U.S. Drilling Rig Count Rises by 9 - Analyst Blog

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 can be attributed to an increase 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 1,866 for the week ended May 30, 2014. This was up by 9 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 1,771. 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 1,792, while both offshore drilling and inland waters activity remained unchanged at 60 and 14 rigs, respectively.

Natural Gas Rig Count: The natural gas rig count – which in April slumped to its lowest point since May 1993 – increased to 326 (a rise of one rig from the previous week). Despite the weekly growth, the number of gas-directed rigs is down 60% from its recent peak of 811, scaled 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 up by 8 from the past week to 1,536. 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 1,410.
Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 4, is flat with the previous week.

Rig Count by Type: The number of vertical drilling rigs fell by 6 to 403, 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 15 to 1,463. In particular, horizontal rig units increased by 8 from last week's level to reach 1,251.

Gulf of Mexico (GoM): The GoM rig count was flat at 58.

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 the potential to rise significantly from the current level.