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Gold/Mining/Energy : Big Dog's Boom Boom Room
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To: energyplay who wrote (16218)12/27/2002 2:16:23 PM
From: Ed Ajootian  Read Replies (1) of 206266
 
Rig Counts -- Rigs drilling for gas rose only by 3 this week, to 722, per BHI release today. The near-month Nymex contract has been over $4 for the last month & a half straight. That is plenty of time to get an AFE out & returned, and a rig spudded. Other than a relatively brief dip under $4, natgas has basically been over $4 since the beginning of the quarter. Yet the rig count is essentially no higher than it was at the beginning of the quarter! (When the quarter started we had 721 rigs drilling for gas).

This drilling response is in marked contrast to what happened the last time NG prices went nutty. The near-month NG contract first popped over $4 around 6/1/00, at which time there were 662 rigs drilling for gas. Within 3 months there were 816 going.

I believe the rig counts are telling us that a "step change" has occurred in the NG markets, such that $4 is the new equilibrium price for gas and increased drilling activity will not occur unless and until the price goes higher than that for a fairly extended period (i.e. 2-3 months).

Needless to say this bodes well for E&P companies heavily weighted toward natgas. It would not seem to bode well for the North American drilling companies though, since I don't see natgas prices staying much over $4 once we get through the winter, unless it gets a lot colder in a hurry or oil prices stay over $30. In other words, we appear to be in a range where 700 - 800 rigs is all its gonna take to supply enough gas to get to a $4 price, and the E&P companies will not drill any more than that.
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