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Oil Rigs Decline Most Since 1992 as Producers Cut Spending

Dec. 21 (Bloomberg) -- U.S. oil drilling rigs dropped by the most in 20 years as declining crude prices prompted energy producers to curtail exploration.

The total slid by 41 to 1,340, the lowest level since April, data posted on Baker Hughes Inc.’s website show. They fell by 44 in the week of Dec. 18, 1992. It was the fifth straight decline, the oilfield-services company based in Houston said.

The oil count declined last quarter for the first time since 2009 as a drop in crude prices curbed companies’ demand for equipment and more efficient drilling operations boosted crude supplies to near a 12-year high. The scale-back threatens to curb domestic oil growth that helped push the U.S. closer to energy independence than it has been in 20 years.

“There’s a lot less spending going on at the end of this year than was forecast,” Trey Stolz, an analyst at Iberia Capital Partners LLC in New Orleans, said by telephone. “Lower oil and gas prices over the course of the year are playing a role as exploration and production companies were deciding whether to spend in the second half of the year or let their budgets expire as planned.”

Crude for February delivery on the New York Mercantile Exchange fell $1.47, or 1.6 percent, to settle at $88.66 a barrel. Prices are down 19 percent from this year’s settlement peak of $109.77 a barrel on Feb. 24.

Total Count

The energy rig count fell by 25 to 1,774, a 20-month low, according to Baker Hughes’ website. Gas rigs rose by 13 to 429, an 11-week high.

The U.S. natural gas rig count has shrunk to less than a third of its peak in August 2008 because of a switch from dry gas to more profitable crude and natural gas liquids drilling.

Natural gas for January delivery slipped 1.1 cents, or 0.3 percent, to $3.451 per million British thermal units on the Nymex. Prices are up 15 percent this year.

This week’s gain in natural gas rigs “was a little surprising given the low prices,” James Williams, president of WTRG Economics in London, Arkansas, said by telephone. “That must be a weekly variation rather than anything else. I don’t expect any real major movement in the gas count until prices reach $4.”

Reclassifying Rigs

Some of the decline in oil rigs this week may stem from drillers reclassifying rigs to gas from oil rather than an actual shift in plays, Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by e-mail.

“We still have more oil rigs working than a year ago and fewer gas rigs,” Evans said. “I wouldn’t modify my expectation for rising U.S. crude oil production based on the latest data.”

Crude stockpiles dropped 964,000 barrels to 371.6 million in the week ended Dec. 14, Energy Department data show. They were forecast to decline by 1.75 million, according to a Bloomberg survey. Inventories are 48 million barrels above the year-ago level and the average of the past five years.

Oil production rose 11,000 barrels a day last week to 6.86 million, the highest since 1994, Energy Department data show.

Texas lost the most rigs, dropping 18 to 830. California was the only state that gained rigs, rising by one to 32.

Rigs on land tumbled by 26 to 1,703, the lowest since March 2011. Rigs in inland waters slipped by one to 20. Miscellaneous rigs, which primarily drill for geothermal energy, increased for the second week, gaining three to five.

Vertical rigs slid by 17 to 487, the biggest weekly drop since March. Horizontal rigs were unchanged at 1,105.

The offshore rig count rose by two to 51, while rigs in the Gulf of Mexico climbed by one to 48.

Canadian energy rigs fell for the first time in six weeks, dropping by 34 to 384.

To contact the reporter on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net

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

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