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Horizontal Rig Count down 48% since November 2014

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Horizontal and vertical rig count down

According to Baker Hughes (BHI), the horizontal rig count fell by 21 for the week ending April 24, 2015, from the previous week’s count. This represents a decline for 22 weeks in a row.

Currently, there are 720 active horizontal rigs—652 fewer than the record high of 1,372 reached on November 21, 2014. This represents a 48% decline. Horizontal rig counts repeatedly set and broke new records throughout 2014.

The number of vertical rigs declined by one to 121 last week. In the past year, the number of horizontal rigs fell by 504. Vertical rigs are down by 270.

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Long-term horizontal rigs higher until March 2015

By the end of March 2015, the horizontal rig count was up by ~125%—compared to the number of rigs in January 2007. During the same period, the number of vertical rigs decreased by ~84%. The rise in horizontal rigs is indicative of the American shale boom. Unconventional, or shale oil, and gas reserves are tapped using a combination of horizontal drilling and hydrofracking. Vertical wells are usually used in conventional production.

Upstream energy companies like Whiting Petroleum (WLL), Marathon Oil (MRO), and Southwestern Energy (SWN) operate in the unconventional resources shales, where horizontal drilling is used extensively. Whiting Petroleum accounts for 1.1% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). Southwestern Energy accounts for 0.6% of the iShares US Energy (IYE).

Falling rig count affects oilfield service companies

Oilfield service companies provide various drilling-related services and technologies. Falling drilling activity reduces oilfield service companies’ revenue. Upstream companies can also push for cheaper contract terms or day rates in these situations.

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