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Why the Falling Rig Count Last Week Matters to Investors



Rig counts fell last week

In the week ending June 12, the US rig count decreased by seven active crude oil rigs and one natural gas rig. One miscellaneous rig also decreased in the week. In the 12 months to June 12, the total US crude oil and natural gas rig count dropped by 995, or 54%. The number of active oil rigs decreased by 907, or 59%. The number of natural gas rigs fell by 89, or ~30%, over this period. The total rig count had increased by 85 for the corresponding period ending June 13, 2014.

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Rig count trend and why it matters

Rig counts tell us how many rigs are actively drilling for oil and gas. Analyzing the change 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.

A rise in rigs points to an increase of production in the future. On the other hand, falling rigs point to a potential stagnation in supplies. A particularly sharp dip in rigs, like the one we are witnessing at the moment, could even mean a drop in production of oil and gas in the month to come.

The 54% drop in active rigs indicates a decline in exploration and production activity by upstream oil and gas companies. Apart from upstream oil and gas producers, the falling rig count will also negatively impact oilfield service companies, including Exterran Holdings (EXH), Superior Energy Services (SPN), Dresser-Rand Group (DRC), and Oceaneering International (OII). Oceaneering International forms 2.5% of the VanEck Vectors Oil Services ETF (OIH).


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