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Permian Oil Drilling Rig Count Rises in 5 of Prior 10 Weeks

In its weekly release, Baker Hughes Company BKR stated that the U.S. rig count was higher than the prior week’s figure. The rotary rig count, issued by BKR, is usually published in major newspapers and trade publications.

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. The number of active rigs and its comparison with the week-ago figure indicates the demand trajectory for the company’s oilfield services from exploration and production companies.

Rig Count Data in Detail

Total U.S. Rig Count Rises: The number of rigs engaged in the exploration and production of oil and natural gas in the United States was 626 in the week ended Dec 8. The figure is higher than theweek-ago count of 625. Although the figure increased for four straight weeks, there has been a slowdown in drilling activities. Some analysts think that shale producers are getting more efficient, requiring fewer rigs, while some doubt whether certain producers have enough prospective land to drill. The current national rig count is, however, lower than the year-ago level of 780.

Onshore rigs in the week that ended on Dec 8 totaled 605, higher than the prior week's count of 603. In offshore resources, 21 rigs were operating, in line with a week-ago tally.

U.S. Oil Rig Count Falls: The oil rig count was 503 in the week ended Dec 8, lower than the week-ago figure of 505. The current number of oil rigs — far from the peak of 1,609 attained in October 2014 — is also down from the year-ago figure of 625.

U.S. Natural Gas Rig Count Rises: The natural gas rig count of 119 is higher than the week-ago figure of 116. The count of rigs exploring the commodity is, however, below the year-ago week’s 153. Per the latest report, the number of natural gas-directed rigs is almost 93% lower than the all-time high of 1,606 recorded in 2008.

Rig Count by Type: The number of vertical drilling rigs totaled 15 units, higher than the week-ago count of 12. 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 611 is lower than the prior-week level of 613.

Rig Count in the Most Prolific Basin

Permian — the most prolific basin in the United States — recorded a weekly oil rig count of 309, lower than a week-ago figure of 310. The number increased in five of the prior 10 weeks.

Outlook

The West Texas Intermediate crude price is hovering around $70-per-barrel mark. Although the commodity pricing scenario is favorable for exploration and production operations, there has been a slowdown in drilling activities, which may continue as upstream players are prioritizing stockholder returns rather than boosting output.

Despite anticipating higher daily crude production in the oil-rich Permian this month than in November, the combined production from all prolific resources, including Anadarko, Appalachia, Bakken, Eagle Ford, Haynesville, Niobrara and Permian, is expected to be slightly lower in December than in the prior month, per the U.S. Energy Information Administration. This further confirms a slowdown in drilling activities.

In light of short-term uncertainties, investors seeking medium to long-term gains may consider placing their bets on energy stocks such as EOG Resources EOG and Matador Resources Company MTDR.

EOG Resources, currently carrying a Zacks Rank #2 (Buy), is a leading oil and natural gas exploration and production company. It is well-placed to capitalize on the promising business scenario. It has many undrilled premium locations, resulting in a brightened production outlook. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

EOG Resources is strongly committed to returning capital to shareholders. Since transitioning to premium drilling, the company has returned a handsome amount of cash to stockholders. With the employment of premium drilling, EOG can reduce its cash operating costs per barrel of oil equivalent, aiding its bottom line.

Matador Resources has a strong presence in the oil-rich core acres of the Wolfcamp and Bone Spring plays in the Delaware Basin. Promising oil price is likely to aid it in increasing production volumes. Matador acquired Advance Energy Partners Holdings, LLC, which comprises several oil and natural gas-producing properties and undeveloped acreage. MTDR, sporting a Zacks Rank #1, expects the buyout to be accretive to important valuation and financial metrics.

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