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Why the US offshore rig count slides from a 4-year high

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Aug. 18 2020, Updated 10:39 a.m. ET

Offshore rig count down last week

Last week, the number of offshore rigs decreased by two to 55 compared to the previous week. Offshore rig count has been on a slide after attaining its four-year high of 66 on August 29, 2014. In the year to date, the offshore rig count fell by six.

Despite the decrease, the current offshore rig count is strong compared to its mid-2010 low of ~20.GOM

The Gulf of Mexico is the primary indicator of offshore rig activity

Rig counts in the Louisiana section of the Gulf of Mexico (or GoM) indicate offshore rig activity in the U.S. The area accounts for almost all offshore rigs.

In 2010, the Gulf of Mexico rig count decreased sharply after BP’s (BP) Deepwater Horizon oil spill. The U.S. government adopted several restrictions in response to the oil spill, which led to a decline in drilling activity in the area.

The Gulf of Mexico rig count did not recover to pre-accident levels for several years. By September 2012, it averaged ~50 rigs. It reached its highest point in October 2013, with 63 rigs. It has tapered off since then with an average ~56 in 2014.

Key stocks and ETFs

The offshore rig count can gauge energy exploration and servicing companies’ activity levels. Exxon Mobil (XOM) and Anadarko Petroleum (APC) are components of the Energy Select Sector SPDR (XLE). The companies operate in deepwater oilfields and benefit from higher offshore oil and gas production.

Higher offshore drilling activity will also benefit offshore drill servicing companies such as Baker Hughes (BHI). BHI is a component of the VanEck Vectors Oil Services ETF (OIH).

Are these companies upbeat about GoM’s prospect in the next quarter? To find out, read the next section.

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