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US Oil Drillers Add Rigs Despite Conservative Capital Budget

Zacks Equity Research

In its weekly release, Baker Hughes Company BKR reported a decline in the number of drilling rigs in the United States. While there has been an increase in the tally for oil rigs in the domestic shale plays, natural gas drillers removed rigs which resulted in the decline in the total 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, Schlumberger Limited SLB, Diamond Offshore Drilling, Inc DO and Transocean Ltd. RIG.

Details

Total US Rig Count Decreases: Rigs engaged in the exploration and production of oil and natural gas in the United States totaled 794 in the week through Jan 24, lower than the prior-week’s count of 796. The current national rig count is also below the prior year’s 1059.

The number of onshore rigs, in the week ending Jan 24, totaled 772 compared with the previous week’s 775. However, in inland waters, the count was one, in line with the week-ago tally. Moreover, the tally of rigs operating offshore plays through the week till Jan 24 was 21, higher than the prior-week count of 20.

US Adds 3 Oil Rigs: Oil rig count was 676 versus 673 in the week ended Jan 17. Thus, despite a conservative capital budget, drillers added rigs in the domestic plays for two successive weeks. The current total, far from the peak of 1,609 attained in October 2014, was however below the year-ago 862.

Natural Gas Rig Count Drops in US: Natural gas rig count of 115 is lower than the prior-week tally of 120. Moreover, the count of rigs exploring the commodity is lower than the prior-year week’s 197. Per the latest report, the number of natural gas-directed rigs is almost 93% below the all-time high of 1,606 recorded in 2008.

Rig Count by Type: The number of vertical drilling rigs totaled 37 units, lower than the prior-week count of 43. 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) was 757 compared with the prior-week level of 753.

Gulf of Mexico (GoM) Rig Count Increases: GoM rig count was 21 units, of which 20 were oil-directed. The count was higher than the prior-week tally of 20.

Rig Count in Major Basins                

In Permian, drillers added two oil rigs. Thus, oil drillers added rigs in the most prolific basin for two successive weeks. However, in Haynesville and Marcellus, drillers removed two and one natural gas rig, respectively, in the week through Jan 24.

Outlook

Investors should know that domestic oil drillers may again remove rigs since explorers have a conservative capital budget in place and have decided to curb spending on drilling new wells for a second consecutive year in 2020.

Despite the bearish landscape, it would be wise for investors to keep an eye on drillers in the Permian, where more crude is being produced with lesser rigs. Two Permian drillers that investors should add to their portfolio are Diamondback Energy, Inc. FANG and Pioneer Natural Resources Company PXD. Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Baker Hughes Company (BKR) : Free Stock Analysis Report
 
Halliburton Company (HAL) : Free Stock Analysis Report
 
Schlumberger Limited (SLB) : Free Stock Analysis Report
 
Diamond Offshore Drilling, Inc. (DO) : Free Stock Analysis Report
 
Transocean Ltd. (RIG) : Free Stock Analysis Report
 
Pioneer Natural Resources Company (PXD) : Free Stock Analysis Report
 
Diamondback Energy, Inc. (FANG) : Free Stock Analysis Report
 
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