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US Oil Rig Count Falls for the Ninth Week to All-Time Low

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In its weekly release, Houston-based oilfield services company Baker Hughes Inc. reported another record fall in the U.S. rig count (number of rigs searching for oil and gas in the country) from the previous week. The decline stemmed from a lower number of gas-directed rigs. The West Texas Intermediate (WTI) oil futures are currently trading at around $47 per barrel.

Analysis of the Data

Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 404 in the week ended May 20, 2016. This was down by two units from the previous week and touched an all-time low.

The current nationwide rig count is less than half the prior-year level of 885. Notably, the count had peaked at 4,530 in 1981. Inversely, an all-time low was recorded at 488 during 1999. However, this was broken in March and since then the rig count has been touching new lows steadily.

Rigs engaged in land operations were 375 against 382 in the previous week. Inland water activity involved five rigs, up by three from the prior week. Offshore drilling was up by two to 24 units.

Natural Gas Rig Count: The count fell by two from last week to 85. In fact, the current natural gas rig count is almost 80% below the high of 1,606 reached in late summer 2008. In the year-ago period, there were 222 active natural gas rigs.

Oil Rig Count: The count was flat with the previous week at 318. Interestingly, the number had skyrocketed to 1,609 in Oct 2014 – the highest figure to have been reported since Baker Hughes started breaking up oil and natural gas rig counts in 1987. The current tally is well below the previous year’s rig count of 659.

Rig Count by Type: The number of vertical drilling rigs was down by five to 48, while the horizontal/directional rig count (encompassing new drilling technology that can drill and extract gas from dense rock formations, also known as shale formations) was up by three to 356.

Gulf of Mexico (GoM): The GoM rig count rose by two to 23 units.

Conclusion

Key Barometer of Drilling Activity: 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.

An increase or decrease in the Baker Hughes rotary rig count weighs heavily on demand for energy services like drilling, completion and production provided by companies that include large-cap firms such as Halliburton Co. (HAL - Free Report) , Schlumberger Ltd. (SLB - Free Report) and Weatherford International plc .

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