November 30, 2010

After peaking in early October, the rig counts for both the shales and the tights sands have drifted steadily downward. The lion’s share of the unconventionals’ decline has occurred in the gas-prone shales. Counterintuitively, however, much of the drop occurred among rigs drilling in the oil windows of these plays—a decline of 15 units sequentially in the latest biweekly comps by the latest Unconventional Drilling Report.

Another surprise recorded by the UDR was the collapse in the Eagle Ford, which gave up 14 units, split evenly between oil and gas. These losses were spread among a number of the operators in the play, a couple of rigs at a time. This is due likely more to coincidence of the float than to trend, given the immaturity of the play and the many locations still to drill. And the fact that the overall count and the Eagle Ford tally scarcely budged in comps of the latest Biweekly Report issues.

November 23, 2010

A modest rollover in the overall rig count is likely in 2Q 2011 following a gas price slump, and the unconventional tally will emulate the overall market, reports The Land Rig Newsletter’s Unconventional Drilling Report. The $64,000 question is twofold:  Is gas demand rebounding enough, and will enough gas rigs lay down to help on the supply side? Apart from the misleading indicator of a big 3Q YOY jump in gas demand (against a dismal 2009 3Q), it’s important to note that gas production increased in 2009 even as the overall gas rig count halved in 6 months.

Since then, the overall gas rig count has rebounded by about 50%. Since midsummer 2010, the conventional gas rig count has fallen only 5%, and the unconventional gas rig tally is down just 1%. But thanks to the prolific nature of the unconventionals, gas production has climbed steadily throughout the year, even with gas prices struggling to tread water above $4/Mcf. Look for the unconventionals’ continued steady activity to drive gas production growth through 1Q 2011.

November 16, 2010

The active rig count continues to stall out, hitting its second consecutive decline as tallied by The Land Rig Newsletter’s Biweekly Report in early November. But it was a much steeper drop than in the prior biweekly period. The gas rig tally plunged by 35 while the oil rig metric jumped by 22. Declines in the traditional count for gas were logged in Texas (-19), Oklahoma and Pennsylvania (-6 each), Wyoming (-4), and Louisiana (-2). Texas, of course, accounted for the biggest nominal traditional oil rig gain at 16, but Oklahoma boasted by far the bigger percentage increase at 65%. The likely culprits: more Wolfberry action in the former and more mature field redevelopment in the latter.

A two-consecutive-period decline marked the shales too. The combined count fell by 33 from the year’s peak, set in early October. The Barnett overall fell below 80 rigs for the first time since July, but the rig count in the Barnett oil window is up nearly 50% in that time, according to the latest issue of The Unconventional Drilling Report.

November 9, 2010

Natural gas fundamentals could finally weigh on the gas rig count as prospects fade further in the current gas environment, according to The Land Rig Newsletter’s Unconventional Drilling Report. Futures markets point to low gas prices hanging around awhile, owing to fat storage levels, a likely warmer-than-normal winter, and surging gas production. The production surge has persisted because there has been little change in the level of gas drilling. 

In August, there was an average of 912 gas rigs working, of which 64% were targeting unconventional resources. The gas rig count has remained relatively unchanged since then, with October averaging 900 gas rigs, of which 583 were in unconventional plays. But we’re seeing signs of a plateau in the gas-focused unconventional plays.

According to the latest issue of The Unconventional Drilling Report, the Haynesville active rig count dropped by 21 since the prior biweekly period. No doubt some of those are in float status, but it reinforces the flattening trend we’ve seen in the Haynesville—which not that long ago was everyone’s darling.

November 2, 2010

Could we see a pullback in the Marcellus active rig count next year?  Early indications seem to suggest that possibility as more than one operator is talking about modifications and/or reductions to their programs, Cabot plans a 5-rig Marcellus program next year, down from 7 rigs currently.  Range, one of the leading companies in the play, plans to reduce the number of wells drilled per pad, which could mean fewer rigs as well.

There is no slowdown for oil/liquids drilling, however. Look no further than the Permian Basin to get a sense of the huge migration from gas to liquids over the past year.  Currently, there are 374 active rigs drilling in the region, an 82% increase vs. 2009, according to the latest issue of The Land Rig Newsletter’s Biweekly Report.  Back in early July, the Permian had 327 working rigs. Throughout the 3Q, the count continued to rise, resulting in an average weekly count of 342 for the quarter. The Land Rig Newsletter team expects this trend to continue for the near future.