Barnett Shale drilling and natural gas prices down

COMMENT: Wither goest the Barnett Shale, so goest northeast BC. As the government spends the next month preparing its election year throne speech and budget, rights sales and royalty projections for 2009-2010 will have to be considerably less optimistic than last year's forecast. In the 2008 budget, rights sales for 2009-2010 were forecast at $620 million; gas royalties, $1.25 billion. Watch those numbers decline, and watch closely as the government reconciles declining revenues with expenditures. Who's going to get hit? Count on it that it'll be those least able or least likely to fight back at the ballot box.

Jim Fuquay
Star-Telegram (Fort Worth)
January 3, 2009

Drilling has declined faster than was predicted just two months ago and may have to decline more for gas prices to rise. (STAR-TELEGRAM ARCHIVES/M.L. GRAY)

There were 159 rigs operating in 14 North Texas counties as of Dec. 26, according to the most recent report from RigData. That was down 12 from the previous week and down 55 from the 2008 peak of 214 active rigs in the Barnett.

It’s the biggest sustained decline in the Barnett since late 2001, when there were fewer than 100 rigs, according to RigData. Drilling in 2008 generally remained above 200 rigs until recently.

Nationally, the rig count fell by 98, or 5.7 percent, said Baker Hughes, a Houston-based oil-field services and equipment firm that has tracked North American drilling for decades. That was the biggest one-week drop since 1993 and left the U.S. rig count down 20 percent from its yearly high.

Rigs exploring for natural gas accounted for 80 of the idled rigs in the past week, Baker Hughes said. There were 1,267 rigs looking for gas, down 21 percent from the 2008 high of 1,606, on Aug. 29.

Overall, 1,623 rigs were active both onshore and offshore in the United States, Baker Hughes said. That peaked in 2008 at 2,031, in September.

What’s happening

Natural gas futures have plunged since peaking at $13.58 per 1 million Btu in July. On Friday, gas settled at $5.97.

Drilling has declined faster than was predicted just two months ago.

As recently as Oct. 24 there were 205 active rigs in 16 Barnett counties, according to RigData. At the time, Richard Mason, publisher of Land Rig Newsletter in Lubbock, said he expected to see the rig count fall as much as 20 percent in the first quarter of 2009.

Last month, Mason updated his forecast, saying the rig count could drop as much as 30 percent and predicted "the most difficult drilling environment in 10 years."

On the ground

As gas prices continued to weaken, XTO Energy President Keith Hutton said in early December that the number of rigs looking for natural gas in the United States might have to drop to 1,200 before production would fall enough for prices to rise again.

As of Dec. 26, XTO was running 16 rigs in the Barnett, just under the approximately 19 rigs it generally operated last year. Chesapeake Energy showed the biggest cut in its Barnett rig fleet, from 43 in late September to 32 as of Dec. 26, according to RigData.

Devon Energy, based in Oklahoma City, remains the busiest driller locally, with 38 rigs. That’s about what Devon, the Barnett’s largest producer, has operated in the past year.

JIM FUQUAY, 817-390-7552, jfuquay@star-telegram.com