Vertical versus horizontal rigs
According to oil service company Baker Hughes (BHI), the horizontal rig count fell by one in the week ending June 19, 2015—compared to the previous week’s count. It has fallen for 30 weeks in a row. In the 12 months ending June 19, the number of horizontal rigs in operation fell by 588, or 47%.
Currently, there are 662 active horizontal rigs—710 fewer than the record high of 1,372 on November 21, 2014. This represents a fall of 52%. Horizontal rig counts repeatedly set and broke new records throughout 2014. The number of vertical rigs in operation also fell by one to reach 100 last week. In the 12 months ending June 19, the number of vertical rigs fell by 280, or 74%.
Horizontal rigs and the shale boom
At the end of May 2015, the horizontal rig count was still up by ~83%—compared to the count in January 2007. During this period, the number of active vertical rigs fell by ~89%. The rise in the number of horizontal rigs occurred in tandem with the US shale boom. Unconventional, or shale, oil and gas reserves are tapped using a combination of horizontal drilling and hydrofracking. Vertical wells are typically used in conventional production.
Upstream energy companies like Whiting Petroleum (WLL), Marathon Oil (MRO), and Carrizo Oil & Gas (CRZO) operate in unconventional resource shales. They use horizontal drilling extensively. A drop in horizontal rigs shows that these companies are slowing the drilling operations that drove the US shale boom.
The shale boom helped midstream MLPs (master limited partnerships) like Magellan Midstream Partners (MLP), Crestwood Midstream Partners (CMLP), Natural Resource Partners (NRP), Buckeye Partners (BPL), and EQT Midstream Partners (EQM).
Falling rig count affects oilfield service companies
OFS (oilfield service) companies provide various drilling-related services and technologies. Falling drilling activity reduces oilfield service companies’ revenue. This will also be negative for MLP OFS companies like Exterran Partners (EXLP).