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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 oil-directed rigs, partially offset by an increase in natural gas and miscellaneous rig counts.

The Baker Hughes rig count, issued since 1944, acts as an important yardstick for drilling contractors like Transocean Inc. (RIG - Analyst Report), Diamond Offshore (DO - Analyst Report), Noble Corp. (NE - Analyst Report), Nabors Industries (NBR - Analyst Report), Patterson-UTI Energy (PTEN - Analyst Report), Helmerich & Payne (HP - Analyst Report), etc. 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 1,774 for the week ended December 21, 2012. This was down by 25 from the previous week’s rig count and indicates the fourth decrease in as many weeks.

Despite this, the current nationwide rig count is more than double than that of the 6-year low of 876 (in the week ended June 12, 2009), though it is way below the prior-year level of 2,008. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ending August 29 and September 12.

Rigs engaged in land operations descended by 26 to 1,703, inland waters activity nudged down by 1 to 20 units while offshore drilling was up by 2 to 51 rigs.

Natural Gas Rig Count: The natural gas rig count – which slumped to a 13-year low in early November – increased for the first time in 4 weeks to 429 (a gain of 13 rigs from the previous week). Despite the weekly improvement, the number of gas-directed rigs is down 54% from its 2011 peak of 936.

In fact, the current natural gas rig count remains 73% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 802 active natural gas rigs.

Oil Rig Count: The oil rig count – which was at a 25-year high of 1,432 in August – plummeted by 41 to 1,340. Nevertheless, the current tally is way above the previous year’s rig count of 1,201. It has recovered strongly from a low of 179 in June 2009, rising almost 7.5 times.

Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 5 was up by 3 from the previous week.

Rig Count by Type: The number of vertical drilling rigs fell by 17 to 487 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 8 to 1,287. However, horizontal rig units – that reached an all-time high of 1,193 in May this year – remained flat at last week’s level of 1,105.

Zacks Rank: Among the companies mentioned above, Diamond Offshore, Noble, Nabors and Patterson-UTI Energy are all Zacks #3 Rank (Hold) stocks, implying that these are expected to perform in line with the broader U.S. equity market over the next one to three months.

However, Baker Hughes retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating, while Helmerich & Payne and Transocean’s Zacks #2 Rank implies that the companies are likely to outperform the broader U.S. equity market over the next one to three months.

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