US Oil Rig Count Falls For The Eighth Week To All-Time Low

In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (NYSE:BHI) reported another record fall in the U.S. rig count (number of rigs searching for oil and gas in the country) from the previous week. The decline stemmed from a lower number of oil-directed rigs. The West Texas Intermediate (WTI) oil futures are currently trading at around $46 per barrel.

Analysis of the Data

Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 406 in the week ended May 13, 2016. This was down by nine units from the previous week and touched an all-time low.

The current nationwide rig count is less than half the prior-year level of 888. Notably, the count had peaked at 4,530 in 1981. Inversely, an all-time low was recorded at 488 during 1999. However, this was broken in March and since then the rig count has been touching new lows steadily.

Rigs engaged in land operations were 382 against 388 in the previous week. Inland water activity involved two rigs, down by one from the prior week. Offshore drilling was down by two to 22 units.

Natural Gas Rig Count: The count rose by one from last week to 87. In fact, the current natural gas rig count is almost 80% below the high of 1,606 in late summer 2008. In the year-ago period, there were 223 active natural gas rigs.

Oil Rig Count: The count fell by 10 from the previous week to 318. Interestingly, the number had skyrocketed to 1,609 in Oct 2014 – the highest figure to have been reported since Baker Hughes started breaking up the oil and natural gas rig counts in 1987. The current tally is well below the previous year’s rig count of 660.

Rig Count by Type: The number of vertical drilling rigs was flat at 53, while the horizontal/directional rig count (encompassing new drilling technology that can drill and extract gas from dense rock formations, also known as shale formations) was down by nine to 353.

Gulf of Mexico (GoM): The GoM rig count fell by two to 21 units.

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 weighs heavily on demand for energy services like drilling, completion and production provided by companies that include large-cap firms such as Halliburton Co. (NYSE:HAL) , Schlumberger Ltd. (NYSE:SLB) and Weatherford International plc (NYSE:WFT) .

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