The US Gulf of Mexico Rig Count Falls through the Cracks

We’ve been discussing US onshore and offshore rig counts in the previous two parts of this series. Rig counts in the Louisiana section of the Gulf of Mexico (or GOM) indicate offshore rig activity in the United States. This area accounts for almost all offshore drilling in the country. The Gulf of Mexico rig count was down by 11 rigs compared to the previous week, with 35 rigs for the week ending March 20, 2015.

In 2010, the Gulf of Mexico rig count fell sharply after BP’s (BP) Deepwater Horizon oil spill, which led to government-imposed restrictions. The GOM rig count didn’t recover to pre-accident levels for several years. By September 2012, it averaged ~50 rigs, and it reached 63 in August. In 2014, the average rig count in the Gulf of Mexico was ~55. This year, it has averaged 51 so far. BP is 4.8% of the iShares Global Energy ETF (IXC).

Despite a lower Gulf of Mexico rig count, US offshore oil projects are growing. According to the Energy Information Administration (or EIA), three deepwater projects began in the GOM in 4Q14. Stone Energy (SGY), Chevron (CVX), and Murphy Oil (MUR) operate these three mature oilfields.

Some of these companies are components of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). Stone Energy and Murphy Oil account for 2.3% of XOP. Eight more projects are expected to come online in 2015, which will add 265,000 barrels of crude oil per day.

Jack-up rigs are mobile offshore drilling units that perform drilling and work-over operations to lift or extract energy. According to the industry news organization Rigzone, jack-up rig utilization is likely to fall below 50% in 2015—lower than the 30% drop estimated earlier. This forecast is due mainly to lower crude oil prices.