Everybody in the industry has been waiting for U.S. natural gas production to decline just enough that prices will recover to at least $4 per thousand cubic feet (Mcf), if not higher—and stay there.

By some accounts the Big Gas Production Rollover of 2009 began in March and started to manifest for real this past summer. On the other hand, positive gas production news continues to reverberate throughout the industry. Southwestern Energy Co. reached 1 billion cubic feet (Bcf) a day out of its Fayetteville operation in July, and Petrohawk Energy Corp. is approaching half a billion in the Haynesville shale.

U.S. gas production was off by about 1 Bcf a day from February to May, notes Michael Hall, vice president and E&P analyst in the Denver office of Stifel, Nicolaus & Co.

“Officially confirming a trend in our eyes, daily production turned over for the third month in May 2009, to 57.5 Bcf a day, declining 0.6 Bcf a day sequentially and about 1.0 Bcf a day, or 1.7%, from February 2009’s peak.

“Production declines are accelerating and we remain comfortable in our view that U.S. production is entrenched in a steep decline through 2009 and into 2010.”

In a recent report, Hall says total U.S. dry gas production is higher than he anticipated “as productivity remains impressively high.” He joins the chorus of others who say the rig count is losing some of its meaning, as productivity per rig has vastly increased in the past two years because of the shales, where initial production (IP) rates routinely impress.

Hall thinks 2009 U.S. gas production will average about 56 Bcf a day, with strong year-over-year declines of about 5 Bcf a day by year-end. He also says he is “increasingly convinced that 2010 production will decline year-over-year; we now estimate a decline of about 7.5%, with a much lower exit rate.

“This analysis paints a more bullish long-term scenario than our prior assumptions. The near-term, however, likely deserves even more caution.”

Indeed, the signals are mixed. In its latest data, the Texas Railroad Commission reported that gas production rose in February 2009 over the prior-year number, getting to 564.5 MMcf versus 479.2 MMcf in February 2008. It rose again in May, to 560.3 MMcf. In March, operators completed 1,176 gas wells in the Lone Star state, versus about 800 the year before in March. In May, they did it again, completing 1,183 gas wells, more than in the prior May.

It is fair to note that these data reflect the month in which completion data is processed, which lags the month the well was actually completed. State agencies are behind in entering well data into their databases, notes Manuj Nikhanj of Ross Smith Energy Group in Calgary.

Meanwhile, although investors want to see higher gas prices, they also insist that their E&P favorites increase gas production every quarter. That shouldn’t be hard to do. In a report last summer, Simmons & Co. International researchers estimated that Devon Energy Corp. has 18 years of drilling inventory in the Barnett shale alone, and Newfield Exploration Co., 22 years in the Woodford shale.

“Petrohawk is singlehandedly demonstrating the significant productive impact of the core Haynesville shale. Q2 production of 483 MMcfe a day was well above guidance and the full-year forecast has increased to 530 MMcfe a day, or about a stunning 60% annual growth rate,” notes senior analyst Chris Pikul at Morgan Keegan & Co.

On its conference call, XTO Energy Inc. chairman Bob Simpson said he still looks for an economic recovery and decreasing gas supply this year, due to the slowdown in U.S. drilling—but the company provided guidance that its own gas production could grow 20% this year (10% from drilling and 10% from acquisitions).

In the second quarter, XTO’s production climbed 32% year-over-year, to 2.89 billion cubic feet equivalent.

Can we have our cake and eat it too?

XTO reports having four rigs working the Haynesville and its last two wells there IP’d at 6.5 and 6.9 MMcf a day during the second quarter. It has one rig running in the Marcellus and a second expected soon, with 10 to 12 horizontals planned for 2009. In the Fayetteville it has six rigs drilling, in the Barnett, 10 rigs. And finally in the Woodford, it has three rigs drilling. In this play, its last four wells IP’d between 3.7 million and 6.1 million a day.

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