Gas Rigs Drop to Fewest Since 1999 as Drilling Declines

Oil and gas rigs in the U.S. fell for a third straight week to the lowest level since January after producers moved equipment out of gas plays.

The gas count declined by 13 to 407, the fewest since May 1999, data posted on Baker Hughes Inc. (BHI)’s website show. Oil rigs gained for a second week, adding eight to 1,341, a 12-week high, the field-services company based in Houston said.

The total energy count has dropped 11 rigs this year as producers adopt more efficient drilling technologies and get more output with fewer rigs. Unconventional plays have helped drive U.S. crude production to the highest level in more than 20 years. The country met 84 percent of its energy needs in the first 11 months of 2012, on track to be the highest annual pace since 1991.

The growth in U.S. tight-oil production has been “astounding,” and domestic output may continue to rise because of higher recovery rates and tighter well spacing, Adam Sieminski, administrator of the Energy Information Administration, the Energy Department’s statistical arm, said March 6 at a conference in Houston. “The potential for these things to go higher is very real.”

Tesoro Corp. (TSO) is pursuing rail projects over the next two years that will help deliver oil from domestic plays in the nation’s center to its refineries in California and Alaska, Dan Romasko, the company’s executive vice president of operations, said at a conference yesterday in New York.

Rail Projects

Phillips 66 (PSX) and Valero Energy Corp. (VLO) also said this week that they’re planning rail projects to move oil into their refineries on the U.S. West Coast.

U.S. oil output slipped 3,000 barrels a day to 7.09 million in the week ended March 1, according to EIA data. Production rose in February to the highest level since 1992. Stockpiles rose 1 percent to 381.4 million barrels last week and reached a 22-year high of 387.3 million in June.

Crude for April delivery on the New York Mercantile Exchange rose 39 cents, or 0.4 percent, to settle at $91.95 a barrel on the New York Mercantile Exchange. Prices have dropped 14 percent in the past year.

“We’re still seeing fairly strong oil prices, so oil rigs are, of course, maintaining,” James Williams, president of WTRG Economics in London, Arkansas, said by telephone. “The gas rig drop is a little surprising. That’s a pretty big hit, but gas just isn’t economic to drill for until we pass $4” per million British thermal units.

Natural Gas

Natural gas for April delivery gained 4.7 cents, or 1.3 percent, to settle at $3.629 per million British thermal units on the Nymex. Futures are up 60 percent from a year ago.

Gas stockpiles fell 146 billion cubic feet in the week ended March 1 to 2.083 trillion, according to data compiled by the EIA. They reached a record high of 3.929 trillion cubic feet on Nov. 2.

Oklahoma lost the most rigs this week, falling by seven to 180. California gained the most, adding five to 39.

Rigs on land declined a third week, losing four to 1,682. Rigs in inland waters were unchanged at 19. The offshore rig count, primarily in the Gulf of Mexico, slipped by one to 51.

Vertical rigs lost four to 427. Horizontal rigs tumbled by 11 to 1,130. Directional rigs rose by 10 to 195.

Canadian energy rigs slid a second week, declining by 75 to 580, following a seasonal drilling pattern.

To contact the reporters on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net; Richard Stubbe in Houston at rstubbe1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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