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A New Low for Natural Gas Rig Count - Analyst Blog

Posted
4/9/2013 6:08:00 PM
By: Zacks.com
Referenced Stocks:BHI;DO;ESV;RIG

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 gas-directed rigs, partially offset by increase in oil rig count.

The Baker Hughes' data, issued since 1944, acts as an important yardstick for drilling contractors like Transocean Ltd. ( RIG ), Diamond Offshore Drilling Inc. ( DO ), Ensco plc ( ESV ), 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 1,738 for the week ended Apr 5, 2013. This was down by 10 from the previous week's rig count and indicates the second 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 way below the prior-year level of 1,979. 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 15 to 1,665, offshore drilling was up by 3 to 48 rigs, while inland waters activity increased by 2 to 25 units.

Natural Gas Rig Count: Natural gas rig count decreased for the third time in as many weeks to 375 (a drop of 14 rigs from the previous week). As per the most recent report, the number of gas-directed rigs is at their lowest level since May 14, 1999 and is down 54% from its 2012 peak of 811.

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 647 active natural gas rigs.

Oil Rig Count: The oil rig count - which was at a 25-year high of 1,432 in August last year - increased by 3 to 1,357. The current tally is well above the previous year's rig count of 1,329. It has recovered strongly from a low of 179 in June 2009, rising 7.6 times.

Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 6 was up by 1 from the previous week.

Rig Count by Type: The number of vertical drilling rigs rose by 8 to 451, 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 18 to 1,287. In particular, horizontal rig units - that reached an all-time high of 1,193 in May 2012 - slumped by 15 from the last week's level to 1,084.

Zacks Rank: As of now, Transocean, Diamond Offshore and Ensco are all Zacks Rank #3 (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.



BAKER-HUGHES (BHI): Free Stock Analysis Report

DIAMOND OFFSHOR (DO): Free Stock Analysis Report

ENSCO PLC (ESV): Free Stock Analysis Report

TRANSOCEAN LTD (RIG): Free Stock Analysis Report

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