U.S. Rig Count in Freefall - 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 attributed to a decrease in the tally of oil-directed rigs, partially offset by an increase in natural gas rig count.

The Baker Hughes rig count, issued since 1944, acts as an important yardstick for drilling contractors like Transocean Inc. ( RIG ), Diamond Offshore ( DO ), Noble Corp. ( NE ), Nabors Industries ( NBR ), Patterson-UTI Energy ( PTEN ), Helmerich & Payne ( HP ), etc. 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 1,763 for the week ended December 28, 2012. This was down by 11 from the previous week's rig count and indicates the fifth decrease in as many weeks.

Despite this, the current nationwide rig count is more than double than that of the 6-year low of 876 (in the week ended June 12, 2009), though it is way below the prior-year level of 2,007. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ending August 29 and September 12.

Rigs engaged in land operations descended by 11 to 1,692, while inland waters activity offshore drilling remained steady at 20 to 51 rigs, respectively.

Natural Gas Rig Count: The natural gas rig count - which slumped to a 13-year low in early November - increased for the second successive week to 431 (a gain of 2 rigs from the previous week). Despite the weekly improvement, the number of gas-directed rigs is down 54% from its 2011 peak of 936.

In fact, the current natural gas rig count remains 73% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 809 active natural gas rigs.

Oil Rig Count: The oil rig count - which was at a 25-year high of 1,432 in August - fell by 13 to 1,327. Nevertheless, the current tally is way above the previous year's rig count of 1,193. It has recovered strongly from a low of 179 in June 2009, rising 7.4 times.

Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 5 remained unchanged from the previous week.

Rig Count by Type: The number of vertical drilling rigs fell by 10 to 477 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 1 to 1,286. However, horizontal rig units - that reached an all-time high of 1,193 in May 2012 - increased by 6 from the last week's level to 1,111.

Zacks Rank: Among the companies mentioned above, Diamond Offshore, Noble and Patterson-UTI Energy are all Zacks #3 Rank (Hold) stocks, implying that these are expected to perform in line with the broader U.S. equity market over the next one to three months.

However, Baker Hughes and Nabors both retain a Zacks #5 Rank, which translates into a short-term Strong Sell rating, while Helmerich & Payne and Transocean's Zacks #2 Rank implies that the companies are likely to outperform the broader U.S. equity market over the next one to three months.



BAKER-HUGHES (BHI): Free Stock Analysis Report

DIAMOND OFFSHOR (DO): Free Stock Analysis Report

HELMERICH&PAYNE (HP): Free Stock Analysis Report

NABORS IND (NBR): Free Stock Analysis Report

NOBLE CORP (NE): Free Stock Analysis Report

PATTERSON-UTI (PTEN): Free Stock Analysis Report

TRANSOCEAN LTD (RIG): 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 , DO , HP , NBR , NE

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