uploads///Total US rigs

The US Rig Count Made Small Gains Last Week: What’s the Impact?

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Aug. 25 2015, Published 12:34 p.m. ET

Total US rig count

According to oilfield service company Baker Hughes (BHI), there were 885 active oil and gas rigs in the United States in the week ended August 21, 2015. This is one more than the previous week, which ended August 14. Until the week ended June 19, 2015, the US rig count had fallen consecutively for 28 weeks. Since then, US rig count has recovered 3%.

The four-week average gain in US rig counts increased to two for the week ended August 21. In comparison, the four-week average increase was seven for the week ended August 14. Four-week averages offer a smoother view of this trend, which is otherwise quite volatile on a weekly basis.

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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 ended June 19. Despite recent rises, the US rig count is still at its lowest level since June 2009.

July’s average rig count of 866 represents a rise of five rigs from the 861 active rigs in June. In comparison, June’s rig count fell by 28 from May. So the monthly rate of rig count change in 2015, which was continually decreasing until June, reversed in July.

The US overall 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, ~54% of rigs have idled.

Impact on energy companies

Energy companies including Encana Corporation (ECA), WPX Energy (WPX), SM Energy (SM), Concho Resources (CXO), and RSP Permian (RSPP) have upstream operations. A rising rig count typically indicates increasing exploration and development activities by these upstream companies. This could lead to greater energy production.

Upstream MLPs like Memorial Production Partners (MEMP), Legacy Reserves (LGCY), Eagle Rock Energy Partners (EROC), Atlas Resource Partners (ARP), and Vanguard Natural Resources (VNR) could also benefit from increased drilling.

However, higher production could push energy prices lower, which could eventually push rig counts lower. We’ll study this relationship in more detail later in this series.

SM Energy accounts for 1.3% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). WPX Energy accounts for 0.12% of the Vanguard Energy ETF (VDE).

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