Is Crude Oil Price Weakness Dragging the US Rig Count?
Total US rig count
According to oilfield service company Baker Hughes (BHI), there were 864 active oil and gas rigs in the United States in the week ended September 4, 2015. This is 13 less than the previous week, which ended August 28. In the last two weeks, 21 US rigs were idled. Until the week ended June 19, 2015, the US rig count had fallen consecutively for 28 weeks. Since then, the US rig count has recovered 1% despite last week’s loss.
The four-week average loss in US rig counts was five for the week ended September 4. In comparison, the four-week average increase was one for the week ended August 28. Four-week averages offer a smoother view of this trend, which is otherwise quite volatile on a weekly basis.
Rig counts in perspective
The US rig count experienced an uptrend throughout most of 2014. However, that trend reversed with 28 consecutive weeks of falling rig counts until the week ended June 19.
August’s average rig count of 883 represents a rise of 17 from the 866 active rigs in July. In comparison, July’s rig count increased by five from June. The monthly drop in rigs in 2015 reversed in July.
The US overall rig count hit 2,031 in September 2008, the highest since July 1987, according to Baker Hughes. In September 2014, the average rig count came close to that record, reaching 1,931. Since then, ~55% of the rigs have been idled.
Impact on energy companies
Energy companies like Encana Corporation (ECA), WPX Energy (WPX), SM Energy (SM), Concho Resources (CXO), and RSP Permian (RSPP) have upstream operations. A falling rig count typically indicates decreasing exploration and development activities by these upstream companies. This could lead to lower energy production.
Upstream MLPs like Memorial Production Partners (MEMP), Legacy Reserves (LGCY), Eagle Rock Energy Partners (EROC), Atlas Resource Partners (ARP), and Vanguard Natural Resources (VNR) could also suffer from decreased drilling.
However, lower production could push energy prices higher, which could eventually pull rig counts higher. We’ll study this relationship in more detail later in this series.
SM Energy accounts for 1.35% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). WPX Energy accounts for 0.13% of the Vanguard Energy ETF (VDE).
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