The total U.S. land rig count for oil and gas bottomed at 901 working rigs on May 29, but 112 rigs have since gone back to work, driven almost “entirely” by private exploration and production (E&P) companies looking for oil, Tudor, Pickering, Holt & Co. Securities Inc. (TPH) reported last week. The onshore natural gas rig count didn’t bottom out until early July, and “gas price weakness” is likely to persist into November, said SunTrust Robinson Humphrey/the Gerdes Group (see related story).

Given the relative strength in oil prices versus natural gas, “it isn’t surprising that oil-directed activity has provided for two-thirds of the recovery in the overall rig count,” TPH analysts wrote in a note. They estimated that U.S. oil drilling bottomed at 96 rigs on April 24. but since then the number has nearly doubled, with 83 more oil rigs running.

Meanwhile gas-directed drilling “didn’t trough until July 3,” said analysts, and “given filling storage, everyone in the industry and Wall Street is crossing their fingers that this is indeed the trough.” Since July 3 gas-directed drilling has jumped by 35 rigs, which is about 5% higher. The review is based on TPH’s comprehensive “Weekly Rig Roundup.”

“Just as the mix of private/public operators shifted during the downcycle, so too has the oil/gas mix,” analysts wrote. “At the Oct ’08 peak, there were 1,931 rigs targeting natural gas (85% of total) versus 336 rigs targeting oil (15%). At the May ’09 bottom, the mix was similar (87% gas, 13% oil). With oil moving from $40 to $70/bbl and gas stuck below $4/Mcf, [it] shouldn’t be a surprise that oil-directed activity has upticked to 19% of total rig count as of last Friday.”

Since the total rig count bottomed in May, private operators have added 117 rigs, according to the study. “They are the driver of the rebound,” analysts said of the private E&Ps. “Regional analysis shows activity has picked up the most in oily, conventional plays” in West Texas/New Mexico, with 33 more rigs, and in the Midcontinent, which has 24 more rigs.

“Along with rising commodity prices, we think privates also react quickly to changing well costs because they seldom have legacy (higher cost) rig or services contracts,” said analysts. “Most people don’t realize it, but private companies were 43% of U.S. drilling at the peak” late last year, operating 1,029 of the industry’s 2,374 rigs. Activity among private drillers appeared to bottom at 330 rigs on May 8, which was three weeks before the total industry bottomed.

However, since early August there’s been a “slight increase” by gas-focused public drillers, with Chesapeake Energy Corp., BP plc and EOG Resources Inc. each adding three rigs since late May. Since total U.S. land drilling hit bottom at the end of May, total public E&P activity has declined overall by another five rigs.

Not surprisingly, gas producers have reduced their rig counts the most since last year’s highs. Excluding producers that were running less than 25 rigs last fall, E&Ps dropping the most rigs since late 2008 are Plains Exploration & Production Co., down 96% or 24 rigs; Forest Oil Corp., 93% or 28; SandRidge Energy Inc., 84% or 31 rigs; Continental Resources Inc., 83% or 25 rigs; Occidental Petroleum Corp., 81% or 22 rigs; and Devon Energy Corp., 80% or 70 rigs.

“It’s still a little too early to draw specific conclusions” about how the slight uptick in drilling will 3Q2009 earnings, but “it doesn’t feel like the activity boost is going to create a blowout” quarter for service companies, said the TPH team.

According to the analysis, onshore gas-rich basins with the largest increases in activity since the end of May include Appalachia, which is up 34%, or 26 rigs, partially on a seasonal rebound and partially on Marcellus Shale growth. Also showing higher gas drilling activity is the East Texas/Haynesville Shale region, which has add 10 rigs (12%) since late May.

Basins that have continued to decline since early June include areas of South Texas, with “typically high-dollar gas wells” have pushed out six more rigs, or a 26% decline. In the San Juan Basin, there are five fewer rigs (down 63%), and in the Fort Worth Basin’s Barnett Shale, drilling has fallen another 7%, with five fewer rigs in operation since the end of May.

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