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Is the US Rig Count Fall Bottoming Out?

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Part 2
Is the US Rig Count Fall Bottoming Out? PART 2 OF 10

US Oil and Gas Rig Counts Took Tiny Steps Last Week

US oil and gas rig counts

According to Baker Hughes (BHI), in the week ending October 23, 2015, the US rig count fell by one crude oil rig, while one natural gas rig was added to the count. The number of crude oil rigs has continued to fall in the past eight weeks. The natural gas rig count has been volatile, but it’s on a downward trend.

US Oil and Gas Rig Counts Took Tiny Steps Last Week

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Total US numbers

In the 12 months ending October 23, 2015, the total US crude oil and natural gas rig count fell by 1,140, or 59%. The number of active oil rigs fell by 1,001, or 63%. The number of natural gas rigs fell by 139, or ~42%, over this period.

Why rig count trends matter

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.

Rising rig counts could indicate a potential rise in supplies in the months to come. In contrast, falling rig counts point to a potential stagnation in supplies.

Effect on energy companies

The 59% fall in active rigs in the past year indicates a fall in exploration and production activity by upstream oil and gas companies. Falling natural gas rig counts over the past year would negatively affect providers of natural gas compression services such as Exterran Holdings (EXH) and Exterran Partners (EXLP).

The falling trend over the past year would also have a negative impact on Nabors Industries (NBR) since it provides drilling and rig services, as well as completion and production services. Drill equipment makers such as Schlumberger (SLB) and Halliburton (HAL) could also suffer if rig counts fall.

A lower rig count should reduce oil field services companies’ revenues as upstream companies reduce exploration and production activity and push oil field service companies for lower contract terms or day rates to save on costs. Schlumberger forms 20.9% of the VanEck Vectors Oil Services ETF (OIH).

Lower crude oil and natural gas production could also negatively affect midstream energy MLPs such as Williams Partners (WPZ), Energy Transfer Partners (ETP), MarkWest Energy Partners (MWE), and Enbridge Energy Partners (EEP) due to lower volumes.

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