Horizontal rig counts remain close to record high

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Horizontal rig counts decreased

For the week ending November 26, 2014, the number of horizontal rigs decreased by one from the previous week’s count. Currently, there are 1,371 horizontal rigs. This marks the second-highest horizontal rig count. The previous week flagged the highest horizontal rig count on record. Horizontal rig counts have repeatedly set and broken new records throughout the year.Horizontal vs Vertical

Last week, the number of vertical rigs remained unchanged at 352—compared to the previous week. The number of directional rigs decreased by 11.

Year-to-date, horizontal rigs are up 223, or 19%. Vertical rigs are down by 25 counts.

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Types of rigs

According to oilfield service company 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 increased

The number of horizontal rigs increased when large quantities of oil and gas in shale formations were discovered in the US. Oil companies combined horizontal drilling with hydraulic fracturing. As a result, they can 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% over numbers from January 2007. During the same period, the number of vertical rigs decreased by ~63%. Vertical rigs are on a long-term downward trend.

Key stocks and exchange-traded funds (or ETFs)

Rig counts can gauge companies’ upstream activity. Companies Halcon Resources Corporation (HK) and Concho Resources (CXO) are part of the Energy Select Sector SPDR ETF (XLE).

Rig counts also gauge oilfield service companies’ upstream activity. Oilfield service companies include Halliburton Company (HAL) and Schlumberger (SLB). These companies are part of the VanEck Vectors Oil Services ETF (OIH). Read A key guide to Halliburton’s 3Q14 earnings to learn more.

The total US onshore rig count is going strong. Recently, it reached a two-year high. To find out what’s causing the growth, read the next part of this series.

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