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Gas Rigs in U.S. Near 14-Year Low as Producers Slow Spending

March 28 (Bloomberg) -- Gas rigs in the U.S. declined to near a 14-year low as energy producers were expected to slow spending this year despite a rebound in natural gas prices.

Gas rigs dropped by 29 to 389, while oil rigs climbed by 30 to 1,354 this week, data posted on Baker Hughes Inc.’s website show. Total energy rigs increased by two to 1,748, the field-services company based in Houston said. The rig-count figures were released a day early this week because of the Good Friday observance tomorrow.

The U.S. gas rig count has shrunk to less than a fourth of its peak in September 2008 as a glut of domestic supplies pushed prices of the fuel down to 10-year lows and drove energy producers toward more profitable oil and liquids-rich plays. Gas futures settled above $4 per million British thermal units yesterday for the first time since 2011.

“For natural gas producers, the lower the rig count, the better for prices,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by telephone. “The latest strength in gas prices may coax a little more optimism and a little stronger investment in future production, but companies will just stick with their plans in 2013. If the price looks good, maybe they’ll bump spending up for 2014.”

Schlumberger Ltd., the world’s largest oil-services company, said last week that first-quarter drilling in North America “is coming below expectations,” with customers reactivating fewer rigs than initially planned.

‘Uncertain’ Outlook

“The outlook for rig activity and pricing levels in North America continues to be uncertain,” Paal Kibsgaard, the Houston-based company’s chief executive officer, said at the March 18 Howard Weil Conference in New Orleans.

Improvements in drilling technologies have also weakened demand for new rigs, and producers’ capital investments this year are expected to be “little changed” from 2012, a Bloomberg Industries analysis of 44 operators’ plans shows. Twenty-one plan to increase investments by an average of 13 percent, and 17 are cutting spending by about 22 percent. Six will spend about the same as last year, according to the analysis.

The natural gas rig count will remain below 450 this year, Barclays Plc analyst Shiyang Wang, based in New York, said in an e-mailed report to clients. Gas production declines outside the Marcellus shale play and oil reservoirs will probably accelerate, Wang said.

“Although gas prices have recovered enough to arrest the attrition in gas drilling, they have not come to levels that would encourage significant growth in the rig count in 2013,” according to the report.

Gas Supplies

Gas stockpiles were 3.5 percent above the five-year average last week, according to the Energy Information Administration, the Energy Department’s statistical arm. Supplies fell 5.1 percent to 1.781 trillion cubic feet in the seven days ended March 22. They reached a record high of 3.929 trillion cubic feet on Nov. 2.

Natural gas for May delivery fell 4.4 cents, or 1.1 percent, to settle at $4.024 per million British thermal units on the New York Mercantile Exchange. Futures are up 84 percent from a year ago. Prices climbed above $4 yesterday on forecasts of colder-than-normal April weather.

$4 Gas

“Now that we’ve hit $4 gas, we should start to see a lot more gas-drilling activity than we do now,” James Williams, president of WTRG Economics in London, Arkansas, said by telephone.

U.S. oil output climbed 1,000 barrels a day to 7.15 million in the week ended March 22 and, earlier this month, reached a 20-year high, according to EIA data. Stockpiles rose 3.26 million barrels to 385.9 million last week and reached a 22-year high of 387.3 million in June.

Crude for May delivery on the Nymex rose 65 cents, or 0.7 percent, to $97.23 a barrel, the highest settlement in six weeks. Prices have increased 5.9 percent this year.

Louisiana lost the most rigs this week, falling by seven to 102. Oklahoma gained the most, adding nine to 192.

Rigs on land rose by nine to 1,680. Rigs in inland waters were unchanged at 23. The offshore rig count, primarily in the Gulf of Mexico, dropped seven to 45.

Vertical rigs added 11 to 443. Horizontal rigs slipped by one to 1,099. Directional rigs declined by eight to 206.

Canadian energy rigs dropped a fifth week, declining by 91 to 246, following a seasonal drilling pattern.

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

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net

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