The number of natural gas rigs active in the U.S. tumbled to the lowest level since 1999 as energy producers kept drilling focused on liquids plays even as gas futures traded above $4 for the third straight week.
The count dropped 13 to 366, the fewest since May 14, 1999, Baker Hughes Inc.’s website shows. Oil rigs increased by 10 to 1,381, the Houston-based field-services company said. Total energy rigs slipped by four to 1,754.
The U.S. gas rig count has dropped to less than a fourth of its peak of 1,606 in 2008 as energy producers abandoned natural-gas plays to drill for more lucrative crude and natural-gas liquids. The boom in tight-oil production helped the U.S. meet 84 percent of its energy needs last year, the most since 1991, according to the U.S. Energy Information Administration, the Energy Department’s statistical unit.
ConocoPhillips, the largest independent U.S. oil and natural gas producer, has no plans to start “redirecting any capital toward gas assets until it’s significantly north of current prices,” Matthew Fox, an executive vice president at the Houston-based company, said in a conference call with investors yesterday.
The company’s fuel production in Texas’ Eagle Ford shale formation is about 60 percent oil, 20 percent natural gas liquids and 20 percent dry gas, Jeff Sheets, Conoco’s chief financial officer, said during the call. Its wells in North Dakota’s Bakken formation produce mostly oil, he said.
U.S. gas stockpiles increased by 30 billion cubic feet to 1.734 trillion in the week ended April 19, the EIA said yesterday. Supplies were 31.8 percent below a year earlier and 5.1 percent below the five-year average, down from a deficit of 4.2 percent the previous week.
Natural gas for May delivery fell 1.5 cents, or 0.4 percent, to settle at $4.152 per million British thermal units on the New York Mercantile Exchange. Futures haven’t traded below $4 since April 5.
“Gas prices haven’t yet been high enough long enough to have an impact on the rig count,” James Williams, president of WTRG Economics in London, Arkansas, said by telephone. “Any producer that has both oil and gas opportunities is going to pick oil over gas because you can make a much bigger profit.”
Gas-targeted rigs made up 21 percent of the total count this week, its lowest share since Baker Hughes separated oil and gas counts in 1987.
Chevron Corp., the world’s third-largest energy company by market value, has “really restricted all of our dry gas production to minimal amounts,” Pat Yarrington, the company’s vice president and chief financial officer, said in a telephone call with investors today.
The rest of the company’s gas production is associated with heavy-liquids plays, and “we should continue to see those ramp up,” Yarrington said.
Exxon Mobil Corp. is similarly focused on liquids-rich drilling and has “the flexibility and optionality” to ramp up gas output should prices keep rising, David Rosenthal, vice president of investor relations for the Irving, Texas-based company, said in a conference call with investors yesterday.
“We don’t tend to take the last two data points and draw a trend line and react in that manner,” he said. “We tend to have longer-term approaches to the development of all of our resources.”
U.S. oil output reached 7.33 million barrels a day last week, a two-decade high, EIA data show. Stockpiles climbed to 388.6 million, near a 22-year high.
Crude for June delivery on the Nymex fell 64 cents, or 0.7 percent, to settle at $93 a barrel. Prices have decreased 11 percent in the past year.
Alaska lost the most rigs this week, dropping by five to three, the lowest since May. Oklahoma gained the most, adding three to 183.
Rigs on land fell for the second straight week, losing three to 1,681. Rigs in inland waters slipped by one to 24, and miscellaneous rigs, which primarily drill for geothermal energy, dropped by one to seven.
Vertical rigs jumped by 10 to 471, the highest since January. Horizontal rigs, typically used in tight-oil and gas plays, lost 13 to 1,084.
“There are some plays where you can drill vertical wells more profitably, and they’re much less expensive,” Williams said. “That growth has tended to be in the Permian Basin.”
Offshore rigs, primarily in the Gulf of Mexico, were unchanged at 49.
Canadian energy rigs fell by four to 122.