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Rig Count Falls in Early April but Coal Market Unimpressed

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Rig count

A drilling rig is a machine that’s used to dig a hole in the earth’s surface. Rigs are used to drill oil and natural gas wells. Rigs can be set up onshore and offshore. The onshore rigs are usually moved once a well is drilled. Offshore rigs are more permanent. The higher the gas rig count, the higher the future natural gas production.

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Natural gas and oil rig count falls

The natural gas rig count dropped for the ninth straight week in the week ending April 3. According to Baker Hughes, an oilfield services company, the natural gas rig count fell to 222 on March 27, down from 233 on February 27 and 316 a year ago. The number of oil rigs that also produce some natural gas continued to fall as well. The number of active oil rigs dropped to 802 on April 3. This was down 11 from 813 on March 27.

What does this mean?

The natural gas rig count is an indication of producer sentiment. If producers expect more demand, the number of rigs in operation will likely increase because producers will drill more wells. The inverse is also true.

An increasing natural gas rig count in a stable demand environment is a negative indicator for coal producers (KOL) such as Alpha Natural Resources (ANR), Cloud Peak Energy (CLD), and Arch Coal (ACI). At the same time, a smaller rig count may not be positive for coal producers either. The impact of rig counts on utilities (XLU) depends on the revenue model and level of regulation in question.

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