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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) – the eleventh increase in 13 weeks. This can be attributed to addition in the tally of both oil and gas-directed rigs.

Analysis of the Data

Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 511 for the week ended Sep 23, 2016. This was up by 5 from the previous week’s rig count and resumes the trend of recent increases that has only been snapped twice since Jun. Rig counts have generally been rising during the last three months since plunging to an all-time low of 404 in May, with the addition of a flood of new units.

Despite the steady climb, the current nationwide rig count is considerably lower than the prior-year level of 838. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ending Aug 29 and Sep 12.

For the week under review, units engaged in land operations – which rose by 6 to 488 – were the primary reason for the gain in rig count. Meanwhile, inland waters activity was down by 1 to 3 rigs, while offshore drilling remained steady at 20 units.

Oil Rig Count: The oil rig count – that bottomed at 316 in May 2016 – improved further (by 2) to 418. In fact, the number of active domestic oil rigs have gone up in twelve of the last 13 weeks. As a result of this sustained gain, the current tally is now the highest in 7 months. Nevertheless, they are well below the previous year’s rig count of 641 and only a fourth of the peak of 1,609 in Oct 2014.

Oils-Energy Sector Price Index


Oils-Energy Sector Price Index

Natural Gas Rig Count: The natural gas rig count – which last month plunged to their lowest level on record – increased for the third time in 4 weeks to 92 (a gain of 3 rigs from the previous week). Still, as per the most recent report, the number of natural gas-directed rigs are languishing 94% below the all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 197 active natural gas rigs.

Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 1 remained unchanged from the previous week.

Rig Count by Type: The number of vertical drilling rigs declined by 4 to 60, 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 9 to 451. In particular, horizontal rig units jumped by 8 from last week’s level to 402 – the highest since Feb.

Gulf of Mexico (GoM): The GoM rig count was stood flat at 20 as the number of oil and natural gas drilling rigs stayed put at 19 and 1, respectively.


Key Barometer of Drilling Activity:The Baker Hughes data, issued since 1944 at the end of every week, acts as an important yardstick for energy service providers in gauging the overall business environment of the oil and gas industry.

This generates considerable excitement among energy investors and has long been deployed to help predict future oil and gas production. When number of rigs decline, fewer wells are drilled. This means less new oil and gas are discovered, and ultimately production slows down.

As a result, an increase or decrease in the Baker Hughes rotary rig count heavily weighs on the demand for energy services – drilling, completion, production, etc. – provided by companies that include names like Halliburton Co. (HAL - Analyst Report) , Schlumberger Ltd. (SLB - Analyst Report) , Weatherford International plc (WFT - Analyst Report) , Diamond Offshore Drilling Inc. (DO - Analyst Report) , and Transocean Ltd. (RIG - Analyst Report) .

However, with rig count still remaining relatively low and activity levels tepid, buying any of the aforementioned stocks at this time would present significant risks. In case you are looking for energy names for your portfolio, one could opt for Rice Midstream Partners L.P. (RMP - Snapshot Report) . It has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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