In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (BHI) reported a fall in U.S. rig count (number of rigs searching for oil and gas in the country), owing mainly to a fall in the number of natural gas 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 1,922 for the week ended Oct 3, down by 9 from the previous week.
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 1,756. 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 decreased by 8 to 1,850, offshore drilling was down by 1 to 61 rigs, while inland waters activity remained flat at 11 units.
Natural Gas Rig Count: After a slump in mid June to its lowest point since May 1993, the natural gas rig count decreased to 330 (a fall of 8 rigs from the previous week). As per the most recent report, the number of natural gas-directed rigs is down 58% 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 378 active natural gas rigs.
Oil Rig Count: The count was down by 1 to 1,591. The current tally is way above the previous year’s rig count of 1,372. It has recovered strongly from a low of 179 in Jun 2009, rising almost 9 times.
Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 1 remained unchanged from the previous week.
Rig Count by Type: The number of vertical drilling rigs fell by 1 to 372, 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 8 to 1,550. In particular, horizontal rig units decreased by 6 from last week’s level to 1,341.
Gulf of Mexico (GoM): The GoM rig count remained flat at 59.
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 Emerge Energy Services L.P. (EMES). The Southlake, 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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