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U.S. Shale Players Return to Oil & Gas Patches

In its weekly release, Houston-based oilfield services Baker Hughes Inc. BHGE reported the return of rigs (searching for oil and gas in the country) to U.S. shale plays following the rare fall in the weekly U.S. rig count last week.

Analysis of the Data

Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 952 for the week ended Jul 7, 2017. This highlights an increase of 12 from the previous week’s count. Last week, the count fell for the first time after rigs in the U.S. rose for 23 weeks in a row.

Since plunging to an all-time low of 404 last May, rig count has been rising on rapid growth in American shale production. As a result of the steady climb – punctuated by a few pauses – the current nationwide rig count is considerably higher than the prior-year level of 440.

For the week in discussion, the 12-unit rise in rig count could be attributed to higher onshore activity (now at 927 compared to last week’s 915), while units engaged in offshore operations and inland waters stayed flat at 21 and 4, respectively.

Oil Rig Count: The oil rig count jumped by 7 to 763. The current tally, though far off from the peak of 1,609 attained in Oct 2014, is significantly above the previous year’s count of 351. 

Natural Gas Rig Count: The natural gas rig count – which plunged to its lowest on record last August – inched up for the ninth time in 12 weeks to 189 (a gain of 5 rigs from the previous week). Like oil, a string of weekly rig additions has meant that the present count sits comfortably above the year-ago tally of 88. As per the most recent report, the number of natural gas-directed rigs is languishing nearly 89% below the all-time high of 1,606 achieved in late summer 2008.

Rig Count by Type: The number of vertical drilling rigs fell by 3 units to 74, while the horizontal/directional rig count (encompassing new drilling technology that has the ability to drill and extract gas from dense rock formations, also known as shale formations) was up by 15 to 878.

Gulf of Mexico (GoM): The GoM rig count was flat at 21 – 18 of which were oil-directed.

Details of the Weekly Rig Count

Baker Hughes’ data, issued since 1944 at the end of every week, acts as an important yardstick for energy service providers in gauging the overall business environment of the oil and gas industry.

An increase or decrease in Baker Hughes’ rotary rig count heavily weighs on the demand for energy services – drilling, completion, production, etc. – provided by companies like Halliburton Co. HAL, Schlumberger Ltd. SLB, Weatherford International plc WFT, Diamond Offshore Drilling Inc. DO and Transocean Ltd. RIG.

Conclusion

After U.S rig count fell last week following 23 successive increases, the market raised the question “Are Shale Drillers Slowing?” But, with the increase in rig count this week, shale drillers have proved that their operation is still profitable despite crude trading below the $45-per-barrel level. 

Let’s analyze the broader macro scenarios supporting the shale players. OPEC and 11 non-OPEC players, including Russia, decided in the Vienna meeting on May 25, to extend the production cut deal until Mar 2018. Thus, it is an ideal time for shale players to increase production at the expense of OPEC, especially because oil is trading way above the historical low level reached last February. No wonder, U.S. shale producers have again started gathering to oil patches as they aim to sell the commodity at higher prices.

We should consider President Trump’s exit from Paris Climate accord as a factor encouraging drillers to continue pumping more oil. 

Now, it will be prudent to wait and watch whether this week’s return in rig count can be sustained.

Till then, in case you are looking for energy names for your portfolio, one could opt for Canadian Natural Resources Ltd. CNQ. It has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Calgary, Alberta-based Canadian Natural Resources is engaged in the acquisition, development and exploitation of crude oil and natural gas properties. We expect year-over-year earnings growth of almost 725% at Canadian Natural in 2017.

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Weatherford International PLC (WFT): Free Stock Analysis Report
 
Canadian Natural Resources Limited (CNQ): Free Stock Analysis Report
 
Schlumberger N.V. (SLB): Free Stock Analysis Report
 
Halliburton Company (HAL): Free Stock Analysis Report
 
Transocean Ltd. (RIG): Free Stock Analysis Report
 
Diamond Offshore Drilling, Inc. (DO): Free Stock Analysis Report
 
Baker Hughes Incorporated (BHGE): Free Stock Analysis Report
 
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