Welcome to the September issue. This month, we have introduced two new features. First is a new monthly section detailing important offshore technology, procedures and issues. With the increasing spending on, and importance of, offshore activities, especially in deep water, we felt our readers would find enhanced coverage of the latest offshore developments a benefit.
Second, in this issue of Hart's E&P you will find the first installment of a quarterly natural gas update aimed at the exploding gas exploration and development industry and the markets that drive it. During the coming year, you will find in-depth analysis of important plays, market trends and the exploration and production technology that make it all happen. As with all the facets of Hart's E&P, we have introduced these features to bring our readers up-to-date, essential information about the technology and business climate in our industry. Your input is welcome. Please feel free to contact us with any questions or comments about the new features or any other facet of Hart's E&P. And as always, thanks for your readership.
And now back to the editorial business. We have a large focus on gas in this issue, so it seemed timely to discuss some of the conclusions of a recent study by Simmons & Co. International titled High Costs and Falling Gas Prices - Implications for the E&P Industry. At the heart of the study is good old market economics. The argument goes like this: a relatively easy winter, coupled with an equally mild summer, has meant gas demand has not met expectations and gas prices have fallen close to US $3/Mcf. Thus, the gas drilling market is softening considerably, and gas rig counts may fall by 200 units, according to Simmons.
But all is not lost. The recent steep rise in gas drilling, now moderating, has resulted in many marginal and diseconomic wells, producing an "anemic production growth." At a time when the gas production decline in the United States stands at about 25% per year, drillers have been just barely replacing - a 0.4% to 0.6% year-to-year increase - declining production. The floor price of gas - the point where many drilling projects appear to lose economic viability and drilling drops significantly, according to Simmons - is $2.50/Mcf. But it is unlikely that gas prices can be sustained below this price due to the 25%-per-year gas production decline in the United States. Simply put, a significant decline in drilling will move the production decline curve further into the red, supply will drop, demand will not be met, and prices will rise to at least $2.50/Mcf - and probably top $3/Mcf in a relatively short time frame. My old economics professor, Clifton Grubbs, would like this one.
The one important conclusion Simmons draws from this is that despite a potential dip in active rigs of 200 units in the next 6 to 9 months, the overall health of the gas drilling industry is assured by the dramatic production demand curve decline and long-term gas price expectations in excess of $3/Mcf. We hope so.

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