Why horizontal rig counts show no signs of pulling over

Market Realist

Why you should monitor US rigs topping past two years’ counts (Part 3 of 9)

(Continued from Part 2)

Horizontal rig counts show no sign of slowing down

For the week ending August 15, 2014, the number of horizontal rigs increased by 12 to 1,329 from 1,317 last week. This also marks a record for the number of horizontal rigs. It broke the record set in the previous week ending August 8. This is also the ninth consecutive week horizontal rig counts have increased. 

Last week, the number of vertical rigs decreased by ten to 368 from 378 recorded the previous week. This was the highest weekly decrease in vertical rigs in the past month. The number of directional rigs increased by three for the past week compared to the previous week.

Year-to-date (or YTD), horizontal rigs are up by 16% at +181, while the vertical rigs were down by -9.

According to Baker Hughes, a horizontal well is a type of directional well where the surface location isn’t situated directly above the reservoir that it targets.

When an inclination of a well exceeds 80 degrees from vertical, or when the lower part of the well runs parallel to the pay zone—along the reservoir—it’s called a horizontal well. Horizontal wells are drilled to increase the length of the well exposed to the reservoir in order to increase production.

In vertical drilling, a well is drilled straight down into the earth until it reaches the formation being developed.

Horizontal rigs on a tear

The increase in the number of horizontal rigs has been due to the discovery of huge quantities of oil and gas in shale formations in the U.S. Application of this type of drilling, combined with hydraulic fracturing of unconventional oil and gas formations, has led to the recent surge of oil and natural gas production in the U.S.

By the end of July, 2014 the number of horizontal rigs had increased by ~287% since January, 2007. During the same period, the number of vertical rigs has decreased by ~62%.

Key stocks and exchange-traded funds (or ETFs)

Rig counts can be a useful indicator to gauge the upstream activity of companies like Chevron (CVX) and EOG Resources (or EOG). These companies are part of the Energy Select Sector SPDR (XLE). Rig counts can also gauge the activity of oil services companies like Halliburton (HAL) and Schlumberger (SLB). These companies are part of the Market Vectors Oil Services ETF (OIH).

Continue to Part 4

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