US Gas Rigs Rise As Drillers Return To Shale Plays

In its weekly release, Houston-based oilfield services player Baker Hughes, a GE company (NYSE:BHGE) , reported a rise in natural gas rig count in the United States.

Details

Weekly Summary: Rigs engaged in the exploration and production of oil and natural gas in the United States totaled 944 in the week ended Sep 8 – higher than the prior week’s 943. This shows an increase in total rig count for two weeks in a row after four straight weeks of a decline.

Since it slipped to an all-time low of 404 last May, rig count has been rising rapidly in the U.S. shale resources. Punctuated by a few pauses, the current nationwide rig count is considerably higher than the prior-year level of 508.

For the week in discussion, the rise in rig count can be attributed to increased activity in inland waters.

Rig count in both onshore and offshore operations is in line with the prior week. The respective rig counts for onshore and offshore drilling are 923 and 16.

Oil Rig Count: Oil rig count slipped by three to 756. It is to be noted that the rigs exploring crude has decreased five times in the last eight weeks.

The current tally, though far from the peak of 1,609 attained in October 2014, is significantly above the previous year’s count of 414.

Natural Gas Rig Count: The natural gas rig count – which plunged to its lowest last August – jumped four units to 187. Like oil, the count of rigs for gas exploration sits comfortably above the year-ago tally of 92. 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 rose by seven units to 75, 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 six to 869.

Gulf of Mexico (GoM): The GoM rig count stands at 16 units – 13 of which were oil-directed – in line with the prior count.

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 Ltd. (NYSE:SLB) , Weatherford International plc (NYSE:WFT) , Diamond Offshore Drilling, Inc. (NYSE:DO) and Transocean Ltd. (NYSE:RIG) .

Conclusion

The number of rigs searching for natural gas in the United States increased, while that for oil decreased. Overall, total oil and gas rigs increased as the drillers gathered in the U.S. shale resources. Two rigs were added in each of the respective shale plays of Marcellus, Permian and Haynesville.

We are expecting more rigs to come online as refiners along the gulf coast, hit by Hurricane Harvey, are gradually restarting operations. In other words, more demand for raw crude from the GoM refiners – accounted for more than 45% of domestic oil refining capacity, per The U.S. Energy Information Administration (EIA) – might drive commodity prices and call for more rigs in the oil and gas patches.

Development in this front is likely to prove beneficial for oil and gas exploration and production companies. Two oil stocks that might make valuable additions to your portfolio are Range Resources Corporation (NYSE:RRC) and Lonestar Resources US (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 1,494.9% for Range Resources in 2017.

Headquartered in Fort Worth, TX, Lonestar explores oil and gas resources in the United States. The company is expected to witness 79.7% year-over-year earnings growth in 2017.

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