Rig Report

Baker Hughes: US Oil, Gas Rig Count Up 11 To 1,476 This Week.

Natural gas rigs up 10, oil rigs up 3 and miscellaneous rigs down 2. I get the oil rigs increasing but natural gas prices are down 29% YTD while rig counts continue to increase. I believe this is driven by people having to drill wells or lose leases. Some of these leases were very pricey in the shale fields and they must think that it is better to get something out of the investment instead of writing them off as a sunk cost.

For the most part, the wells are not speculative, you dont pay big money unless you are pretty confident you are going to find gas. The problem is natural gas wells produce the most in the first 12 months before dropping off to a much lower but steadier rate for 10 to 20 years.  So you will be getting that production surge in a down market.  Given that most of the pricey leases will produce and that they will be coming on line in the next few months, I believe the price of natural gas will remain low or go lower in the next few months.