Why oilfield service companies aren’t very bullish on rig counts
US rig count trends depend on how much companies are willing and able to spend on drilling
Rig counts represent how many rigs are actively drilling for hydrocarbons. Baker Hughes, an oilfield services company, reports rig counts weekly. The company notes that rig count trends are “governed by oil company exploration and development spending, which is influenced by the current and expected price of oil and natural gas.” So rig counts can represent how confident oil and gas producers feel about the drilling environment. As rig counts show one measure of oil and gas drilling activity, the figure can also be a useful indicator to gauge the activity levels of oilfield service companies such as Baker Hughes (BHI), Halliburton (HAL), Schlumberger (SLB), and Weatherford (WFT), all of which are part of the Oil Services HOLDRs ETF (OIH).
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Oilfield service companies aren’t overly bullish on US rig counts for the rest of 2013
Most major oilfield service companies commented that they expect US rig counts (including both oil and gas) to remain flat-to-down for the balance of the year. Companies such as Halliburton (HAL) noted that the driver of this trend is a switch to pad drilling (drilling more than one well on a single well site), which requires fewer rigs running to drill the same number of wells. However, this doesn’t translate into weak activity or a negative signal necessarily.
Halliburton noted, “In spite of a relatively flat sequential U.S. rig count, drilling efficiencies in the trend towards multi-well pads are driving a more robust well count.” Producers are still eager to drill wells, and even if rig counts are flat, other services such as well completion are still needed, providing revenue to oilfield service names in the situation of higher well counts. See Higher well count and stage count helping US fracking market for more background. In recognition of this need, as a service, Baker Hughes has begun to report well counts alongside rig counts. Plus, normal seasonality heading into 4Q13 is likely to negatively impact US rig counts.
Read on for a separate discussion about US oil rig counts as well as US natural gas rig counts.