In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (BHI - Analyst Report) reported a rise in the U.S. rig count (number of rigs searching for oil and gas in the country). This is the third consecutive rise after a 6-month fall. This upside can be traced back to an increase in the tally of oil-directed rigs for the first time this year after 29 consecutive weeks of decline.
Taking cues from here, 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 $52 per barrel.
Analysis of the Data
Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 863 for the week ended Jul 10, 2015. This was up by one from the previous week’s rig count.
Following the latest rise, the current nationwide rig count is still less than half the prior-year level of 1,875. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ended Aug 29 and Sep 12.
Rigs engaged in land operations were down by 1 from the previous week at 827. Inland waters’ activity was flat at 5 rigs while offshore drilling was up by 2 to 31 units.
Natural Gas Rig Count: The count decreased by 1 to 217. 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 almost 80% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 311 active natural gas rigs.
Oil Rig Count: The count, which rocketed to the highest figure of 1,609 in Oct 2014 since Baker Hughes started breaking up oil and natural gas rig counts in 1987, rose by 5 to 645. However, the current tally is still on the low end of the range in more than four and a half years and well below the previous year’s rig count of 1,563.
Miscellaneous Rig Count: The count (primarily drilling for geothermal energy) decreased by 2 from the previous week at 1.
Rig Count by Type: The number of vertical drilling rigs were up by 13 to 121, 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 12 to 742.
Gulf of Mexico (GoM): The GoM rig count was up by 2 to 31.
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 - Analyst Report), Schlumberger Ltd. (SLB - Analyst Report) and Weatherford International plc (WFT - Analyst Report).
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