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US Rig Count Finally Sees First Up after 7 Months

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Part 2
US Rig Count Finally Sees First Up after 7 Months PART 2 OF 10

Crude Oil and Natural Gas Rigs Diverged Last Week

Crude oil and natural gas rigs

In the week ending June 26, the US rig count rose by five active natural gas rigs, partially offset by a fall of three crude oil rigs. In the 12 months to June 26, the total US crude oil and natural gas rig count fell by 1,014, or 54%. The number of active oil rigs fell by 930, or 60%. The number of natural gas rigs fell by 86, or ~27%, over this period. The total rig count rose by 125 for the same period ending June 27, 2014.

Crude Oil and Natural Gas Rigs Diverged Last Week

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Why the rig count trend matters

Rig counts tell us how many rigs are actively drilling for oil and gas. Analyzing the change in the number of active rigs can help us understand how long-term supply could evolve. Oil and gas rig counts signal how confident producers are about drilling for oil and gas.

A rise in rigs points to higher production in the future. In contrast, falling rigs point to a potential stagnation in supplies or even a fall in production. If the rig count reverses its trend and starts rising again, like we saw last week, this could indicate a potential rise in production of oil and gas in the months to come.

Effect on energy companies

Higher crude oil and natural gas production will positively affect midstream energy MLPs (master limited partnerships) like Williams Partners (WPZ), Energy Transfer Partners (ETP), MarkWest Energy Partners (MWE), Enbridge Energy Partners (EEP), and Enlink Midstream Partners (ENLK).

The 54% fall in active rigs in the past year indicates a fall in exploration and production activity by upstream oil and gas companies. Apart from upstream and midstream energy companies, the falling rig count will also negatively impact oilfield service companies, including Exterran Holdings (EXH), Exterran Partners (EXLP), Superior Energy Services (SPN), Dresser-Rand Group (DRC), and Oceaneering International (OII). Oceaneering International forms 2.5% of the VanEck Vectors Oil Services ETF (OIH).

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