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U.S. Rigs Fall to 2-Month Low as Vertical Drilling Drops

Jan. 3 (Bloomberg) -- Rigs targeting oil and natural gas in the U.S. declined to a two-month low as producers curbed their use of equipment that drills vertically.

Oil rigs dropped by four to 1,378, data posted on Baker Hughes Inc.’s website show. The gas count slipped two to 372, the Houston-based field services company said. Vertical rigs, which drill straight down into the earth, tumbled by 10 to 377, the lowest since August 2009, while the horizontal and directional counts rose.

“Drilling is getting incrementally more efficient” with the increased use of rigs boring directionally, James Williams, president of WTRG Economics in London, Arkansas, said by telephone today. “You also see more week-to-week variation with vertical rigs because they take less time to drill a well and don’t stay on site as long as horizontals.”

The total rig count dropped for a second straight year in 2013, losing six, as producers used more efficient drilling techniques to boost yield and bore more wells with fewer rigs. The improvements have helped drive domestic oil production to the highest level in a quarter-century and are set to turn the U.S. into the world’s largest crude producer by 2015.

U.S. oil output rose 10,000 barrels a day to 8.12 million in the week ended Dec. 27, the Energy Information Administration, the Energy Department’s statistical unit, said today. Crude stockpiles declined 7.01 million barrels to 360.6 million.

Crude Slips

West Texas Intermediate crude for February delivery fell $1.48, or 1.6 percent, to settle at $93.96 a barrel on the New York Mercantile Exchange, up 1.1 percent in the past year.

U.S. gas stockpiles dropped 97 billion cubic feet last week to 2.974 trillion, the EIA said. Supplies were 16 percent below a year earlier and 8.9 percent below the five-year average.

Natural gas for February delivery declined 1.7 cents, or 0.4 percent, to $4.304 on the Nymex, up 35 percent from a year ago.

The horizontal rig count is “slowly recovering from July lows,” Mehdi Menouar, a Bloomberg Industries analyst in Skillman, New Jersey, said in a research note Dec. 30. The Permian basin in Texas “continues to transition to a horizontal play,” he said.

Producers in the Permian pulled two vertical rigs targeting oil this week, and the Mississippian in Kansas and Oklahoma lost four, according to Baker Hughes.

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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