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 increase in gas rig count.
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), 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 1,761 for the week ended Feb 22, 2013. This was down by 1 from the previous week’s rig count and indicates the second decrease in 3 weeks.
Despite this, the current nationwide rig count is more than double than that of the lowest level reached in recent years (876 in the week ended June 12, 2009), though it is way below the prior-year level of 1,981. 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 descended by 2 to 1,689, offshore drilling was down by 2 to 53 rigs, while inland waters activity increased by 3 to 19 units.
Natural Gas Rig Count: The natural gas rig count – which slumped to a 13-year low in early Nov 2012 – increased for the first time in 4 weeks to 428 (a gain of 7 rigs from the previous week). Despite the weekly improvement, the number of gas-directed rigs is down by 47% from its 2012 peak of 811. In fact, the current natural gas rig count remains 73% below its all-time high of 1,606 reached in late summer 2008.
Oil Rig Count: The oil rig count – which was at a 25-year high of 1,432 in August last year – fell by 8 to 1,329. Nevertheless, the current tally is way above the previous year’s rig count of 1,265. It has recovered strongly from a low of 179 in June 2009, rising 7.4 times.
Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 4 remained unchanged from the previous week.
Rig Count by Type: The number of vertical drilling rigs fell by 5 to 424 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 4 to 1,337. In particular, horizontal rig units – that reached an all-time high of 1,193 in May 2012 – increased by 1 from the last week’s level to 1,140.
Zacks Rank: As of now, Transocean, Diamond Offshore and Noble are all Zacks Rank #3 (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.