U.S. Rig Count Resumes Increase On Improved Gas Drilling

In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (NYSE:BHI) reported a rise in the U.S. rig count (number of rigs searching for oil and gas in the country) – the ninth increase in 10 weeks.

Gas Rig Count Drives the Surge

This can be primarily attributed to gains in the tally of natural gas-directed rigs, which recovered from the lowest level since at least 1987 following the commodity’s recent price strength.

Natural gas has rebounded strongly (by 75%) since hitting 17-year lows of around $1.6 per MMBtu in the first quarter as successive below-average builds on the back of robust power sector consumption keep on cutting into the year-over-year storage surplus.

Analysis of the Data

Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 497 for the week ended Sep 2, 2016. This was up by 8 from the previous week’s rig count and resumes the trend of recent increases that was only snapped last week when the tally did not rise for the first time since Jun.

Despite the steady climb, the current nationwide rig count is considerably lower than the prior-year level of 864. 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 – which rose by 14 to 482 – were the primary reason for the weekly rig count rally. This was partly offset by lower offshore activity, where rig count was down by 7 to 10. Meanwhile, inland waters drilling was up by 1 to 5 units.

Oil Rig Count: The oil rig count – that bottomed at 316 in May 2016 – improved further (by 1) to 407. In fact, the number of active domestic oil rigs have gone up in nine of the last 10 weeks. As a result of this sustained gain, the current tally is now the highest in 7 months. Nevertheless, they are well below the previous year’s rig count of 662 and only a fourth of the peak of 1,609 in Oct 2014.

Natural Gas Rig Count: The natural gas rig count – which last week plunged to their lowest level on record – increased for just the second time in 7 weeks to 88 (a jump of 7 rig from the previous week). As per the most recent report, the number of natural gas-directed rigs are languishing 95% below the all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 202 active natural gas rigs.

Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 2 remained unchanged from the previous week.

Rig Count by Type: The number of vertical drilling rigs declined by 2 to 60, 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 10 to 437. In particular, horizontal rig units jumped by 16 from last week’s level to 395 – the highest since February.

Gulf of Mexico (GoM): The GoM rig count was down by 7 to 10. The number of oil drilling rigs decreased by 6 to 9, while gas rigs declined by a unit to just one.

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 names like Halliburton Co. (NYSE:HAL) , Schlumberger Ltd. (NYSE:SLB) , Weatherford International plc (NYSE:WFT) , Diamond Offshore Drilling Inc. (NYSE:DO) , and Transocean Ltd. (NYSE:RIG) .

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