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 was due mainly to increase in the tally of oil -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 1,925 for the week ended Sep 5, 2014. This was up by 11 from the previous week’s rig count.
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 well above the prior-year level of 1,767. 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 9 to 1,847, inland waters activity rose by 3 to 13 rigs, while offshore drilling fell by 1 to 65 units.
Natural Gas Rig Count: The natural gas rig count – which slumped in mid June to its lowest point since May 1993 – increased for the fifth successive week to 340 (a rise of 2 rigs from the previous week). Despite the weekly growth, the number of gas-directed rigs is down by almost 60% from its recent peak of 811, reached in 2012.
In fact, the current natural gas rig count remains 80% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 394 active natural gas rigs.
Oil Rig Count: The oil rig count was up by 9 to 1,584. The current tally is way above the previous year’s rig count of 1,365. It has recovered strongly from a low of 179 in June 2009, rising almost 8.9 times.
Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) remained flat at one with the previous week.
Rig Count by Type: The number of vertical drilling rigs was down by 6 to 368, 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 17 to 1,557.
Gulf of Mexico (GoM): The GoM rig count fell by 1 to 62 units.
Conclusion
A Key Barometer of Drilling Activity: An increase or decrease in the Baker Hughes rotary rig count heavily weighs upon 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 Basic Energy Services Inc. (BAS). The Fort Worth, TX-based firm – carrying a Zacks Rank #2 (Buy) – has a solid secular growth story with the potential to rise from the current level.
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