Permian Basin Witnesses Increase In Oil Drilling Rigs

In its weekly release, Houston-based oilfield services player Baker Hughes, a GE company (NYSE:BHGE) , reported an increase in total rig count in the United States.

About the Rig Count

Baker Hughes’ data, issued since 1944 at the end of every week, helps energy service providers gauge the overall business environment of the oil and gas industry.

Change in Baker Hughes’ rotary rig count hampers demand for energy services like drilling, completion and production provided by the likes of Halliburton Company (NYSE:HAL) , Schlumberger Ltd. (NYSE:SLB) , Weatherford International plc (NYSE:WFT) , Diamond Offshore Drilling, Inc. (NYSE:DO) and Transocean Ltd. (NYSE:RIG) .

Details

Weekly Summary: Rigs engaged in the exploration and production of oil and natural gas in the United States totaled 939 in the week ended Jan 12 — higher than the prior week’s 924. This marked an increase after the tally decreased for two straight weeks.

Since it slipped to an all-time low of 404 in May 2016, rig count has been rising rapidly in U.S. shale resources. Punctuated by a few pauses, the current nationwide rig count is considerably higher than the prior-year level of 659.

For the week in discussion, the rise in rig count can be attributed to increased onshore and offshore operations. The number of onshore rigs were 919, higher than 906. The tally for offshore was 19, up from 17. One rig operated in the inland waters last week, in line with the count for the week ended Jan 5.

Oil Rig Count: Oil rig count of 752 jumped from 742 recorded for the week ended Jan 5. Moreover, the current tally, though far from the peak of 1,609 attained in October 2014, is significantly above the previous year’s count of 522.

Natural Gas Rig Count: The natural gas rig count of 187 was up from 182 for the week ended Jan 5. Like oil, the count of rigs for gas exploration sits comfortably above the year-ago tally of 136.

Per the most recent report, the number of natural gas-directed rigs is nearly 89% below the all-time high of 1,606 achieved in late summer 2008.

Rig Count by Type: The number of vertical drilling rigs of 62 units is in line with the tally for the week ended Jan 5. Moreover, 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) increased by 15 units to 877.

Gulf of Mexico (GoM): The GoM rig count is at 19 units — 16 of which were oil-directed — up from 17 for the week ended Jan 5.

Conclusion

The number of rigs exploring oil and natural gas in the United States increased. The addition of three oil rigs in the Permian basin primarily supported the upside.

Crude pricing scenario has been healthy after the OPEC members agreed to extend the production curb deal beyond first-quarter 2018. Given that oil crossed the $60-per-barrel mark, we believe that there is considerable opportunity for U.S. shale players to ramp up drilling activities.

Two energy stocks that should make valuable additions to your portfolio are Cabot Oil & Gas Corporation (NYSE:COG) and EOG Resources, Inc. (NYSE:EOG). Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in Houston, TX, Cabot is primarily engaged in exploration and development activities. We expect the company to see year-over-year earnings growth of more than 357% in 2017.

Headquartered in Houston, TX, EOG Resources is also an upstream energy player. The company is likely to witness year-over-year earnings growth of 155.3% in 2017.

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