ENERGY/DRILLING INDUSTRY

  The drastic cutbacks in U.S. drilling
  last year are rapidly deflating the United State's natural gas
  bubble, which could bring spot shortages in gas supplies next
  winter and a modest recovery in the oilpatch, industry analysts
  said.
      Faltering deliverability of natural gas, a commodity that
  is difficult and costly to import in large quantities, could
  more than double the current U.S. rig count to near 2,000 by
  1990, some analysts said.
      The need to lock in future supplies of gas for utilities
  and big industrial customers may also bring a resurgence of
  activity in the Gulf of Mexico's offshore waters where some of
  the nation's largest gas reserves are located.
      "We think an upturn in U.S. drilling is imminent," said
  James Crandall, an analyst with Salomon Brothers Inc. "Many
  companies appear to be switching from oil to gas drilling
  because they're betting that the gas market will be back in
  balance in a year or two."
      The prospect of diminishing gas supplies is welcome news
  for drilling and oilfield service companies that barely
  survived last year's plunge in oil prices from about 30 dlrs a
  barrel to less than half that. Today's relatively stable oil
  prices of about 18 dlrs a barrel are not enough to spur a
  return to the heady days of 1981 when the U.S. drilling rig
  count soared to a record high of more than 4,500 and oilfield
  roustabouts commanded premium wages.
      The latest weekly Hughes Tool Co &lt;HT> rig count, a
  barometer of the oil industry's health, showed 761 U.S. rigs
  active in what is traditionally the slowest time of the year.
      In 1986, the Hughes rig count began the year at 1,915 but
  dived to a post-World War II low of 663 in July as world oil
  prices experienced the sharpest decline in recent times.
      Ike Kerridge, a Hughes economist, said "In 1986, the United
  States replaced only about 40 pct of the gas it used and that
  replacement rate won't be any better this year."
      He added, "We don't have the options we do with oil.
  Imports of gas from Canada are limited by pipeline capacity and
  importing liquefied natural gas on ships will not be feasible
  in the next 10 years because of the cost."
      Only about 6 trillion cubic feet of additional gas reserves
  were discovered last year while U.S. consumption approached 16
  trillion cubic feet, according to industry estimates.
      George Gaspar, an oil analyst with Robert W. Baird and Co
  agreed that the need for gas supplies would set the stage for a
  new cycle of gradual increases in U.S. drilling.
      "We anticipate that natural gas pipelines will need to
  dedicate to their systems new gas reserves for 1989 and 1990
  supplies. That means new drilling programs must begin no later
  than mid-1988," Gaspar said.
      Gasper said he sees a new drilling cycle emerging that
  could last until 1992 and that he expects the average rig count
  to peak near 2,000 in December of 1989.
      Much of the search for new gas reserves is likely to be
  conducted in the offshore waters of the Gulf of Mexico, where
  federal leases on unexplored areas will revert back to the
  government unless drilling begins in the next two or three
  years. Some of the industry's biggest companies, such as Exxon
  Corp &lt;XON>, Mobil Corp MOB, and Union Texas Petroleum have
  already indicated plans to increase spending for drilling later
  this year in the Gulf of Mexico, Crandall said.
      For example, Conoco Inc, a Dupont &lt;DD> subsidiary, will
  spend 400 mln dlrs to build the Gulf of Mexico's deepest
  production platform, which will produce 50 mln cubic feet of
  gas per day.
      But T. Boone Pickens, who has acquired huge Texas and
  Kansas gas reserves for his Mesa Limited Partnership &lt;MLP> in
  recent months, is not convinced that the drilling industry is
  on the verge of a recovery.
      Pickens predicts the U.S. rig count will soon drop below
  600 and will not increase significantly until oil prices do.
      "The rigs won't go back to work until the price of oil gets
  above 30 dlrs a barrel," said Pickens, 58, adding he did not
  expect to see the rig count top 2,000 again in his lifetime.
      Tenneco Inc &lt;TGT>, one of the largest U.S. gas producers,
  is skeptical that a need for additional gas drilling exists.
      Tenneco vice president Joe Foster said he did not expect
  significant increases in drilling for gas until the early 1990s
  when the U.S. gas reserves life will have declined to about
  seven years' supply. Current spot market prices of about 1.50
  dlrs per thousand cubic feet will need to rise to about three
  dlrs to spur reserve replacement, he said.
  

