Last week witnessed the largest single-week decline in the Baker Hughes gas-directed rig count since 1993. Following a decline of 41 rigs, the count stands at 1,498, says Stephen Richardson, analyst at Morgan Stanley & Co. Inc. "The count has remained stubbornly high for the past month despite the decline in the 12-month strip and tighter credit conditions. While lease expiry, producer hedging, and meeting fourth quarter production targets among the public E&Ps may all conspire to keep the rig count sticky in the weeks ahead, a falling count remains the key forward indicator of a production slowdown. "Our expectations remain for a circa 500-rig reduction by mid-2009, which implies a circa 12-rig weekly reduction over the coming eight months. A flat production growth outlook for '09 is likely to result, in our view. Supportive of this view, Chesapeak now expects 125 to 128 operated rigs by yearend, down from 135 to 140 previously, and expects to maintain this activity level through 2009."
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