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Drillers in Permian & DJ-Niobrara Continue to Remove Oil Rigs

Zacks Equity Research

Baker Hughes, a GE company BHGE reported a decline in the weekly rig count in the United States.

More on the Rig Count

Baker Hughes’ data, issued at the end of every week since 1944, helps energy service providers gauge the overall business environment of the oil and gas industry.

A change in the Houston-based oilfield service player’s rotary rig count affects demand for energy services like drilling, completion and production provided by the likes of Halliburton Company HAL, Schlumberger Limited SLB, Diamond Offshore Drilling, Inc DO and Transocean Ltd. RIG.

Details

Total US Rig Count Declines: Rigs engaged in the exploration and production of oil and natural gas in the United States totaled 904 in the week through Aug 30, lower than the prior-week count of 916. The current national rig count is also below the prior year’s 1048.

The number of onshore rigs, in the week ending Aug 30, totaled 876 versus the previous week’s 887. Moreover, no rig operated in inland waters as compared to one rig a week ago. However, the tally of rigs operating offshore plays through the week till Aug 30 was 28, in line with the count through the week ended Aug 23.

US Removes 12 Oil Rigs: Oil rig count was 742, down from 754 in the week ended Aug 23. Notably, the tally has never dropped to such a level since early January 2018. In the past nine weeks, drillers lowered the tally eight times. The current total, far from the peak of 1,609 attained in October 2014, is also lower than 862 a year ago.

Natural Gas Rig Count Flat in US: The natural gas rig count of 162 is in line with the prior-week count. However, the count of rigs exploring the commodity is lower than the prior-year week’s 184. Per the latest report, the number of natural gas-directed rigs is 89.9%, below the all-time high of 1,606 recorded in 2008.

Rig Count by Type: The number of vertical drilling rigs totaled 50 units, in line with the prior-week count. Moreover, the horizontal/directional rig count (encompassing new drilling technology with the ability to drill and extract gas from dense rock formations, also known as shale formations) of 854 was below the prior-week level of 866.

Gulf of Mexico (GoM) Rig Count In Line: The GoM rig count is 26 units, of which 24 were oil-directed. The count was flat with the prior-week tally.

Rig Count in Major Basins & Outlook

While Permian — the most prolific basin — removed five oil rigs in the week ended Aug 30, the crude rig count in DJ-Niobrara was lowered by two. While the tally of oil rigs in Permian fell for three consecutive weeks, DJ-Niobrara witnessed a drop in count for two successive weeks.

Investors should know that domestic drillers may continue to lower rigs in the oil patches as they have a conservative capital budget for 2019 and the crude pricing scenario is weak. Despite the bearish landscape, it would be wise for investors to keep an eye on Permian drillers which are ramping up crude production with the deployment of lesser rigs. Two Permian drillers that should be in investors’ watch list are Devon Energy Corporation DVN and Pioneer Natural Resources Company PXD. Both the stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Halliburton Company (HAL) : Free Stock Analysis Report
 
Schlumberger Limited (SLB) : Free Stock Analysis Report
 
Transocean Ltd. (RIG) : Free Stock Analysis Report
 
Diamond Offshore Drilling, Inc. (DO) : Free Stock Analysis Report
 
Pioneer Natural Resources Company (PXD) : Free Stock Analysis Report
 
Devon Energy Corporation (DVN) : Free Stock Analysis Report
 
Baker Hughes, a GE company (BHGE) : Free Stock Analysis Report
 
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