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US Drillers Remove Maximum Oil Rigs in More Than 5 Years

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In its weekly release, Baker Hughes Company (BKR - Free Report) reported a drop 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 service player’s rotary rig count affects 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 US Rig Count Decreases: Rigs engaged in the exploration and production of oil and natural gas in the United States totaled 529 in the week through Apr 17, compared with the prior-week count of 602. The current national rig count is also below the prior year’s 1012.

The number of onshore rigs, in the week ending Apr 17, totaled 512 versus the previous week’s 584. Moreover, the tally of rigs operating offshore plays through the week till Apr 17 was 17, lower than the prior-week count of 18. Notably, no rigs operated in the inland waters, same as it was in the prior week.

US Removes 66 Oil Rigs: Oil rig count was 438 in the week to Apr 17, down from 504 in the week ended Apr 9. Thus, oil drillers in the domestic market removed the maximum number of rigs in a week since February 2015. Moreover, the weekly tally of oil rigs has fallen to the lowest mark since October 2016. The drastic decline can be blamed on crude’s continuation in the bearish territory despite measures taken by several oil producing nations to address the supply glut triggered by coronavirus-hit demand.

Investors should note that the current tally of oil rigs, far from the peak of 1,609 attained in October 2014, is also below the year-ago 825.

Natural Gas Rig Count Declines in US: The natural gas rig count of 89 is lower than the prior-week count of 96. Moreover, the count of rigs exploring the commodity is lower than the prior-year week’s 187. Per the latest report, the number of natural gas-directed rigs is 94.5% below the all-time high of 1,606 recorded in 2008.

Rig Count by Type: The number of vertical drilling rigs totaled 18 units, lower than the prior-week count of 22. Moreover, 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 511 was lower than the prior-week level of 580. 

Gulf of Mexico (GoM) Rig Count Declines: The GoM rig count is 17 units, all of which are oil-directed. The count is lower than the prior-week tally of 18.

Rig Count in Major Basins & Outlook

Permian — the most prolific basin in the United States — saw a drop in oil rig tally by 33 in the week ended Apr 17. Importantly, the count of oil rigs in the Permian has dropped for five consecutive weeks. Moreover, drillers in the Eagle Ford shale play have lowered oil rig count by nine. 

Notably, domestic drillers may continue to lower rigs in the oil patches since global energy demand has declined drastically owing to the coronavirus pandemic.

In other words, with the price of West Texas Intermediate crude to be delivered in May entering the negative territory, the commodity pricing scenario is not favorable for drillers to restart adding rigs in domestic resources.

In fact, we may again see another round of additional capital spending cut this year by explorers in the wake of this unfavorable business scenario, which is expected to further convince drillers to remove oil rigs. Last week, ConocoPhillips (COP - Free Report) announced its decision to take some additional measures in the wake of the pandemic. As part of the measures, ConocoPhillips has announced a new capital budget for 2020 of $4.3 billion, reflecting an additional reduction of $1.6 billion. Hence, as compared to the initial guidance, the upstream energy firm, carrying a Zacks Rank #3 (Hold), has slashed capital budget by a total of $2.3 billion. This also reflects a reduction of 35% from the original estimate.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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