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In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (BHI - Analyst Report) reported no change sequentially in the U.S. rig count (number of rigs searching for oil and gas in the country).

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 1,777 for the week ended Jan 24, 2014. This was flat with 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) and is above the prior-year level of 1,753. 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 1 from last week to 1,701, inland waters activity remained steady at 20 units, while offshore drilling decreased by 1 to 56, respectively.

Natural Gas Rig Count: The natural gas rig count – which last year slumped to its lowest point since Jun 1995 – decreased to 356 (a loss of 9 rigs from the previous week). Further subdued by the weekly fall, the number of gas-directed rigs is down by 56% from its recent peak of 811, achieved in 2012.

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 434 active natural gas rigs.

Oil Rig Count: The oil rig count – that rocketed to a 25-year high of 1,432 in Aug 2012 – jumped by 8 to 1,416. It has recovered strongly from a low of 179 in Jun 2009, rising 7.9 times. The current tally is also above the previous year’s rig count of 1,315.

Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 5 rose by 1 from the previous week.

Rig Count by Type: The number of vertical drilling rigs rose by 11 to 396, 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 11 to 1,381.

Gulf of Mexico (GoM): The GoM rig count rose by 1 from its week-ago levels to 56.

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-caps like Halliburton Co. (HAL - Analyst Report) and Schlumberger Ltd. (SLB - Analyst Report). However, our preferred pick in this group is Helix Energy Solutions Group Inc. (HLX - Snapshot Report). The Houston, Texas-based firm – carrying a Zacks Rank #2 (Buy) – has a solid secular growth story with potential to rise from the current level.

 

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