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U.S. Rig Count Increases 20 Consecutive Weeks

Zacks Equity Research

Oil field services firm Baker Hughes Inc. BHI recently reported the rig count for the week ended Jun 2. In the U.S., the total number of rigs increased from the preceding week, primarily owing to a rise in the number of land rigs. This is the 20th consecutive increase in the U.S. weekly rig count after the nation witnessed a drop in rig count in the week ended Jan 13. 

Rig Count Increases for North America

Total rig count in North America – the U.S. and Canada – for the week ended Jun 2, was 1015. The reported figure was higher than 1001 a week ago and 449 a year earlier.      

Total U.S. Rig: Total number of rigs in the U.S. was 916, higher than 908 recorded in the week ended May 26, as well as 408 a year ago.      

Of the total U.S. rigs, land rig count stood at 889. The reported figure is higher than 881 rigs recorded in the previous week and 382 a year ago.     

The number of U.S. offshore rigs for the week ended Jun 2, was 23. The rig count remained unchanged from the previous week but was lower than 21 rigs in the previous year.

U.S. Oil Rig Count: The count was up by 11 from the previous week to 733. The number had skyrocketed to 1,609 in Oct 2014 – the highest since Baker Hughes started reporting oil and natural gas rig counts separately in 1987. The tally is also well above the previous year’s rig count of 325.

U.S. Natural Gas Rig Count: The count went down by 3 from last week to 182. Moreover, the current natural gas rig count is nearly 90% below the high of 1,606 reached in late summer 2008. There were 82 active natural gas rigs in the year-ago period.    

Canada Rig Count: In Canada, the total rig count was 99, compared with 93 last week. The count was 41 a year ago.

Reasons for Improvement

In North America, the U.S. and Canada rig counts increased from the prior week and the previous year. Oklahoma, where rig count rose by 3, was mainly responsible for the increase in the U.S. weekly rig count.

Let’s analyze the broader factors for the rise in rig count in the U.S.

OPEC and 11 non-OPEC players, including Russia, decided in the Vienna meeting on May 25, to extend the production cut deal by another nine months. Thus, it is an ideal time for shale players to increase production at the expense of OPEC, especially because oil is trading way above the historical low level reached last February. No wonder, U.S. shale producers have been gathering to oil patches as they aim to sell the commodity at higher prices.

Companies Poised to Benefit 

Companies belonging to the Oil & Gas-U.S Exploration & Production industry are likely to benefit the most from these developments. Our proprietary model shows that Abraxas Petroleum Corp. AXAS, Bonanza Creek Energy Inc. BCEI, Legacy Reserves LP LGCY and W&T Offshore Inc. WTI are among the upstream companies that are worth a bet right now. All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

For 2017, Abraxas is expected to witness a 343% year-over-year rise in earnings. Also, the Zacks Consensus Estimate of earnings for the April–June quarter of this year has been revised upward over the last 30 days.

Bonanza Creek is also projected to witness 100.8% year-over-year growth in earnings in 2017. Moreover, over the prior 30 days, the Zacks Consensus Estimate for second-quarter earnings has been revised upward.

Legacy Reserves had an average positive earnings surprise of 11.84% in the last four quarters. On top of that, the stock will likely see a 85.6% increase in 2017earnings.

W&T Offshore beat earnings in each of the last four quarters at an average of 69.21%.

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