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UPDATE 1-US natgas rig count unchanged at 955--Baker Hughes

NEW YORK, Nov 12 (Reuters) - The number of rigs drilling for natural gas in the United States were unchanged this week at 955, according to a report on Friday by oil services firm Baker Hughes in Houston. The gas-directed rig count, which has fallen three times in the last five weeks, hit 992 in mid-August, its highest level since February 2009 when there were 1,018 rigs drilling for gas. Horizontal rigs -- the type most often used to extract oil or gas from shale -- slipped three to 940 after hitting a record high of 943 last week, Baker Hughes said. Analysts estimate that two-thirds of horizontal rigs are drilling for natural gas, and these comprise part of the overall rig count. The rest are drilling for oil. (Graphic of rig count: http://link.reuters.com/sup34k) Front-month U.S. natural gas futures, which were down about 10 cents in the $3.83 per mmBtu area just before the data was released at 1 p.m. EST (1800 GMT), slipped another 2.5 cents after the report, hitting an intraday low of $3.797. Despite relatively low gas prices this year, gas drilling activity has been slow to decline. Some analysts said recent gains in the horizontal count may signal a shift to oil-related shale drilling, noting oil prices hit a two-year high above $88 a barrel earlier this week. Some firms have hinted at curbing gas output or shifting spending to more oil-related ventures because of low gas prices, but most analysts expect no meaningful slowdown in gas production until the second half of 2011, if at all. They said some producers may continue drilling for gas to meet lease obligations, while others may be protected by profitable hedges and can still produce and sell gas at prices well above current levels. The gas-drilling rig count is still up 290 since bottoming at 665 on July 17, 2009, its lowest since the 640 posted on May 3, 2002. While the gas rig count is 41 percent off its record peak of 1,606 from September 2008, it stands 227 rigs, or 31 percent, above the same week last year. Rising output of shale gas has been the primary driver of increased gas production in the last few years, and most traders agree it will be difficult to tighten the gas market unless drilling slows sharply. Some analysts estimate the gas rig count will have to fall well below 850 to tighten the overall market. Recent estimates by the U.S. Energy Information Administration put U.S. gas output this year at more than 22 trillion cubic feet, its highest since 1973, but next year the EIA sees output dropping 1.2 percent. With gas inventories heading into winter at record highs and production likely to remain strong into 2011, many traders expect gas prices to remain cheap relative to oil, at least until an improving economy boosts industrial demand, which accounts for nearly 30 percent of U.S. gas consumption. (Reporting by Joe Silha and Eileen Moustakis; Editing by Lisa Shumaker) Keywords: ENERGY NATGAS/RIGS (joe.silha@thomsonreuters.com; +1 646 223 6071; Reuters Messaging; joe.silha.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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