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U.S. Rig Count Declines to Lowest in Almost Two Years

The number of energy rigs in the U.S. declined this week to the lowest level in almost two years, according to Baker Hughes Inc.

The total rig count fell by 30 to 1,746, the Houston-based field-services company said on its website. The count was the lowest since March 25, 2011. Oil rigs dropped by 17 to 1,324. Natural gas rigs declined by 13 to 418.

U.S. gas rigs have dropped five straight quarters as declining demand for the heating fuel and a glut of domestic supplies drove down prices, prompting energy producers to focus on more lucrative oil- and liquids-rich plays. The gas rig count surged by 24 to 431 last week.

“Gas gave back some of its extraordinary gain from last week, which is not unexpected,” said James Williams, president of WTRG Economics in London, Arkansas. He said he believes the trend for gas drilling is up, despite week-to-week fluctuations.

“If prices hold at or near $4, I think we are going to see over the next three to six months a fairly steady increase in natural gas drilling,” Williams said.

The gas rig count has ranged from 407 to 439 this quarter as natural gas prices have surged 17 percent, settling at $3.927 per million British thermal units on the New York Mercantile Exchange. Last year, natural gas prices averaged $2.827. The average for the five years ended 2012 was $4.862.

Producers Switching

Power producers have reacted to the low price of natural gas by switching their fuel use to gas from coal. Utilities increased power generation from natural gas by 21 percent to 1.2 billion megawatts last year and decreased coal-fired generation by 12 percent to 1.5 billion, the U.S. Energy Information Agency said in a report released yesterday.

Oil rig counts are declining as expected due in part to lower oil prices and as operations in new shale plays like the Bakken in North Dakota mature from an exploratory phase into a more efficient development phase, Williams said.

West Texas Intermediate oil futures settled at $93.71 on the Nymex, down from the year-to-date high closing price of $97.94 on Jan. 30.

U.S. oil rig counts at 1,324 are down from a peak of 1,432 in August last year, which was the highest level recorded since at least 1987 in data compiled by Bloomberg.

Texas lost the most rigs this week, falling 11 to 827. Pennsylvania dropped six to 68.

In Canada, drilling activity dropped steeply as expected during the spring thaw, when warmer weather turns roads in remote oil- and gas-producing areas to mud, making it difficult to move equipment. The total rig count plummeted to 337, down 166 from last week, and down by 15 rigs from the same period a year earlier.

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