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Williston Basin Witnesses Removal of 4 Oil Drilling Rigs

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In its weekly release, Baker Hughes , a GE company, reported a drop 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 Co. (HAL - Free Report) , Schlumberger Ltd. (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 1044 in the week ended Aug 24, down from 1057 in the previous week. This marked a decline in rig count in five of the last 10 weeks.

Despite the 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 attributed to decreased onshore and offshore operations. The number of onshore rigs totaled 1025, down from 1034. Moreover, the tally for offshore rigs was 18, down from the prior week’s count of 21. Only one rig operated in the inland waters last week, down from two in the week ended Aug 17.  

Oil Rig Count: Oil rig count was 860, down from 869 in the week ended Aug 17, marking a decline in five of the past 10 weeks.

However, the current tally, though far from the peak of 1,609 attained in October 2014, is significantly higher than last year’s 759.   

Natural Gas Rig Count: The natural gas rig count of 182 failed to cross the count of 186 for the week ended Aug 17.

Per the recent report, the number of natural gas-directed rigs is 88.7%, 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 180.

Rig Count by Type: The number of vertical drilling rigs totaled 63 units, down from the prior week tally of 65. 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) slipped by 11 units to 981.

Gulf of Mexico (GoM): The GoM rig count is 16 units, of which 14 were oil-directed. The count is lower than the tally of 19 for the week ended Aug 17.

Conclusion

The number of rigs exploring in the United States plunged primarily due to the withdrawal of four oil rigs from the Williston basin. One gas rig was removed from each of Marcellus and Utica shale plays, while Permian witnessed the removal of one oil rig. The drastic fall in U.S. rig count partly backed the West Texas Intermediate (WTI) crude to continue to surge through the week ending Aug 24.   

It is to be noted that the production possibilities in the U.S. plays — especially the Permian — are getting limited following the pipeline bottleneck problem, discouraging drillers from accumulating rigs.  

However, the commodity pricing scenario is still favorable for drillers given that oil price is approaching the $70-a-barrel psychological mark. The sanctions by the United States on the export of Iranian oil, likely to get implemented on Nov 4, is also backing the crude rally. Hence, we ask investors to consider energy stocks which will make valuable additions to portfolios.

Two such stocks are Denbury Resources Inc. DNR and Northern Oil and Gas, Inc. NOG, with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Denbury surpassed the Zacks Consensus Estimate in each of the last four quarters, the average positive earnings surprise being 162.9%.

We expect Northern Oil’s earnings to grow 250% year over year in 2018.

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