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Permian Oil Rig Tally Declines in 5 Consecutive Weeks

Zacks Equity Research
Bull of the Day: Berry Petroleum (BRY)

In its weekly release, Baker Hughes, a GE company BHGE reported a decline 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 US Rig Count Decreases: Rigs engaged in the exploration and production of oil and natural gas in the United States totaled 987 in the week ended May 17, down from the prior-week tally of 988. With this, the tally declined for six weeks in a row. The current national rig count is also lower than the prior year’s 1046.

The number of onshore rigs, through the week ended May 17, totaled 961, down from 964 in the previous week. However, four rigs operated in inland waters, in line with the prior-week tally. Moreover, the tally for offshore activities totaled 22, up from 20 in the week ended May 10.

US Removes 3 Oil Rigs: Oil rig tally was 802, down from 805 in the week ended May 10. Notably, the tally for oil drilling rigs not only declined for two weeks in a row, but also touched the lowest mark since March 2018.

Notably, the current total, far from the peak of 1,609 attained in October 2014, is also lower than 844 a year ago.

Natural Gas Rig Count Increases in US: The natural gas rig count of 185 is higher than the count of 183 for the week ended May 10.

However, the count of rigs exploring the commodity is lower than the prior-year quarter’s tally of 200. Per the latest report, the number of natural gas-directed rigs is 88.5%, below the all-time high of 1,606 in 2008.

Rig Count by Type: The number of vertical drilling rigs totaled 48 units against the previous week’s 45. However, 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 four units to 939.

Gulf of Mexico (GoM) Rig Count Increases: The GoM rig count is 22 units, of which 19 were oil-directed. The count was higher than the prior week’s 20.

Conclusion

Three oil drilling rigs were removed from the Permian Basin, the most prolific basin in the United States which employs roughly half of the nation’s total rigs. This led to a drop in total rig count operating in the United States. Notably, Permian has seen a decline in oil drilling rigs in the last five consecutive weeks. Investors should also note that the waning oil rig count reflects conservative spending by some of the drillers in the nation.

Although drillers are opting for conservative capital spending, the United States is likely to see production growth of more than 13% through 2019, per the U.S. Energy Information Administration.

Amid expected rise in production volumes and favorable crude pricing scenario, trading at more than $60 a barrel psychological mark, it would be a wise choice for investors to include a couple of oil stocks like Anadarko Petroleum Corporation APC and Devon Energy Corp. DVN. Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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Halliburton Company (HAL) : Free Stock Analysis Report
 
Schlumberger Limited (SLB) : Free Stock Analysis Report
 
Diamond Offshore Drilling, Inc. (DO) : Free Stock Analysis Report
 
Transocean Ltd. (RIG) : Free Stock Analysis Report
 
Anadarko Petroleum Corporation (APC) : 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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