Natural gas prices in the various North American shale basins rose about 50 cents, or close to 20%, year-to-year from Jan. 1, 2012 to Jan. 1, 2013, moving mainly from the $2.80s to the $3.30s per MMBtu. At the same time, operating rigs in the same basins dropped 21%, according to surveys conducted throughout the year for NGI’s Shale Daily.

As companies repositioned rigs throughout 2012, moving from dry gas plays to the liquids-rich plays and then to oil, they also worked fewer rigs as borne out by lower fourth quarter profit projections by drilling service firms, Schlumberger Ltd. and Baker Hughes Inc. The companies blame the fall-off in part on a slowdown in North American drilling activity (see Shale Daily, Dec. 19). Part of the reason for the rig decline, however, is that drillers are making better use and producing more with fewer rigs. The key will be the year-end production totals, which analysts have variously predicted will be flat to down or up slightly from 2011.

National Oilwell Varco Inc., the largest oilfield equipment supplier in North America, also said in contrast to U.S. offshore activity, the land drilling market has stalled. In a third quarter conference call, Varco executives said. “All across North America, everybody’s hesitating. A new parsimoniousness is sweeping through the complex” as companies slow drilling or draw from their equipment backlogs, according to CFO Clay Williams (see Shale Daily, Oct. 26).

The picture was brighter for the producers doing the drilling. January 2012 shale basin gas prices ranged from $2.81 to $2.93, with most landing somewhere in the $2.80s, except for Marcellus Northeast, which came in at $2.46 due to transportation constraints. All points ended the year in the upper $3.30s, with Marcellus NE not quite catching up at $3.31, as shown in NGI’s Shale Daily SPI Price Table.

Marcellus NE suffered through the first part of the year from lack of sufficient pipeline capacity. Several times June through August prices in the region dropped below $1.00/MMBtu. The situation eased in late August with an upgrade on Tennessee Gas Pipeline in the region and later in the year with several large capacity additions.

The Piceance and Green River basins picked up the highest end of the year prices, coming in at $3.40/MMBtu. The Fayetteville and Marcellus Southwest PA/WV both registered $3.39, with the Haynesville coming along at $3.38. Toward the lower end were the Eagle Ford and the Cana-Woodford at $3.34.

The number of rigs targeting unconventional oil and gas moved in the opposite direction, going from 1,029 operating drilling rigs in January 2012 to 810 at the end of the year, a 21% drop, according to NGI’s Shale Daily Unconventional Rig Count. In the dominant dry gas-heavy basins like the Barnett and Marcellus, the number of rigs decreased by 33% from 54 to 36 and 28% from 157 to 113 rigs, respectively. The Fayetteville was off 37% from 27 to 17 rigs and the Haynesville dropped like a stone by 66% from 96 operating rigs to 33.

The operating rig trend toward the end of the year was continuing down with no sign of a bottom. There have been various projections of 2013 prices, depending on the weather, in the $4.00s/MMBtu area.