Horizontal versus vertical rigs
In this article, we’ll discuss the US horizontal and vertical rig counts. According to oil service company Baker Hughes (BHI), the horizontal rig count was up by eight rigs in the week ended August 7, 2015, compared to the previous week’s count. In the 12 months ended August 7, the number of horizontal rigs in operation fell by 645, or 49%. Currently, there are 672 active horizontal rigs, 700 fewer than the record high of 1,372 reached on November 21, 2014. This represents a fall of 51%. Horizontal rig counts repeatedly set and broke new records throughout 2014.
The number of vertical rigs in operation increased by three to reach 129 last week. In the 12 months ended August 7, the number of vertical rigs fell by 249, or 66%. The number of directional rigs in operation decreased by one in the week ended August 7.
Horizontal rig counts appear to be turning upward of late. The four-week average gain in horizontal rig counts increased to five in the week ended August 7. In comparison, the four-week average increase was two in the week ended July 31. Four-week averages give a smoother view of the rig count trend that otherwise can be quite volatile when considered on a weekly basis.
Horizontal rigs and the shale boom
At the end of July 2015, the horizontal rig count was still up by ~95% compared to the count in January 2007. During this period, the number of active vertical rigs fell by ~88%. The rise in the number of horizontal rigs occurred in tandem with the US shale boom. Companies tap unconventional (shale) oil and gas reserves using a combination of horizontal drilling and hydrofracking. Vertical wells are typically used in conventional production.
How are energy companies affected?
Upstream energy companies including Whiting Petroleum (WLL), ExxonMobil (XOM), Royal Dutch Shell (RDS.A), Marathon Oil (MRO), Pioneer Natural Resources (PXD), and Continental Resources (CLR) operate at unconventional resource shales. They use horizontal drilling extensively. A rise in the number of active horizontal rigs shows that these companies are again escalating the horizontal drilling operations that drove the US shale boom.
The shale boom also helped midstream MLPs including Magellan Midstream Partners (MMP), Crestwood Midstream Partners (CMLP), Buckeye Partners (BPL), and EQT Midstream Partners (EQM) boost their revenues over the last seven years.