Is the US Rig Count Decelerating as of November 13?



US rig count

According to oilfield service company Baker Hughes (BHI), there were 767 active oil and gas rigs in the United States in the week ended November 13, 2015, or four fewer rigs than in the week before.

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Lowest rig count since April 2002

In the past 12 weeks, 13% of US rigs, or 118 rigs, were idled. The US rig count is now at its lowest level since April 2002.

The four-week average fall in US rig counts was at five for the week ended November 13. In comparison, the four-week average fall was six in the week ended November 6. Four-week averages offer a broader view of rig counts, as rig counts are otherwise quite volatile on a weekly basis. On a four-week basis, it looks like the fall 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 ended June 19, 2015.

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

In September 2008, the overall US rig count hit 2,031. This was 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 November 13, 2015.

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Impact on energy companies

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

SM Energy accounts for 1.3% 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 less 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 take a closer look at the lower total rig count in the United States.


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