Baker Hughes: US Oil, Gas Rig Count Up 8 to 1,048 This Week

NEW YORK (Dow Jones), Oct. 23, 2009

The number of rigs drilling for oil and gas in the U.S. rose this week as producers ramped up drilling activity in response to higher prices.

The number of oil and gas rigs climbed to 1,048, up eight rigs from the previous week, according to data from oil-field services company Baker Hughes Inc. (BHI). The number of gas rigs was 725, an increase of four rigs from last week, while the oil rig count was 312, an increase of three rigs. The number of miscellaneous rigs rose by one to 11 rigs.

The number of gas rigs in use peaked at 1,606 in September 2008. Producers have curtailed natural gas drilling sharply over the past several months in response to declining prices, but the rig count has begun to stabilize as producers bet on colder weather and an economic recovery that would spark demand for the fuel.

The biggest declines have occurred in vertical drilling rigs, which are used to drill straight down into conventional oil and gas reservoirs. The number of vertical drilling rigs has fallen by about 60% over the last year. Horizontal rigs have fallen by a lesser amount. Horizontal drilling has declined by 26% over the year as producers have continued to exploit prolific gas fields known as shales.

Gas production from shales has boomed with new drilling technology that makes it easier to extract gas from dense rock formations. Shale formations, such as the Barnett Shale in Texas, have been largely credited with fueling a surge in domestic gas production. Producers must drill down to the rock, then horizontally through the formation, to break it apart and release the gas trapped within.

A flood of supply from these fields and weak demand for the fuel resulting from the economic downturn have contributed to falling natural gas prices.

Natural gas prices have fallen by more than 60% from their summer 2008 highs above $13 a million British thermal units. Gas supplies, however, have remained abundant. Some analysts expect that storage facilities will approach full capacity--an estimated 3.9 trillion cubic feet--before the winter heating season begins. Total gas in U.S. storage for the week ended Oct. 16 stood at an all-time high of 3.734 trillion cubic feet--about 12% above last year's level and the 13.1% above the five-year average.

Natural gas for November delivery on the New York Mercantile Exchange was recently down 11.1 cents, or 2.24%, at $4.836 a million British thermal units.  

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