U.S. Rig Count Down by a Unit
In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (BHI) 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 oil-directed rigs, partially offset by an increase in natural gas rig count.
The Baker Hughes rig count, issued since 1944, acts as an important yardstick for drilling contractors like Transocean Inc. (RIG), Diamond Offshore (DO), Noble Corp. (NE), Nabors Industries (NBR), Patterson-UTI Energy (PTEN), Helmerich & Payne (HP), 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 1,762 for the week ended January 4, 2013. This was down by 1 from the previous week’s rig count and indicates the sixth decrease in as many weeks.
Despite this, the current nationwide rig count is more than double than that of the lowest level reached in recent years (876 in the week ended June 12, 2009), though it is way below the prior-year level of 2,007. 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 1 to 1,691, while inland waters activity offshore drilling remained steady at 20 to 51 rigs, respectively.
Natural Gas Rig Count: The natural gas rig count – which slumped to a 13-year low in early November 2012 – increased for the third successive week to 439 (a gain of 8 rigs from the previous week). Despite the weekly improvement, the number of gas-directed rigs is down 46% from its 2012 peak of 811, achieved a year ago. In fact, the current natural gas rig count remains 73% below its all-time high of 1,606 reached in late summer 2008.
Oil Rig Count: The oil rig count – which was at a 25-year high of 1,432 in August – fell by 9 to 1,318. Nevertheless, the current tally is way above the previous year’s rig count of 1,191. It has recovered strongly from a low of 179 in June 2009, rising 7.4 times.
Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 5 remained unchanged from the previous week.
Rig Count by Type: The number of vertical drilling rigs rose by 3 to 480 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 4 to 1,282. However, horizontal rig units – that reached an all-time high of 1,193 in May 2012 – increased by 1 from the last week’s level to 1,112.
Rank: Among the companies mentioned above, Diamond Offshore, Transocean, Nabors, Noble and Patterson-UTI Energy are all #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 #5 Rank, which translates into a short-term Strong Sell rating, while Helmerich & Payne’s #2 Rank implies that the companies are likely to outperform the broader U.S. equity market over the next one to three months.