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US Rig Count Up for 23rd Week, Oklahoma Leads the Way

Zacks Equity Research

Oil field services firm Baker Hughes Inc. BHI recently reported the rig count for the week ended Jun 23. 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 23rd consecutive increase in the U.S. weekly rig count after the nation witnessed a drop in the count in the week ended Jan 13.

Investors should know that among all the states in the U.S., Oklahoma 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 23 was 1111. The reported figure was higher than 1092 a week ago and 497 a year earlier.

Total U.S. Rig: Total number of rigs in the U.S. was 941, higher than 933 recorded in the week ended Jun 16, as well as 421 a year ago.

Of the total U.S. rigs, land rig count stood at 915. The reported figure is higher than 908 rigs recorded in the previous week and 397 a year ago.

The number of U.S. offshore rigs for the week ended Jun 23 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 11 from the previous week to 758. 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 330.

U.S. Natural Gas Rig Count: The count went down by 3 from last week to 183. Moreover, the current natural gas rig count is nearly 90% below the high of 1,606 reached in late summer 2008. There were 90 active natural gas rigs in the year-ago period.

Canada Rig Count: In Canada, the total rig count was 170, compared with 159 last week. The count was 76 a year ago.  

Reasons for the Upside

In North America, the U.S. and Canada rig counts increased from the prior week and year. Oklahoma, where rig count rose by 5, was mainly responsible for the increase in the U.S. weekly rig count. Rig count in North Dakota and Louisiana increased by 3 and 2, respectively.

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 until Mar 2018. 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 Viper Energy Partners LP (VNOM), 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. Viper Energy sports a Zacks Rank #1 (Strong Buy), while Jagged Peak, Legacy Reserves and W&T Offshore carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Viper Energy managed to beat the Zacks Consensus Estimate in each of the prior four quarters, with an average positive earnings surprise of 20.35%.

Jagged Peak Energy is expected to see 295.4% rise in 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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