On two sides of the table, things seem out of control. Producers keep drilling more natural gas wells and promising big production gains, despite declining gas prices, higher costs and a stubbornly slow economy. The Obama administration is most definitely out of control. It has deaf ears about what the drilling moratorium will do to Gulf Coast jobs, domestic energy production, tax receipts—and votes in 2012.

There are too many ifs peppering the oil patch right now. Operators don’t mind uncertainty when the drillbit is turning. They can take those geologic and engineering risks all day long. But the drilling ban? In a document we downloaded, Interior Secretary Ken Salazar admits that although the ban will cost jobs, he cannot change course. But then, Michael Bromwich, head of the new Bureau of Energy Management (which replaces the Minerals Management Service) hints he may amend the moratorium.

Meanwhile, we hear offshore engineers cannot readily interpret the new rules sent them by Interior because the language is either vague or contradictory. The permitting process has slowed to an uneasy crawl as the old MMS restructures while grappling with new rules.

For now, the ban is projected to cut Gulf production by 10 billion cubic feet (Bcf) during the last six months of 2010, and by another 92 Bcf in 2011, according to a recent Energy Information Administration (EIA) report.

I recently visited with a very frustrated man, ATP Oil & Gas Corp. chairman and chief executive T. Paul Bulmahn. Take his Mississippi Canyon 305 well, a sidetrack now on hold. This well cannot possibly cause an oil spill—it is punching into a dry-gas reservoir. ATP was just a couple of days away from starting completion work on this well and federal inspectors had blessed the project. Now the rig is gone, the well will not produce this year, and investors are not happy.

Onshore operators, meanwhile, can continue their 2010 programs. But should they?

As of July 30, working gas in storage was 2.9 trillion cubic feet, some 221 Bcf more than the five-year average.

As T. Boone Pickens said recently, “Natural gas is under our feet and under our control.” But is the industry shooting itself in the foot? Drilling continues at a rapid pace.

Analysts and investors are getting restless. A report from Jefferies & Co. says, “We would remain oily… The future of natural gas and natural gas liquids is bleak. Exceptions are made for plays economic at $5 gas, such as Marcellus. Otherwise it is oil, or nothing.”

Speaking in Houston recently, Devon Energy Corp. president and chief executive John Richels warned this situation cannot go on. “Something has to give,” he said.

It will. Last year’s gas hedges will roll off, exposing producers to the real price. And, producers will finally be done drilling to hold their acreage before leases expire. Newfield Exploration has cut its rigs back in the Woodford as it is 90% held by production now.

Unless oil-directed drilling goes up more than it already has, the U.S. rig count will slow down next year.

In the meantime, U.S. gas output is expected to increase to 61.1 Bcf per day this year, according to latest estimates by the EIA. This is an increase of 1.1 Bcf per day, or 1.9%.

Data from second-quarter results tell the story. Southwestern Energy Co. said gross operated Fayetteville production rose to 1.45 Bcf a day by July 30, up from roughly 990 million a day on the same date in 2009—an annual increase of 46.2%.

Its average initial potential (IP) per well is increasing, and it is testing downspacing that could mean even more gas, with over 44 different pilots with well spacing that will range from 200 to 450 feet apart. The company has 889,000 net acres in the Fayetteville.

Another shale leader, Range Resources Corp., is guiding to 14% year-over-year production growth this year, from a prior 12%, and 25%-plus year-over-year production growth in 2011. Encana says its Haynesville production will be 500 million a day by year-end, double from the June quarter, and up from 54 million a day in June 2009.

As Ronald Reagan used to say, “There you go again.”

Fly like an eagle and join us October 5 in San Antonio to learn more about the Eagle Ford play, which continues to revive South Texas and attract operator and investor interest. See dugeagleford.com for the agenda and registration. And if the Marcellus and other East Coast shales catch your fancy, then join us in Pittsburgh November 4 and 5 for our second annual DUG-East program. See dugeast.com for all the details.