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US Offshore Rig Count Is 50% Off Record Highs

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Apr. 22 2015, Updated 10:07 p.m. ET

The offshore rig count is up

For the week ended April 10, the US offshore rig count increased by two to 333. The offshore rig count increased after four consecutive weekly offshore rig count decreases, and it is now at its lowest level since October 2011.

The offshore rig count is now nearly 50% off the four-year high of 66 that it reached on August 29, 2014. In the last year, the offshore rig count fell by 20. Nevertheless, the current offshore rig count is strong compared with its mid-2010 low of ~12.

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Why the offshore rig count was strong

Offshore wells are more expensive than onshore wells, but they have much longer production lives. This means that production is steady and can last for decades. Offshore wells also have long lead times, so falling crude oil prices won’t affect planned offshore production in the short term.

The offshore rig count fall indicates lower offshore energy exploration, as well as the activity levels of the upstream and integrated energy companies. Chevron Corporation (CVX), Anadarko Petroleum (APC), and Exxon Mobil (XOM) together account for 32.5% of the Energy Select Sector SPDR ETF (XLE). XOM comprises 1.9% of the SPDR S&P 500 ETF (SPY). These energy companies operate in deepwater oilfields and benefit from higher offshore oil and gas production.

In the next part of this series, we’ll learn more about US offshore rigs, particularly the drilling activity in the Gulf of Mexico.

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