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Why the US offshore rig count declined last week

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Offshore rig count decreased

Last week, the number of offshore rigs decreased by one to 52—compared to the previous week. The offshore rig count has been on a slide after reaching a four-year high of 66 on August 29, 2014. Year-to-date (or YTD), the offshore rig count fell by nine.

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

GOM

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Gulf of Mexico 

Rig counts in the Louisiana section of the Gulf of Mexico indicate offshore rig activity in the US. The area accounts for almost all of the offshore rigs.

In 2010, the Gulf of Mexico rig count decreased sharply after BP’s (BP) Deepwater Horizon oil spill. The US government adopted several restrictions in response to the oil spill. The Gulf of Mexico rig count didn’t recover to pre-accident levels for several years. By September 2012, it averaged ~50 rigs. It reached 63 in August. However, the average rig count in the Gulf of Mexico has been ~56 in 2014.

Gulf of Mexico activity faced a headwind in 3Q14

During 3Q14, Gulf of Mexico activities decreased again. This time, the challenge was the adverse weather conditions.

According to Baker Hughes Incorporated (or BHI), “13 different deepwater rigs were delayed at some point in time during the quarter causing a significant decline in well construction activity.” Meanwhile, Baker Hughes expects the Gulf of Mexico activity level to return to normal levels during 4Q14.

For the week ending November 14, the rig count in the Gulf of Mexico was 50. This is one less than the previous week’s count. Meanwhile, the rig counts in the Gulf of Mexico decreased by nine YTD.

Key stocks and exchange-traded funds (or ETFs)

The offshore rig count can gauge energy exploration companies’ activity levels. ExxonMobil Corporation (XOM) and Hess Corporation (HES) are part of the Energy Select Sector SPDR ETF (XLE). The companies operate in deepwater oilfields. They benefit from higher offshore oil and gas production.

Higher offshore drilling activity also benefits offshore drill servicing companies like Baker Hughes (BHI). BHI is part of the VanEck Vectors Oil Services ETF (OIH). Read “Must-know: Baker Hughes and its 3Q14 earnings” to learn more about the company.

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