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Total US Drilling Rig Tally Declines: Here's What it Means

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In its weekly release, Baker Hughes Company (BKR - Free Report) stated that the U.S. rig count was lower than the prior week’s figure. The rotary rig count, issued by BKR, is usually published in major newspapers and trade publications.

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. The number of active rigs and its comparison with the week-ago figure indicates the demand trajectory for the company’s oilfield services from exploration and production companies.

Rig Count Data in Detail

Total U.S. Rig Count Declines: The number of rigs engaged in the exploration and production of oil and natural gas in the United States was 594 in the week ended Jun 7, lower than theweek-ago count of 600. The current national rig count also declined from the year-ago level of 695, reflecting the fact that there has been a slowdown in drilling activities. Some analysts see this downside as a sign of increased efficiency among shale producers, who may need fewer rigs. However, there are doubts among a few about whether certain producers have sufficient promising land for drilling.

Onshore rigs in the week that ended on Jun 7 totaled 572, lower than the prior week's count of 578. In offshore resources, 22 rigs were operating, in line with the week-ago count.

U.S. Oil Rig Count Falls: The oil rig count was 492 in the week ended Jun 7, lower than the week-ago figure of 496. The current number of oil rigs — far from the peak of 1,609 attained in October 2014 — was also down from the year-ago figure of 556.

U.S. Natural Gas Rig Count Declines: The natural gas rig count of 98 was lower than the week-ago figure of 100. The count of rigs exploring the commodity was also below the year-ago week’s tally of 135. Per the latest report, the number of natural gas-directed rigs is almost 94% lower than the all-time high of 1,606 recorded in 2008. 

Rig Count by Type: The number of vertical drilling rigs totaled 20 units, in line with the week-ago count. The 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 574 was lower than the prior-week level of 580.

Rig Count in the Most Prolific Basin

Permian — the most prolific basin in the United States — recorded a weekly oil and gas rig count of 310, in line with the week-ago figure but below the prior-year level of 346.

Outlook

The West Texas Intermediate crude price is trading higher than the $75-per-barrel mark. Although the commodity pricing scenario is favorable for exploration and production operations, there has been a slowdown in drilling activities, which may continue as upstream players are prioritizing stockholder returns rather than boosting output.

Amid the backdrop, investors seeking medium to long-term gains may keep an eye on energy stocks like Diamondback Energy, Inc. (FANG - Free Report) and Matador Resources Company (MTDR - Free Report) .

Diamondback Energy, a leading pure-play Permian operator, reported ongoing enhancements in the average productivity per well in the Midland Basin. The exploration and production company expects production volumes to continue growing on favorable commodity pricing conditions. FANG, carrying a Zacks Rank #3 (Hold), also has an investment-grade balance sheet. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Matador Resources has a strong presence in the oil-rich core acres of the Wolfcamp and Bone Spring plays in the Delaware Basin. Promising oil prices are likely to aid it in increasing production volumes. The Zacks #3 Ranked Matador is expecting oil production growth of 23% this year.

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