| | | E&P Stock Perspectives Per Underlying Commodity Price Drivers
The U.S. Horizontal Natural Gas Rig Count: How Low Can It Go As
E&Ps Continue To Focus On Oil and Liquids-Rich Plays?
27 June 2013 ¦ 14 pages ir.citi.com
U.S. Horizontal Gas Rig Count Falls To 6 1/2 Year Low – The U.S. horizontal natural
gas rig count is now at a 6 1/2 year low and at 247 is 62% below its October 2011 peak.
Our E&P coverage group accounts for nearly one-half of these horizontal gas rigs and
most, including APC, CHK, CNQ, DVN, EOG and UPL, have recently indicated that a
sustainable price of at least $4.50-5.00/MMBtu would be required to reallocate capital
to ‘dry’ gas projects given their outlook and opportunities in oil and liquids-rich plays.
However, ECA intends to ramp up to 5 gas rigs in the Haynesville shale play this year
(up from 0 rigs in Q4’12) while WPX recently announced that it plans to add 2 dry gas
rigs in the Piceance Basin beginning next quarter. Even with the recent pullback,
natural gas prices are just 5% below where they stood in October 2011 at the peak in
the horizontal gas rig count which, after rebounding a bit during this past winter, has
continued to drop. We would note that contributing to this continued drop has been a
reduction in the need to drill to hold leases, i.e. HBP (held-by-production) obligations,
continued weakness in NGL prices and faster drilling times. We project the domestic
horizontal gas rig count is now close to and will bottom in the second half of this year.
But even with this forecast and the sharp drop over the past year, we still project that
U.S. natural gas production will be nearly flat year over year in 2013 as growth in
Marcellus shale and associated gas volumes from oil and liquids-rich plays at least
offset declines in Haynesville and conventional production. See our May 16th report:
Post Q1’13 Update: U.S. Natural Gas Production Still Projected To Be Flat In ‘13
Despite Sharp Drop In ‘Dry’ Gas Spending. |
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