How Increased Rig Count Could Affect the Rest of the Energy Sector

Last week, Baker Hughes (BHI) reported that the U.S. rig count increased by 23 to 899 rigs. The domestic rig count had peaked at the end of August 2008, reaching 2,031 rigs, falling steadily thereafter for 38 out of the last 41 weeks.

While rig count increased from the previous week (ended on June 12), it is down by 1,007 rigs compared to a year ago, marking one of the worst downturns in the industry history.

Source: Baker Hughes U.S. Rig Report for 6/19/2009

The rig count increase last week was the first during 2009 since a four-rig gain experienced during the first week of the second quarter. The rig count gain last week was entirely onshore while the offshore rig count actually fell by one.

This would suggest land drilling is continuing at a healthy pace, and it may be a turning point for land drillers such as Nabors (NBR) and Patterson-UTI (PTEN), on both of which we have a Sell recommendation.

Our recommendation reflects their exposure to the weak demand outlook for North American land drilling following unfavorable developments in natural gas' supply-demand fundamentals.

We remain wary of oilfield service providers such as Halliburton (HAL) and BJ Services (BJS), given our weak outlook for the North American pressure pumping market. The increase in rig count may also prove positive for them as demand for oilfield services closely tracks the overall rig count, which in turn reflects spending plans by E&P players.

However, we remain skeptical of the sustainability of recent enhancement of active rig count.

Comments

[saltydog:]

good deal
lots of people will leave the unemployment lines,and oil may stay priced within reason. one more rig drilling might equate to 40 or 50 jobs down the line!

Jun 28 03:25 PM

[one eye:]

I get my Hughes rig count from Barron's, why does yours differ so drastically from theirs?

Jun 28 05:39 PM

[derrickhand300:]

You should get the rig count from www.drillingahead.com


On Jun 28 05:39 PM one eye wrote:

> I get my Hughes rig count from Barron's, why does yours differ so
> drastically from theirs?

Jun 28 10:53 PM

[Shale Gas:]

One week does not make a trend. I would be wary about calling a turn here.

Jun 29 08:52 AM

[toobad41:]

Rig count changes daily. Even a weekly rig count is just a best guess. The reason being is that rigs vary in size and restricted to depths they can drill. Some take a week to ten days to drill and complete because they drill to shallow objectives. Others may take months to drill and complete because they are larger and drill to deep objectives. To make a long story short, the rig count is more like a moving average. By-the-way, every rig in operation has about 20 people working. When the rig count dropped by 1007 that means over 20,000 people unemployed.

Jun 29 09:14 AM

[respected r...:]

a drilling rig does have about 20 peaple but that is just a small fraction on the life of the well. if a well goes to production then you could take that number up to 500 peaple ( drilling crew, testers, wireline, frac, cementers, service rig, snubbers, tool hands, pipeline, welders, battery operators, constuction and so on) at least that is how we do it in Canada
respected rig pig


On Jun 29 09:14 AM toobad41 wrote:

> Rig count changes daily. Even a weekly rig count is just a best guess.
> The reason being is that rigs vary in size and restricted to depths
> they can drill. Some take a week to ten days to drill and complete
> because they drill to shallow objectives. Others may take months
> to drill and complete because they are larger and drill to deep objectives.
> To make a long story short, the rig count is more like a moving average.
> By-the-way, every rig in operation has about 20 people working. When
> the rig count dropped by 1007 that means over 20,000 people unemployed.

Jun 29 06:33 PM

[toobad41:]

respected rig pig...
I agree with all that you have said. My comments were just aimed to the reality of what rig count means in the media. In addition, rig count starts with someone (i.e. geologist or reservoir engineer) who recommends a well or series of wells to be drilled. Without a drilling budget, no well is drilled. Even when moneys are available to drill a well, you have to get the regulatory agency to approve it, you have to have a location staked (surveyed), location built (contract a crew to build the site), contract a drilling company to drill the well. Often, in order to get a company to drill the well, a contract will consist of a series of wells. Many contractors won't drill just one well. They would like to drill perhaps 20 or 30 wells. I have contracted a driller to drill all of our wells for the whole year. That process starts a year in advance. Beyond what you say about on the ground people there are many people in the "main" office who take care of the bills (accounting), updating production, etc. It goes on and on.

Jun 30 08:05 AM