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Permian Sees Drop in Oil Rig Count for 4 Straight Weeks

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The Zacks Analyst Blog Highlights: Schlumberger, Halliburton, Baker Hughes and Weatherford International

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 1016 in the week ended Mar 22, down from the prior week tally of 1026. This marked a decline in the count for five weeks in a row.

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 995.  

The number of onshore rigs totaled 993, down from 1001 in the previous week. Moreover, the tally for offshore activities totaled 20, down from 22 in the week through Mar 15. Three rigs operated in the inland waters, in line with the tally of the prior week.

U.S. Removes 9 Oil Rigs: Oil rig tally was 824, down from 833 in the week ended Mar 15. With this, the tally for oil drilling rigs fell for five successive weeks.

However, the current total, far from the peak of 1,609 attained in October 2014, is higher than 804 a year ago.

Natural Gas Rig Count Declines in US: The natural gas rig count of 192 is lower than the count of 193 for the week ended Mar 15.  

However, like oil, the count of rigs exploring the commodity is above the prior-year quarter’s 190. 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 53 units against the previous week’s 54. 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 nine units to 963.  

Gulf of Mexico (GoM) Rig Count Decreases: The GoM rig count is 20 units, of which 16 were oil-directed. The count was lower than the prior week’s 22.

Conclusion

Five oil drilling rigs were removed from the Permian Basin, resulting in a drop in weekly rig count. In fact, the prolific basin has been witnessing a decline in oil rigs for four weeks in a row. 

Explorers and producers are getting more conservative about investing over volatile oil prices. Conservative 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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Schlumberger Limited (SLB) : Free Stock Analysis Report
 
Halliburton Company (HAL) : Free Stock Analysis Report
 
Diamond Offshore Drilling, Inc. (DO) : Free Stock Analysis Report
 
Transocean Ltd. (RIG) : Free Stock Analysis Report
 
Concho Resources Inc. (CXO) : Free Stock Analysis Report
 
Apache Corporation (APA) : Free Stock Analysis Report
 
Baker Hughes, a GE company (BHGE) : Free Stock Analysis Report
 
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