Crude oil and natural gas rigs
According to Baker Hughes (BHI), in the week ended August 7, the US rig count increased by six crude oil rigs and four natural gas rigs. This marks a reversal in crude oil and natural gas rig counts over the previous week. The last time both crude oil and natural gas rig counts increased simultaneously was in October 2014.
In the 12 months ended August 7, the total US crude oil and natural gas rig count fell by 1,024, or 54%. The number of active oil rigs fell by 918, or 58%. The number of natural gas rigs fell by 103, or ~33%, over this period.
Why rig count trends matter
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.
If the rig count continues to rise, it could indicate potentially greater supplies in the months to come. In contrast, falling rig counts point to potentially stagnating supply.
Effect on energy companies
Greater crude oil and natural gas production could benefit midstream energy MLPs including Williams Partners (WPZ), Energy Transfer Partners (ETP), MarkWest Energy Partners (MWE), and Enbridge Energy Partners (EEP).
The 54% fall in the number of active rigs over the past year indicates a fall in exploration and production activity by upstream oil and gas companies. And aside from upstream and midstream energy companies, the falling natural gas rig count could negatively affect natural gas compression services providers including Exterran Holdings (EXH) and Exterran Partners (EXLP). This trend would probably also negatively affect Dresser-Rand Group (DRC), which provides equipment for oil and gas transportation. Drill equipment makers such as Schlumberger (SLB) and Halliburton (HAL) also usually suffer when the crude oil rig count decreases.
Schlumberger forms 22.1% of the VanEck Vectors Oil Services ETF (OIH).
A lower rig count is likely to reduce oilfield service companies’ revenue. Upstream companies reduce exploration and production activity in such circumstances, and may also push oilfield service companies for lower contract terms or day rates to save on costs.