According to analysis by The Land Rig Newsletter’s Biweekly Report
, operators in 2010 will focus on heavy drilling programs in the shales driven by leasehold commitments, and more asset sales and high hedging levels to backstop cash flow and drilling budgets. Drillers can expect a return to term contracts, especially in the most competitive shales, and more emphasis on liquids-rich plays. As the ongoing shale frenzy contributes to the gas glut, gas prices will slump further, with more big, high-spec rigs finding more work to offset a rig count decline in conventional gas areas. As the gas rig count flattens, the oil rig tally will continue to snatch market share.
What’s driving drilling? The desire to retain hard-fought leasehold positions. During 2007-09, operators assembled more than 10 million acres in just the Haynesville and Marcellus shales. Leases are typically for 3-year terms, suggesting much to be drilled and little time to drill it. Hence, we believe the surge in Louisiana and Pennsylvania drilling still has legs, which could be the death knell for gas prices later this year.