U.S. Rig Count Drops Sharply as Oil, Gas Drilling Falls - Analyst Blog

In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (BHI) reported a heavy fall in the U.S. rig count (number of rigs searching for oil and gas in the country) – the second such decline in succession.

This can be attributed to cutbacks in the tally of both oil and gas-directed rigs. In particular, oil rig count dropped to the lowest level since May, as crude prices remained below $60 per barrel on plentiful supplies and lackluster demand expectations.

Analysis of the Data

Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 1,875 for the week ended Dec 19, 2014. This was down by 18 from the previous week's rig count and indicates the third decrease in 4 weeks.

Despite this, 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 1,768. 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 15 to 1,805, offshore drilling was down by 2 to 58 rigs, while inland waters activity decreased by 1 to 12 units.

Natural Gas Rig Count: The natural gas rig count decreased for the second time in 4 weeks to 338 (a drop of 8 rigs from the previous week). As per the latest report, the number of natural gas-directed rigs is down 58% from its recent peak of 811, achieved in 2012.

In fact, the current natural gas rig count remains 79% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 372 active natural gas rigs.

Oil Rig Count: The oil rig count that rocketed to 1,609 in Oct, the highest since Baker Hughes started breaking up oil and natural gas rig counts in 1987, dropped by 10 to 1,536. Nevertheless, the current tally is way above the previous year's rig count of 1,395 and has recovered strongly from a low of 179 in June 2009, rising almost 9-fold.

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 decreased by 6 to 324, 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 12 to 1,551. In particular, horizontal rig units decreased by 11 from last week's level to 1,356.

Gulf of Mexico (GoM): The GoM rig count was down by 2 to 56. Oil drilling went up by a unit to 43, while gas rigs decreased from their week-ago level by 3 to 13.

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 heavily weighs 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).