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Horizontal Rig Count Falls for 18th Consecutive Week

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Rig numbers of all types are down

The horizontal rig count fell by 17 from the previous week’s count, representing the 18th straight week of decline. Currently, there are 812 active horizontal rigs—560 fewer than the record high of 1,372 reached on November 21, 2014. This represents a 41% decline. Horizontal rig counts repeatedly set and broke new records throughout 2014.

Counts for horizontal and vertical rigs declined last week. The number of vertical rigs declined by four to 144, while the number of directional rigs remained unchanged. In the past year, the number of horizontal rigs has fallen by 394 and vertical rigs are down by 240.

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What’s a horizontal well?

Oilfield service company Baker Hughes (BHI) notes that a horizontal well, or a directional well, has a surface that isn’t situated directly above the reservoir that it targets. A horizontal well’s inclination either is more than 80 degrees from vertical or the lower part of the well can run parallel to the pay zone along the reservoir.

Horizontal wells increase the length of the well that’s exposed to the reservoir, which increases production. In vertical drilling, a well goes straight down until it reaches the formation.

Rig counts can gauge a company’s upstream activity. Continental Resources (CLR) and Apache (APA) are two upstream companies. Apache makes up 1.65% of the Energy Select Sector SPDR ETF’s (XLE) market capitalization. Apache is also 0.9% of the iShares Global Energy ETF (IXC).

Horizontal rigs increased in 2014

The number of horizontal rigs spiked in the United States when large quantities of oil and gas were discovered in shale formations. Oil companies combined hydraulic fracturing with horizontal drilling, which allowed them to increase oil and natural gas production by accessing unconventional oil and gas formations.

By the end of February 2015, the horizontal rig count had increased by ~201% compared to the number of rigs in January 2007. During the same period, the number of vertical rigs decreased by ~44%, indicating a long-term downward trend.

Upstream energy companies are trimming their spending plans for 2015, which may reduce shale oil and gas production. For more on this, read Is a crude oil price trend forcing energy companies to bite the bullet?

Rig counts gauge oilfield service companies’ upstream activity. Oilfield service companies include Weatherford International (WFT) and Schlumberger (SLB), which are part of the VanEck Vectors Oil Services ETF (OIH). Weatherford International and Schlumberger together account for 23.4% of OIH’s market capitalization.

In the following part of this series, we’ll take a look at the US onshore rig count.

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