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Shale Drilling Steady as EIA Detects December Production Slip

Natural gas production in the Lower 48 states declined by 0.2% to 72.54 Bcf/d in December from November's record 72.68 Bcf/d. It was the first monthly decline in Lower 48 production since February 2011, according to figures released by the Energy Information Administration (EIA).

The latest figures generally show a pullback from November when U.S. production hit a record (see Daily GPI, Jan. 31). Overall, U.S. production in December declined 0.3% to 82.52 Bcf/d from November's revised production figure of 82.77 Bcf/d. The most recent previous decline in overall U.S. production occurred last July when production fell by 2.6% from June.

Meanwhile, the U.S. gas-directed rig count fell slightly in the latest tally while the number of rigs plying shale resources held steady despite fluctuation among individual plays.

Wyoming contributed the largest production decline in December at 0.23 Bcf/d, or 3.4%, which was partly explained by a compressor station fire (see Daily GPI, Dec. 9, 2011), EIA said. In contrast, the "other states" category posted the greatest increase at 0.40 Bcf/d or 1.9%, as drilling activity continued climbing in the Marcellus Shale. Oklahoma displayed a gain of 0.05 Bcf/d, or 0.9%, as several new wells came online in the Woodford Shale, EIA said.

Production from the federal waters of the Gulf of Mexico climbed 1.3% to 4.64 Bcf/d. However Louisiana, New Mexico, Texas and Alaska all posted declines from November. Louisiana production was off 1.5% to 8.95 Bcf/d; New Mexico's production fell 1.7% to 3.57 Bcf/d; Texas saw a decline of 1% to 22.27 Bcf/d; and Alaska was off by 1.1% to 9.98 Bcf/d.

The declines occur against a gas market that is widely viewed as oversupplied with continuing pressure on prices expected. For the week ending Feb. 24, the Baker Hughes Rotary Rig Count showed that the number of active U.S. gas-directed rigs declined by six from the previous week to 710. During that same period the U.S. oil-directed rig count fell by seven to 1,265, while the U.S. offshore count climbed by two to 43. The overall U.S. rig count fell by 13 to 1,981 during the period.

According to NGI's Shale Daily Unconventional Rig Count for the same period, The Barnett Shale, Granite Wash, Green River Basin, Haynesville/Bossier Shale and the Piceance Basin all posted declines in the number of rigs working. The Bakken/Sanish/Three Forks, Cana-Woodford, Eagle Ford and Fayetteville all posted gains, while the Arkoma-Woodford, Marcellus, Niobrara/Denver-Julesburg and Uinta plays all held steady. Overall for the period, the count held steady at the 983 rigs tallied the previous week.

Market bulls have been looking to weather forecasts to provide some relief from sagging prices, but they've generally been disappointed. Recent production cuts announced by several producers, including Chesapeake Energy Corp. (see Shale Daily, Feb. 23) have helped put a bit of a floor under prices, according to one analyst, as has increased gas demand from power generators.

"It is becoming increasingly apparent that the production shut-ins that have been announced thus far combined with an uptick in power demand related to coal-to-gas substitution are beginning to pack some pricing punch," said Jim Ritterbusch of Ritterbusch and Associates. "Although these items don't appear capable of forcing a sustainable price advance, they appear to have placed a floor under this market well above [January's] nearest futures lows at the $2.23 area."

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