In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (BHI) reported a fall in the U.S. rig count (number of rigs searching for oil and gas in the country). This can be traced back to a decrease 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 1,857 for the week ended May 23, 2014. This was down by 4 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 above the prior-year level of 1,762. 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 dropped by 8 to 1,783, offshore drilling was up by 3 to 60 rigs, while inland waters activity increased by 1 to 14 units.
Natural Gas Rig Count: The natural gas rig count – which slumped last month to its lowest point since May 1993 – decreased to 325 (1 rig less than the previous week). Despite the weekly growth, the number of gas-directed rigs is down by 60% from its recent peak of 811, achieved 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 354 active natural gas rigs.
Oil Rig Count: The oil rig count – that rocketed to a 27-year high of 1,534 in Apr 2014 – was down by 3 over the past week at 1,531. It has recovered strongly from a low of 179 in Jun 2009, rising 8.6 times. The current tally is also above the previous year’s rig count of 1,402.
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 3 to 409, 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 7 to 1,448. In particular, horizontal rig units decreased by 5 from last week’s level to reach 1,243.
Gulf of Mexico (GoM): The GoM rig count of 58 was up by 2.
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 Flotek Industries Inc. (FTK). The Houston, TX-based firm – sporting a Zacks Rank #1 (Strong Buy) – has a solid secular growth story with potential to rise significantly from the current level.
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