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Rig Count Falls by 2: Will It Turn Next Week?

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Total US rig count

According to oilfield service company Baker Hughes (BHI), there were 857 active oil and gas rigs in the US in the week ending June 19, 2015—two less than the previous week ending June 12.

With last week’s fall, the average four-week US rig count fall was seven—the same as the previous four weeks to June 12. The rig count fall averaged seven in the four weeks to June 5 and eight in the four weeks to May 29. So, the rate of the fall is slowing down.

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Rig count is the lowest since January 2003

The US rig count experienced an uptrend throughout most of 2014. However, that trend reversed with 28 consecutive weeks of falling rig counts. With last week’s fall, the US rig count hit its lowest level since January 2003. The fall in the offshore rig count led the week’s figures.

May’s average rig count of 889 represents a fall of 87 from 976 active rigs in April.

The total US rig count hit 2,031 in September 2008—the highest since July 1987, according to Baker Hughes. In September 2014, the average rig count came close to that record. It reaching 1,931. Since September last year, ~56% of the rigs have been idled.

Energy companies, including Gulfport Energy (GPOR), Linn Energy (LINE), Ultra Petroleum (UPL), EOG Resources (EOG), and Newfield Exploration (NFX) have upstream operations. A falling rig count typically leads to a slowdown in production growth and possibly even a fall in production. Falling production will negatively affect upstream MLPs (master limited partnerships) like Memorial Production Partners (MEMP), Legacy Reserves LP (LGCY), Eagle Rock Energy Partners (EROC), Atlas Resource Partners (ARP), and Vanguard Natural Resources (VNR).

Ultra Petroleum accounts for 1.19% of the SPDR S&P Oil & Gas Exploration & Production ETF’s (XOP) total market capitalization. Gulfport Energy accounts for 0.25% of the iShares U.S. Energy ETF (IYE).

Why have US rig counts been falling for so long? We’ll discuss this in the next part of this series.

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