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Permian Basin & Cana Woodford Witness Increase in Oil Rigs

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In its weekly release, Houston-based oilfield services player Baker Hughes, a GE company BHGE, reported an increase in total rig count in the United States.

About the Rig Count

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

Change in Baker Hughes’ rotary rig count hampers demand for energy services like drilling, completion and production provided by the likes of Halliburton Company HAL, Schlumberger Ltd. SLB, Weatherford International plc WFT, 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 978 in the week ended Feb 23 — higher than the prior week’s 975. Notably, the total count increased for three in the prior five 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 754.

For the week in discussion, the rise in rig count can be attributed to increased onshore operations. The number of onshore rigs were 959, higher than 956. Two rigs operated in the inland waters last week, up from the count of one for the week ended Feb 16.  

However, the tally for offshore was 17, down from 18 in the prior week.

Oil Rig Count: Oil rig count of 799 was up from 798 for the week ended Feb 16. Further, the current tally, though far from the peak of 1,609 attained in October 2014, is significantly above the previous year’s count of 602.

Natural Gas Rig Count: The natural gas rig count of 179 was up from 177 for the week ended Feb 16. With this, the tally increased twice in the last three weeks.

Moreover, like oil, the count of rigs for gas exploration sits comfortably above the year-ago tally of 151.  

Per the most recent report, the number of natural gas-directed rigs is nearly 89%, below the all-time high of 1,606 achieved in late summer 2008.

Rig Count by Type: The number of vertical drilling rigs of 67 units increased from 65. 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) increased by one unit to 911.

Gulf of Mexico (GoM): The GoM rig count is at 17 units — 16 of which were oil-directed — compared with 18 for the week ended Feb 16.

Conclusion

The number of rigs exploring oil and natural gas in the United States increased, courtesy of the addition of two oil rigs in each of Permian basin and Cana Woodford resources. Moreover, the Utica and Haynesville basins added one natural gas rig each.

Crude pricing scenario has been healthy after the OPEC members agreed to extend the production curb deal beyond first-quarter 2018. Given that oil has been trading mostly over the $60-per-barrel mark since January, we believe that there is considerable opportunity for U.S. shale players to continue ramping up drilling activities.

Two energy stocks that should make valuable additions to your portfolio are Cabot Oil & Gas Corporation COG and Concho Resources Inc. CXO. Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in Houston, TX, Cabot is primarily an upstream energy player. We expect the company to see year-over-year earnings growth of 103.8% in 2018.

Headquartered in Midland, TX, Concho explores oil and gas resources in the prospective plays. The company is likely to witness year-over-year earnings growth of 73.2% in 2018.

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