Summary
With the Obama administration treating oil and gas in the same fashion for tax purposes, there will almost certainly be a further downturn in domestic rig count and a severe depression in earnings for the likes of Chesapeake, EOG, St Mary's, XTO, and EOG...not to mention BP, CoP, and RDS. With Henry Hub gas prices at 6+ year lows, the length and breadth of the downturn in US domestic drilling depends heavily on whether or not Geithner "gets it" in terms of the value of domestic gas production.
Analysis
Companies who live by the subsidy, can easily die when that same subsidy is taken away. Over 20 years ago, US shale oil producers were given price guarantees by the US gov't to develop that technology. Those subsidies went away with a few years of the oil price collapse in 1985. The same holds true for today's subsidies of the oil and gas industry. The oil subsidies are certainly gone - particularly for those companies who benefited from the gov'ts huge blunder in leaving royalty payments out of many Deepwater leases in the Gulf of Mexico. However, if the gas subsidies go as well, and environmental regulation becomes even more coercive, and LNG starts to enter the market, then it is likely that we would see a US rig count as low as 500-800 for 1-2 years, before production drops and prices rise to the point (likely $7-8+) where domestic gas drilling becomes an economically attractive venture again.
