Horizontal rig counts are down and vertical rig counts are up
For the week ending October 31, 2014, the number of horizontal rigs decreased by two from the previous week’s count. Currently, there are 1,353 horizontal rigs. This is the third time in the past four weeks that the horizontal rig count repeated this figure.
However, the previous week had the highest horizontal rig count on record. Horizontal rig counts have repeatedly set and broke new records throughout the year.
Last week, the number of vertical rigs increased by four to 365—compared to 361 the previous week. The number of directional rigs didn’t change.
Year-to-date (or YTD), horizontal rigs are up 18%—or +205. Vertical rigs are down 12.
Types of rigs
According to Baker Hughes, a horizontal well is a directional well. 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. This increases production. In vertical drilling, a well goes straight down until it reaches the formation.
Horizontal rigs increase
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 October 2014, the number of horizontal rigs increased by ~304%—compared to January 2007. During the same period, the number of vertical rigs decreased by ~63%. Vertical rigs are on a long-term declining trend.
Key stocks and exchange-traded funds (or ETFs)
Rig counts also gauge oilfield service companies’ upstream activity. Oilfield service companies include Schlumberger (SLB) and Baker Hughes (BHI). These companies are part of the VanEck Vectors Oil Services ETF (OIH). Read “Overview: Oil and gas field service Schlumberger’s 3Q14 results” to learn more.
The total U.S. onshore rig count has been going strong. Recently, it reached a two-year high. To find out where the growth is coming from, read the next part of this series.