May 3 (Bloomberg) -- The number of rigs targeting natural gas in the U.S. tumbled this week to the lowest level since 1995 as energy producers kept equipment in more lucrative oil and gas-liquids plays.
The gas count declined for the second straight week, losing 12 to 354, the lowest since June 1995, data posted on Baker Hughes Inc.’s website show. Oil rigs jumped by 22 to 1,403, a six-month high. Total energy rigs rose 10 to 1,764, the Houston-based field-services company said.
The gas rig count is at less than a fourth of its peak of 1,606 in 2008 after a boom in U.S. 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., 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 June delivery rose 0.8 cent to $4.033 per million British thermal units on the New York Mercantile Exchange at 1:26 p.m. Futures were up 72 percent from a year ago. The price slipped below $4 in intraday trading today for the first time in four weeks.
Prices would need to rise above $4.50 for oil and gas producer Energen Corp. 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.
“One of the problems that the gas count will face is that companies have a certain amount of a drilling budget,” James Williams, president of WTRG Economics in London, Arkansas, said by telephone today. “And even if they find gas profitable again, in most cases, it will not be as profitable as drilling for oil.”
Crude for June delivery on the Nymex rose $1.84, or 2 percent, to $95.83 a barrel today. Prices have decreased 6.8 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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