Permian Oil Rig Count Increases in 4 of Prior 6 Weeks

In its weekly release, Baker Hughes Company BKR stated that the U.S. rig count was lower than the prior week's figure. The rotary rig count, issued by BKR, is usually published in major newspapers and trade publications.

Baker Hughes' data, issued at the end of every week since 1944, helps energy service providers gauge the overall business environment of the oil and gas industry. The number of active rigs and its comparison with the week-ago figure indicates the demand trajectory for the company's oilfield services from exploration and production companies.

Rig Count Data in Detail

Total U.S. Rig Count Falls: The number of rigs engaged in the exploration and production of oil and natural gas in the United States was 621 in the week ended Mar 28. The figure is lower than theweek-ago count of 624. The figure decreased in two straight weeks, signifying there has been a slowdown in drilling activities. Many analysts believe that shale producers are getting more efficient, requiring fewer rigs, while some doubt whether certain producers have enough prospective land to drill. The current national rig count is also lower than the year-ago level of 755.

Onshore rigs in the week that ended on Mar 28 totaled 601, in line with the prior week's count. In offshore resources, 20 rigs were operating, lower than the week-ago count of 23.

U.S. Oil Rig Count Falls: The oil rig count was 506 in the week ended Mar 28, decreasing from the week-ago figure of 509. The current number of oil rigs — far from the peak of 1,609 attained in October 2014 — is also down from the year-ago figure of 592.

U.S. Natural Gas Rig Count Flat: The natural gas rig count of 112 was in line with the week-ago figure. The count of rigs exploring the commodity was below the year-ago week's 160. Per the latest report, the number of natural gas-directed rigs is almost 93% lower than the all-time high of 1,606 recorded in 2008. 

Rig Count by Type: The number of vertical drilling rigs totaled 13 units, higher than the week-ago count of 12. However, the horizontal/directional rig count (encompassing new drilling technology with the ability to drill and extract gas from dense rock formations, also known as shale formations) of 608 decreased from the prior-week level of 612.

Rig Count in the Most Prolific Basin

Permian — the most prolific basin in the United States — recorded a weekly oil rig count of 310, higher than the week-ago figure of 309. The number increased in four of the prior six weeks.

Outlook

The West Texas Intermediate crude price is trading at more than the $80-per-barrel mark. Although the commodity pricing scenario is favorable for exploration and production operations, there has been a slowdown in drilling activities, which may continue as upstream players are prioritizing stockholder returns rather than boosting output.

Amid the backdrop, investors seeking medium to long-term gains may keep an eye on energy stocks like Diamondback Energy, Inc. FANG and Matador Resources Company MTDR.

Diamondback Energy, a leading pure-play Permian operator, has reported ongoing enhancements in the average productivity per well in the Midland Basin. The exploration and production company is likely to continue witnessing increased production volumes. FANG, carrying a Zacks Rank #3 (Hold), also has an investment-grade balance sheet.

Matador Resources has a strong presence in the oil-rich core acres of the Wolfcamp and Bone Spring plays in the Delaware Basin. Promising oil prices are likely to aid it in increasing production volumes. Matador acquired Advance Energy Partners Holdings, LLC, which comprises several oil and natural gas-producing properties and undeveloped acreage. Zacks #3 Ranked MTDR expects the buyout to be accretive to important valuation and financial metrics.

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