As US oil rig count nosedives, natural gas production trends up (Part 5 of 10)
Horizontal rig numbers down
The horizontal rig count decreased by 24 from the previous week’s count. This was the ninth straight weekly fall. Currently, there are 1,229 horizontal rigs. The count now is 143 less than the 1,372 record high reached on November 21, 2014. Horizontal rig counts had repeatedly set and broken new records throughout 2014.
Last week, the number of vertical rigs declined by 12 to 258, versus 270 in the previous week. The number of directional rigs fell by seven. In the last year, horizontal rigs are up 59, or 5%. Vertical rigs are down by 138.
Rig type
According to oilfield service company Baker Hughes (BHI), a horizontal well is a directional well. Its surface isn’t situated directly above the reservoir that it targets. When the well’s inclination is more than 80 degrees from vertical, or when the lower part of the well runs parallel to the pay zone along the reservoir, it’s a horizontal well.
Horizontal wells increase the length of the well that’s exposed to the reservoir. This increases production. In vertical drilling, a well goes straight down until it reaches the formation.
Rig counts can gauge a company’s upstream activity. Continental Resources (CLR) and Marathon Oil Corporation (MRO) are two upstream companies. MRO makes up 1.3% of the Energy Select Sector SPDR ETF (XLE). For more on CLR, read Continental Resources: An important overview.
Horizontal rigs increased in 2014
The number of horizontal rigs jumped in the US when large quantities of oil and gas were discovered in shale formations. Oil companies combined horizontal drilling with hydraulic fracturing. This gave them access to unconventional oil and gas formations to increase oil and natural gas production.
By the end of December 2014, the number of horizontal rigs increased by ~303% compared to the number of rigs in January 2007. During the same period, the number of vertical rigs decreased by ~69%, indicating a long-term downward trend.
Rig counts gauge oilfield service companies’ upstream activity. Oilfield service companies include Weatherford International (WFT) and Schlumberger (SLB). The companies are part of the Market Vectors Oil Services ETF (OIH). WFT and SLB combined account for 24.7% of OIH.
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