In its weekly release, Houston-based oilfield services’ company Baker Hughes Inc. BHI reported fall in the U.S. rig count (number of rigs searching for oil and gas in the country) yet again. This marks a record decline and the twenty-fifth one in a row.
This persistent decline can be blamed on cutbacks in the tally of both oil and gas-directed rigs, which saw further reduction and dropped to the lowest level since Sep 2010, in reaction to the steep drop in the commodity’s price since last summer.
Apart from indicating a brake in shale drilling activities, this is seen as a precursor to a slowdown in oil production, leading to a subsequent drop in the commodity’s bloated supply level.
Taking a cue, crude prices recovered substantially after sinking to a 6-year low of under $44-a-barrel in March. The West Texas Intermediate (WTI) oil futures are currently trading at around $60 per barrel.
Analysis of the Data
Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 875 for the week ended May 29, 2015. This was down by 10 from the previous week’s rig count and indicates the lowest level in almost six years.
Following the latest decline, the current nationwide rig count is now less than half of the prior-year level of 1,857. 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 fell by 9 to 844. Inland waters activity was down by 1 to 2 rigs and offshore drilling was flat at 29 units.
Natural Gas Rig Count: The count increased by 3 to 225. As per the most recent report, the number of natural gas-directed rigs is down almost three-fourth from its recent peak of 811 reached in 2012. In fact, the current natural gas rig count remains 86% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 326 active natural gas rigs.
Oil Rig Count: The count which rocketed to 1,609 in Oct 2014, the highest since Baker Hughes started breaking up oil and natural gas rig counts in 1987, dived further (by 13) to 646. As a result, the current tally is now the lowest in more than four and a half years and well below the previous year’s rig count of 1,536.
Miscellaneous Rig Count: The count (primarily drilling for geothermal energy) was unchanged from the previous week at four.
Rig Count by Type: The number of vertical drilling rigs was down by 6 to 111, 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 4 to 764.
Gulf of Mexico (GoM): The GoM rig count was up by 1 to 29.
Conclusion
Key Barometer of Drilling Activity: 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.
An increase or decrease in the Baker Hughes rotary rig count weighs heavily on the demand for energy services – drilling, completion, production, etc. – provided by companies that include large-cap names like Halliburton Co. HAL, Schlumberger Ltd. SLB and Weatherford International plc WFT.
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