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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 fourteenth increase in 16 weeks. This can be attributed to addition in the tally of both oil and gas-directed rigs as the commodities’ prices tick up.

Analysis of the Data

Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 539 for the week ended Oct 14, 2016. This was up by 15 from the previous week’s rig count and carries on with the trend of recent increases that has only been snapped twice since Jun. Rig counts have generally been rising during the last four 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 787. 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 13 to 513 – were the primary reason for the gain in rig count. Meanwhile, inland waters activity was up by 2 to 3 rigs, while offshore drilling remained steady at 23 units.

Oil Rig Count: The oil rig count – that bottomed at 316 in May 2016 – improved further (by 4) to 432. In fact, the number of active domestic oil rigs have gone up in fifteen of the last 16 weeks. As a result of this sustained gain, the current tally is now the highest in 8 months. Nevertheless, they are well below the previous year’s rig count of 595 and only about 27% of the peak of 1,609 in Oct 2014.

Sector Price Index


Sector Price Index

Natural Gas Rig Count: The natural gas rig count – which plunged to their lowest level on record in Aug – increased for the fifth time in 7 weeks to 105 (a gain of 11 rigs from the previous week). Still, as per the most recent report, the number of natural gas-directed rigs are languishing 93% below the all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 192 active natural gas rigs.

Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 2 remained unchanged from the previous week.

Rig Count by Type: The number of vertical drilling rigs declined by 4 to 57, 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 19 to 482. In particular, horizontal rig units jumped by 18 from last week’s level to 431 – the highest since Feb.

Gulf of Mexico (GoM): The GoM rig count was flat at 22 – all of these oil-directed.


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 the number of rigs declines, 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 CONE Midstream Partners L.P. (CNNX - Snapshot Report) . It has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in Canonsburg, PA, CONE Midstream Partners is a master limited partnership focused on natural gas and condensate gathering in the Marcellus Shale in Pennsylvania, Ohio and West Virginia. It surpassed estimates in each of the last four quarters at an average rate of 19.38%.

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