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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 natural gas-directed rigs, partially offset by lower oil and miscellaneous rig counts.
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 1,759 for the week ended Jul 12, 2013. This was up by 2 from the previous week’s rig count and indicates the second increase in as many 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 1,953. 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 4 to 1,680, offshore drilling was down by 2 to 57 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 third successive week to 362 (a gain of 7 rigs from the previous week). Despite the weekly improvement, the number of gas-directed rigs is down by 55% from its 2012 peak of 811.
In fact, the current natural gas rig count remains 77% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 522 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 4 to 1,391 and is currently below the previous year’s total of 1,427. 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 6 was down by 1 from the previous week.
Rig Count by Type: The number of vertical drilling rigs fell by 2 to 432, 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 4 to 1,327. In particular, horizontal rig units – that reached an all-time high of 1,193 in May 2012 – decreased by 10 from the last week’s level to 1,058.
Gulf of Mexico (GoM): The GoM rig count retreated from its 4-year high level and was down by 2 to 55. Oil drilling decreased to 40 rigs from 43 a week ago, while the number of gas rigs inched up by a unit to 15.
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 Dawson Geophysical Co. (DWSN - Snapshot Report). The Midland, TX-based firm – sporting a Zacks Rank #2 (Buy) – has a solid secular growth story with potential to rise from current level.