Why the horizontal rig count is the highest on record

By

Updated

Horizontal rig counts are up and vertical rig counts are down

For the week ended October 17, 2014, the number of horizontal rigs did not change from the previous week’s count at 1,353. This remains the highest horizontal rig count on record.

Horizontal rig counts repeatedly set and broke new records throughout this year.Horizontal vs Vertical

Last week, the number of vertical rigs decreased by eight to 362, compared to 370 the previous week. The number of directional rigs also fell by four compared to the previous week.

In the year to date, horizontal rigs are up 18%, or +205. Vertical rigs are down 15.

Vertical rigs are on a long-term declining trend. Vertical rigs are currently down 63% from around 990 in the beginning of 2007.

Types of rigs

Article continues below advertisement

According to Baker Hughes, a horizontal well is a directional well where the well surface isn’t situated directly above the reservoir that it targets. When the well’s inclination is more than 80 degrees from vertical, or when the lower part of the well runs parallel to the pay zone along the reservoir, it’s a horizontal well.

Horizontal wells increase the length of the well that’s exposed to the reservoir, which in turn increases production. In vertical drilling, a well goes straight down until it reaches the formation.

Horizontal rigs are sharply up

The number of horizontal rigs increased when large quantities of oil and gas in shale formations were discovered in the U.S. Oil companies combine horizontal drilling and hydraulic fracturing to access unconventional oil and gas formations and increase oil and natural gas production.

By the end of September 2014, the number of horizontal rigs increased by ~300%, compared to in January 2007. During the same period, the number of vertical rigs decreased by ~62%.

Key stocks and ETFs

Rig counts can gauge companies’ upstream activity. Companies like EOG Resources (EOG) and Anadarko Petroleum (APC) are part of the Energy Select Sector SPDR (XLE).

Rig counts also gauge oilfield service companies’ upstream activity. Oilfield service companies include Halliburton Company (HAL) and Baker Hughes (BHI). These companies are part of the VanEck Vectors Oil Services ETF (OIH).

Should you be concerned about the effect of the fall in crude prices on oil rigs and production? Read the next section to find out.

Advertisement

More From Market Realist