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Gulf of Mexico Rig Count Begins to Lose Strength

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Apr. 10 2015, Updated 12:05 p.m. ET

Gulf of Mexico rigs

In the previous two parts of this series, we discussed US onshore and offshore rig counts.

Rig counts in the Louisiana section of the Gulf of Mexico, or GOM, measure 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 four compared to the previous week, with 29 operating rigs in the week ending April 2, 2015.

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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. Then it started increasing and it reached 63 in August 2014. This year, it has averaged 47 so far. BP makes up 4.8% of the iShares Global Energy ETF (IXC).

US offshore production unabated

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

According to the EIA, thirteen fields in the GOM are expected to start up new projects in the next two years—eight in 2015 and five in 2016.

Murphy Oil accounts for 1.3% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). Eight more projects are expected to come online in 2015, which will add 265,000 barrels of crude oil per day to production totals.

Gulf of Mexico activity may face headwinds in 2015

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 use 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. In comparison, marketed utilization of jack-up rigs was 91% in January 2014.

Read more on oilfield services companies’ views on the current rig count scenario in the following part of this series.

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