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U.S Rig Count Hits 27-Month Peak, 2nd Week of Steady Growth

In its weekly release, Houston-based oilfield services Baker Hughes Inc. reported a record high for rigs searching for crude in the country while rigs for natural gas declined.  

Details

Weekly Summary: Rigs engaged in the exploration and production in the U.S. totaled 952 for the week ended Jul 14, 2017. The count is in line with the previous week’s count. Last week, the count increased after the number of rigs in the country fell – following 23 successive increases – during the week ended Jun 30, 2017.

Since plunging to an all-time low of 404 last May, rig count has been rising rapidly in American shale production. Punctuated by a few pauses, the current nationwide rig count is considerably higher than the prior-year level of 447.

For the week in discussion, the in-line rig count could be attributed to higher onshore activity (now at 928 compared to last week’s 927), while units engaged in offshore operations remained flat at 21. However, rigs involved in inland waters fell by one unit.

Oil Rig Count: Oil rig count jumped by two to 765. Most importantly, this emphasizes the highest mark for oil rig count since Apr 2015. Also, 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 357. 

Natural Gas Rig Count: The natural gas rig count – which plunged to its lowest last August – inched down for the fifth time in 14 weeks to 187 (a fall of two rigs from the previous week). Like oil, the count of rigs for gas exploration sits comfortably above the year-ago tally of 89. 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 rose by two units to 76, 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 down by two to 876.   

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.

Change 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

Although the number of rigs searching for natural gas in the U.S. fell from the prior week, the rig exploring for crude reached a historical high despite persistently weak oil prices. In other words, shale drillers have proved that their operations are still profitable despite crude trading slightly above 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 of 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 shale drillers continue to add rigs in oil resources.

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
 
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