In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (BHI - Analyst Report) reported a dip in the U.S. rig count (number of rigs searching for oil and gas in the country). This fall can be attributed to a decrease in the tally of both oil and natural gas-directed rigs.
The Baker Hughes rig count, issued since 1944, acts as an important yardstick for drilling contractors such as Transocean Inc. (RIG - Analyst Report) , Diamond Offshore (DO - Analyst Report) , Noble Corp. (NE - Analyst Report) , Nabors Industries (NBR - Analyst Report) , Patterson-UTI Energy (PTEN - Analyst Report) , Helmerich & Payne (HP - Analyst Report) , etc. in gauging the overall business environment of the oil and gas industry.
Analysis of the Data
Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 1,811 for the week ended November 30, 2012. This was down by 6 from the previous week’s rig count and indicates the first decrease in 4 weeks.
Despite this, the current nationwide rig count is more than double than that of the 6-year low of 876 (in the week ended June 12, 2009) though it is way below the prior-year level of 1,993. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ending August 29 and September 12.
Rigs engaged in land operations descended by 4 to 1,741, offshore drilling was down by 3 to 50 rigs, while inland waters activity increased by 1 to 20 units.
Natural Gas Rig Count: The natural gas rig count – which slumped to a 13-year low in early November – decreased for the first time in 3 weeks to 424 (a drop of 4 rigs from the previous week). As per the most recent report, the number of gas-directed rigs is down 55% from its 2011 peak of 936, reached during mid-October.
The current natural gas rig count remains 74% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 856 active natural gas rigs.
Oil Rig Count: The oil rig count – which was at a 25-year high of 1,432 in August – inched down by 2 to 1,386. Nevertheless, the current tally is way above the previous year’s rig count of 1,132. It has recovered strongly from a low of 179 in June 2009, rising almost 8 times.
Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 1 remained unchanged from the previous week.
Rig Count by Type: The number of vertical drilling rigs fell by 1 to 508, 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 down by 5 to 1,303. In particular, horizontal rig units – that reached an all-time high of 1,193 in May this year – decreased by 4 from the last week’s level to 1,110.
Zacks Rank: Among the companies mentioned above, Diamond Offshore, Noble, Nabors, Patterson-UTI Energy and Helmerich & Payne are all Zacks #3 Rank (Hold) stocks, implying that these are expected to perform in line with the broader U.S. equity market over the next one to three months.
However, Baker Hughes retains a Zacks #4 Rank, which translates into a short-term Sell rating, while Transocean’s Zacks #2 Rank means that the offshore drilling contractor is likely to outperform the broader U.S. equity market over the next one to three months.In