The number of rigs activity exploring for natural gas in the United States declined on Friday for the first time in six weeks, Baker Hughes Inc. reported Friday.

The number of rigs drilling for domestic natural gas fell by 10 to 972, the oilfield services firm reported. The gas rig count hit a 17-month high of 982 in the week-ago period. On Feb. 20, 2009 there were an estimated 1,018 drilling rigs looking for gas onshore.

According to Baker Hughes, the horizontal rig count, which today drills for about 90% of the gas in North America, fell for the third straight week to 853 from 858. Horizontal drilling had risen to a record high of 863 in nine straight weeks before beginning its decline in July.

The U.S. gas supply declined slightly in May, according to the Energy Information Administration (EIA), which on Thursday issued the latest natural gas gross production report (Form 914). According to the latest data, U.S. gross gas output from April to May fell by a total of 1.5% to 72.93 Bcf/d. The Lower 48 states' gas output "remained about constant," with larger production declines in the Gulf of Mexico (GOM) and in Wyoming.

"The 3.4% drop in the GOM was mostly due to pipeline repairs and the 2.1% drop in Wyoming was caused by the shut down of a furnace for repairs," said EIA. The declines mostly were offset by new wells that were listed in EIA's "Other States" category, which reported output rose from April by 0.9% to 16.35 Bcf/d, and in Louisiana, where gas production was up 2.8% to 5.91 Bcf/d.

Texas gas production rose 0.2% to May from April to 20.68 Bcf/d, according to the EIA report. New Mexico showed a slight uptick in gas production, up 0.8% from April to 3.78 Bcf/d. In Oklahoma, gas production fell slightly by 0.4% to 5.04 Bcf/d. Gas production in Wyoming was down by 2.1% to 6.9 Bcf/d.

According to an analysis issued last week by SunTrust Robinson Humphrey/the Gerdes Group (STRH), the total rig count across the "major U.S. shale plays" had fallen by one rig as of July 23 to 579. STRH estimated that the Barnett Shale had about 70 rigs running, while in the Eagle Ford Shale the rig count stood at around 75.

Louisiana, which with Texas is home to the massive Haynesville Shale, has seen a steady rise in rig activity, highest in the country, according to STRH. North Dakota, home to part of the Bakken Shale, also has seen a steady increase in oil rig activity.

In Texas, where oil and gas drilling leads the nation -- and where gas drilling has held sway for years -- it was crude oil drilling that lifted the most recent Texas Petro Index (TPI), which was issued last week. Despite "persistent economic doubts," the index, which measures a group of upstream economic indicators, rose in June to 208 from a low in December 2009 of 188.2. It was the sixth straight month to show an increase, said petroleum economist Karr Ingham, who designed the TPI.

According to TPI, Texas' estimated gas output in June totaled 566.3 Bcf, which was down from a year ago by around 10.5%. Crude oil production totaled 32.4 bbl, which was 1% lower than in June 2009. However, the value of Texas-produced crude topped $2.3 billion, or around 9.6% higher than the year-ago period.

"Since June of 2009, oil patch employment has grown nearly 8%, the rig count is up more than 29% and drilling permit applications are up more than 55%," said Ingham. "When you look at the numbers, it is fairly plain to see the TPI is being driven more by oil-directed activity in Texas than natural gas activity.

"Considering that these increases have been accomplished in a worrisome economy raises the question of what prices and levels of activity would be in a better economy. Certainly, natural gas would rise in a better economy as well."

According to the TPI, oil well completions this year through June totaled 2,819, a 19.4% decline compared with the first six months of 2009. Gas well completions in through June totaled 2,250, down almost 61% from the first half of 2009.

For "virtually all of the past decade," gas well completions outpaced crude oil well completions, according to Ingham. However, crude oil well completions now surpass gas wells.

The pace of U.S. and global economic recovery will be the primary driver of the TPI for the balance of 2010 and through 2011," said Ingham.

"Are we going to have a strengthening economy that is sufficient to support higher oil and gas prices?" he asked. "If so, oil and gas activity in Texas is likely to continue expanding and take the Petro Index along for the ride. Or will continuing economic weakness keep crude oil prices in the $70-$80/bbl range and natural gas prices between $4 and $5/Mcf and cause the Petro Index to begin to level out?"

According to Ingham, "essentially every energy proposal by the Obama administration -- from carbon tax to cap-and-trade to tax policies in the proposed budget -- would have the ultimate outcome of reducing the supply of petroleum products to the marketplace. That not only would be a bad outcome for the industry, it would be a bad outcome for consumers because it would ultimately raise energy prices."

The number of Texans employed in the state's oil and gas industry totaled 203,800, about 14,800 more than in June 2009, according to the Texas Workforce Commission.

Meanwhile, North Dakota continues to set drilling records, according to Lynn Helms, who directs the state's Department of Mineral Resources (DMR). In the latest "Director's Cut," Helms reported that in May the estimated 155 oil companies drilling in the Williston Basin produced 9.189 million bbl, the most in one month since the first commercial well was drilled in 1951 near Tioga, ND. By comparison, April's production was 8.53 million bbl.

Natural gas, considered a byproduct of oil drilling in North Dakota, also is being produced at record rates, said Helms. According to DMR, 9.28 MMcf was produced in May, based on a daily average production of 299,275 Mcf/d, which was a record.

Low gas prices and the GOM deepwater explosion make North Dakota's oil drilling more attractive and "are pushing our rig count higher than it would normally be at current prices," he said. However, if gas prices rise, Helms said he expects to see a shift toward more gas drilling, not only in North Dakota but across areas that have moved toward more oil exploration.

In related news, analysts at FBR Capital Markets on Friday said they believed "pressure pumping-related stocks have peaked and will see limited upside as new capacity is added."

The FBR team downgraded oilfield service providers Halliburton and Atlanta-based RPC Inc. to "market perform" from "outperform" because "investors are pricing-in near peak expectations for North American hydraulic fracturing earnings and underestimating the magnitude of the supply response already well under way.

"Halliburton, RPC and their peers are in the midst of aggressively adding capacity to meet burgeoning demand from the myriad unconventional hydrocarbon plays but are likely to overbuild, in our opinion."

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