The U.S. natural gas rig count is expected to remain below the 450 mark this year, according to an analysis by Barclays Capital.

A “modest uptick” in the rig count is possible because of a surge in prices, wrote analyst Shiyang Wang. Raymond James & Associates Inc. said in a note last Monday higher domestic prices boded well for gas drillers, but they were unlikely to drive more than a “very slow” recovery through 2014 (see Daily GPI, March 26).

“The gas-directed rig count has stabilized around the 410-430 range recently, according to Baker Hughes, and year-to-date has averaged 41% lower than in 2012,” Wang said. “While a modest uptick from current levels is possible given the recent strength of forward prices, we expect the rig count to remain below the 450 mark in 2013.”

The domestic gas rig count has fallen in almost all of the dry gas basins, with the exception of the Marcellus Shale, “which has seen relatively moderate attrition,” said Wang. “This indicates to us that gas production declines outside Marcellus and the oil plays should accelerate.”

Drilling in the Haynesville Shale, another gassy basin, is forecast to move “slightly higher as a key producer in the play plans to increase its activity there.” Encana Corp., one of the biggest operators in the play, said in February it planned to restart activity because management thinks it can produce at a profit and because the location makes it a strong go-to basin for potential Gulf Coast liquefied natural gas exports (see Daily GPI, Feb. 15).

“While this should moderate the production declines in Haynesville, we do not believe it will be enough to arrest them,” said Wang. “Similarly, in our view, although gas prices have recovered enough to arrest the attrition in gas drilling, they have not come to levels that would encourage significant growth in the rig count in 2013. This indicates that gas rig count growth is unlikely to be significant this year to arrest the accelerating declines in most of the dry gas shale plays.”

Barclays expects the U.S. oil rig count to pick up, which should fuel associated gas production growth.

“Data from Smith Bits and Baker Hughes indicate that the oil rig count stayed low after the December bottom, while Rig Data indicates a more robust recovery,” said the Barclays analyst. “We note that our oil team expects a pickup in shale oil drilling this year, which would support continued strength in associated gas production growth.

“Furthermore, key shale oil basins such as the Eagle Ford and the Bakken continue to flare gas due to infrastructure constraints. This means that even without a significant increase in drilling activities, associated gas output could grow with expanding infrastructure in 2013. While associated gas production growth will offset some of the declines in gas production elsewhere, it will not be enough to push overall gas production higher, in our view.”

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