note that the producer shift to higher-value oil and liquids-rich prospects still produces plenty of associated gas that ends up in the market after processing.

The share of horizontal rigs drilling for dry gas has fallen to 38 percent from 78 percent just two years ago, but analysts say any slowdown in gas production could take a lot more time.

U.S. Energy Information Administration production data last week offered little hope for bulls, with January gross gas output climbing to a record of 72.85 bcf per day, eclipsing the previous peak of 72.68 bcfd in November.

Some analysts say the gas-directed rig count may have to drop below 600 to reduce flowing supplies significantly. Most analysts do not expect any major slowdown in gas output until later this year.

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