Drillers Idle 5 Oil Rigs As Explorers Lower Capital Budget

In its weekly release, Houston-based oilfield services Baker Hughes, a GE company (NYSE:BHGE) , reported a decline in rigs searching for crude in the country while rigs for natural gas increased.

Details

Weekly Summary: Rigs engaged in the exploration and production of oil and natural gas in the United States totaled 946 in the week ended Aug 18 – lower than the previous week’s 949. This shows that the total rig count in the country has declined for three weeks in a row.

Since it hit an all-time low of 404 last May, rig count has been rising rapidly in American shale resources. Punctuated by a few pauses, the current nationwide rig count is considerably higher than the prior-year level of 491.

For the week in discussion, the decline in rig count can be attributed to lower onshore and offshore activities. Units engaged in offshore operations decreased slightly to 16 counts from 18 in the prior week while the rig count in the onshore activity fell by one unit.

Oil Rig Count: Oil rig count fell by five to 763. This emphasizes that the rigs exploring for crude has decreased for three times in the last six weeks. However, the current tally, though far off from the peak of 1,609 attained in October 2014, is significantly above the previous year’s count of 406.

Natural Gas Rig Count: The natural gas rig count – which plunged to its lowest last August – inched up by one unit to 182. Like oil, the count of rigs for gas exploration sits comfortably above the year-ago tally of 83. As per the most recent report, the number of natural gas-directed rigs is nearly 89%, below the all-time high of 1,606 achieved in late summer 2008.

Rig Count by Type: The number of vertical drilling rigs fell by six units to 66, 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 three to 880.

Gulf of Mexico (GoM): The GoM rig count went down to 16 units – 14 of which were oil-directed – from 17 counts.

Details of the Weekly Rig Count

Baker Hughes’ data, issued since 1944 at the end of every week, acts as an important yardstick for energy service providers in gauging the overall business environment of the oil and gas industry.

Change in Baker Hughes’ rotary rig count weighs heavily on the demand for energy services – drilling, completion, production, etc. – provided by companies like Halliburton Company (NYSE:HAL) , Schlumberger Limited (NYSE:SLB) , Weatherford International plc (NYSE:WFT) , Diamond Offshore Drilling, Inc. (NYSE:DO) and Transocean Ltd. (NYSE:RIG) .

Conclusion

Although the number of rigs searching for natural gas in the United States inched up from the prior week, the rig exploring for crude slipped. This shows that oil explorers have started lowering capital spending with an aim to combat crude glut.

Two prospective oil stocks that could be included in your portfolio include Range Resources Corporation (NYSE:RRC) and Lonestar Resources US (NASDAQ:LONE) . Both the companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Based in Fort Worth, TX, Range Resources is an independent oil and gas company, engaged in the exploration, development and acquisition of U.S. oil and gas resources. We expect year-over-year earnings growth of almost 1,611.9% for Range Resources in 2017.

Lonestar is expected to witness 79.7% year-over-year earnings growth in 2017.

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