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Marcellus Witnesses Removal of 2 Natural Gas Drilling Rigs

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

More on 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 players’ 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

Total U.S. Rig Count Decreases:  Rigs engaged in the exploration and production of oil and natural gas in the United States totaled 1076 in the week ended Nov 30, lower than 1079 in the prior week. This marks a fall in rig count for two consecutive 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 higher than the prior-year level of 929.  

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 1051, down from 1052 in the previous week. Moreover, offshore rig count fell to 23 from 25. The tally for inland water rig, however, was in line with the count for the week ended Nov 21. Notably, two rigs operated in the inland waters last week.

U.S. Increases Two Oil Rigs: Oil rig tally was 887, up from 885 in the week ended Nov 21. Notably, the tally increased in six of the last 10 weeks.

Also, the current total, though far from the peak of 1,609 attained in October 2014, is significantly higher than last year’s 749. 

Natural Gas Rig Count Decreases in the United States: The natural gas rig count of 189 fell from the tally of 194 for the week ended Nov 21.

However, like oil, the count of rigs exploring the commodity is above the prior-year number of 180. Notably, per the recent report, the number of natural gas-directed rigs is almost 88.2%, below the all-time high of 1,606 in 2008.  

Rig Count by Type: The number of vertical drilling rigs totaled 74 units, down from the previous week’s 77. However, the horizontal/directional rig count (encompassing new drilling technology with the ability to drill and extract gas from dense rock formations also known as shale formations) of 1002 was flat with the prior week’s count.

Gulf of Mexico (GoM) Rig Count Falls: The GoM rig count is 23 units, of which 18 were oil directed. The count is lower than the tally of 25 for the week ended Nov 21.

Conclusion

The rise in oil drilling rigs reflects rising capital spending of explorers and producers through 2018 to capitalize on the higher crude pricing environment as compared to 2017. However, the gas-rich Marcellus shale saw the removal of two natural gas rigs, leading to the fall in total weekly rig count.

Investors should know that low oil, trading below $55 per barrel, is not a slippery affair for U.S. shale producers. With the advancement of technologies, well costs have declined drastically. Also, upstream energy players, with operations in key domestic shale plays, have hedged part of their 2018 and 2019 liquid volumes — claimed energy research and consulting group Wood Mackenzie. These developments will likely insulate some of the key shale players — like Concho Resources Inc. (CXO - Free Report) and Whiting Petroleum Corporation (WLL - Free Report) — against the bearish crude landscape. Both the shale players carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

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