Why were rig counts lower last week?
For the week ended May 1, the lower US rig count was due to 24 fewer active crude oil rigs and three fewer natural gas rigs. In the next part of this series, we’ll see how the crude oil rig count declined.
In the last 12 months to May 1, the total US crude oil and natural gas rig count dropped by 949, or 51%. The number of active oil rigs decreased by 848, or 56%. The number of natural gas rigs fell by 101, or ~31%, over this period. The total rig count increased by 90 for the same period ending May 2, 2014.
Rig count trends and the will to drill
Rig counts tell us how many rigs are actively drilling for oil and gas. Analyzing the changes in the number of active rigs can help us understand how long-term supply could evolve. Oil and gas rig counts signal how confident producers are about drilling for oil and gas.
Falling rig counts indicate a decline in upstream activity. This can result in falling production growth or even production for upstream operators. Linn Energy (LINE), Ultra Petroleum (UPL), Encana (ECA), and Newfield Exploration (NFX) are upstream companies. Newfield Exploration accounts for 0.4% of the Energy Select Sector SPDR ETF’s (XLE) total market capitalization.