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US Drillers Continue Lowering Rigs in Oil & Gas Resources

Zacks

In its weekly release, Houston-based oilfield services player Baker Hughes, a GE company (BHGE), reported a fall in oil and natural gas rig count in the United States.

Details

Weekly Summary: Rigs engaged in the exploration and production of oil and natural gas in the United States totaled 936 in the week ended Oct 6 – lower than the prior week’s 940. This marked a decline in rig count for seven times in the last 10 weeks.

Since it slipped to an all-time low of 404 last May, rig count has been rising rapidly in U.S. shale resources. Punctuated by a few pauses, the current nationwide rig count is considerably higher than the prior-year level of 524.


For the week in discussion, the decline in rig count can be attributed to decreased onshore and inland waters operations. The count of rigs engaged in offshore works was reported at 22, in line with the earlier week count.

Oil Rig Count: Oil rig count slipped by two to 748. It is to be noted that the rigs exploring crude fell four times in the last five weeks. However, the current tally, though far from the peak of 1,609 attained in October 2014, is significantly above the previous year’s count of 428.

Natural Gas Rig Count: The natural gas rig count – which plunged to its lowest last August – declined by two units to 187. Like oil, the count of rigs for gas exploration sits comfortably above the year-ago tally of 94. As per the most recent report, the number of natural gas-directed rigs is nearly 88.4%, below the all-time high of 1,606 achieved in late summer 2008.

Rig Count by Type: The number of vertical drilling rigs increased by one unit to 65, but the horizontal/directional rig count (encompassing new drilling technology that has the ability to drill and extract gas from dense rock formations, also known as shale formations) decreased by five units to 871.

Gulf of Mexico (GoM): The GoM rig count stands at 22 units – 18 of which were oil-directed – same as the prior count.

Details of the Weekly Rig Count

Baker Hughes’ data, issued since 1944 at the end of every week, acts as a yardstick for energy service providers in gauging the overall business environment of the oil and gas industry.

Change in Baker Hughes’ rotary rig count weighs heavily on demand for energy services, drilling, completion, production, etc., provided by companies like Halliburton Company HAL, Schlumberger Ltd. SLB, Weatherford International plc WFT, Diamond Offshore Drilling, Inc. DO and Transocean Ltd. RIG.

Conclusion

The number of rigs exploring oil and natural gas in the United States has declined, primarily due to the removal of two rigs in each of Marcellus shale play, Permian basin and Cana Woodford shale formation. This signifies that shale drillers are not rushing to the U.S oil resources in the wake of weak commodity prices.

Oil is again trading below the $50-per-barrel mark on fears of lower oil demand from refiners as Hurricane Nate made landfall along the Gulf coast area.

Despite weak crude, some energy explorers look attractive. Two oil stocks that might make valuable additions to your portfolio now are Lonestar Resources US LONE and Diamondback Energy FANG. Lonestar sports a Zacks Rank #1 (Strong Buy), while Diamondback carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in Fort Worth, TX, Lonestar explores oil and gas resources in the United States. The company is expected to witness 79.7% year-over-year earnings growth in 2017.

Headquartered in Midland, TX, W&T Offshore is primarily involved in the exploration and development of Permian basin oil and natural gas resources. The company beat the Zacks Consensus Estimate in each of the prior four quarters, with an average earnings surprise of 59.32%.

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