The swift drop in the natural gas drilling rig count across the Rocky Mountains has led to double-digit declines for some drilling services, and more are expected in the months ahead, Bill Barrett Corp. officials said Tuesday. Lower service costs will help the independent keep its costs in line, but it also is preparing for what may be “radical” changes in gas prices through the year, said CEO Fred Barrett.

Barrett and his management team offered their views on what they think is ahead for not only their Denver-based company but other Rockies gas producers during a quarterly earnings conference call. The company earned $6.89 million (15 cents/share) in 4Q2008, up from $2.48 million (6 cents) in 4Q2007.

Too much uncertainty exists to forecast what challenges are ahead in 2009, but with so many rigs coming down in onshore gas basins, the CEO said there are some slightly encouraging signs down the road. But not in the near term.

“The expected supply declines plus sizable new [transportation] capacity in the Rockies should improve future pricing,” Barrett said. “The macro economic environment is presenting challenges to the industry, but we’re leveraging the positive effects on sector costs.”

Costs are tumbling for almost every kind of well service, COO Joe Jaggers said. The lower costs might entice some producers to take advantage, but Jaggers said Barrett will wait out completing some wells until the costs come down even more. Until then, the company will prepare wells for completion and do some well tests in areas of its leaseholds in the Piceance, Uinta, Powder River, Wind River and Paradox basins.

Just one month ago the company announced a capital spending plan of $400 million for 2009, with gas prices continuing to fall, the company now plans to spend $350 million — which is around 42% less than it spent in 2008.

The drop in 2009 spending cut the company’s annual production guidance by 1-4 Bcfe. Production this year is expected to total 84-87 Bcfe, which still would be 8-12% higher than in 2008.

“We are optimistic that a 42% decline in drilling rigs in the Rockies could potentially translate into production declines in 2010, reversing or moderating supply,” said the CEO. “Declining supply should improve the commodity prices. More specifically for the Rocky Mountain region, more takeaway by the summer of 2011, including the [proposed] Ruby Pipeline, should bode well.”

In the interim, the independent plans to tread cautiously. “Seventy-five percent of 2009 production is hedged; 60% of 2010 is hedged,” Barrett said. “In the periods of low pricing, we’ll exercise discipline, including the option to shut in and defer to better markets.”

©Copyright 2009Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.