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 rise can be traced back to an increase in the tally of land-based 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 1,754 for the week ended Nov 8, 2013. This was up by 12 from the previous week’s rig count.
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 below the prior-year level of 1,806. 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 increased by 13 to 1,679, inland waters activity was flat at 17 rigs, while offshore drilling fell by 1 to 58 units.
Natural Gas Rig Count: The natural gas rig count – which, earlier this year, slumped to its lowest point since Jun 1995 – increased to 365 (a gain of 5 rigs from the previous week). Despite the weekly growth, the number of gas-directed rigs is down by 55% from its 2012 peak of 811.
In fact, the current natural gas rig count is 77% below its all-time high of 1,606 reached in late summer 2008. In the corresponding year-ago week, there were 413 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 – rose by 7 to 1,383. 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 6 was flat with the previous week.
Rig Count by Type: The number of vertical drilling rigs rose by 9 to 417, 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) increased by 3 to 1,337. In particular, horizontal rig units – that reached an all-time high of 1,193 in May 2012 – increased by 10 from the last week’s level to 1,114.
Gulf of Mexico (GoM): The GoM rig count decreased by 1 to 56.
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 among others – 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 Emerge Energy Services LP Commo (EMES - Snapshot Report). The Southlake, Texas-based firm – sporting a Zacks Rank #1 (Strong Buy) – has a solid secular growth story with the potential to rise from the current level.