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Permian & Granite Wash Witness Fall in Oil Drilling Rig Count

Zacks Equity Research

In its weekly release, Baker Hughes, a GE company BHGE reported a decline in the U.S. rig count.  

More on the Rig Count

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

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

Details

Total U.S. Rig Count Decreases:  Rigs engaged in the exploration and production of oil and natural gas in the United States totaled 1050 in the week ended Jan 18, down from 1075 in the prior week. This reflects a fall in rig count in five of the past eight 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 level of 936.  

For the week under review, the downside has been caused by drastic decline in onshore drilling operations. The number of onshore rigs totaled 1029, down from 1052 in the previous week. Moreover, the tally for offshore activities totaled 19, down from 21 for the week ended Jan 11. However, through the week ended Jan 18, two rigs operated in the inland waters, in line with the prior week’s count.

U.S. Removes 21 Oil Rigs: Oil rig tally was 852, down from 873 in the week ended Jan 11. This marks the steepest decline in any week since February 2016.

Nevertheless, the current total, far from the peak of 1,609 attained in October 2014, is higher than the tally of 747 a year ago.  

Natural Gas Rig Count Declines in the US: The natural gas rig count of 198 is lower than the tally of 202 for the week ended Jan 11.

However, like oil, the count of rigs exploring the commodity is above the prior-year quarter’s number of 189. Per the latest report, the number of natural gas-directed rigs is almost 88%, below the all-time high of 1,606 in 2008.

Rig Count by Type: The number of vertical drilling rigs totaled 66 units, up from the previous week’s tally of 65. But, 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) fell 26 units to 984.

Gulf of Mexico (GoM) Rig Count Declines: The GoM rig count is 19 units, of which 15 were oil-directed. The count was lower than the tally of 21 for the week ended Jan 11.

Conclusion

Seven oil drilling rigs were removed from Permian and the basin Granite Wash saw the loss of three oil rigs, contributing significantly to the plunge in weekly rig count.

It is to be noted that Schlumberger during its quarterly results announcement revealed that explorers and producers are getting more conservative about investing owing to volatile oil prices. Conservative investments in upstream activities might affect demand for rigs. Hence, drillers may continue to lower rigs counts in the coming weeks.

Despite the pessimism, there are a couple of upstream energy players like Concho Resources Inc CXO and EOG Resources, Inc. EOG 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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