Daily GPI / NGI All News Access

No Decline in U.S. Gas Output Expected Before Late 2012

The U.S. natural gas-directed rig count has fallen from its 2009 peak, but the "turning point" for domestic gas supplies won't happen until the end of 2012, according to a report by Barclays Capital.

The domestic gas rig count currently stands at about 874 rigs, down by more than 100 from its peak in 2009, but even so, production should grow incrementally for more than another year, said Barclays analyst Jim Crandell and his colleagues. Independents still "have plenty of incentives" to continue to pursue gas targets.

"In our view, the true turning point in natural gas balances can accurately be characterized as the moment production turns downward," Crandell said. The gas rig count is "moving mostly sideways" as more move to the oil patch, but by Barclays' estimates "825 rigs approximately keeps production flat -- that is, growth from new drilling offsets declines from existing wells."

Even with a lower rig count, gas output has shown few signs that it is trending down, and in fact April data from the Energy Information Administration (Form 914) indicated another sequential monthly increase (see Daily GPI, June 30).

"Operators are producing more gas per rig," said Crandall. "In other words, [they are] increasing rig efficiency through a higher horizontal rig count share, and continuing to drill unconventional shale with ever more intensity, longer laterals and more fracturing stages."

The horizontal rig count at the end of June accounted for about 70% of all rigs drilling for gas in the U.S. onshore, versus only 15% in 2006, which indicates that producers are hungry to develop unconventional gas reserves, said the analysts. And as many have noted, they are "increasingly" moving to liquids-rich areas of the Eagle Ford and Granite Wash of Texas, as well as the Marcellus Shale, which offer better economics than some plays.

Meanwhile, the rig counts in more developed dry gas shale basins, including the Fayetteville and Woodford, "are holding steady to falling slightly lower." The Haynesville Shale rig count plunged early in 2010 and "nose dived further this year," most likely because of the expiration of held-by-production drilling that was leased when gas prices surged in 2008.

According to Barclays data, the "Haynesville, Barnett, Woodford and Fayetteville together accounted for 36% of total gas drilling at the group's peak and have now declined to 23%. On the other hand, the Marcellus and Eagle Ford together only accounted for 6% in 2008 and have recently reached 22%, and should grow in share in the future as well."

The "biggest risk" for gas supplies is the huge shift of rigs from dry gas to oil plays and the shift from drilling wet gas to oil, said Crandell. However, "rigs cannot be relocated en masse tomorrow."

Oil prospects may continue to push the gas rig count lower but there are limits on available oil targets, which means a "large-scale shift" in the near term is unlikely, said the Barclays team.

"We continue to expect natural gas production growth in the U.S. in 2011, aided by a rig count that continues to grow production and increases in rig efficiency as producers continue to target highly productive shale areas with even greater drilling intensity. The slow migration toward oil will eventually weigh on natural gas production, bringing about a turning point, we believe, but not until 4Q2012."

In related news, Tulsa-based contract drilling company Helmerich & Payne Inc. has secured agreements with eight U.S. exploration and production companies to build and operate 12 of its proprietary FlexRigs, which are to begin onshore operations in fiscal 2012. The names of the customers and the financial terms of the agreements were not disclosed.

"After a severe industry downturn in recent years, it is satisfying to report that since March 2010 we have now announced a total of 57 new builds, representing a 30% increase in the number of FlexRigs in our fleet," said CEO Hans Helmerich. "Given the increasing challenges and level of complexity related to drilling oil and gas wells today, demand for new and highly capable land rigs in the U.S. continues to grow..."

©Copyright 2011 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.

Comments powered by Disqus