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Why Falling Rig Counts in Week Ending June 5 Matter to Investors

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Rig counts fall last week

In the week ending June 5, the US rig count decreased by four active crude oil rigs and three natural gas rigs. In the 12 months to June 5, the total US crude oil and natural gas rig count dropped by 992, or 53%. The number of active oil rigs decreased by 894, or 58%. The number of natural gas rigs fell by 98, or ~31%, over this period. The total rig count increased by 95 for the same period ending June 5, 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.

The 53% drop in rig count indicates a decline in upstream activity. 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 2.4% of the VanEck Vectors Oil Services ETF (OIH).

In the next part of this series, we’ll see why the oil rig count declined.

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