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US Rig Count Up for the 22nd Week, North Dakota Strong

Zacks Equity Research

Oil field services firm Baker Hughes Inc. BHI recently reported the rig count for the week ended Jun 16. 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 also marks the 22nd consecutive increase in the U.S. weekly rig count after the nation witnessed a drop in the count in the week ended Jan 13.

Notably, among all the states in the U.S., North Dakota has witnessed the highest rise in rig count.

Rig Count Increases for North America

Total rig count in North America – the U.S. and Canada – for the week ended Jun 16 was 1092. The reported figure was higher than 1059 a week ago and 493 a year earlier.

Total U.S. Rig: Total number of rigs in the U.S. was 933, higher than 927 recorded in the week ended Jun 9, as well as 424 a year ago.

Of the total U.S. rigs, land rig count stood at 908. The reported figure is higher than 902 rigs recorded in the previous week and 398 a year ago.

The number of U.S. offshore rigs for the week ended Jun 16 was 22. The rig count is in line with the previous week’s count and higher than 21 rigs recorded in the previous year.

U.S. Oil Rig Count: The count was up by 6 from the previous week to 747. 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 was also well above the previous year’s rig count of 337.

U.S. Natural Gas Rig Count: The count went up by 1 from last week to 186. However, the current natural gas rig count is nearly 90% below the high of 1,606 reached in late summer 2008. There were 86 active natural gas rigs in the year-ago period.

Canada Rig Count: In Canada, the total rig count was 159, compared with 132 last week. The count was 69 a year ago.  

Reasons for the Upside

In North America, the U.S. and Canada rig counts increased from the prior week and year. North Dakota, where rig count rose by 3, was mainly responsible for the increase in the U.S. weekly rig count. Rig count in Alaska, Colorado and New Mexico increased by 2 in each of the three states.

Let’s analyze the broader factors.

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.

We should consider President Donald Trump’s exit from Paris Climate accord as a factor encouraging drillers to continue pumping more oil.  

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 EXTRACTION OIL & GAS, LLC XOG, Jagged Peak Energy Inc. JAG, 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, EXTRACTION OIL & GAS will likely witness almost 121% rise in revenues.

Jagged Peak Energy is expected to post 295.4% higher revenues in 2017.

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 an 85.6% increase in 2017 earnings.

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

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