According to data from Houston-based oilfield services company Baker Hughes Inc. (BHI), the number of rigs searching for natural gas in the U.S. rose for the week ended Feb. 12, 2010, reflecting intensified drilling activity by the producers in response to rebounding commodity prices. However, the oil rig count dipped slightly.
As shown in the first chart below from Baker Hughes, rigs exploring and producing in the U.S. totaled 1,346 during the week. This is up by 11 from the previous week’s tally and represents the 16th gain in the past 17 weeks. The current nationwide rig count is 54% higher than the 2009 low of 876 (set in the week ended June 12).
The combined oil and gas rig count finally exceeded the prior-year level, now up by 7 from the same period in 2009. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ended Aug. 29 and Sept. 12.
The natural gas rig count increased by 13 to a fresh 11-month high of 891 — the 24th gain in last 30 weeks — after bottoming at 665 on July 17, 2009 (its lowest level since May 3, 2002). However, the rig count remains 45% lower than its peak of 1,606 in late summer 2008. In the year-ago period, there were 1,054 active natural gas rigs. This is shown in the following chart, also from Baker Hughes.
The oil rig count was down by 2 to 443, representing just the 2nd decrease in the past 22 weeks. However, the tally is up more than 62% from the previous year’s count of 273, as shown in the following chart from Baker Hughes. Oil rig count peaked at 442 in early Nov. 2008.
The miscellaneous rig count, at 12, remains unchanged from the previous week.
Producers had scaled back oil and gas drilling operations over the past year (leading to a drastic reduction in rig count) in the midst of falling commodity prices and tighter access to credit. However, during recent weeks, companies have been beginning to bring rigs back on line amid signs of economic stabilization that could drive up energy demand.
Oil prices jumped over 75% in 2009 (following a 54% dip in 2008), while gas futures have also gained significantly from their Sept. 2009 lows. This pushed the nationwide rig count above 1,300 working units for the week ended Jan. 29, 2010, for the first time in almost a year.
The overall picture, though, remains weak, particularly for natural gas, whose inventory remains 5.4% above their five-year average and much higher than the normal range at this time of the year. However, the ongoing surge in the commodity’s demand (as reflected by the sustained withdrawals for the past few weeks) is expected to reverse the trend in the coming months.
Until then, we look to maintain our cautious outlook on oilfield service firms like Halliburton Company (HAL), Schlumberger Limited (SLB), Baker Hughes and National Oilwell Varco (NOV). Though the oilfield service industry is on a recovery path, these companies are still feeling the effects of lower activity levels, contraction in customer spending and price deterioration.
Land drillers such as Nabors Industries (NBR) and Patterson-UTI Energy (PTEN) are also expected to remain under pressure. Although we expect the land rig count to continue with its steady rise during 2010, the large amount of excess capacity in the sector will weigh on dayrates and margins well into the year.
All the above mentioned companies currently has a Zacks Rank #3 (Hold), meaning that these stocks are expected to perform relatively the same as the overall market during the next 1-3 months. Therefore, investors should maintain their current positions in the stocks over this time period.
Read the full analyst report on “BHI”
Read the full analyst report on “HAL”
Read the full analyst report on “SLB”
Read the full analyst report on “NOV”
Read the full analyst report on “NBR”
Read the full analyst report on “PTEN”
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