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Oil Drilling Rig Count Continues to Rise in Permian Basin

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In its weekly release, Houston-based oilfield services player Baker Hughes, a GE company (BHGE), reported an increase in total rig count in the United States.

Details on Rig Count

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

Change in Baker Hughes’ rotary rig count hampers demand for energy services like drilling, completion and production provided by the likes of Halliburton Company (HAL - Free Report) , Schlumberger (SLB - Free Report) , Weatherford International (WFT - Free Report) , Diamond Offshore Drilling (DO - Free Report) and Transocean (RIG - Free Report) .

Details

Weekly Summary: Rigs engaged in the exploration and production of oil and natural gas in the United States totaled 947 in the week ended Jan 26 — higher than the prior week’s 936. This marked an increase in rig count after the tally fell for the week ended Jan 19.

Since it slipped to an all-time low of 404 in May 2016, rig count has been rising rapidly in U.S. shale resources. Punctuated by a few pauses, the current nationwide rig count is considerably higher than the prior-year level of 712.  

For the week in discussion, the rise in rig count can be attributed to increased onshore operations – the tally rose from 916 to 929. The tally for inland waters was 1, in line with the count for the week ended Jan 19. However, the number of offshore rigs were 17, lower than 19.

Oil Rig Count: Oil rig count of 759 jumped from 747 recorded for the week ended Jan 19. This marked an increase after the domestic plays witnessed the removal of five rigs through the week ended Jan 19.

Moreover, the current tally, though far from the peak of 1,609 attained in October 2014, is significantly higher than the previous year’s count of 566.

Natural Gas Rig Count: The natural gas rig count of 188 was down from 189 for the week ended Jan 19.

However, like oil, the count of rigs for gas exploration sits comfortably above the year-ago tally of 145. Per the most recent report, the number of natural gas-directed rigs is 88.3%, below the all-time high of 1,606 achieved in late summer 2008.

Rig Count by Type: The number of vertical drilling rigs of 66 units jumped from 57 for the week ended Jan 19. Moreover, 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) increased by two units to 881.

Gulf of Mexico (GoM): The GoM rig count is 17 units — 15 of which were oil-directed — down from 19 for the week ended Jan 19.

Conclusion

The number of rigs exploring oil surged, while the count for natural gas decreased. Overall, the total tally of rigs in the United States jumped, courtesy of the addition of 18 oil rigs in the Permian basin. In the basin, the number of oil rigs has been rising for four weeks in a row. Four rigs were added in the Marcellus shale play.              

Crude is trading above the $65-per-barrel psychological mark, which might lead to ramped up activities by oil drillers in domestic shale plays. Energy stocks that should make valuable additions to your portfolio are Cabot Oil & Gas (COG - Free Report) and EOG Resources (EOG - Free Report) . Cabot sports a Zacks Rank #1 (Strong Buy), while EOG Resources carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  

Headquartered in Houston, TX, Cabot is primarily engaged in exploration and development activities. We expect the company to see year-over-year earnings growth of more than 352.4% in 2017.

Headquartered in Houston, TX, EOG Resources is also an upstream energy player. The company is likely to witness year-over-year earnings growth of 159% in 2017.

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