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US Rig Count Finally Turns Around: The Bloodbath Ends

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Jul. 2 2015, Published 12:48 p.m. ET

Total US rig count

According to oilfield service company Baker Hughes (BHI), there were 859 active oil and gas rigs in the US in the week ending June 26, 2015—two more than the previous week ending June 19. This marked the first rise in 28 weeks. The last time the US rig count rose was in December 2014.

With last week’s rise, the average four-week US rig count fall was four—compared to seven in the previous four weeks to June 19. The rig count fall also averaged seven in the four weeks to June 5 and June 12.

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Rig counts in perspective

The US rig count experienced an uptrend throughout most of 2014. However, that trend reversed with 28 consecutive weeks of falling rig counts until the week to June 19. The US rig count is still at its lowest level since January 2003. The rise in both onshore and offshore rig counts led the week’s figures.

May’s average rig count of 889 represents a fall of 87 from the 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 reached 1,931. Since then, ~56% of the rigs have been idled.

Effect on energy companies

Energy companies, including Encana (ECA), Linn Energy (LINE), SM Energy (SM), Carrizo Oil & Gas (CRZO), 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 also 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).

SM Energy accounts for 1.4% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). Carrizo Oil & Gas accounts for 0.15% 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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