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Drop in US Rig Count Slows after 3-Month Collapse

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US total rig count

According to oilfield service company Baker Hughes (BHI), there were 1,048 active oil and gas rigs in the US during the week ended March 27, 2015. That count represents 21 fewer rigs than in the week ended March 20. This was also the smallest rig count decrease in the past 14 weeks.

The US rig count generally experienced an uptrend in 2014, but that trend has reversed in the past three months. Fifteen consecutive weeks of falling rig counts show that US drilling activity is on a downturn. Last week also saw the twentieth rig count decrease in the past six months.

After last week’s drop, the US rig count dropped to its lowest level since October 2009. The week’s figures were led primarily by a fall in the onshore rig count. Please read Part 6 of this series to learn more about the onshore rig count.

According to Baker Hughes, February’s average rig count of 1,348 declined by 335 from January’s average of 1,683. September’s average rig count of 1,931 was the highest since July 2012.

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Why were rig counts lower last week?

Last week’s lower rig count was mainly due to there being 12 fewer active crude oil rigs. There were nine fewer active natural gas rigs. Read the next part of this series to see how a fall in oil prices triggered the decline in the oil rig count.

In the last year, the total US rig count has dropped by 761 or 42%. The number of active oil rigs decreased by 674 or 45%. The number of natural gas rigs fell by 85 or ~27%. The total rig count increased by 61 for the corresponding period ended March 28, 2014.

Rig count trends and the will to drill

Rig counts tell us how many rigs are actively drilling for oil and gas. Fewer rigs can be a good sign that demand and supply are nearing a balance. Rig counts also signal how confident producers are about the market for these products.

Companies in the drilling environment include Hess (HES) and Chevron (CVX). These companies are part of the Energy Select Sector SPDR ETF (XLE). Together, they account for 14.1% of XLE’s total market capitalization. These two stocks also account for 12.9% of the iShares U.S. Energy ETF (IYE).

Rig counts also indicate how busy oilfield service companies such as Schlumberger (SLB) and Halliburton (HAL) are at any given time. For more information on Schlumberger, please read An overview of Schlumberger’s 4Q14 earnings.

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