Natural Gas Rig Count Briefly Drops Below 600

Get our Free Trading Videos, Lessons and eBook today!

The natural gas rotary rig count, as reported by Baker Hughes Incorporated, rose by 2 this week to 600, after falling to a 10 year low of 598 last week. After increasing modestly to 936 active rigs in the fall of 2011, the natural gas rig count has dropped sharply. The oil rig count, currently at 1,382, has generally risen steadily since 2009, largely in response to increasing crude oil prices.

Natural gas rigs are currently down about 31 percent from their level at the same time last year, while oil rigs have risen by 45 percent over the same period. However, increased productivity from shale gas formations (generated by horizontal drilling and hydraulic fracturing) and rising associated production from expanding oil directed development activity have helped maintain robust natural gas production.

Oil and Natural Gas Rigs, 2002 - 2012

number of rigs

Source: Baker Hughes Incorporated

Check out our latest Video, Market Analysis and Forecast for the Dollar, Crude Oil, Gold, Silver, and the SP500

EIA: North Dakota's Oil Production Has More Than Quadrupled Since 2005

North Dakota's oil production averaged over 460 thousand barrels per day (bbl/d) in September 2011, more than four and one half times its September 2005 level. Although the State's oil production growth slowed during the first few months of 2011, more favorable weather conditions helped operators significantly boost output in June, July, August, and September. North Dakota currently trails only Texas, Alaska, and California among oil-producing States.

The early 2011 slowdown in the State's oil production growth was due in large part to an especially severe winter and spring flooding that hampered exploration and development activity. Through May, monthly increases averaged just over 1%, well below the average monthly production growth of about 3% in 2010.

Source: U.S. Energy Information Administration, based on the North Dakota Department of Mineral Resources.

North Dakota operators reported stronger production gains more recently. In June 2011, oil production averaged 385 thousand bbl/d, an increase of nearly 6% over May. In July, oil production grew by more than 10% from the previous month, averaging 424 thousand bbl/d. Production in August and September rose by 5% and 4%, respectively. According to North Dakota's Department of Mineral Resources (DMR), warmer and dryer weather has resulted in a sharp increase in active drilling rigs and hydraulic fracturing activity as operators escalate exploration and development programs.

Production increases in North Dakota are mainly associated with accelerating horizontal drilling programs in the Bakken shale formation situated in the northwest portion of the State (and extending into Montana and portions of Canada). By combining horizontal wells and hydraulic fracturing (the same technologies used to significantly boost the Nation's shale gas production), operators increased North Dakota's Bakken oil production from less than 3 thousand bbl/d in 2005 to over 230 thousand bbl/d in 2010.

Citing a backlog of over 350 wells awaiting fracturing services, the DMR anticipates further oil production increases through the remainder of 2011 and over the next several years (reaching as much as 750 thousand bbl/d by about 2015, up from its earlier estimate of 700 thousand bbl/d mentioned in This Week in Petroleum). According to the DMR, the State's crude oil takeaway capacity (via pipeline, rail, and truck) is adequate to accommodate near term projected production increases.


Risk Surrounds Gold and the SP 500