U.S. Drilling Rig Count Remains Flat
In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (BHI) reported no change from the prior week in the U.S. rig count (number of rigs searching for oil and gas in the country).
The Baker Hughes data, issued since 1944, acts as an important yardstick for energy service providers in gauging the overall business environment of the oil and gas industry.
Analysis of the Data
Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 1,831 for the week ended Apr 17, 2014. This was flat with the previous week’s rig count.
The current nationwide rig count is more than double the lowest level reached in recent years (876 in the week ended Jun 12, 2009) and is above the prior-year level of 1,758. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ending Aug 29 and Sep 12.
Rigs engaged in land operations ascended by 6 to 1,765, offshore drilling was down by 1 to 52 rigs, while inland waters activity decreased by 5 to 14 units.
Natural Gas Rig Count: Natural gas rig count increased to 316 (a rise of 6 rigs from the previous week) for the first time after falling for five successive weeks. The number of natural gas-directed rigs is down 61% from its recent peak of 811, achieved in 2012.
In fact, the current natural gas rig count remains 80% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 379 active natural gas rigs.
Oil Rig Count: The oil rig count was down by 7 to 1,510. The current tally is way above the previous year’s count of 1,371. The count, up 8.4 times from a low of 179 in June 2009 shows a strong recovery.
Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 5 rose by 1 from the previous week.
Rig Count by Type: The number of vertical drilling rigs was flat at 391, 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 also flat at 1,440. In particular, horizontal rig units remained flat at the all-time high of 1,224.
Gulf of Mexico (GoM): The GoM rig count dropped by 1 to 51.
Conclusion
A Key Barometer of Drilling Activity: An increase or decrease in the Baker Hughes rotary rig count heavily weighs on the demand for energy services – drilling, completion, production etc. – provided by companies that include large-cap names like Halliburton Co. (HAL) and Schlumberger Ltd. (SLB). However, our preferred pick in this group is Unit Corp. (UNT). The Tulsa, Oklahoma-based firm – sporting a Zacks Rank #1 (Strong Buy) – has a solid secular growth story with potential to rise significantly from the current level.
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