U.S. Drilling Rig Count Falls by 6 - Analyst Blog

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In its weekly release, Houston-based oilfield services company Baker Hughes Inc. ( BHI ) reported a dip in the U.S. rig count (number of rigs searching for oil and gas in the country). This fall can be traced back to a decrease in the tally of both oil and gas-directed rigs.

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.

Analysis of the Data

Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 1,751 for the week ended Jan 3, 2014. This was down by 6 from the previous week's rig count and indicates the third decrease in 3 weeks.

Despite this, the current nationwide rig count is almost double the lowest level reached in recent years (876 in the week ended Jun 12, 2009), though it is still below the prior-year level of 1,762. 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 descended by 6 to 1,670, while inland waters activity and offshore drilling remained steady at 20 to 61 units, respectively.

Natural Gas Rig Count: The natural gas rig count - which last year slumped to its lowest point since Jun 1995 - decreased for the first time in 3 weeks to 372 (a drop of 2 rigs from the previous week). As per the most recent report, the number of gas-directed rigs is down by 54% from its recent peak of 811, achieved in 2012.

Moreover, the current natural gas rig count remains 77% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 439 active natural gas rigs.

Oil Rig Count: The oil rig count - that rocketed to a 25-year high of 1,432 in Aug 2012 - fell by 4 to 1,378. Nevertheless, it has recovered strongly from a low of 179 in Jun 2009, rising 7.7 times.

Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 1 remained unchanged from the previous week.

Rig Count by Type: The number of vertical drilling rigs fell by 10 to 377, 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 up by 4 to 1,374. In particular, horizontal rig units - that reached an all-time high of 1,193 in May 2012 - increased by 2 from the last week's level to 1,148.

Gulf of Mexico (GoM): The GoM rig count was remained steady at 59. Both oil and gas rigs were unchanged from their week-ago levels of 39 and 20, respectively.

Conclusion

A Key Barometer of Drilling Activity: 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 Co. ( HAL ) and Schlumberger Ltd. ( SLB ). However, our preferred pick in this group is Core Laboratories N.V. ( CLB ). The Amsterdam, Netherlands-based firm - sporting a Zacks Rank #2 (Buy) - has a solid secular growth story with potential to rise from the current level.



BAKER-HUGHES (BHI): Free Stock Analysis Report

CORE LABS NV (CLB): Free Stock Analysis Report

HALLIBURTON CO (HAL): Free Stock Analysis Report

SCHLUMBERGER LT (SLB): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: BHI , CLB , HAL , SLB

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