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Why horizontal and vertical rig counts are down sharply

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Dec. 4 2020, Updated 10:52 a.m. ET

Horizontal rig counts declined

Horizontal rig counts decreased by 35 from the previous week’s count. This was the seventh straight weekly fall. Currently, there are 1,301 horizontal rigs. The count isn’t far from its record high on November 21, 2014. It’s record high is 1,372. Horizontal rig counts have repeatedly set and broken new records throughout 2014.

Last week, the number of vertical rigs declined by 12 to 288—compared to 300 in the previous week. The number of directional rigs decreased by 14. In the past year, horizontal rigs are up 143, or 12%. Vertical rigs are down by 84.

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Types of rigs

According to oilfield service company Baker Hughes (BHI), a horizontal well is a directional well. Its 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.

Rig counts can gauge companies’ upstream activity. Continental Resources (CLR) and Marathon Oil Corporation (MRO) are part of the Energy Select Sector SPDR ETF (XLE). Read Market Realist’s Continental Resources: An important overview to learn more.

Horizontal rigs increased in 2014

The number of horizontal rigs increased in the US when large quantities of oil and gas were discovered in shale formations. Oil companies combined horizontal drilling with hydraulic fracturing. As a result, they can access unconventional oil and gas formations to increase oil and natural gas production.

By the end of December 2014, the number of horizontal rigs increased by ~303%—compared to the number of rigs in January 2007. During the same period, the number of vertical rigs decreased by ~69%. This indicates a long-term downward trend.

Rig counts gauge oilfield service companies’ upstream activity. Oilfield service companies include Weatherford International (WFT) and Schlumberger (SLB). The companies are part of the VanEck Vectors Oil Services ETF (OIH).

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