Natural gas production appears to have fallen slightly in the second quarter — dropping more than 8% from the same period a year ago, according to Lehman Brothers analyst Thomas Driscoll. A report issued Friday,on the quarterly results of 24 producers that account for 28% of the gas supplies in the Lower 48 has so far found a sequential decline from the first quarter of 0.6%, with gas volumes by the 24 totaling 11,391 MMcf/d.

“We are forecasting that full-year 2002 natural gas production volumes will fall 4.5-5.25% from 2001 levels,” said Driscoll, whose complete survey will tally 45 producers. “This follows an estimated production increase of 0.7% in 2001 and a decline of 2.05% and 1.3% in 1999 and 2000.”

According to Lehman’s, Houston-based Spinnaker Exploration will have the largest second quarter production increase, up 27% from the first quarter of this year, but year-over-year, the company will be down about 9%. Also posting positive production results in the second quarter are: Vintage Petroleum, 9%; XTO Energy and Pogo Producing, 8%; BP, 7%; and Ocean Energy, Forest Oil and Chesapeake, 5%. Those reporting declines for the quarter include Denver-based Tom Brown, 12%, USX Marathon 11%; Swift Energy, 9%; Burlington, 8%; and Murphy Oil and Nuevo Energy, 7%.

Some of the drillers who operate in the United States and offshore in U.S. Gulf of Mexico waters, are seeing activity begin to pick up, which they hope bodes well for the coming months.

Cloyce A. Talbott, CEO of Patterson-UTI Energy Inc., which is one of the largest land-based oil and gas drillers in North America, said that a decline in drilling activity that began in August 2001 continued into the first quarter until early March, “when our U.S. working rig count bottomed at 90 rigs. Our activity level then increased, and in the second quarter we averaged 115 rigs working in the U.S. and 4 in Canada. For the week ended July 12, we averaged 123 rigs working, including 116 rigs in the U.S. and 7 rigs in Canada.”

Talbot said the company is retaining its “most experienced field personnel” and improving equipment “in anticipation of further increases in demand for our drilling services. Although this continues to have the effect of increasing our costs and reducing our margins, we are confident that our operations will benefit as the industry improves.”

Patterson-UTI Chairman Mark S. Siegel said that from mid-May through June, the contract drilling industry was marked by relative stability in activity levels and pricing. But he warned that the current level of drilling activity “will be inadequate to overcome the reported decreases” in gas production arising from depletion.

“Although supply decreases have been noted by many industry observers, above-average natural gas storage levels raise concerns about the direction of natural gas prices, and the concerns are heightened by the changes in the reporting of such storage levels,” said Siegel. “We expect the current activity level to continue throughout the summer months, until the effect of declining supply becomes ever more apparent as we approach the winter months. We believe that significantly increased drilling will ultimately be necessary to offset the decreasing supply of natural gas.”

Drilling contractor GlobalSantaFe Corp. said conditions for drilling worldwide were “generally stable and improving.” However, the U.S. Gulf of Mexico jackup market “showed noteworthy improvement, with average dayrates for the company’s Gulf of Mexico-based jackups at the end of the second quarter gaining about $4,100 from levels realized at the end of the earlier quarter.” GlobalSantaFe noted, however, that there was a weaker market for floating rigs, including semi-submersibles and drillships.

A Gulf of Mexico-based semi-submersible began a new contract in the quarter, but “at a significantly lower dayrate.” However, CEO Sted Garber said the Gulf is expected to be an area of “growing demand for high-end jackups like ours” that would “continue to push dayrates for these rigs higher.

Gene Isenberg, CEO of drilling company Nabors Industries Ltd., noted that Lower 48 land drilling had declined “significantly” over the first quarter, and the Gulf of Mexico offshore unit was “essentially flat.” However, he expects that will be changing in the next few months.

“In the U.S Gulf of Mexico, we expect a modest improvement in the third quarter with a more meaningful increase likely in fourth quarter,” Isenberg said. “The remainder of our businesses, primarily those that are largely directed at the North American gas markets, are stable and we anticipate improving market conditions throughout the year, although probably at a slightly slower pace.”

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