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The US Rig Count Rises Again: What It Means to Energy Investors

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Total US rig count

According to oilfield service company Baker Hughes (BHI), there were 884 active oil and gas rigs in the United States in the week ended August 7, 2015. That’s ten more rigs than in the previous week, which ended July 31, and is the second weekly rise in the US rig count in the past three weeks. This is also the second-greatest increase in the rig count since September 2014. Until the week ended June 19, the US rig count had fallen consecutively for 28 weeks.

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With last week’s rise, the four-week average gain in US rig counts increased to five. In comparison, the four-week average change was three for the week ended July 31. Four-week averages offer a smoother view of the rig count trend, which is otherwise quite volatile when considered on a weekly basis.

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 up until the week ended June 19. Despite recent increases, the US rig count is still at its lowest level since June 2009.

July’s average rig count of 866 is five greater than the 861 rigs active in June. In comparison, June’s rig count fell by 28 from May. So the monthly rate of rig count change in 2015, which fell continuously up until June, reversed in July.

The US overall rig count hit 2,031 in September 2008—the highest count 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 oil and gas rigs have been idled.

Impact on energy companies

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

Upstream MLPs such as 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.

But more production could push energy prices even lower, and could eventually push rig counts lower. We’ll study this relationship in more detail later in this series.

SM Energy accounts for 1.4% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). WPX Energy accounts for 0.11% of the Vanguard Energy ETF (VDE).

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