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The US Oil Rig Count as of October 30: Ongoing Deceleration?

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US rig count

According to Baker Hughes (BHI), the oil field service company, there were 775 active oil and gas rigs in the United States in the week ending October 30, 2015—12 fewer rigs than the previous week.

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Lowest rig count since April 2002

In the past ten weeks, 13% of US rigs, or 110 rigs, were idled. The US rig count is now at its lowest since April 2002.

The four-week average fall in US rig counts was at nine for the week ending October 30. In comparison, the four-week average fall was 13 on the week ending October 23. Four-week averages offer a broader view of rig counts, as rig counts are otherwise quite volatile on a weekly basis. So on a four-week basis, it looks like the drop in US rigs is decelerating.

Rig counts in perspective

The US rig count experienced a rise throughout most of 2014. However, that trend reversed with 28 consecutive weeks of falling rig counts until the week ending June 19, 2015.

October’s average rig count of 791 represents a fall of 57 from the 848 active rigs in September. In contrast, September’s rig count rose by 35 from August. The monthly drop in rigs in 2015 reversed for the first time in July. However, September’s and October’s rig decline took the rig count once again into a falling trend earlier in the year.

In September 2008, the overall US rig count hit 2,031—the highest level since July 1987, according to Baker Hughes. In September 2014, the average rig count came close to that record, reaching 1,931. Since then, ~60% of the rigs have been idled as of October 30, 2015.

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Impact on energy companies

Energy companies such as Encana Corporation (ECA), WPX Energy (WPX), SM Energy Company (SM), Concho Resources (CXO), and RSP Permian (RSPP) have upstream operations. A falling rig count typically indicates decreasing exploration and development activities by these upstream companies, which could lead to lower energy production. On the other hand, a rising rig count could lead to higher energy production.

SM Energy accounts for 1.4% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). WPX Energy accounts for 0.1% of the Vanguard Energy ETF (VDE).

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) are negatively affected by decreased drilling. A falling number of rigs could lower these companies’ throughput volumes. Lower production could, in turn, raise energy prices, eventually raising rig counts.

We’ll study this relationship in more detail later in this series. But first, let’s continue to the next part of this series for a closer look at the lower total crude oil rig count in the US.

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