Several more producers of natural gas have announced reductions in dry gas drilling or production, as the exploration and production industry continues to deal with the weak environment expected for natural gas during the year. Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

More Cuts
Ultra Petroleum (NYSE:UPL) is planning to spend $925 million in capital in 2012, down from the $1.5 billion spent in 2011. The reduction in development drilling will be more substantial, with the company spending only $625 million in 2012, down 50% from the $1.3 billion of capital spent last year.

Ultra Petroleum will split this capital between the Marcellus Shale, which will see $400 million in spending, and the Pinedale Field, which will receive $250 million.

Ultra Petroleum said that the drastic reduction in dry gas spending was due to "limited economic returns in the current natural gas pricing environment." The company said that new investments in natural gas areas would have to have a positive return at a $3.00 gas price. (For related reading, see A Guide To Investing In Oil Markets.)

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Talisman Energy (NYSE:TLM) is reducing its exploration and development capital budget by $500 million relative to 2011, and will spend $4 billion this year. The company will put 80% of these funds towards areas that produce oil and liquids.

Talisman Energy plans to reduce drilling in the Marcellus Shale in 2012, cutting its operated rig count from the current level of 10 to as low as three rigs. The Montney Shale will also see cuts, with Talisman Energy reducing its operated rig count here from 11 to four rigs in 2012.

Encana (NYSE:ECA) has set a $2.9 billion capital budget for 2012, approximately 37% less than the amount spent in 2011. The capital plan is designed to minimize investment in dry natural gas areas of its portfolio of assets. The company expects that this reduced investment will cut natural gas production by 250 million cubic feet per day during the year. Encana also plans to shut in up to 250 million cubic feet per day of natural gas production from existing wells to help reduce the oversupply of natural gas in North America.

Encana still plans to spend $1.2 billion in capital on dry gas plays on 2012, in areas where the company is involved with a joint venture partner, or in areas where drilling is still economic.

Energen Corp (NYSE:EGN) is cutting $45 million from the company's planned investment in the San Juan Basin in 2012. The company plans to finish its highest return wells here by the middle of 2012 and then cease all drilling in this basin.


Energen Corp said that the reduction was due to the current outlook for low natural gas prices in 2012. The company plans to focus on the Permian Basin, where it will spend $855 million this year.

Summary of Drilling Reductions and Production Shut Ins
Chesapeake Energy (NYSE:CHK) - plans to reduce dry gas drilling expenditures from $3.1 billion in 2011 to $900 million in 2012. Production shut in of 500 million cubic feet of natural gas per day, with a contingency to increase this to one billion cubic feet per day if needed.

Comstock Resources (NYSE:CRK) - will end all Haynesville Shale development by March 2012.

Conoco Phillips (NYSE:COP) - will shut in 100 million cubic feet per day of natural gas production.

Exxon Mobil (NYSE:XOM) - no production shut ins, plans to shift some rigs from dry gas to wet gas plays in 2012.

BG Group (OTC:BRGYY) - plans to use an average of eight rigs in the Marcellus Shale and Haynesville Shale in 2012, down from 35 in 2011.

Unit Corporation (NYSE:UNT) - might reduce natural gas production by 20 million cubic feet per day in 2012.

WPX Energy (NYSE:WPX) - $400 million reduction in capital directed towards dry gas plays and 40% rig count cut.

BHP Billiton (NYSE:BHP) - cutting two rigs in the Fayetteville Shale.

The Bottom Line
Although the exploration and production industry is doing what it can to balance out natural gas supply and demand, the market may need to see more action or the short term bounce in natural gas price may not last. (For related reading, see A Natural Gas Primer.)

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.