Shale oil and gas activity slows, takes horizontal rig count down



Horizontal rig numbers down

The horizontal rig count decreased by 80 from the previous week’s count. This was the 11th straight weekly fall. Currently, there are 1,088 horizontal rigs. The count now is 284 less than the 1,372 record high reached on November 21, 2014. Horizontal rig counts repeatedly set and broke new records throughout 2014.

Last week, the number of vertical rigs declined by two, to 233. The number of directional rigs fell by five. In the past one year, horizontal rigs are down by 88. Vertical rigs are down by 156.

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What’s a horizontal well?

According to oilfield service company Baker Hughes (BHI), a horizontal well is a directional well. Its surface isn’t situated directly above the reservoir 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 a company’s upstream activity. Continental Resources (CLR) and Whiting Petroleum (WLL) are two upstream companies. Together, they make up 2.8% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). For more on CLR, read Continental Resources: An important overview.

Horizontal rigs increased in 2014

The number of horizontal rigs spiked in the United States when large quantities of oil and gas were discovered in shale formations. Oil companies combined horizontal drilling with hydraulic fracturing. This gave them access to unconventional oil and gas formations to increase oil and natural gas production.

By the end of January 2015, the horizontal rig count increased by ~234% compared to the number of rigs in January 2007. During the same period, the number of vertical rigs decreased by ~73%, indicating a long-term downward trend.

Upstream companies have started to cut down on spending plans for 2015, which may reduce energy production. Read Market Realist’s series Is a crude oil price trend forcing energy companies to bite the bullet? to learn about upstream companies’ plans to reduce capital expenditures.

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). WFT and SLB together account for 24.5% of OIH.


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