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Permian Basin & Eagle Ford Remove 5 Oil Drilling Rigs Each

Zacks Equity Research
Investors need to pay close attention to Anadarko Petroleum (APC) stock based on the movements in the options market lately.

In its weekly release, Baker Hughes, a GE company BHGE reported a drop in 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 services 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 U.S. Rig Count Declines: Rigs engaged in the exploration and production of oil and natural gas in the United States totaled 1006 in the week ended Mar 29, down from the prior week tally of 1016. With this, the tally fell for six consecutive weeks.

Despite rig count slipping to an all-time low of 404 in May 2016, it has been rising rapidly in U.S. shale resources. The current national rig count is higher than the prior-year quarter’s 993.

The number of onshore rigs totaled 981, down from 993 in the previous week. Moreover, two rigs operated in the inland waters, down from the prior week’s tally of three. However, the tally for offshore activities totaled 23, up from 20 in the week through Mar 22.

U.S. Removes 8 Oil Rigs: Oil rig tally was 816, down from 824 in the week ended Mar 22. With this, the tally for oil drilling rigs fell for six successive weeks to the lowest level since April 2018. Moreover, the tally plunged by 69 through the first quarter of 2019, thereby marking the maximum decline in a quarter since the January-to-March quarter of 2016.

However, the current total, far from the peak of 1,609 attained in October 2014, is higher than 797 a year ago.

Natural Gas Rig Count Declines in US: The natural gas rig count of 190 is lower than the count of 192 for the week ended Mar 22.  

Moreover, unlike oil, the count of rigs exploring the commodity is below the prior-year quarter’s 194. Per the latest report, the number of natural gas-directed rigs is 88.2%, below the all-time high of 1,606 in 2008.

Rig Count by Type: The number of vertical drilling rigs totaled 51 units against the previous week’s 53. 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) declined by eight units to 955.  

Gulf of Mexico (GoM) Rig Count Increases: The GoM rig count is 23 units, of which 18 were oil-directed. The count was higher than the prior week’s 20.

Conclusion

Five oil drilling rigs were removed from each of the Permian Basin and Eagle Ford shale play. Moreover, Cana Woodford and DJ-Niobrara basins witnessed the removal of three and two oil rigs, respectively. The decline in oil drilling rigs in those prolific basins primarily resulted in a drop in the weekly rig count.

With expectations that the oil pricing scenario will be weaker in 2019 as compared to the prior year, most explorers and producers have opted for conservative spending since they are mostly bothered about bottom-line growth rather than to just surge in oil and gas production.Overall, curtailing investments in upstream activities might affect demand for rigs. Hence, drillers may continue to lower oil rig count in the coming weeks.

Despite the pessimism, there are a couple of upstream energy players like Concho Resources Inc CXO and Apache Corporation APA that investors could keep an eye on. 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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