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US Oil Drillers Spend Conservatively: Rig Count Slides Again

Zacks Equity Research

In its weekly release, Baker Hughes Company BKR reported a decline in the number of drilling rigs in the United States.   

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 781 in the week through Jan 10, lower than the prior-week’s count of 796. The current national rig count is also below the prior year’s 1075.    

The number of onshore rigs, in the week ending Jan 10, totaled 759 compared with the previous week’s 773. Moreover, the tally of rigs operating offshore plays through the week till Jan 10 was 21 versus the prior-week count of 22. However, in inland waters, the count was one, flat with the week-ago tally.

US Removes 11 Oil Rigs: Oil rig count was 659 versus 670 in the week ended Jan 3. Thus, drillers in the domestic plays removed rigs for three successive weeks. The current total, far from the peak of 1,609 attained in October 2014, is also below the year-ago 873.    

Natural Gas Rig Count Declines in US: Natural gas rig count of 119 is lower than the prior-week tally of 123. Moreover, the count of rigs exploring the commodity is lower than the prior-year week’s 202. Per the latest report, the number of natural gas-directed rigs is 92.6%, below the all-time high of 1,606 recorded in 2008.

Rig Count by Type: The number of vertical drilling rigs totaled 38 units, lower than the prior-week count of 44. 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 743 was lower than the prior-week level of 752.

Gulf of Mexico (GoM) Rig Count Declines: GoM rig count was 21 units, of which 20 were oil-directed. The count was lower than the prior-week tally of 22.

Rig Count in Major Basins

In Permian and DJ-Niobrara, drillers removed six and one oil rigs, respectively, in the week through Jan 10. Notably, oil drillers in the most prolific basin removed rigs in 10 of the past 12 weeks.

Outlook

Investors should know that domestic drillers may continue to remove rigs since explorers have a conservative capital budget in place and have decided to curb spending on the drilling of new wells for the 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 keep an eye on are Diamondback Energy, Inc. FANG and Pioneer Natural Resources Company PXD. Both the stocks carry a Zacks Rank #3 (Hold). 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
 
Schlumberger Limited (SLB) : Free Stock Analysis Report
 
Halliburton Company (HAL) : 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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