Rigless Gas Producers | Russell T. Rudy Energy LLC
“World Oil” reports that the number of drilling rigs looking for gas has dropped to the lowest level in almost three decades. Not since 1987 has the gas rig count been so low. In 2008 it was more than 1,600; now it is 88. Southwest Energy, the third largest domestic gas producer, has stopped drilling altogether. Chesapeake Energy, which had an average of 13 rigs running in 2014, has no active rigs in the prolific Eastern U. S. As Neal Dingmann, managing director of equity research at SunTrust puts it, “Nobody really wants to drill at $2 gas.”
The Marcellus shale, located primarily in Pennsylvania, is the nation’s biggest shale gas play. However, even it is not immune to the downturn. Low prices and limited pipeline capacity have been a double whammy for this area.
Low prices and transportation are not the only limits confronting gas operators. Finances are playing their part as well. When times were good, companies borrowed heavily with the intention of paying off debt with future revenues. Now, prices and revenues have fallen, loans are due, and lenders are understandably unwilling to lend even more money for further drilling.
The long term problem for operators, and gas markets for that matter, is that production from gas wells usually falls off sharply from initial rates. This could lead to another natural gas shortage. Should a shortage develop, it will take time and capital to restore production. Operationally, the inventory of 3,870 drilled but uncompleted wells (known as DUC’s or the fracklog) could enable operators to put these wells on production relatively quickly. Financially, some operators are selling assets to free up cash while others have been able to sell equity to investors.
In the short term we still have a natural gas glut. Last year output reached an annual record for the fifth straight year, even as the rig count plummeted.
To read the article in its entirety, please go to http://www.worldoil.com/news/2016/4/7/drillers-go-rigless-as-price-slump-heralds-austerity-era .
Russell T. Rudy Energy, LLC buys oil, gas and mineral interests nationwide. Please call (800-880-0940), or write (info@rudyenergy.com ) to let us know if you agree, disagree or would just like to comment on this, or any of our posts.
