US Oil Rig Count On The Rise: Hits Highest Level In 2 Years

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

Interestingly, the stretch of gains for the total U.S rig counts is the longest since 2011. Also, the U.S. oil rig count of 683 is the highest since Apr 2015.

North America Rig Count

Total rig count in North America – the U.S. and Canada – for the week ended Apr 13, was 965. The reported figure was lower than 971 a week ago but significantly higher than the year-earlier level of 480.

Total U.S. Rig: Total number of rigs in the U.S. was 847. This was higher than 839 rigs in the week ended Apr 7, as well as 440 a year ago.

Of the total U.S. rigs, land rigs were 823. The reported figure is higher than 813 rigs in the previous week and 409 rigs in year-ago period.

The number of U.S. offshore rigs for the week ended Apr 13, was 21. This is lower than 22 rigs in the previous week and 28 rigs in the previous year.

U.S Oil Rig Count: The count was up by 11 from the previous week to 683. The number had skyrocketed to 1,609 in Oct 2014 – the highest figure to have been reported 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 351.

U.S Natural Gas Rig Count: The count slipped by three from the last week to 162. Moreover, the current natural gas rig count is almost 90% below the high of 1,606 reached in late summer 2008. We note that the company had recorded 89 active natural gas rigs in the year-ago period.

Canada rig: In Canada, the total rig count was 118 compared with 132 rigs in last week but higher than 40 a year ago.

Reasons for Improvement

In North America, only the U.S. rig count increased both from the prior week and the previous year. New Mexico, where rig count rose by seven, was the main growth driver of the U.S. weekly rig count. Moreover, Oklahoma added three rigs to the U.S. count.

Let’s analyze the broader factor for the increase in rig count in the U.S. Since OPEC and non-OPEC countries agreed to curb crude output amid the supply glut, oil prices jumped and nearly doubled from the lows it slipped to in last February. In fact, oil started trading above the psychological level of $50 a barrel. Analysts now expect the OPEC deal to be extended beyond Jun 2017, further strengthening oil prices.

Given these developments, U.S. shale producers have been gathering to oil patches as they will be able to sell the commodity at higher prices. U.S. exploration and production (E&P) companies are expected to produce more, in turn gaining a larger market share at the expense of OPEC.

Companies Poised to Benefit

U.S. E&P firms are likely to benefit the most from these developments. Our proprietary model shows that Concho Resources Inc. (NYSE:CXO) , Evolution Petroleum Corporation (NYSE:EPM) , RSP Permian Inc. (NYSE:RSPP) and W&T Offshore Inc. (NYSE: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.

All the four stocks show strong pricing figure and were able to outperform the Zacks categorized Oil & Gas-U.S Exploration & Production industry over the last one year. While the broader industry gained 3.2% during the aforesaid period, shares of Concho, Evolution Petroleum, RSP Permian and W&T Offshore gained 21.2%, 46.1%, 29.9% and 16.9%, respectively.

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