US rig count dips again after a breather (Part 7 of 11)
Offshore rig count down
In the previous article, we discussed the US onshore rig count. Last week, the offshore rig count remained unchanged at 51. The offshore rig count is now 15 rigs shy of the four-year high of 66 reached on August 29, 2014. In the last year, the offshore rig count fell by four. Nevertheless, the current offshore rig count is strong compared to its mid-2010 low of ~12.
Why the offshore rig count is strong
Offshore wells are more expensive, but they have much longer production lives. This means production is steady and can last for decades. Offshore wells also have long lead times, so falling crude oil prices won’t affect production in the short term. Unlike onshore shale rigs, offshore rigs respond slowly to a depressed crude oil price environment.
The offshore rig count can gauge the extent of energy exploration and the activity levels of integrated companies. Chevron Corporation (CVX), Anadarko Petroleum (APC), and Exxon Mobil (XOM) together account for 31.4% of the Energy Select Sector SPDR ETF (XLE). These energy companies operate in deepwater oilfields and benefit from higher offshore oil and gas production. CVX is 11.9% of the Vanguard Energy ETF’s (VDE) market capitalization.
In the next section of this series, we’ll learn more about US offshore rigs, with a focus on the drilling activity in the Gulf of Mexico.
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