In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (BHI) reported a rise in the U.S. rig count (number of rigs searching for oil and gas in the country). This upside can be traced back to an increase 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 1,777 for the week ended Jan 17, 2014. This was up by 23 from the previous week’s rig count and indicates the second increase in as many weeks.
The current nationwide rig count is more than double the lowest level reached in recent years (876 in the week ended Jun 12, 2009) and is above the prior-year level of 1,749. 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 ascended by 23 to 1,700, while inland waters activity and offshore drilling remained steady at 20 to 57 units, respectively.
Natural Gas Rig Count: The natural gas rig count – which last year slumped to its lowest point since Jun 1995 – increased for the first time in 3 weeks to 365 (a gain of 8 rigs from the previous week). Despite the weekly growth, the number of gas-directed rigs is down by 55% from its recent peak of 811, achieved in 2012.
In fact, 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 429 active natural gas rigs.
Oil Rig Count: The oil rig count – that rocketed to a 25-year high of 1,432 in Aug 2012 – jumped by 15 to 1,408. It has recovered strongly from a low of 179 in Jun 2009, rising 7.9 times. The current tally is also above the previous year’s rig count of 1,316.
Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 4 remained unchanged from the previous week.
Rig Count by Type: The number of vertical drilling rigs rose by 13 to 385, 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 10 to 1,392. In particular, horizontal rig units – that reached an all-time high of 1,193 in May 2012 – increased by 15 from the last week’s level to 1,173.
Gulf of Mexico (GoM): The GoM rig count was remained steady at 55. Both oil and gas rigs were unchanged from their week-ago levels of 40 and 15, 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 Helix Energy Solutions Group Inc. (HLX). The Houston, Texas-based firm – sporting a Zacks Rank #2 (Buy) – has a solid secular growth story with potential to rise from the current level.
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