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Permian & Williston Basins Witness Decline in Oil Rig Count


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In its weekly release, Baker Hughes BHGE , a GE company, reported a decline in rig count in the United States.

About the Rig Count

Baker Hughes' data, issued at the end of every week since 1944, helps energy service providers gauge the overall business environment of the oil and gas industry.

A change in the Houston-based oilfield services player's rotary rig count impacts demand for energy services like drilling, completion and production provided by the likes of Halliburton Company HAL , Schlumberger Limited SLB , Diamond Offshore Drilling, Inc. DO and Transocean Ltd. RIG .

Details

Weekly Summary:  Rigs engaged in the exploration and production of oil and natural gas in the United States totaled 1052 in the week ended Jun 22, down from 1059 in the previous week. This marked the decline in rig count for two weeks in a row.  

Despite rig count slipping to an all-time low of 404 in May 2016, it has been rising rapidly in U.S. shale resources. The current national rig count is considerably higher than the prior-year level of 941.

For the week under review, the fall in rig count can be attributed to lower onshore and offshore operations. The number of onshore rigs totaled 1032, down from 1035. Moreover, the tally for offshore rigs was recorded at 18, down from the prior week's tally of 20. Also, the number of rigs operating in the inland waters was two last week, lower than four for the week ended Jun 15.  

Oil Rig Count:  Oil rig count was 862, down from 863 for the week ended Jun 15. However, the current tally, though far from the peak of 1,609 attained in October 2014, is significantly higher than last year's 758.

Natural Gas Rig Count:  The natural gas rig count of 188 lags 194 for the week ended Jun 15. Per the recent report, the number of natural gas-directed rigs is 88.3%, below the all-time high of 1,606 in 2008.  

However, like oil, the count of rigs exploring gas is above the year-ago tally of 183.

Rig Count by Type:  The number of vertical drilling rigs totaled 60 units, in line with the prior week tally. 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) fell by seven units to 992.  

Gulf of Mexico (GoM):  The GoM rig count is 18 units, of which 15 were oil-directed. The count fell from the tally of 19 for the week ended Jun 15.

Conclusion

The number of rigs exploring in the United States declined primarily due to the removal of two oil rigs in the Permian Basin and one from the Williston Basin. The removal of one natural gas rig from each of Haynesville and Marcellus shale plays also led to the fall in rig count.

West Texas Intermediate (WTI) crude is again approaching the $70-a-barrel psychological mark. Although the pricing scenario of oil is favorable for drillers, the production possibilities in the domestic shale plays - especially the Permian - remain dull owing to the pipeline bottleneck problem. In other words, the bottleneck in transportation capacity and labor shortage have made Permian operations expensive.

Despite the unfavorable business scenario, investors may bet on a few oil and gas explorers. However, picking winning stocks may be a daunting task.

This is where our  VGM Score  comes in handy. Here, V stands for Value, G for Growth and M for Momentum, and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.

We have narrowed down our search to the following two stocks - Northern Oil and Gas, Inc. NOG and Whiting Petroleum Corporation WLL . The stocks carry a VGM Score of A or B and sport a Zacks Rank #1 (Strong Buy). You can see  the complete list of today's Zacks #1 Rank stocks here .

Northern Oil and Gas - with a VGM Score of A - is projected to post earnings growth of 157.1% in 2018.

Whiting Petroleum, with a VGM Score of B, has surpassed the Zacks Consensus Estimate in all of the last four quarters.

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Schlumberger Limited (SLB): Free Stock Analysis Report

Halliburton Company (HAL): Free Stock Analysis Report

Transocean Ltd. (RIG): Free Stock Analysis Report

Diamond Offshore Drilling, Inc. (DO): Free Stock Analysis Report

Whiting Petroleum Corporation (WLL): Free Stock Analysis Report

Northern Oil and Gas, Inc. (NOG): Free Stock Analysis Report

Baker Hughes Incorporated (BHGE): 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 Nasdaq, Inc.



This article appears in: Investing , Business , Stocks
Referenced Symbols: SLB , HAL , RIG , DO , WLL


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