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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 both oil and natural gas-directed rigs.

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 1,778 for the week ended Aug 9, 2013. This was down by 4 from the previous week’s rig count and indicates the first decrease in 6 weeks.

Despite this, 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 1,931. 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 2 to 1,697, inland waters activity was down by 1 to 24 rigs, while offshore drilling decreased by 1 to 57 units.

Natural Gas Rig Count: The natural gas rig count – which recently slumped to its lowest point since Jun 1995 – decreased for the first time in 7 weeks to 386 (a drop of 2 rigs from the previous week). As per the most recent report, the number of gas-directed rigs is down by 52% from its 2012 peak of 811. Moreover, the current natural gas rig count remains 76% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 495 active natural gas rigs.

Oil Rig Count: The oil rig count – that rocketed to a 25-year high of 1,432 a year ago – fell by 3 to 1,385. Nevertheless, it has recovered strongly from a low of 179 in Jun 2009, rising 7.7 times.

Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 7 was up by 1 from the previous week.

Rig Count by Type: The number of vertical drilling rigs jumped by 15 to 447, 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 19 to 1,331. In particular, horizontal rig units – that reached an all-time high of 1,193 in May 2012 – decreased by 8 from the last week’s level to 1,065.

Gulf of Mexico (GoM): The GoM rig count was remained steady at 55. Oil drilling increased to 42 rigs from 41 a week ago, offset by a fall in the number of gas rigs (from 14 to 13).

Conclusion

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 GulfMark Offshore Inc. (GLF - Snapshot Report). The Houston, 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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