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Texas & North Dakota Witness Fall in Onshore Drilling Rigs

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In its weekly release, Baker Hughes (BHGE - Free Report) , a GE company reported a decline in U.S. rig count.

About 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 services 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) , Diamond Offshore Drilling, Inc. (DO - Free Report) and Transocean Ltd. (RIG - Free Report) .

Details

Weekly Summary: Rigs engaged in the exploration and production of oil and natural gas in the United States totaled 1047 in the week ended Jun 29, down from 1052 in the previous week. This marked a decline in rig count for three weeks in a row.  

Despite rig count slipping to an all-time low of 404 in May 2016, it has been rising rapidly in U.S. shale resources. The current national rig count is considerably higher than the prior-year level of 940.

For the week under review, the fall in rig count can be only attributed to reduced onshore operations. The number of onshore rigs totaled 1024, down from 1032. However, the tally for offshore rigs was recorded at 19, up from the prior week’s count of 18. Also, the number of rigs operating in the inland waters was four last week, higher than two for the week ended Jun 22.  

Oil Rig Count: Oil rig count was 858, down from 862 for the week ended Jun 22, marking a decline for two straight weeks.

However, the current tally, though far from the peak of 1,609 attained in October 2014, is significantly higher than last year’s 756.  

Natural Gas Rig Count: The natural gas rig count of 187 lags 188 for the week ended Jun 22. Notably, the tally for gas rigs fell for three consecutive weeks. Per the recent report, the number of natural gas-directed rigs is 88.4%, below the all-time high of 1,606 in 2008.  

However, like oil, the count of rigs exploring gas is above the year-ago tally of 184.

Rig Count by Type: The number of vertical drilling rigs totaled 56 units, down from the prior week tally of 60. 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) fell by one unit to 991.

Gulf of Mexico (GoM): The GoM rig count is 18 units, of which 15 were oil-directed. The count is in line with the week ended Jun 22.

Conclusion

The number of rigs exploring in the United States declined primarily due to the removal of three onshore rigs from Texas and two from North Dakota.  

West Texas Intermediate (WTI) crude is again approaching the $75-a-barrel psychological mark. Although the pricing scenario of oil is favorable for drillers, the production possibilities in the domestic shale plays — especially the Permian — remain dull owing to the pipeline bottleneck problem. In other words, the bottleneck in transportation capacity and labor shortage have made Permian operations expensive.

Despite the unfavorable business scenario, investors may bet on a few oil and gas explorers. However, picking winning stocks may be a daunting task.

This is where our VGM Score comes in handy. Here, V stands for Value, G for Growth and M for Momentum, and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.

We have narrowed down our search to the following stocks — Northern Oil and Gas, Inc. (NOG - Free Report) and Whiting Petroleum Corporation (WLL - Free Report) . The stocks carry a VGM Score of B and sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Northern Oil and Gas is projected to post earnings growth of 157.1% in 2018.

Whiting Petroleum has surpassed the Zacks Consensus Estimate in all of the last four quarters.

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