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Is the Offshore Rig Count Improving?

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Weekly US rig count

For the week ended December 23, 2016, the US offshore rig count increased to 25 from 22 in the prior week. Rig count is an important yardstick for gauging the demand and outlook for the offshore drilling industry (XLE).

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Why is rig count important?

Rig count tells us the number of rigs that are actively drilling. An increase in rig count indicates a rise in demand for drilling activity. A decrease in rig count indicates a decline in demand.

International offshore rig count

The international offshore rig count for November 2016 was 221, up 11 rigs from 200 in October. Compared to November 2015, the rig count was down by 48 rigs.

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Monthly rig count

According to Baker Hughes (BHI), the number of offshore rigs in the United States at the end of November 2016 was 22, down one from the previous month. This is a 29% decline compared to the 31 rigs recorded in November 2015. The decrease in rig count is due to a slump in oil prices.

What’s next?

In the previous article, we saw there has been a recent surge in oil prices. This appears to be beneficial for the offshore drilling industry, and we don’t expect a sudden increase in the rig count. However, OPEC’s recent production curb could benefit the offshore drilling industry in the medium to long term. We can expect the rig count to increase substantially in the long term.

This gives us little hope that the weekly increase in rig count could be sustainable for a longer period. Thus, we don’t expect to see a turnaround in the near future for companies such as Ensco (ESV), Seadrill (SDRL), Noble (NE), Transocean (RIG), Atwood Oceanics (ATW), Diamond Offshore (DO), Rowan Companies (RDC), Pacific Drillers (PACD), and Ocean Rig (ORIG).

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