Interest Rate Worries Pull the Utilities Sector Down (Part 4 of 11)
Rig count
A drilling rig is a machine that’s used to dig a hole into the Earth’s surface. Rigs are used to drill oil and natural gas wells. Rigs can be set up onshore or offshore. Onshore rigs are usually moved once a well is drilled. Offshore rigs are more permanent. The higher the gas rig count, the higher the future natural gas production.
Natural gas rig count falls
The natural gas rig count dropped for the fifth straight week for the week ending March 6. According to Baker Hughes, an oilfield services company, the natural gas rig count fell to 268 on March 6 compared to 280 on February 27 and 345 a year back. The number of oil rigs that also produce some natural gas continued to fall. Oil rigs dropped below 1,000 to 922 on March 6. This was 64 fewer than the 968 on February 27.
What does this mean?
The natural gas rig count represents producers’ sentiments. If producers expect cooler winters, the rig count will likely increase, as producers drill more wells. The inverse is also true. An increasing natural gas rig count in a stable demand environment is a negative indicator for coal producers (KOL)—like Alpha Natural Resources (ANR) and Arch Coal (ACI). However, a decrease in the rig count may not be positive for coal producers. For utilities such as Public Service Enterprises Group (PEG) and AES (AES), the impact is less clear and depends on the revenue model.
While the natural gas rig count fell for the last three years, production is rising. It’s important to note that oil wells also produce some natural gas.
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