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Must-know: What the rig count figures mean

Must-know: What the rig count figures mean (Part 1 of 3)

Why U.S. rig counts drop for the second week in a row

U.S. rig count trends show how much inclination companies have to spending on drilling

Rig counts represent how many rigs are actively drilling for hydrocarbons (oil and gas). 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.” Rig counts can represent how confident oil and gas producers feel about the drilling environment. Since 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), and Schlumberger (SLB)—all of which are part of the Oil Services HOLDR s ETF (OIH) and the Energy Select Sector SPDR (XLE).

U.S. rig counts dipped slightly last week, but remain up 6% year-to-date

The U.S. drilling rig count decreased by six rigs, from 1,860 to 1,854, during the week ending June 13, according to the latest Baker Hughes report. The number of oil rigs increased by six and the number of natural gas rigs dropped by ten. Additionally, rigs that were categorized as “miscellaneous” decreased by two last week.

Year-to-date (or YTD), the total U.S. rig count has increased by 103, or 6%. Oil rigs have increased by 164 (12%), while natural gas rigs have declined by 62 (-17%). To learn more about oil and natural gas rig count trends, continue reading the next sections in this series.

 

2014.06.16 - US Total Rig Count STEnlarge Graph

Oilfield service companies expect solid U.S. onshore activity through 2014

Most major oilfield service companies expect U.S. onshore rig counts to be slightly up in 2014 compared to 2013, driven mostly by higher activity in the Permian Basin in west Texas. Both higher rig counts and increasing efficiencies through more pad drilling (drilling more than one well on a single well site, which requires fewer rigs running to drill the same number of wells) and faster well drilling times are expected to drive the U.S. oil and gas production up significantly in 2014, compared to 2013.

Baker Hughes commented during its 1Q14 earnings call regarding the U.S. onshore market that the Permian activity drove the increase in 1Q14 rig counts, and that continued rig count growth throughout the rest of the year would be supported by the Permian activity. BHI expects a 10% increase in rig counts in the Permian Basin over 2014, which is expected to contribute to a 4% overall increase in U.S. rig counts, resulting in a prediction of an average rig count of ~1,830.

Halliburton stated in its 1Q14 earnings call, “In the second quarter we’re expecting higher U.S. land activity—with the net result that we should see a low to mid-single-digit percentage improvement in North America revenue in the second quarter and margins will return to second half 2013 levels.”

Schlumberger stated on its 1Q14 earnings call, “Now, in terms of activity outlook for North America, on land, we expect solid activity growth in U.S. land in 2014. We see this being led by South and West Texas. And in addition to the number of wells, we also see it supported by, again, efficiency gains and further uptake of new technology.”

Continue reading the next sections in this series to learn about U.S. oil and natural gas rig counts.

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