Horizontal and vertical rig counts are down
For the week ending October 3, 2014, the number of horizontal rigs decreased by six to 1,341, compared to 1,347 in the previous week. This is the third highest horizontal rig count on record.
Horizontal rig counts had been setting and breaking new records for the past few weeks before last week’s fall, which marked the third decrease in the past 16 weeks.
Last week, the number of vertical rigs decreased by one to 372, compared to 373 in the previous week. The number of directional rigs decreased by two compared to the previous week.
Year-to-date (or YTD), horizontal rigs are up 17%, at +193. Vertical rigs are down three.
Types of rigs
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 is drilled 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 were discovered in shale formations in the U.S. Oil companies combine horizontal drilling and hydraulic fracturing in response to unconventional oil and gas formations to 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 also gauge oilfield service companies’ upstream activity. The companies include Halliburton (HAL) and Transocean (RIG). These companies are part of the VanEck Vectors Oil Services ETF (OIH).
Check out Market Realist’s Energy & Power page to learn more about what’s happening in the industry.