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.

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 by 1.5% from April to May, according to the Energy Information Administration (EIA), which on Thursday issued its latest natural gas gross production report (Form 914). According to the data, U.S. gross gas output from April to May fell 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 (see Daily GPI, July 27). STRH estimated that the Barnett Shale had about 70 rigs running, while in the Eagle Ford Shale the rig count stood at around 75.

Analyst Stephen Smith of Stephen Smith Energy Associates recently cut his 2010 and 2011 gas price forecast, in part on the basis of the climbing rig count (see related story).

Also 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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