In its weekly release, Houston-based oilfield services company Baker Hughes Inc. reported a dip in the U.S. rig count (number of rigs searching for oil and gas in the country). This can be mainly attributed to a decrease in the tally of gas-directed rigs.
Analysis of the Data
Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 1,917 for the holiday-shortened week ended Nov 26, 2014. This was down by 12 from the previous week’s rig count and indicates the first decrease in 3 weeks.
Despite this, the current nationwide rig count is more than double the lowest level reached in recent years (876 in the week ended Jun 12, 2009) and is well above the prior-year level of 1,763. 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 fell by 13 to 1,851, offshore drilling was up by 1 to 54 rigs, while inland waters stayed flat at 12 units.
Natural Gas Rig Count: The natural gas rig count – which in November reached a ten-month high – decreased for the second time in 3 weeks to 344 (a drop of 11 rigs from the previous week). As per the latest report, the number of natural gas-directed rigs is down 58% from its recent peak of 811, achieved in 2012.
In fact, the current natural gas rig count remains 79% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 367 active natural gas rigs.
Oil Rig Count: The oil rig count – that rocketed to 1,609 in Oct, the highest since Baker Hughes started breaking up oil and natural gas rig counts in 1987 – fell by 2 to 1,572. Nevertheless, the current tally is way above the previous year’s rig count of 1,391 and has recovered strongly from a low of 179 in June 2009, rising almost 9 times.
Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 1 was up from the previous week’s count of 0.
Rig Count by Type: The number of vertical drilling rigs remained flat at 352, 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 12 to 1,565. In particular, horizontal rig units decreased by 1 from last week’s all-time high level to 1,371.
Gulf of Mexico (GoM): The GoM rig count was up by 1 to 52. Oil drilling fell by a unit to 37 rigs, while gas rigs increased from their week-ago level by 2 to 15.
Conclusion
Key Barometer of Drilling Activity: The Baker Hughes Incorporated (NYSE:BHI 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) and Schlumberger NV (NYSE:SLB).
However, our preferred pick in this group is Newpark Resources Inc (NYSE:NR). The Woodlands, TX-based firm – carrying a Zacks Rank #2 (Buy) – has a solid secular growth story with potential to rise from the current level.