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U.S. Rig Count Falling in Texas, Louisiana
In a sign of things to come, the number of rigs actively exploring for natural gas and oil in the United States dropped by 51 last week to 1,941, according to Baker Hughes Inc. The rigs being laid down are in some of the biggest gas-producing areas: Texas dropped 23 rigs, Louisiana, 13; New Mexico, 12; and Oklahoma lost six.
Of the rigs running nationwide, 1,498 were exploring for gas and 429 for oil. A total of 14 rigs were listed as “miscellaneous.” A year ago, the rig count stood at 1,797, and until the price of gas fell, producers were developing gas-prone regions of the country at a furious pace.
Barclays Capital has cut its price target for 30 oil service and drilling companies on a forecast for a drop in worldwide exploration and production spending. Barclays analysts reduced their forecast for 2009 average U.S. gas prices to $6.50/Mcf from $7, and cut the oil price forecast to $60/bbl from $70 on the deteriorating outlook.
“We believe there is considerably more bad news to come in the sector in the form of rig count reductions and earnings deterioration,” Barclays said in a note to clients. The brokerage now expects to see flat exploration and production spending worldwide in 2009 — with a 29% drop in North America. Barclays expects the U.S. rig count to fall to 1,500 or fewer by May because of lower gas prices and a lack of available financing because of the credit crunch.
Canada’s First Energy Capital agrees with Barclays that the U.S. rig count will continue to fall over the coming months.
“Many of these companies are not only doing this due to a decline in commodity prices, but also because of the lack of capital in the system,” First Energy’s Kevin Lo noted. “From a high of 1,606 gas rigs in August of this year, the number could fall to 1,200 to 1,400.”
A rally in gas prices remains “highly dependent on a long, cold winter,” Lo wrote.
“The large drop in the U.S. rig counts suggests an eventual reduction in natural gas production is pending,” Lo said. “This sets the stage for the downward rebalancing of supply in natural gas.”
Texas and Louisiana, where most of the rigs have been idled, are the “two areas that have been drilling heavily for unconventional natural gas, which has been the growth engine for the Lower 48,” Lo noted.
According to First Energy Capital, there have been only two times since 2000 when the U.S. rig count has fallen as quickly as it did last week: in January, when 41 rigs were dropped in one week; and in November 2001, when the count dropped by 40 rigs in one week.
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