The number of gas rigs in the U.S. declined by 12 this week to 354, according to Baker Hughes Inc.
The number of rigs targeting gas in the U.S. shrank to less than a fourth of its peak of 1,606 in 2008 after a boom in natural gas output triggered a decline in prices and drove drillers toward more profitable crude and natural-gas liquids. Companies have proposed about 30 billion cubic feet of daily U.S. gas export capacity amid the surge in output as producers fracture shale formations.
“Even with our natural gas assets being located across some of the lowest-cost shale plays in North America, returns continue to be more attractive on the oil and liquids-rich side,” John Richels, chief executive officer of Oklahoma City- based oil and gas producer Devon Energy Corp. (DVN), said in an earnings call May 1.
The company can easily shift to drilling in the Barnett shale formation for gas should “the outlook for gas prices continue to improve,” he said.
Natural gas for May delivery rose 1.8 cents, or 0.4 percent, to $4.043 per million British thermal units on the New York Mercantile Exchange at 1:08 p.m. Futures were up 73 percent from a year ago and slipped below $4 in intraday trading for the first time in four weeks.
Prices would need to rise above $4.50 for oil and gas producer Energen Corp. (EGN) to “get more excited on our gas project side of things,” James T. McManus, the Birmingham, Alabama- based company’s chief executive officer, said in an earnings call April 29.
“I think the price is still a little bit low,” McManus said. “Certainly we’re encouraged that’s it’s firmed up.”
U.S. gas stockpiles increased by 43 billion cubic feet to 1.777 trillion in the week ended April 26, the Energy Information Administration, the Energy Department’s statistical arm, said yesterday. Supplies were 30.9 percent below a year earlier and 6.2 percent below the five-year average, versus a deficit of 5.1 percent the previous week.
The Bakken and Three Forks formations spanning parts of North Dakota, South Dakota and Montana contain about 6.7 trillion cubic feet of undiscovered natural gas, according to an April 30 assessment by the U.S. Geological Survey. The two formations contain about 7.4 billion barrels of recoverable oil, the agency said.
U.S. oil output slipped 0.2 percent to 7.31 million barrels a day last week, EIA data show. Production reached a two-decade high of 7.33 million barrels a day on April 19. Stockpiles climbed 1.7 percent to 395.3 million barrels, the highest in 82 years.
Crude for June delivery on the Nymex rose $1.69, or 1.8 percent, to $95.68 a barrel today. Prices have decreased 6.7 percent in the past year.
North Dakota crude production climbed to 779,000 barrels a day in February, up 39 percent from a year earlier, according to an April 30 Bloomberg Industries analysis. Output in Texas was up 28 percent at 2.3 billion barrels a day.
“These two states are driving total U.S. growth through increasing crude oil production in the Bakken, Eagle Ford and Permian, and have helped to offset declining production in Alaska and the Gulf of Mexico,” said Christian O’Neill, a Bloomberg Industries analyst in Princeton, New Jersey.
The capital expenditures of energy exploration and production companies may drop for the first time this year since 2009, O’Neill said. Forecasts for the year are 17 percent below 2012 levels for producers in North America, he said.
“Although some of this can be attributed to weak natural gas prices, increased capex is required to maintain oil supply growth rates,” O’Neill said.
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