US Offshore Rig Count Rose in the Week Ended November 13
How the US Crude Oil Rig Count Made a Sudden Turn in Mid-November
US offshore rig count
During the week ended November 13, 2015, one US offshore rig was added to the prior week’s total, taking the total count up to 33 rigs. Offshore rig counts have averaged 32 over the past eight weeks.
Offshore rig details
The offshore rig count is 50% below its four-year high of 66 in August 2014. In the past eight weeks, US offshore rig counts rose on five occasions.
Offshore wells are more expensive than onshore wells, but they have much longer production lives. Offshore projects also have long lead times. Falling crude oil prices don’t affect planned offshore projects in the short term. According to the industry news organization Rigzone, 31 new Gulf of Mexico wells exploration permits were approved in 1H15. This figure remained unchanged from a year ago.
The Louisiana section of the Gulf of Mexico accounts for almost all US offshore drilling. According to the EIA’s (U.S. Energy Information Administration) Short-Term Energy Outlook published in November, 12 projects are expected to come online in the Gulf of Mexico in 2015 and 2016. However, the EIA anticipates delays in some of the projects, and this may take actual production to late 2016 or early 2017.
Rig utilization and why it matters
According to Rigzone, the utilization of jack-up rigs stood at ~57% on November 13. In comparison, utilization was ~77% a year ago. Offshore rig counts indicate how busy rig operators such as Transocean (RIG) and Ensco (ESV) are at any given time. Ensco accounts for 3.7% of the Market Vectors Oil Services ETF (OIH).
Offshore rig counts can also determine the activity levels of sub-sea oil field service equipment and technology providers such as Oceaneering International (OII) and Oil States International (OIS). Rig counts also help investors predict revenue trends for equipment manufacturers like Core Laboratories (CLB).
Jack-up rigs are mobile offshore drilling units that perform drilling and workover operations to lift energy. Rigzone estimates that the use of jack-up rigs should fall below 50% in 2015 due to lower crude oil prices.
Rig count trends
Trends in the offshore rig count also indicate offshore energy activity by upstream and integrated energy companies. ExxonMobil (XOM) and Royal Dutch Shell (RDS.A) have offshore operations.
A strong rig count in the Gulf of Mexico can push production levels higher, and this can benefit midstream MLPs such as Energy Products Partners (EPD), Shell Midstream Partners (SHLX), and MarkWest Energy Partners (MWE), all operating in the Gulf of Mexico.
In the next part of this series, we’ll look at how prices reacted to Baker Hughes’ release of the US rig count on November 13, 2015.
Browse this series on Market Realist:
