UPDATE 1-U.S. horizontal rig count hits record high

* Gas-directed rig count falls, third time in four weeks

* Record horizontal rig count could signal shift to oil
(Adds details, background)

NEW YORK, Nov 5 (Reuters) - The number of horizontal rigs
drilling for oil and natural gas in the United States rose by
24 to a record high of 943 this week, oil services firm Baker
Hughes said on Friday.

Horizontal rigs -- the type most often used to extract oil
or gas from shale -- easily eclipsed the previous record high
of 929 hit in early October.

Analysts estimate that two-thirds of horizontal rigs are
drilling for natural gas, and these comprise part of the
overall rig count. The rest are drilling for oil.

The overall gas-directed rig count declined for the third
time in four weeks, falling 12 this week to 955, well below the
18-month high of 992 hit in mid-August.

Despite relatively low gas prices this year - front month
NYMEX futures hit a 13-month low last week of about $3.20 per
mmBtu, gas drilling activity has been slow to decline.

Some analysts said the increase in the horizontal count may
signal a shift to oil-related shale drilling, noting oil prices
hit a two-year high above $87 a barrel earlier Friday.

Some firms have hinted at curbing gas output or shifting
spending to more oil-related ventures because of low gas
prices, but most analysts expect no meaningful slowdown in gas
production until the second half of 2011, if at all.

They said some producers may continue drilling for gas to
meet lease obligations, while others may be protected by
profitable hedges and can still produce and sell gas at prices
well above current levels.

Front-month U.S. natural gas futures NGc1, which were up
4.8 cents at $3.904 just before the data were released at 1
p.m. EDT (1700 GMT), slipped about 2 cents after the report.

The gas-drilling rig count is still up 290 since bottoming
at 665 on July 17, 2009, its lowest since the 640 posted on May
3, 2002.

While the gas rig count is 41 percent off its record peak
of 1,606 from September 2008, it stands 221 rigs, or 30
percent, above the same week last year.

Rising output of shale gas has been the primary driver of
increased gas production in the last few years, and most
traders agree it will be difficult to tighten the gas market
unless drilling slows sharply.

Some analysts estimate the gas rig count will have to fall
well below 850 to turn year-on-year production flat.

Recent estimates by the U.S. Energy Information
Administration put U.S. gas output this year at more than 22
trillion cubic feet, its highest since 1973, but next year the
EIA sees output dropping 1.5 percent.

With gas inventories set to head into winter at or near
record highs and production likely to remain strong into 2011,
many traders expect gas prices to remain cheap relative to oil,
at least until an improving economy boosts industrial demand,
which accounts for nearly 30 percent of U.S. gas consumption.
(Reporting by Joe Silha; Editing by Marguerita Choy)