In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (BHI - Analyst Report) reported a dip in the U.S. rig count (number of rigs searching for oil and gas in the country). This fall can be attributed to a decrease in the tally of oil-directed rigs, partially offset by higher natural gas rig count.
The Baker Hughes’ data, issued since 1944, acts as an important yardstick for drilling contractors like Transocean Ltd. (RIG - Analyst Report), Diamond Offshore Drilling Inc. (DO - Analyst Report), Ensco plc (ESV - Analyst Report), etc. in gauging the overall business environment of the oil and gas industry.
Analysis of the Data
Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 1,748 for the week ended Jun 28, 2013. This was down by 11 from the previous week’s rig count and indicates the third decrease in 4 weeks.
Despite this, the current nationwide rig count is almost double the lowest level reached in recent years (876 in the week ended Jun 12, 2009), though it is way below the prior-year level of 1,959. 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 descended by 12 to 1,670, inland waters activity was down by 1 to 22 rigs, while offshore drilling increased by 2 to 56 units.
Natural Gas Rig Count: The natural gas rig count – which recently slumped to its lowest point since Jun 1995 – increased for the first time in 6 weeks to 353 (a gain of 4 rigs from the previous week). Despite the weekly improvement, the number of gas-directed rigs is down by 56% from its 2012 peak of 811. In fact, the current natural gas rig count remains 78% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 534 active natural gas rigs.
Oil Rig Count: The oil rig count – that rocketed to a 25-year high of 1,432 in Aug last year – fell by 15 to 1,390 and is currently below the previous year’s rig count of 1,421. Nevertheless, it has recovered strongly from a low of 179 in Jun 2009, rising 7.8 times.
Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 5 remained unchanged from the previous week.
Rig Count by Type: The number of vertical drilling rigs rose by 3 to 441, 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 14 to 1,307. In particular, horizontal rig units – that reached an all-time high of 1,193 in May 2012 – decreased by 12 from the last week’s level to 1,067.
Zacks Rank: As of now, Transocean, Diamond Offshore and Ensco are all Zacks Rank #3 (Hold) stocks, implying that these are expected to perform in line with the broader U.S. equity market over the next one to three months.