Crude Oil and Natural Gas Rigs Part Ways: September 18 Week



Crude oil and natural gas rigs

According to Baker Hughes (BHI), in the week ending September 18, the US rig count fell by eight crude oil rigs, while the natural gas rig count rose by two. Crude oil rigs have continued to fall in the past three weeks. The natural gas rig count has been volatile, but with a downward bias.

In the 12 months ending September 18, 2015, the total US crude oil and natural gas rig count fell by 1,089 or 56%. The number of active oil rigs fell by 957 or 60%. The number of natural gas rigs fell by 131, or ~40%, over this period.

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Why the 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 rise in supplies in the months to come. In contrast, falling rig counts point to a potential stagnation in supplies.

Impact on energy companies

The 56% 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, falling natural gas rig counts over the past year would negatively affect natural gas compression services providers like Exterran Holdings (EXH) and Exterran Partners (EXLP).

The falling trend over the past year would also negatively impact Nabors Industries (NBR). It provides drilling and rig services. The falling trend would also impact completion and production services. Drill equipment makers like Schlumberger (SLB) and Halliburton (HAL) would also suffer if rig counts fall. A lower rig count would likely reduce oilfield service companies’ revenue. Upstream companies reduce exploration and production activity and push oilfield service companies for lower contract terms or day rates to save on costs. Schlumberger forms 20.50% 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) due to lower volumes.


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