Rig Counts Going Down; Natural Gas Prices Going Up

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From Seeking Alpha:
Friday afternoon, Baker Hughes (BHI) reported yet another significant weekly decline in the U.S. Lower 48 gas-directed rig count. As of October 12, there were 422 rigs drilling for natural gas, 15 less than a week earlier. The reduction in the horizontal rig category was particularly significant, with a 23-unit decline to 290 rigs from 313 rigs.
I have written recently that the gas-directed rig count possibly had already bottomed, given that the gas price recovery in September had reduced the economic incentive to operators to lay down additional gas rigs. I have also noted that the rig count reflects operators' decisions, and the price environment, with a several-month lag. This week's report proves that my suggestion regarding the inflection point in the gas rig count being achieved was a bit premature. It is important however to look inside of today's headline number for its correct interpretation.
A closer analysis reveals that the aggregate rig count decline masks the stable drilling activity in the "dry" gas plays:
Read the rest of that analysis by clicking here.

Forbes looks at the rig count, in association with other data, and concludes that natural gas prices are moving right in line with their earlier prediction of $8.00 prices by winter:
New natural gas rig counts hit the wires Friday morning and on cue the number decreased yet another 15 rigs to 422, another 21st century low and a massive 55% below the 936 peak one year ago. An article was published by me on July 22nd predicting a spike to $8.00 natural gas by this winter. Well, we are right on track. During that July week natural gas storage numbers were 19.2% and 17.5% respectively above the one and five year averages. Back then we had had eleven straight weeks of below normal storage injections. Since that time we have had a look at thirteen more data points twelve of which were below normal so now the “glut” has diminished to only 6.8% and 7.8% more than the one and five year averages. Thursday’s actual storage injection was 72 Bcf against a 108 Bcf increase one year ago this week.
I have continued to inspect decline curves for wells in the Eagle Ford shale. After viewing records for over 70 wells with between nine and eighteen months of production data, the declines continue to be precipitous. A one year decline rate of 80% or more was more the norm than the exception for the data I inspected. In other words a well making 800 BOE (barrels of oil equivalent) on day one, more likely than not was generating well under 200 BOE twelve months later. So I wondered whether there was any recent literature to corroborate my own empirical evidence. Gary Swindell a Dallas, Texas petroleum engineer did an Eagle Ford shale study analyzing 1,041 wells in ten Eagle Ford shale counties with current drilling activity. Similar to my own findings he found decline rates on average were 76%. But he explored much deeper to determine if Estimated Ultimate Recovery (EUR) of a well was dependent on such metrics as frac size in thousands of pounds of sand, distance of the perforated length of the horizontal drill pipe, and the well’s Initial Potential or IP. The conclusion was there was some correlation between more oil and gas produced and bigger and longer fracs up to a point at which time there were diminishing returns. For example, Fracs over 5,000 feet horizontally generally showed lesser returns as did Fracs using over 6,000 pounds of sand. The IP represents the initial production of those first few test days when the well produces at its highest outputs.  Swindell also did a simple time test. Were wells getting better, meaning more productive as time passed? Was experience and technology increasing drilling efficacy? Back in July there were lots of criticisms on my previous article claiming how much more efficient drilling is today which more than offsets the dwindling rig supply. The evidence concluded than up until 2010, in the Eagle Ford at least, wells indeed improved, but subsequent to that there has been a plateauwith no increaesed productivity gains for over two years.
Read the rest of that article by clicking here.

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