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Why the US offshore rig count remains unchanged

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Offshore rig count unchanged

Last week, the number of offshore rigs remained unchanged at 53 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 has fallen by eight.

Despite the recent fall, 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 indicate offshore rig activity in the U.S. The area accounts for almost all offshore rigs.

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In 2010, the Gulf of Mexico rig count decreased sharply after BP’s (or BP) Deepwater Horizon oil spill. The U.S. 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 October 2013, but has tapered off since then. In 2014, the average rig count in the Gulf of Mexico has been ~56.

Gulf of Mexico activity faced 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 ended November 7, the rig count in the Gulf of Mexico was 51. This is the same as the previous week’s count. Meanwhile, the rig counts in the Gulf of Mexico have decreased by eight YTD.

Key stocks and exchange-traded funds (or ETFs)

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

Higher offshore drilling activity also benefits offshore drill servicing companies such as Halliburton Company (HAL). HAL is part of the VanEck Vectors Oil Services ETF (OIH). Read A key guide to Halliburton’s 3Q14 earnings to learn more about the company.

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