The U.S. natural gas rig count has languished through the last six months, despite high gas prices, averaging about 750 versus 900 or more in 2001. But, that may not be all bad news. It may be because disciplined producers are targeting more specific, higher-return plays that take fewer rigs, but more days to complete. It seems producers are emphasizing drilling for deeper gas zones and in tight gas sands, if comments at the recent RBC Capital Markets conference in Houston are any indication. "We are drilling deeper wells, so the impression is that rig utilization is falling. But these wells are so deep they take more time to drill," said Tom Spalding of Pioneer Natural Resources. The Irving, Texas-based independent producer has nine wells to drill in the so-called Deep Shelf play-deeper gas zones to as much as 18,000 feet, found on the Outer Continental Shelf in the shallow water Gulf of Mexico. Each well costs anywhere from $10- to $20 million. While these wells recover more gas reserves, they deplete in four to seven years, which is still a longer production life than typical shallow-shelf wells. Onshore, El Paso Corp. has made a major franchise out of its industry-leading South Texas deep gas plays in the Vicksburg and Wilcox trends. The company is one of the most active drillers there, with 16 rigs running currently, and it ranks among the top three gas producers in Texas. "South Texas has been a real growth engine for us," said Rod Erskine, president of El Paso Production Co., the former E&P unit of The Coastal Corp. The latter was acquired by El Paso in 2000. "We've kept it under wraps until now, but we have found three trillion-cubic-foot-size fields in the last five years and several in the 100- to 300 billion-cubic-foot range. The depletion rate depends on how aggressive you are and how you design the field's production system. You get a higher return if you produce it faster," he said. The more wells it has drilled, the better El Paso has become at technology and knowledge of the formations in South Texas. As a result, it has improved the economics of its gas drilling. "We started drilling wells to between 15,000 and 18,000 feet in 30 to 35 days and we are now down to just 20 days per well." Ultra Petroleum has hundreds of long-life gas locations to drill in Wyoming's hot gas plays in the Pinedale Anticline, in the Powder River Basin. "We have a decade of opportunities before us," said Fox Benton, chief financial officer for the Denver-based company. "In Wyoming, with $2.50 gas, our average well has an internal rate of return of 66%." Based on its Wyoming activity, the company has grown proved reserves tenfold and production almost threefold since 1999. That's not counting its share of the drilling program in Bohai Bay offshore China, led by partner Kerr-McGee Corp., he said. "We have not booked any proved reserves in China yet, and one reason is that we have met our internal goals with Wyoming alone, to be honest. We think we have a net 1 trillion cubic feet in Wyoming alone." This year Ultra has completed 23 of 24 wells in Wyoming and is five-for-six in China. Its market cap, now totaling about $650 million, has risen right along with increased production. -Leslie Haines
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