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In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (BHI - Analyst Report) reported a rise in the U.S. rig count (number of rigs searching for oil and gas in the country). This upside can be attributed to an increase in the tally of both oil and natural gas-directed rigs. In particular, rigs working in the U.S. Gulf of Mexico (GoM) jumped to its highest level in 4 years.

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.

Analysis of the Data

Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 1,757 for the week ended Jul 3, 2013 – a period curtailed by the Independence Day. This was up by 9 from the previous week’s rig count and indicates the first increase in 3 weeks.

The current nationwide rig count is more than 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 1,965. 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 ascended by 6 to 1,676, offshore drilling was up by 3 to 59 rigs, while inland waters activity remained steady at 22 units.

Natural Gas Rig Count: The natural gas rig count – which recently slumped to its lowest point since Jun 1995 – increased for the second successive week to 355 (a gain of 2 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 542 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 – jumped by 5 to 1,395. It has recovered strongly from a low of 179 in Jun 2009, rising 7.8 times. However, the current tally is below the previous year’s rig count of 1,419.

Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 7 was up by 2 from the previous week.

Rig Count by Type: The number of vertical drilling rigs fell by 7 to 434, 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 16 to 1,323. In particular, horizontal rig units – that reached an all-time high of 1,193 in May 2012 – edged up by 1 from the last week’s level to 1,068.

Gulf of Mexico (GoM): The GoM rig count was up by 3 to 57, the highest level since Feb 2009. Oil drilling increased to 43 rigs from 40 a week ago, while gas rigs remained steady at 14.

A Key Barometer of Drilling Activity: 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 large-cap names like Halliburton Co. (HAL - Analyst Report) and Schlumberger Ltd. (SLB - Analyst Report). However, our preferred pick in this group is Newpark Resources Inc. (NR - Snapshot Report). The Woodlands, TX-based firm – sporting a Zacks Rank #2 (Buy) – has a solid secular growth story with potential to rise from current level.

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