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Gas Rigs in U.S. Decline to 18-Year Low on Prices Below $4

June 21 (Bloomberg) -- Natural gas rigs in the U.S. declined to the lowest level since 1995 as futures traded below $4 per million British thermal units and energy producers focused their drilling on more profitable oil and liquids plays.

The gas count decreased by four to 349, the fewest since June 1995, Baker Hughes Inc.’s website shows. Oil rigs slipped by eight to 1,405, the Houston-based field-services company said. Total rigs fell by 12 to 1,759, an eight-week low.

The number of U.S. gas rigs has declined by five this month after six straight quarters of declines. Producers have been pulling equipment from dry-gas plays since 2011 after a combination of hydraulic fracturing and horizontal drilling drove supplies of the fuel to a record-high and prices to a decade-low.

“It’s going to take more than the prices we have” to lure companies back into gas-drilling, Trey Stolz, an analyst at Iberia Capital Partners LLC in New Orleans, said by telephone today. “We need something closer to $5 for a sustained period of time or else the focus will remain on oil.”

Natural gas for July delivery slid 10.6 cents, or 2.7 percent, to settle at $3.771 per million British thermal units on the New York Mercantile Exchange, up 46 percent from a year ago.

Gas Supplies

U.S. gas stockpiles expanded by 91 billion cubic feet in the week ended June 14 to 2.438 trillion cubic feet, down 19 percent from year-earlier inventories, the Energy Information Administration, the Energy Department’s statistical arm, said yesterday. Supply increases have exceeded the five-year average for three consecutive weeks.

West Texas Intermediate crude for August delivery tumbled $1.45, or 1.5 percent, to $93.69 a barrel on the Nymex. Prices have gained 2 percent this year.

Oil has traded almost 25 times higher than gas in 2013, up from six times higher 10 years ago.

“Gas rigs will remain down, especially in areas where there’s dry-gas production, and it will continue to be so until gas prices get up to around $4.50 and even higher,” James Williams, president of WTRG Economics in London, Arkansas, said by telephone.

The gas count could pick up in the second half of 2013 as producers respond to the gain in prices so far this year, according to London-based Barclays Plc.

Price Level

“While we believe a material increase in activity throughout the major gas basins would likely require sustained prices above the $5 level, we do not expect this to materialize this year,” James C. West, an oil services and drilling analyst at Barclays’ investment-banking unit in New York, said in a research note June 17. “We continue to believe that current levels are supportive of an uptick in activity in low cost gas basins.”

The oil rig count has slipped by 51 so far this quarter and is down 16 from a year earlier.

“There’s been a lot of uncertainty looking at the second half of 2013 and what kind of activity level we’ll see out of fields because of pricing,” Stolz said. “We expect incremental activity in the second half of 2013, and we expect a better 2014, but to what degree that will be better is in doubt.”

Crude Production

U.S. oil output fell a second week, slipping 1.3 percent to 7.13 million barrels a day last week, EIA data show. Production reached 7.37 million barrels a day in the week ended May 3, the most since 1992. Stockpiles gained 313,000 barrels to 394.1 million, according to the EIA.

Alaska gained the most rigs this week, adding two to eight. Oklahoma lost the most, falling by five to 178. Rigs in North Dakota, home to the Bakken shale formation, were unchanged this week at 178.

North Dakota’s Bakken crude output gained to a record 727,149 barrels a day in April, according to preliminary data compiled by the state Industrial Commission.

Rigs on land declined by 12 to 1,682, the lowest level since April. Rigs in inland waters were unchanged at 23. The offshore rig count, primarily in the Gulf of Mexico, was also unchanged at 54.

The number of permits issued for drilling in the U.S. Gulf slowed in the first five months of 2013, with 54 issued for new wells, down from 91 a year ago, according to data compiled by Bloomberg. Royal Dutch Shell Plc, Tana Exploration and LLOG Exploration have been issued the most permits this year for drilling in the Gulf, according to a June 18 Bloomberg Industries analysis.

Canadian energy rigs climbed for the sixth straight week, adding 21 to 197, 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: Dan Stets at dstets@bloomberg.net

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