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Here's Why US Oil & Gas Drilling Rigs Tally Has Dropped

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In its weekly release, Baker Hughes Company (BKR - Free Report) reported a decrease in the U.S. rig count.

More on the Rig Count

Baker Hughes’ data, issued at the end of every week since 1944, helps energy service providers gauge the overall business environment of the oil and gas industry.

A change in the Houston-based oilfield service player’s rotary rig count impacts demand for energy services like drilling completion and production, provided by the likes of Halliburton Company (HAL - Free Report) , Schlumberger Limited (SLB - Free Report) and Transocean Ltd. (RIG - Free Report) .

Details

Total US Rig Count Decreases: The count of rigs engaged in the exploration and production of oil and natural gas in the United States was 456 for the week through Jun 4compared with the prior-week figure of 457. Thus, the tally declined after increasing for five consecutive weeks. It seems that rather than pouring money solely into drilling activities, upstream firms are focusing more on cashflows, shareholder returns and lowering debt load. Notably, the current national rig count is, however, higher than the year-ago level of 284.

The number of onshore rigs for the week ended Jun 4 totaled 442, in line with the prior-week count. In offshore resources, however, 13 rigs were operating, lower than the prior-week count of 14.

US Oil Rig Count Flat: Oil rig count was 359 for the week ended Jun 4, in line with the prior-week count. Investors should also note that the current tally of oil rigs — far from the peak of 1,609 attained in October 2014 — is higher than the year-ago figure of 206.

Natural Gas Rig Count Decreases in US: Natural gas rig count of 97 fell from the prior-week count of 98. But, the count of rigs exploring the commodity was higher than the prior-year week’s 76. Per the latest report, the number of natural gas-directed rigs is almost 93.9% below the all-time high of 1,606 recorded in 2008.

Rig Count by Type: The number of vertical drilling rigs totaled 16 units, higher than the prior-week count of 15. Notably, horizontal/directional rig count (encompassing new drilling technology with the ability to drill and extract gas from dense rock formations, also known as shale formations) of 440 compared unfavorably with the prior-week level of 442.

Gulf of Mexico (GoM) Rig Count Decreases: GoM rig count was 13 units, of which all were oil-directed. The count was lower than the prior-week tally of 14.

Rig Count in Prolific Basin

Permian — the most prolific basin in the United States — recorded a weekly oil rig tally of 232, in line with the prior-week count. Importantly, the tally for oil drilling rigs in the basin increased in four of the prior five weeks.

Outlook

The price of West Texas Intermediate crude, trading at more than $69 per barrel mark, has improved drastically from the pandemic-hit April last year, when oil was in the negative territory. With coronavirus vaccines being rolled out at a massive scale, the demand for fuel will possibly improve further. Although this has paved the way for further rig additions, analysts are not expecting explorers to add significant rigs in the coming weeks.

It is to be noted that with price of crude improving since late last year, some of the explorers and producers decided to increase capital spending. However, the incremental expenses were not significant and therefore, analysts are expecting the extra spending to possibly replace natural declines in operating wells rather than increase production. This further strengthens the view that upstream players are focusing mainly on stockholder returns rather than boosting output, which will slow down the growth in drilling.

Meanwhile, investors may keep an eye on two energy stocks that are expected to benefit if oil price continues to stay healthy — Whiting Petroleum Corporation (WLL - Free Report) and Continental Resources, Inc. (CLR - Free Report) . Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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