Total US Drilling Rig Tally Declines: Here's What it Means

In its weekly release, Baker Hughes Company BKR stated that the U.S. rig count was lower than the prior week’s figure. The rotary rig count, issued by BKR, is usually published in major newspapers and trade publications.

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. The number of active rigs and its comparison with the week-ago figure indicates the demand trajectory for the company’s oilfield services from exploration and production companies.

Rig Count Data in Detail

Total U.S. Rig Count Declines: The number of rigs engaged in the exploration and production of oil and natural gas in the United States was 600 in the week ended May 24, lower than theweek-ago count of 604. The current national rig count also declined from the year-ago level of 711, reflecting the fact that there has been a slowdown in drilling activities. Some analysts see this downside as a sign of increased efficiency among shale producers, who may need fewer rigs. However, there are doubts among a few about whether certain producers have sufficient promising land for drilling.

Onshore rigs in the week that ended on May 24 totaled 579, lower than the prior week's count of 584. In offshore resources, 21 rigs were operating, which, however, increased from the week-ago count of 20.

U.S. Oil Rig Count Flat: The oil rig count was 497 in the week ended May 24, flat with the week-ago figure. The current number of oil rigs — far from the peak of 1,609 attained in October 2014 — is, however, down from the year-ago figure of 570.

U.S. Natural Gas Rig Count Falls: The natural gas rig count of 99 was lower than the week-ago figure of 103. The count of rigs exploring the commodity was also below the year-ago week’s tally of 137. Per the latest report, the number of natural gas-directed rigs is almost 93.8% lower than the all-time high of 1,606 recorded in 2008. 

Rig Count by Type: The number of vertical drilling rigs totaled 20 units, higher than the week-ago count of 18 units. The horizontal/directional rig count (encompassing new drilling technology with the ability to drill and extract gas from dense rock formations, also known as shale formations) of 580 was lower than the prior-week level of 586.

Rig Count in the Most Prolific Basin

Permian — the most prolific basin in the United States — recorded a weekly oil and gas rig count of 312, in line with the week-ago figure. The count is below the prior-year level of 350.

Outlook

The West Texas Intermediate crude price is trading higher than the $75-per-barrel mark. Although the commodity pricing scenario is favorable for exploration and production operations, there has been a slowdown in drilling activities, which may continue as upstream players are prioritizing stockholder returns rather than boosting output.

Amid the backdrop, investors seeking medium to long-term gains may keep an eye on energy stocks like Diamondback Energy, Inc. FANG and Matador Resources Company MTDR.

Diamondback Energy, a leading pure-play Permian operator, reported ongoing enhancements in the average productivity per well in the Midland Basin. The exploration and production company expects to maintain growth in production volumes, benefiting from favorable commodity pricing conditions. FANG, carrying a Zacks Rank #3 (Hold), also has an investment-grade balance sheet. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Matador Resources has a strong presence in the oil-rich core acres of the Wolfcamp and Bone Spring plays in the Delaware Basin. Promising oil prices are likely to aid it in increasing production volumes. The Zacks #3 Ranked Matador is expecting oil production growth of 23% this year.

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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.

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