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 can be primarily attributed to an increase in the tally of 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 1,913 for the week ended Aug 15, 2014. This was up by 5 from the previous week’s rig count and indicates the fourth 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) and is well above the prior-year level of 1,791. 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 9 to 1,841, inland waters activity was down by 4 to 10 rigs, while offshore drilling remained steady at 62 units.
Natural Gas Rig Count: The natural gas rig count – which in mid-June slumped to its lowest point since May 1993 – increased for the second successive week to 321 (a gain of 5 rigs from the previous week). Despite the weekly growth, the number of gas-directed rigs is down by 60% from its recent peak of 811, achieved in 2012.
In fact, the current natural gas rig count remains 80% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 388 active natural gas rigs.
Oil Rig Count: The oil rig count was up by 1 to 1,589. The current tally – the highest since Baker Hughes started breaking up oil and natural gas rig counts in 1987 – is way above the previous year’s rig count of 1,397. It has recovered strongly from a low of 179 in June 2009, rising 8.9 times.
Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 3 was down by 1 from the previous week.
Rig Count by Type: The number of vertical drilling rigs fell by 10 to 368, 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 15 to 1,545. However, horizontal rig units increased by 12 from the last week’s level to reach an all-time high of 1,329.
Gulf of Mexico (GoM): The GoM rig count remained flat at 60. The number of oil drilling rigs improved by 1 to 44, offset by a unit decrease in gas rigs to 16.
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 Basic Energy Services Inc. (BAS - Snapshot Report). The Fort Worth, TX-based firm – carrying a Zacks Rank #2 (Buy) – has a solid secular growth story with potential to rise from the current level.