UPDATE 1-U.S. natural gas rig count slips to a 13-year low

Fri Jul 20, 2012 10:57pm IST

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* Gas-directed rig count falls to lowest since August 1999

* Horizontal rig count drops for second straight week

* Oil drilling rigs fall from 25-year high

NEW YORK, July 20 (Reuters) - Energy producers this week trimmed the number of rigs drilling for natural gas in the United States to the lowest level in 13 years as low gas prices squeezed profits and forced some to curb dry gas drilling operations.

The gas-directed rig count posted its eighth drop in the last nine weeks, slipping by four this week to 518, the lowest since August 1999 when there were 510 rigs operating, data from oil services firm Baker Hughes showed on Friday.

The gas rig count is down 45 percent since peaking last year at 936 in October. The nine-month-long drop has fed expectations that producers were getting serious about stemming the flood of record gas supplies.

Baker Hughes on Friday said it expects the U.S. natural gas rig count to stand at 488 by the end of this year, down 321 from 2011 levels.

The company also reported that horizontal rigs, the type often used to extract oil or gas from shale, fell for the second straight week, dropping two to 1,164. But the horizontal count is still not far below the all-time high of 1,193 hit in nine weeks ago.

Dry gas drilling has become uneconomical at current prices, but drillers have moved rigs to more lucrative shale oil and shale gas liquid plays which still produce plenty of associated dry gas that ends up in the market after processing.

Rising output from shale has made it difficult to slow overall dry gas production, which is still flowing near record high levels.

OIL DRILLING SLIPS FROM RECORD HIGH

The oil rig count, which hit a 25-year high last week, fell this week to a five-week low, losing 13 rigs to 1,414. The drop was the biggest weekly decline since February last year.

Still, there were 38.5 percent more rigs drilling for oil in the latest week than a year earlier when there were 1,021 rigs operating in the country.

Houston-based Baker Hughes expects the oil rig count to stand at 1,430 by year end, up about 300 from a year earlier.

GAS PRODUCTION STILL NEAR RECORD HIGHS

While gross U.S. gas production has slowed slightly from January's record peak, output is still flowing at near all-time highs despite the sharp decline in dry gas drilling.

In its July Short-Term Energy Outlook last week, the Energy Information Administration said it expected U.S. marketed gas production in 2012 to rise by 4.2 percent to a record 68.98 billion cubic feet per day, easily beating last year's record of 66.22 bcf daily.

Front-month natural gas futures on the New York Mercantile Exchange, which were up 3.3 cents at $3.032 per mmBtu just before the Baker Hughes data came out at 1 p.m. EDT, edged up about a penny after the report.

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