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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 upside can be mainly attributed to an increase in the tally of oil-directed rigs, partially offset by lower natural gas rig count that fell to a new 18- year low.

The Baker Hughes’ data, issued since 1944, acts as an important yardstick for drilling contractors like Transocean Ltd. (RIG - Analyst Report) , Diamond Offshore Drilling Inc. (DO - Analyst Report) , Ensco plc (ESV - 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 1,769 for the week ended May 10, 2013. This was up by 5 from the previous week’s rig count and indicates the second 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), though it is way below the prior-year level of 1,974. 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 6 to 1,696, offshore drilling was down by 1 to 50 rigs, while inland waters activity remained steady at 23 units.

Natural Gas Rig Count: Natural gas rig count decreased for the third successive week to 350 (a drop of 4 rigs from the previous week). As per the most recent report, the number of natural gas-directed rigs is at their lowest level since Jun 16, 1995 and is down 57% from its 2012 peak of 811.

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 598 active natural gas rigs.

Oil Rig Count: The oil rig count – that rocketed to a 25-year high of 1,432 in Aug last year – jumped by 9 to 1,412. The current tally is well above the previous year’s rig count of 1,372. It has recovered strongly from a low of 179 in Jun 2009, rising 7.9 times.

Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 7 remained unchanged from the previous week.

Rig Count by Type: The number of vertical drilling rigs fell by 3 to 472, 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 8 to 1,297. In particular, horizontal rig units – that reached an all-time high of 1,193 in May 2012 – rose by 7 from the last week’s level to 1,099.

Zacks Rank: As of now, Transocean, Diamond Offshore and Ensco 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.
 

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