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Oil Rig Count Continues to Tick Up in Permian Basin

Zacks Equity Research
EastGroup Properties (EGP) delivered FFO and revenue surprises of 2.63% and 1.08%, respectively, for the quarter ended September 2018. Do the numbers hold clues to what lies ahead for the stock?

In its weekly release, Baker Hughes reported an increase in rig count in the United States.

Rig Count Details

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.

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

Details

Weekly Summary: Rigs engaged in the exploration and production of oil and natural gas in the United States totaled 1059 in the week (ended May 25) compared with the prior week’s 1046. Notably, total count increased 13 times in the last 14 weeks.

Since it slipped to an all-time low of 404 in May 2016, rig count has been rising rapidly in U.S. shale resources. Punctuated by a few pauses, the current nationwide rig count is considerably higher than the prior-year level of 908.  

For the week in discussion, the rise in rig count can be attributed to higher onshore operations. The number of onshore rigs totaled 1036, higher than 1023. Four rigs operated in the inland waters last week, in line with the count for the week ended May 18. The tally for offshore rigs was 19, also in line.

Oil Rig Count: Oil rig count was 859, up from 844 for the week ended May 18. Notably, for the first time since the week through Feb 9, the market witnessed such a jump in weekly rig count.

Moreover, the current tally, though far from the peak of 1,609 attained in October 2014, is significantly higher than last year’s 722. The oil rig count rose 11 times in the last 14 weeks.   

Natural Gas Rig Count: The natural gas rig count of 198 is lower than 200 for the week ended May 18. However, like oil, the count of rigs exploring gas is above the year-ago tally of 185.

Per the recent report, the number of natural gas-directed rigs is 88%, below the all-time high of 1,606 achieved in late summer 2008.

Rig Count by Type: The number of vertical drilling rigs of 66 units increased from 61 units. Moreover, 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) rose by eight units to 993 units.    

Gulf of Mexico (GoM): The GoM rig count is at 18 units — 15 rigs were oil-directed — same as the tally for the week ended May 18.

Conclusion

The number of total rigs exploring in the United States has increased, courtesy of the addition of 10 oil rigs in the Permian Basin. With this, rigs exploring oil in the region increased for four weeks in a row. It seems that drillers have been gathering in Permian despite the basin suffering from midstream infrastructure bottleneck.

The leading crude producers in the world — Saudi Arabia and Russia —  were in talks to boost daily oil production by roughly 1 million barrels, per media reports. This created a panic in the energy market, leading crude prices to fall below $70 a barrel through the week ended May 25.

However, the oil drilling market scenario is still favorable in U.S. shale plays. Two energy stocks that should make valuable additions to your portfolio are Anadarko Petroleum Corp. APC and Comstock Resources, Inc. CRK. Anadarko Petroleum sports a Zacks Rank #1 (Strong Buy), while Comstock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

We expect Anadarko Petroleum to witness year-over-year earnings growth of 229.6% in 2018.

Comstock will likely see year-over-year earnings growth of 90.8% in 2018.

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Schlumberger Limited (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
 
Comstock Resources, Inc. (CRK) : Free Stock Analysis Report
 
Anadarko Petroleum Corporation (APC) : Free Stock Analysis Report
 
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