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BHP Billiton is accelerating the recovery of 1.5 billion barrels of liquid hydrocarbons from the Eagle Ford and Permian fields in the US as it attempts to avoid a multibillion-dollar write-down of its US shale assets.

BHP petroleum chief Mike Yeager yesterday said the recovery target had been increased by half a billion barrels in the past six to eight months and he extolled the company’s $US20 billion acquisitions of Fayetteville and Petrohawk, which had given it a premium position on the ”unique” Haynesville shale play, the largest gasfield in the US.

Mr Yeager said liquids at Eagle Ford would make up half of production volume – and more than 80 per cent of revenue – with BHP targeting 300,000 barrels of oil equivalent a day within five or six years.

”We’re going to bring it forward in a big way,” he said.

Another 100,000 barrels of oil equivalent a day would flow from the Permian field, which was 80 per cent liquids. Combined, the two fields would produce 250,000 barrels of liquids a day and ”$US100 barrels are going to flow through to our company”.

The forecast revenue would more than offset the slump in US gas prices after the fourth-warmest winter in US history, and would feed into a valuation of the business when BHP ruled off its accounts on June 30.

Analysts at investment banks including Citi and Credit Suisse have said there may be a US shale write-down of $US2 billion or more, but yesterday Mr Yeager said BHP would factor in its proprietary view on future gas and oil prices and ”let the accounting fall where it may”.

Mr Yeager said US gas prices had already risen by more than 30 per cent from their bottom. Gas prices had previously fallen below the cash cost of production and operators were pulling out of shale extraction. But he said that longer term, gas was the ”premium, preferred fuel of the future and it will rebound and it will be strong”.

While the Haynesville shale was an unconventional resource, he said it was ”big, fat, juicy unconventional”.

The advent of unconventional gas was a ”revolution” that would last 50 years and was bigger than the shift from 2D to 3D seismic surveys, or from shallow to deepwater drilling. ”It’s the biggest thing in my 33 years in this industry,” he said.

Mr Yeager was confident that the US would allow exports of LNG to Asia, potentially competing with Australian projects including BHP’s Scarborough field.

Mr Yeager said Western Australia was ”very, very expensive” and a floating LNG facility was an option at a smaller field such as Scarborough as it would save on the cost of pipelines, storage tanks and a jetty.

Mr Yeager said BHP had brought in some of its best shale experts from Petrohawk to study the potential for shale gas development in Australia.

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Two Bossier Parish Police Jury lawsuits that seek unleased mineral interest on parish property with producing well units could pave the way for a new parish revenue source.

The Police Jury sued KCS Resources and WSF in March for unleased mineral interests on two 7-acre areas along Highway 157 and Highway 154, respectively.

KCS Resources’ attorney Jamie Rhymes said his client did not wish to comment on the case. Attempts to reach counsel for WSF were not successful. The suits are test cases to determine whether a district court judge will agree that 1926 conveyance records gave the parish full ownership of the properties, entitling it to mineral interests from the well unit, said Patrick Jackson, parish attorney.

Every conveyance record is unique, he said. But if the court finds the instrument is successful in affirming parish land ownership, other suits could be filed. Jackson estimates the parish has unleased mineral interests on 70 parish-owned roads.

KCS and WSF are cited in the lawsuits as stating Bossier Parish does not own the land but was granted right of way. As a result, the two companies have not attempted to lease the property or compensate the parish for minerals extracted, the suit said.

A well unit is an area, set by the state conservation department, where a well can be drilled, said Gayle Hamilton, a retired Caddo Parish district court judge with expertise in oil and gas law. Well units for Haynesville Shale are typically 640 acres or one square mile, which means production from the unit’s well is shared between mineral owners inside the unit, according to the Louisiana Department of Natural Resources website.

In terms of the Bossier Parish properties, this means the parish would collect revenue from well production on its 7 acres minus production and well expenses if the court ruled in favor of the parish’s ownership interest, Jackson said.

Louisiana Oil and Gas Association spokesman Ragan Dickens said his organization has not experienced issues with other parishes suing for unleased mineral interests on property.

The situation boils down to a mineral right title dispute between a public body and private mineral owners, he said.

Steve Brown, administrator and engineer for DeSoto Parish, said his parish recently identified a few roads with unleased mineral interests.

The parish approached respective gas companies with their research on land ownership, he said, and they worked with them to begin getting revenue.

Caddo Parish, likewise, is evaluating its parish roads with unleased mineral interests, Caddo Parish Public Works Director Robert Glass said.

“This is a huge undertaking for us,” said Glass, who worked as a landman in the oil and gas industry for many years.

The parish does not have a specific plan for the money, he said; however, as stewards of taxpayer money, parish officials felt they had a responsibility to protect taxpayer mineral interests. He estimates there are 130 parish-owned roads with unleased mineral interests.

Bossier Parish plans to use any interest it receives — an unknown figure at this point — to repair roads being destroyed as minerals are being harvested, Jackson said.

He estimated it will take six months to a year to obtain a court ruling on the two suits.

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Robert Glass has been through his share of oil and gas booms and busts, and the historic slide in natural gas pricing to near-$2 and a 10-year low, which has brought gas drilling to a halt in Louisiana, doesn’t faze him.

Before becoming director of public works for Louisiana’s Caddo Parish, which includes the city of Shreveport, Glass clocked 18 years in the oil and gas business. In fact, the former oil and gas executive became a municipal official just as the Haynesville shale gas boom was flooding Louisiana with cash.

“It’s somewhat normal down here. It’s always been that way with gas. No matter how good it gets, two or three years down the road, it will turn,” Glass said.

In fact, Louisiana’s familiarity with this harsh cycle goes back to 1910, when the Pine Island oil and gas field was discovered in Caddo Parish. “Pine Island was one of the biggest oil fields in Louisiana. Back during that time there were good-sized boom cities and now they are little bitty towns lucky if they have a few thousand people,” Glass said.

Headline attraction to the energy boom is perennial. A headline from the New York Times three years ago about the Haynesville shale boom can today be replaced by tales of the North Dakota Bakken, where unemployment is a thing of the past, or stories about the Eagle Ford and Permian shale, where sports car dealerships spring up and real estate values rocket in formerly forgotten locales.

The press is less obsessed with the bust than the boom in the current narrative about the United States becoming the “new Middle East” thanks to the revolution in shale drilling technology. Yet the same Louisiana boom area that the New York Times profiled three years ago is weathering the natural gas bust rather well, even if Glass is no longer fielding calls from the national press.

In fact, Caddo Parish is proving to be an example of fiscal discipline that the E&P companies might be well advised to heed, led by the biggest driller in the Haynesville shale, Chesapeake Energy(CHK).

Chesapeake Energy is the poster-child for the shale land grab and the excessive leverage racked up by the company has made it a market laggard. Cash flow is a major concern and the company this year said it will sell as much as $10 billion to$12 billion in assets to cover its expenses. Caddo Parish, on the other hand, doesn’t have to sell a thing, including any of its remaining oil and gas acreage.

The aggressive mentality that led Chesapeake Energy to amass the second-largest collection of shale assets in the U.S. — second only to Exxon Mobil(XOM) — is on display once again, even as the boom has gone bust. Chesapeake has twice the level of debt of a company 27 times its size in Exxon Mobil.

This week, Chesapeake Energy officials were back in Caddo Parish to make a bid on Haynesville acreage. The price per acre being offered by Chesapeake says all that needs to be said about the cycling from boom to bust.

In July 2008, just as the press was chasing the Haynesville boom story, the high bid for shale drilling acreage in Caddo Parish was $30,212 per acre and a 30% royalty. By April to July 2010, Caddo Parish was accepting bids at $6,867 and $7,537, both with a 25% royalty.

Chesapeake Energy’s latest offer? Not to exceed $1,500 per acre and a 25% royalty. Glass said that twice in the recent past Chesapeake Energy came to Caddo Parish with declining bids of $5,000 and $3,000 per acre before the latest drop to $1,500.

It’s not just Chesapeake’s insatiable need for acreage that is on display in the Haynesville negotiations (though the company can make the case that it is now a deep value buyer, opportunistically acquiring for a better day). It’s also a sign of the parish’s fiscal discipline that it doesn’t have to say yes to Chesapeake at natural gas bust prices.

“The last two times the parish elected not to do it, because the price was not high enough and unless they pay a premium the parish will just sit on the acreage, ” Glass said. Glass expected that the parish would likely reject Chesapeake’s latest offer, too. “We don’t need the money. The parish can hold out because it is financially strong.”

Over the three-year boom that hit its high point in 2008, Caddo Parish was able to amass a $50 million reserve fund. The fund stood at “a few thousand dollars” before the boom. Royalty checks during the boom had averaged as high as $1 million per month for the parish. Last year, royalty checks averaged around $350,000 a month, and in the past few months, the royalty checks have come down to $150,000 to $200,000, Glass said.

Yet Caddo parish still has about $48 million in the reserve trust. Unlike Chesapeake Energy, where critics contend the board is beholden to CEO Aubrey McClendon, in the parish 8 of 12 commissioners must agree to release any money from the trust.

The parish viewed the days of the record $30,000 bid per acre as a one-time bonanza. “We knew it wouldn’t happen again and we’ve been fortunate in trying to protect it,” Glass said.

It’s a conservative approach to managing the gas boom windfall that has led to a local bond rating higher than the state’s rating, and an unemployment rate that remains lower than the national average at 6%. It helps Shreveport that its workforce is diversified, with a burgeoning “medical mile” and an Air Force base.

The situation for Caddo Parish has changed, nonetheless. While the head of sales at the local European sports car dealership said he hasn’t seen any impact of the gas bust yet, and real estate values are stable, Glass’s own son is now working in Pennsylvania’s Marcellus shale — where economics still support gas drilling. He has seen friends move to southwestern Texas for jobs in the Eagle Ford shale boom, also.

In fact, while the lease deals have stopped in Caddo Parish, Glass still finds himself busy in advising parish officials located in new speculative shale plays like the Tuscaloosa Marine, on how to deal with oil and gas companies.

“Some of the parishes are not used to the boom and bust and interest from oil and gas companies. I’ve talked to several in the Tuscaloosa Marine shale. Lots of them don’t know some of the things they need to know to protect themselves,” Glass said.

Back in Caddo Parish, Glass said there are still convoys going out to the well sites, and in the grander scheme of local development, more drilling now than before the boom, even if the most recent craziness has died down. Wells still have to be serviced even if, year-over-year, rig count in the Haynesville is down by 55%. Chesapeake Energy, specifically, has been good about offering relocation to workers if they don’t have a job in the local drilling operation anymore, though no workers are forced to move.

What is known to all who lived through, and benefited from, the 2008 boom in Caddo Parish, is that it’s done. “Everyone knows the drilling boom is over but everybody isn’t depressed from what I can gather. We haven’t squandered the money,” Glass said.

There’s not only a lesson in that for the other parishes, but for Chesapeake Energy.

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Shreveport’s first public compressed natural gas pumping station opened Tuesday on Pines Road.

The station, located and built by the Time-It Lube at 6828 Pines Road, makes CNG vehicle fuel available for public use on both sides of the Red River for the first time. Bossier City has two public CNG stations.

The station was fully funded by Time-It Lube in partnership with Chesapeake Energy Corporation, which has committed to fueling its fleet of natural gas vehicles there in addition to the Bossier City stations.

“It’s a step, and we each have to take a little step,” said Time-It Lube owner Todd Burns. “America is great because we don’t need to be taken care of, and we don’t need to be dependant on foreign oil.”

Burns said the new station represents the desire of all Americans seeking cheaper fuel and more sovereign energy policy. Public access to CNG and the infrastructure related to that can lead to those goals, he said. The opening was attended by many local public officials who praised the station and future CNG stations as an appropriate and exciting use of a resource readily available to the community.

“Without question this is a great day for Shreveport and a great day for northwest Louisiana,” said Shreveport Mayor Cedric Glover. “Our challenge as a country is to unleash the genius and ingenuity that allows us to get there.”

Glover touted the city’s 14 SporTran buses and 16 garbage compactors which run on CNG as a promise of progress. Caddo Parish Sheriff Steve Prator also praised his office’s 13 CNG vehicles as a step in the right direction. Chesapeake’s Director of Corporate Development Paul Pratt said the private partnership between Time-It Lube and his company could serve as a template for other companies and cities to take advantage of the increasingly popular fuel source.

“Louisiana is setting a strong example to the nation on how to develop a CNG infrastructure network to serve the public and fleet operations,” Pratt said. “As gasoline prices continue to rise, the economic benefits of CNG will become even more pronounced. Today, CNG is $1.75 a gasoline gallon equivalent — a fuel price level we haven’t seen in America for many years.”

The U.S. Energy Information Administration reported U.S. natural gas vehicle fuel consumption in 2011 reached almost 32.9 billion cubic feet. Consumption has increased every year since the EIA began recording in 1997. Americans consumed almost 2.8 billion cubic feet of natural gas vehicle fuel in December, according to the EIA.

Louisiana used 14 million cubic feet of natural gas vehicle fuel last year, the most since 2008. Louisiana natural gas vehicle fuel consumption was at its highest in 2004 when the state consumed 133 million cubic feet.

In 2011, the Honda Civic Natural Gas was the only dedicated consumer natural gas vehicle available in the United States. Ford, Chevy and Chrysler all plan to release CNG trucks this year.

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DeSoto schools officials already are working behind the scenes on the 2012-13 budget, and because it’s early in the process, they don’t know fully what effect the slowdown in the Haynesville Shale will have on the bottom line.

But with anticipation of less revenue, the school system is working in a “downward trend mode in relation to expenditures,” schools Superintendent Walter Lee said.

The result may be lower supplemental payments to employees and the elimination of a half-dozen teaching positions.

The school district is far from broke, however. The DeSoto School Board has been able to sock away more than $44 million into an employee benefits trust account and earmark $14 million in the general fund reserve account.

An additional $22 million is in the bank to cover proposed construction of a new central office and a career academy, although plans for the latter are on hold until school leaders learn the extent of any effect from proposed statewide school reform measures.

However, since the Haynesville Shale’s presence was made public, there’s always been a warning: the explosion of leasing and drilling would slow down one day. And that time appears to have arrived.

This month marks the fourth anniversary of the shale’s announcement, and it is expected to mark a significant turn in activity.

Record low natural gas prices because of an abundant supply from shale plays and an unusually mild winter have oil and gas companies scurrying to oil and natural gas liquids plays that will produce greater profit margins.

That doesn’t mean the Haynesville will be ignored. Companies such as Chesapeake, EnCana and Shell are slicing their rig counts in northwest Louisiana, but they continue to service the thousands of wells already drilled here.

Industry officials predict once gas prices rise and stabilize, the dry gas fields like the Haynesville will be hot again, especially as markets are developed overseas for liquefied natural gas.

“Over the past four years, the Haynesville Shale has brought thousands of direct jobs and created billions of dollars in new business sales for the state of Louisiana,” said Don Briggs, Louisiana Oil and Gas Association president. “The Haynesville Shale is responsible for stabilizing the state economy during a trying financial climate in the United States. While the rig count has split in half from its peak of 139 in 2010 to now around 60 rigs in north Louisiana, we will see certain companies remain in the Haynesville for years to come.”
Parishwide sales tax collections during fiscal year 2010-11 zoomed past $120 million, blasting the previous year’s collections of $84 million. To date this year, more than $68 million has been collected, which is about $9 million less than this time a year ago.
As for overall expenditures in the wake of declining sales tax revenue, “We’re watching it, and we’re just making sure as we need to cut back we will.”

He added: “The rig decline and low natural gas prices are due to a simple national supply and demand issue. However, we are encouraged that as the price of natural gas stabilizes, a massive amount of shale gas remains for exploration and production. With the recent talk of exporting LNG, the Haynesville Shale will play a critical role in this process.”

Dry gas retreat

Announced cutbacks from oil and gas companies started earlier this year.

Chesapeake Energy, the largest leaseholder in the play, started the trend and in its quarterly report said the rig count in dry gas plays would be cut from 75 nationwide to 24, which includes 12 rigs in the northeastern part of the Marcellus Shale and six each in the Haynesville and Barnett shales.

“The challenge we face is to find the right balance given the current price of natural gas and like our fellow operators in the Haynesville, Shell has scaled back its drilling program,” said James Blanton, operations manager at Shell’s DeSoto Parish office. “Interestingly enough, our 2012 plans are consistent with the level of activity we were at when we first entered the play or a bit better based on the number of wells drilled.”

To elaborate on what Paul Goodfellow, vice president of development, said in early October, the reduction in rig count may cause some to be concerned, but the number of wells being drilled is a better gauge, Blanton said. Shell has about 200 wells.

“Again, Shell enters these plays with a long-term view, which enables us to adeptly modify when necessary, so we can continue to manage a reasonable drilling program,” he added. “Our employees are focused on production and the Haynesville play still remains an active asset in Shell’s North American onshore portfolio.”

EnCana Oil & Gas boasted of one of its “best operational years ever,” said Randy Eresman, president and chief executive officer. But those accomplishments are overshadowed by the oversupply of natural gas.

“Although a litany of factors has caused the oversupply, it is abundantly clear that a continued reduction of drilling activity will be required to restore market balance,” Eresman said in a prepared statement. “For the industry as a whole, near-term natural gas prices are at levels below what it costs to add most new production, and in some places, may even be below what it costs to produce from existing wells.

“Although we continue to believe that the long-term future for natural gas remains promising, until we see signs of a sustainable recovery in natural gas prices, we will be reducing our pace of natural gas development and slowing down production from some of our natural gas wells to preserve value.”

EnCana’s plan calls for slowing down or shutting in production from existing well bores. How long that will last is unknown.

EXCO Resources will drop from 22 to nine rigs in the Haynesville Shale this year, said Douglas H. Miller, chief executive officer.

Matador Resources, a small player in the shale, plans to allocate 6 percent, or about $18 million, of its 2012 budget to natural gas-related activities, primarily in the Haynesville Shale. The company does not plan to drill any operated Haynesville wells this year, according to a company report.

Comstock Resources said last month that it was exiting the Haynesville this month to focus on the oil-rich Eagle Ford Shale in south Texas. Half of its revenue is expected to come from oil this year instead of dry gas, which was the opposite a year ago.

Leveling off

DeSoto Parish tax collection agencies anticipate a leveling off of sales taxes at some point, but no one knows what the level will be.

With new restaurants, businesses and hotels dotting the parish, revenue is projected to be greater than the pre-shale days. Factored into that, of course, will be the fact that less money will be spent locally because of the exodus of oil and gas workers.

For now, parking lots at the three new hotels in Mansfield remain full, and lunch and supper hotspots still are popular. Noticeable is a slight decrease in truck traffic, and more slots are open at the various RV parks that popped up to meet the demand of the itinerant work force.

For the School Board, which collects 2.5 cents on every $1 spent, that equates to $41 million so far this year, a $6 million drop over a year’s time.

“It’s been going down for the last two or three months. But for the last month “» it’s down but very little compared to last year at this time,” Lee said. “So it’s too early for us to tell if it is going to level off and where it’s going to level off. We don’t know if it’s leveling off now or if this is an unusual month or if we will drop off at a higher rate next month.”

School Board Finance Director Steven Stanfield said the amount shifted into the state-mandated employee post employment trust varies annually because it is dependent upon sales tax collections. Once collections meet operations, then 20 percent of the additional funds go into the trust.

Pay supplements, which are not guaranteed income, are only handed out when excess funds accumulate. DeSoto’s employees were fortunate to receive $8,500 in supplemental payments last year, which cost the system just more than $4 million.

Lee anticipates the May check may be trimmed to $2,500, compared to $5,000 in December. “But we’ll see how it looks in another month or two. That will help us determine if need to make other plans.”

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Chesapeake Energy Corp., the second-largest U.S. natural-gas producer, plans to sell $4 billion to $5.5 billion in gas fields and other assets next year to help cover a cash shortfall stemming from plunging gas prices.

Chesapeake, which announced plans last week to sell as much as $12 billion in assets this year, needs to raise as much as $17.5 billion by the end of 2013 to avoid outspending its cash flow, the Oklahoma City-based company said today in a presentation on its website.

Stung by a glut of the heating fuel that drove prices to a 10-year low, Chesapeake last month pledged to cut gas-drilling expenditures to the lowest since 2005. As a result, the company today lowered its estimate for 2012 production growth to 9 percent from a target of 15 percent announced in November.

About 1 billion cubic feet of Chesapeake’s daily output will remain suspended at least through October, Chief Executive Officer Aubrey McClendon said today during a conference call with analysts and investors.

McClendon said the production curtailments the company enacted in the Haynesville and Barnett shale formations were a “sacrifice” that will benefit the rest of the gas industry.

The shares fell 1.6 percent to $24.23 at 11:05 a.m. in New York after earlier falling as much as 4 percent. The stock has lost 24 percent of its value in the past year.

Bakken Disappointment

For 2013, the company said total production will rise 15 percent, an increase from the November forecast of 10 percent growth.

McClendon has been moving drilling rigs from fields that contain mostly gas to formations soaked with more crude oil and so-called gas liquids such as propane, which command higher prices than dry gas. The company estimates its oil and liquids production will reach 203,000 barrels to 214,000 barrels a day next year, and 250,000 barrels a day in 2015.

Exploratory drilling in the Williston Basin in the northern U.S. Great Plains, an area that includes the Bakken shale, so far have been disappointing for Chesapeake, McClendon said during the call. The company is shifting rigs to the western edge of its acreage to continue the search, he said.

McClendon said the slump in gas prices is “very unlikely” to persist through 2014 because of the “rapidly changing” relationship of supply and demand. Chesapeake’s cash flow will break even with spending by 2014, according the the presentation posted on its website.

Exxon Mobil Corp., based in Irving, Texas, is the largest U.S. gas producer, according to the Natural Gas Supply Association, a Washington-based industry group whose members produce about one-third of the nation’s gas.

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Comstock Resources Inc said it plans to exit the gas-rich Haynesville shale by March as the explorer focuses on more lucrative oil-rich shales like its peers who are hit by falling natural gas prices.

“We plan..to focus for the remainder of this year on our Eagle Ford Shale program in South Texas and our Wolfcamp program in West Texas,” Mark Williams, Comstock’s vice president of operations, said on a conference call with analysts.

Exploration and production companies are trimming their gas production, and instead spending more on oil and natural gas liquids such as ethane, propane and butane, which command higher price than dry gas.

Companies such as Chesapeake, Conoco and Occidental have reduced drilling operations as gas prices fell 17 percent to average $ 3.54 per million British thermal unit in October-December.

Comstock expects half of its revenue from oil this year, compared with 18 percent a year ago, a company executive said on the call.

The Frisco, Texas-based company plans to ramp up oil production by about 20 percent by end of the year and expects oil wells to comprise 92 percent of net wells drilled.

It expects to sell non-core oil and gas assets, including its shares in Stone Energy for about $150-$190 million in 2012.

The Haynesville shale made up for about 66 percent of the gas-focused company’s production in the fourth quarter, but the company posted a wider-than-expected loss as average realized natural gas price fell 9 percent.

The company’s loss widened to 89 cents a share from 45 cents a share a year ago.

The company’s shares closed up 6 percent at $12.45 on Monday on the New York Stock Exchange. They have more than halved in the last one year.

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A precipitous plunge in natural gas prices has turned the national shale gas rush into a retreat.

Oil and gas companies released a stream of announcements last week of plans to close off natural gas wells, pull out gas rigs and curtail spending in gas fields from Texas to Pennsylvania.

Oklahoma City-based Chesapeake Energy, the nation’s second-largest natural gas producer after Exxon Mobil Corp., launched the barrage with an announcement on Monday that it would slash natural gas drilling in half over the next few months.

Conoco- Phillips followed, reporting that it would close off natural gas wells and dial down spending in gas fields.

Then on Thursday, Noble Energy and Consol Energy released plans to cut 41 wells from their joint venture’s original 140-well shale gas drilling program in the Northeast.

“This situation has been a long time coming,” said Robert Ineson, head of the North American gas research group for IHS CERA.

The price of natural gas has plummeted from more than $13.50 in 2008 to under $3 per million British thermal units. Developments in drilling techniques, including hydraulic fracturing and horizontal drilling, led to a resurgence in North American drilling, particularly in dense shale rock formations. That released a glut of natural gas onto the U.S. market, causing prices to drop.

Hopes that a frigid winter would help, as homeowners used natural gas for heat, didn’t materialize. Instead, fall and winter temperatures have been warmer than usual for many Northern states, and natural gas prices have continued to fall.

“As it got below $4, you heard some grumbling,” Ineson said. “But when it got below $3, you saw things change pretty quickly.”

Shale rock cutbacks

Shale rock fields holding dry natural gas, or methane, are experiencing an exodus. Companies are chopping operations in the Barnett Shale in north Texas, the Marcellus Shale in the Northeast and the Haynesville Shale on the Louisiana-Texas border.

There are 780 natural gas drilling rigs operating in North America, down from 906 a year ago.

The U.S. Energy Information Administration noted that 2011 brought the largest increase in marketed natural gas volumes in history. Daily production grew by more than 7 percent over 2010. But year-over-year, growth will drop to 2 percent this year and to 1 percent in 2013, the federal agency projects.

“In the face of continued low spot and future prices, as well as record high storage levels for this time of year, drillers appear to have begun cutting back on new production plans for 2012,” the agency wrote.

Huge amount stored

But so much dry natural gas is in storage that it will be awhile before slower growth in production has much effect on the market, Ineson said.

Prices rose last week in response to the tightened production – closing Friday at $2.68, compared with $2.34 a week earlier.

But the United States is saddled with 3 trillion cubic feet of natural gas, 21 percent more than it typically has in stock at this time of year, according to federal data.

“It’s a huge, huge number,” Ineson said. “And it’s going to take awhile to absorb all that, even if companies dial back on production.”

Energy producers won’t completely curb natural gas production. Turning off a well’s spigot can damage the rock below. And some land use contracts go void if companies don’t drill or produce.

Plus, some natural gas wells produce high-value liquid fuels like butane, propane and ethane, making it worthwhile to keep them running.

ConocoPhillips executives said that’s what’s keeping them from pulling more rigs out of fields.

Of the 2.5 billion cubic feet of natural gas that ConocoPhillips produced in North America each day in the final months of 2011, two-thirds produced enough natural gas liquids to make them economic, Chief Financial Officer Jeff Sheets said.

“Off the top, there’s a portion of our portfolio where it’s just not going to make sense to shut in wells,” Sheets said. But, he added, “We will have some shut-ins of natural gas going forward, on the order of 100 million cubic feet a day.”

Chesapeake, one of the first companies to make a bet big on U.S. shale gas, plans to cut up to 16??percent of its daily natural gas production and curb drilling in areas including the Barnett Shale.

About 90 percent of the company’s capital spending budget targeted dry natural gas in 2009. This year, it is just 15 percent.

The rest will funnel into fields containing high amounts of oil and natural gas liquids.

More to come

Other energy companies are likely to follow suit, said Alan Lammey, an energy analyst for WeatherBell Analytics.

“By spring, we will see prices really run down, and more producers will put the brakes on supply.”

Because natural gas prices are closely tied to heating demand, the price tag slumps as temperatures moderate in March.

But the shale gas boom hasn’t become a bust, Lammey emphasized.

“We could very well have a bar-the-door, hellacious winter next year,” he said.