Will growing environmental pressure group opposition cripple the ongoing surge in unconventional oil and gas drilling?  In a number of states and municipalities, new regulations are either being implemented or considered that aim to restrict oil and gas development. Regardless of the region, the tactics are familiar and are aimed at restricting drilling by inflaming public concern over clean water, clean air, and noise levels.

In Pennsylvania, state lawmakers moved a step closer to adopting new fees and new controls on drilling in the Marcellus Shale. But The Land Rig Newsletter team, in its latest issue of The Unconventional Drilling Report, calculates the added costs from the new fees at <$0.05/MMcfe for a 5 Bcfe well; hence, no significant adverse impacts to drilling are anticipated. Efforts to hobble unconventional drilling are also under way in Texas, Arkansas, and West Virginia. In the end, even with some regulatory creep, The Land Rig Newsletter team views the net impact to drilling as negligible.

It seems as if The Land Rig Newsletter team can’t publish an issue of The Unconventional Drilling Report without acknowledging yet another milestone. UDR active rig counts have hit new highs for both total shales (687) and total unconventionals (at 805, surpassing 800 for the first time). The UDR also has a new record for the number of oil-directed rigs among both total shales (234) and total unconventionals (257), as well as a fresh peak for unconventional horizontals (680).

None of this dissuades the LRNL team, however, from their central thesis that tailwinds including low gas prices and drilling services capacity/takeaway constraints will slow growth in unconventional drilling this year. The signs are already at hand:  The UDR’s YTD average unconventional active rig count is up only 3% from 2H 2010’s average but 50% higher than 1H 2010’s average. In addition, new environmental regulatory hurdles could add more tailwinds to unconventional drilling growth, in the wake of Chesapeake’s apparent wellhead breach and subsequent spill of flowback fluids during a Marcellus frac job in Pennsylvania last week.

On the surface, drilling in the leading resource plays has all the markings of having entered a lull period. The unconventional rig count has been relatively unchanged for three consecutive quarters, and utilization has been fairly stable near 80% since early February. However, there are serious riptides underneath this relative calm, The Land Rig Newsletter team warns in the latest issue of The Unconventional Drilling Report.

The strongest Q1 currents were felt in the Eagle Ford, where the rig count surged 25% vs. Q4, and the Bakken, where the count was 15% higher. The Barnett, down 12%, and the Haynesville, down 7.5%, provided countervailing currents. Rig markets are likely to remain tight in the Eagle Ford, Bakken, and DJ basins throughout Q2. More generally, the LRNL team expects growth in oil-directed drilling to be in the double-digits in Q2 as growth in liquids-focused plays expands. Also, the LRNL team expects rig counts in dry gas areas, such as the Haynesville and the northeast window of the Marcellus, to extend recent declines during the quarter.

From the March 24, 2011 issue of The Unconventional Drilling Report:

We haven’t even delved into the roles of hedging strategies or a still robust gas-dominated play such as the Marcellus. There are ample other reasons to believe that U.S. gas production will continue to grow robustly this year even as the unconventional gas rig tally continues to slip. Biggest remaining impediments are infrastructure constraints—namely pipeline takeaway and processing limitations—but those are being addressed. In the end, the gas glut itself will prove to be a cap on production growth this year. Here’s a thought: Prudhoe Bay operators have been reinjecting massive volumes of produced natural gas after stripping liquids from the gas stream for decades. Now ExxonMobil will do the same to get at Point Thomson condensate (also on Alaska’s North Slope). Will gas cycling be the next chapter in the liquids-rich gas shales saga?

The number of rigs prospecting for unconventional resources has remained relatively stable since midyear. As of early December, there were 783 rigs drilling in unconventional plays, compared to 751 in mid-July, according to The Land Rig Newsletter’s Unconventional Drilling Report.

There were 158 active rigs in the Haynesville, down from 180 in July, and 106 units in the Eagle Ford, up from 73 in July. The Marcellus saw the second greatest jump, as its count surged by 28 to 139.  Meanwhile, the Bakken continues to impress, as the play attracted another 14 rigs, bringing its total to 125.

The Land Rig Newsletter team expects the number of rigs drilling for unconventional resources to remain range-bound in the near term, tracking 750–800 units. As long as commodity supply/demand fundamentals continue to remain irrelevant, the overarching theme is one of asset-driven drilling for natural gas, coupled with renewed interest in liquids for liquid’s sake.