Meanwhile In US Natural Gas Plays, Drilling Keeps Dropping

HOUSTON –

By Joseph Triepke

View the original article on Oilpro.com.

With US oil supply, drilling and prices dominating the headlines, US natural gas drilling has received almost no air time over the past year or so.

Natural gas supply/demand fundamentals and field activity are under just as much pressure as oil. And declining E&P cash flow from oil sales is exacerbating the situation. It means less cash to fund natural gas drilling, and so natural gas activity is taking collateral damage from low oil prices.

With Henry Hub gas prices falling below $2 this month, a quick update is in order. To summarize the situation, here are 3 key charts and quick comments on each.

• US natural gas production appears to be finally cresting.
• Recent growth has been driven by the Marcellus and associated gas from oil plays.
• Let's just hope this isn't the trajectory oil follows.

• US natural gas prices remain under severe pressure with storage concerns and a mild winter pushing the price under $2 this month.
• At just over 100 rigs, the US gas rig count hasn't been this low since Baker Hughes started tracking it in the 1980s.

• When the ratio rises, it means E&Ps are focusing more on oil drilling and less on gas drilling.
• Although the oil drilling collapse has been getting all the attention, this chart shows that gas drilling has been under more pressure than oil drilling recently.
• Today, for every rig drilling for gas there are 4 drilling for oil. At the height of the US oil boom, there were just over 5 oil rigs to every gas rig. And in late 2015, there were less than 3 oil rigs working for each gas rig.

Weekly North American Rig Count Statistics

On Friday, US land rig count fell 14 rigs to 473. The North America rig count fell 43 units last week with declines coming all across the market. WTI is just above $30/barrel as of this writing, skewing rig count direction lower and below expectations for the rest of 1H16.

The Independent E&Ps are cutting capex even more than we expected, and declines will likely be 40-50% below 2015 in the aggregate. While the weekly figures will ebb and flow, current oil price levels delay rig count stability. The 400 rig count level for US land will be tested soon.

In Canada, the rig count fell 31 rigs to 175 for the week.

A regional summary of rig counts by key basins is below. With 164 rigs working, the Permian is still the most active basin, but it was down 1 rig on the week. The Eagle Ford, with 47 rigs running, is the second most active basin, and it was down 7 last week. With 36 rigs running, activity in the Bakken was flat last week.

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