Soon after the new year dawns, many believe we will see what
the true U.S. rig count is, for the first time in two years. Tax
credits associated with Section 29 unconventional gas drilling
expire Thursday, you see.
Actually, the tax credits extend through 2002, but the wells
have to be drilled before year end 1992.
The national rig count averaged about 685 for three-fourths of
1992, but natural gas drilling kicked in during fourth quarter,
boosting the annual average to about 720. Two-thirds, or about
330 rigs, of the natural gas rig count of 525 last week were
drilling for Section 29 gas.
The tax credits apply to wells drilled in tight sand
formations and coalseam beds, chiefly. There are several tight
sand formations in Oklahoma certified for the tax credits. Other
hot tax credit drilling areas include New Mexico, Colorado,
Kansas and Wyoming.
Section 29 credits were adopted as a drilling incentive in
1988 and have been extended twice.
But it hasn't really done much for the rig count. And many
producers now say that rather than help, Section 29 gas has
contributed to and exaggerated the depressed gas prices since
1986. The tax credits range from 52 cents per thousand cubic feet
to 92 cents.
Gas producers with Section 29 gas can take far lower prices
for the gas and still come out ahead, which drives the market
In 1988, the U.S. rig count was unchanged from 1987 at an
average 936. The 1989 rig count dropped 7 percent to an average
869, then shot up 16 percent in 1990 to an average 1,010. But
last year it fell 15 percent, cratering to an average 860 _ a
The number of gas wells drilling nationwide, however, rose
consistently from 1988 to 1990, before falling back in 1991.
According to American Petroleum Institute statistics, there were
9,168 gas wells drilled in 1989, a 9 percent increase from 8,403
in 1988. The number of gas wells drilled grew 13 percent in 1990
to 10,386. But last year the figure dropped 11 percent to 9,281.
Meanwhile, spot gas prices foundered in a downward spiral from
the 1988 average of $1.62 per thousand cubic feet to $1.58 in
1989, to $1.48 in 1990 and to $1.34 in 1991. The 1992 spot price
average wound up at $1.62 _ comparable with the 1988 level _ but
only after a sharp rebound from record low prices of below $1 in
February, a month which historically holds strong gas prices from
the winter heating season. …