Crude oil and natural gas rigs
According to Baker Hughes (BHI), in the week ended August 14, the US rig count increased by two crude oil rigs, offset by two fewer natural gas rigs. This marked a reversal in natural gas rig counts over the previous week while crude oil rig counts kept increasing.
In the 12 months ended August 14, the total US crude oil and natural gas rig count fell by 1,029, or 54%. The number of active oil rigs fell by 917, or 58%. The number of natural gas rigs fell by 110, or ~34%, 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.
Rising rig counts could indicate a potential increase in supplies in the months to come. In contrast, falling rig counts point to a potential stagnation in supplies.
Effect on energy companies
The 54% fall in active rigs in the past year indicates a fall in exploration and production activity by upstream oil and gas companies. Apart from upstream energy companies, the falling natural gas rig count would negatively affect natural gas compression services providers like Exterran Holdings (EXH) and Exterran Partners (EXLP).
This trend would also negatively affect Dresser-Rand Group (DRC), which provides equipment for oil and gas transportation. Drill equipment makers like Schlumberger (SLB) and Halliburton (HAL) also suffer if the crude oil rig counts decrease. A lower rig count should reduce oilfield service companies’ revenue as upstream companies reduce exploration and production activity. This would also push oilfield service companies for lower contract terms or day rates to save on costs. Schlumberger forms 22.1% of the VanEck Vectors Oil Services ETF (OIH).
Lower crude oil and natural gas production could negatively affect midstream energy MLPs like Williams Partners (WPZ), Energy Transfer Partners (ETP), MarkWest Energy Partners (MWE), and Enbridge Energy Partners (EEP) through lower volume throughput transportation.