Weekly U.S. Oil Rig Count: Largest Increase In The Rig Count In Almost Four Years

| About: The United (USO)

Summary

The largest increase in the rig count in almost four years.

Almost all of the rigs added were horizontal rigs.

A lot of activity in the Permian.

A lot of activity in Cana Woodford.

The natural gas rig count also increased materially.

This week, oil companies made up for the last three weeks of minimal activity, with the largest increase in the oil rig count in almost four years. Most of the rigs were horizontal and located either on the Permian or in Cana Woodford.

Crude oil prices (NYSE: USO) continued to be trading in a range and ended the week about $0.70/bbl higher than the previous Friday.

Source: Finviz.com

Data:

Source: Baker Hughes

* Total U.S. rig count (oil + gas) increased by 35, after falling the previous week for the first time in 9 weeks. This week's increase is actually the largest one week increase in the rig count since at least February 2011, when the publicly available BHI data-series begins.

* The total oil rig count increased by 29 after falling the previous week for the first time in 11 weeks. This week's increase is the largest since April of 2013. As in previous weeks, a majority of the rigs added were horizontal rigs.

In total, oil rigs are up by 74% since the bottom in late-May 2016. Virtually all of the rigs added have been horizontal.

* Horizontal rigs increased by 22 during the week. At least 16 of them are oil rigs. In addition there was one new directional rig added during the week. This is the largest one-week increase in horizontal rigs since December 2011.

The horizontal rig count is up by 78% since the bottom in late May.

Source: Baker Hughes, Orangutan Capital

Rig activity returned with a vengeance, but with an interesting caveat. Apart from the usual rigs added in the Permian, about 1/3 of the increase came from new rigs in Cana Woodford, a shale formation located in Oklahoma, which also very rich in natural gas.

* The Permian oil rig count increased by 13. This follows several weeks of apparent minimal activity, where the total count in this basin increased by little, but where in fact several horizontal rigs were added at the expense of vertical rigs.

Since the bottom in late April / early May, the rig count in the Permian is up by 113%. Virtually all of the rigs added have been horizontal.

* The rig count in Cana Woodford increased by 9. This is a shale formation where the rig count has remained relatively stable (i.e. didn't drop) during the last two years. This formation is also rich in natural gas.

* The Eagle Ford and the Williston basins added a combined total of 5 new oil rigs during the week.

* There was a drop of one rig in the Gulf of Mexico.

* The natural gas rig count increased by 6, with 3 new rigs in the Utica shale, and one rig in each of Haynesville and Marcellus.

Conclusion:

For a while, we had seen a slowdown in the rig count driven by the holiday season, but this week, producers added rigs with fury, primarily in the Permian and Cana Woodford basins. The increase in Cana Woodford could be a one-off event, driven by the capital spending plans of a single company, but the appetite for drilling in shale-producing regions has been in the air for a couple of months now.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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