In its weekly release, Houston-based oilfield services company Baker Hughes (NYSE:BHI) Incorporated (NYSE:BHI) reported another massive fall in the U.S. rig count (number of rigs searching for oil and gas in the country). This is the twelfth weekly rig count decline in a row.
This can be primarily attributed to steep cutbacks in the tally of oil-directed rigs, which saw another huge crash. Talking numbers, oil rig count dropped to the lowest level since Jun 2011, as crude prices revolved around the $50-a-barrel level on plentiful supplies and lackluster demand expectations.
Analysis of the Data
Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 1,267 for the week ended Feb 27, 2015. This was down by 43 from the previous week’s rig count and indicates the lowest level in 5 years.
Following the latest decline, the current nationwide rig count is now well below the prior-year level of 1,769. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ending Aug 29 and Sep 12.
Rigs engaged in land operations – which fell by 42 to 1,208 – were primarily responsible for the weekly rig count plunge. Meanwhile, offshore drilling was down by 3 to 51 rigs, while inland waters activity increased by 2 to 8 units.
Natural Gas Rig Count: The natural gas rig count decreased to 280 (a drop of 9 rigs from the previous week). As per the most recent report, the number of natural gas-directed rigs is at the lowest level since 1993 and is down 63% from its recent peak of 811, achieved in 2012.
In fact, the current natural gas rig count remains 81% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 335 active natural gas rigs.
Oil Rig Count: The oil rig count that rocketed to 1,609 in Oct 2014, the highest since Baker Hughes started breaking up oil and natural gas rig counts in 1987, nosedived further (by 33) to 986. As a result of this drop, the current tally is now the lowest in 3½ years and well below the previous year’s rig count of 1,430.
Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) fell by one to one from the previous week.
Rig Count by Type: The number of vertical drilling rigs decreased by 9 to 194, while the horizontal/directional rig count (encompassing new drilling technology that has the ability to drill and extract gas from dense rock formations, also known as shale formations) was down by 34 to 1,073. In particular, horizontal rig units decreased by 33 from last week’s level to 946.
Gulf of Mexico (GoM): The GoM rig count was down by 3 to 49.
Conclusion
Key Barometer of Drilling Activity: The Baker Hughes data, issued since 1944, acts as an important yardstick for energy service providers in gauging the overall business environment of the oil and gas industry.
An increase or decrease in the Baker Hughes rotary rig count heavily weighs on the demand for energy services – drilling, completion, production, etc. – provided by companies that include large-cap names like Halliburton Company (NYSE:HAL), Unit Corporation (NYSE:UNT) and Schlumberger NV (NYSE:SLB).