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US Rig Count Increases for 19 Consecutive Weeks

Zacks Equity Research

Oil field services firm Baker Hughes Inc. BHI recently reported the rig count for the week ended May 26, 2017. In the U.S., the total number of rigs increased from the previous week, primarily owing to a rise in the number of land rigs. This is the 19th consecutive increase in the U.S. weekly rig count after the nation witnessed a fall in the number of rigs in the week ended Jan 13. 

North American Rig Count Rises

Total rig count in North America – the U.S. and Canada – for the week ended May 26, was 1001. The reported figure was higher than 986 a week ago and 447 a year earlier.     

Total U.S. Rig: Total number of rigs in the U.S. was 908. This was higher than 901 rigs in the week ended May 19, as well as 404 a year ago.      

Of the total U.S. rigs, land rigs were 881. The reported figure is higher than 874 rigs in the previous week and 374 rigs in year-ago period.  

The number of U.S. offshore rigs for the week ended May 26, was 23. The rig count remained unchanged from the previous week but was lower than 24 rigs in the previous year.  

U.S Oil Rig Count: The count was up by two from the previous week to 722. The number had skyrocketed to 1,609 in Oct 2014 – the highest figure to have been registered 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 316.   

U.S Natural Gas Rig Count:The count went up by five from the last week to 185. However, the current natural gas rig count is nearly 90% below the high of 1,606 reached in late summer 2008. There were 87 active natural gas rigs in the year-ago period.    

Canada rig:In Canada, the total rig count was 93 compared with 85 rigs in last week. There were 43 rigs a year ago.        

Reasons for Improvement

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

Let’s analyze the broader factors for the increase 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 it reached during February last year. 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 Oil & Gas-U.S Exploration & Production industry are likely to benefit the most from these developments. Our proprietary model shows that Abraxas Petroleum Corporation AXAS, Bonanza Creek Energy Inc. BCEI, Legacy Reserves LP LGCY and W&T Offshore Inc. WTI are among the upstream companies that are worth including in your portfolio. 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 343% year-over-year increase 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 of earnings for second quarter 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 show 85.6% increase in earnings in 2017.

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

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