Helmerich & Payne Inc. (H&P), whose drilling business is concentrated in the U.S. onshore, said 23 rig contracts were terminated early in just the past month.

Of H&P’s 196 rigs, 132 are currently contracted, including 102 under long-term contracts. Customers have terminated early about 9% of the remaining contracted revenue days. A total of 48 U.S. onshore H&P rigs previously in the spot market were idle as of last Friday. H&P expects around 20 more rigs to be idled by the end of March.

“We’ve had a real firestorm just after a great ramp-up in the business,” CEO Hans Helmerich said last Friday. “Rigs across the board…continue to become quickly idle. The next stage will entail a sorting process focused on capturing efficiencies. It is too early to call at this stage when that sorting process will occur.”

The CEO said there now have been a total of 28 early terminations on contracts, which is five more than when the company announced its quarterly results a month ago. H&P was fully compensated for the life of the contracts, but the CEO said the company would rather have had the rigs working because it had to let some people go.

The Baker Hughes gas rig count fell by 48 for the week ending Feb. 27 to 970 — down 16% from a month earlier and down 32% from the same time a year ago. There were 1,606 gas rigs operating in the United States on Sept. 12, 2008.

“By early summer we expect meaningful sequential onshore supply deterioration,” said energy analysts with SunTrust Robinson Humphrey/the Gerdes Group (STRH). “Moreover, by early summer, we anticipate the gas rig count should decline to 775 rigs (850 average 2009 gas rig count) versus our prior expectation of 800 rigs. A 40%-plus decline in gas-directed drilling in conjunction with our expectation for a further 35% increase in well/rig productivity this year suggests U.S. gas production should decline 4 Bcf/d year/year (7%)” in the second half of 2009 and by 7 Bcf/d year/year (12%) in 4Q2009.

Recent data continues to suggest that sub-$5/Mcf gas prices through the summer injection season “though onshore supply erosion should provide price support later in the year,” wrote STRH analysts John Gerdes, Cameron Horwitz and Ryan Oatman. “Recent production data suggests U.S. natural gas supply increased 0.3 Bcf/d in December, wholly attributable to hurricane-related supply resumptions in the Gulf of Mexico” following hurricanes Ike and Gustav last September.

STRH also lowered its 2009 U.S. industrial demand expectation almost 0.5 Bcf/d to 1.3 Bcf/d lower year/year because of the “recent marked weakness,” which indicated that demand was 3 Bcf/d lower year/year in January and February.

“Our expectation for essentially no growth in ’09 power generation gas demand is unchanged as 0.5-1 Bcf/d lower power demand in the first half of ’09 is largely offset by easy year/year comparisons later this year attributable to hurricane-related power outages and mild ’08 August/September weather,” the STRH team wrote. “Notably, a $4 natural gas price is rough parity with coal prices after normalizing for the thermal efficiencies of gas/coal-fired power generation.”

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