CHICAGO, June 6, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Baker Hughes Inc. (NYSE:BHI), Diamond Offshore (NYSE:DO), Nabors Industries (NYSE:NBR), Patterson-UTI Energy (Nasdaq:PTEN) and Helmerich & Payne (NYSE:HP)
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Here are highlights from Tuesday's Analyst Blog:
Nat Gas Rig Count Lowest Since 1999
In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (NYSE:BHI) reported a dip in the U.S. rig count (number of rigs searching for oil and gas in the country).
This can be attributed to cutbacks in the tally of gas-directed rigs, partially offset by increase in oil rig count. In particular, the natural gas rig count dropped for the eighteenth time in 21 weeks to touch a near 13-year low, while oil drilling jumped to another 25-year high.
The Baker Hughes rig count, issued since 1944, acts as an important yardstick for drilling contractors such as Diamond Offshore (NYSE:DO), Nabors Industries (NYSE:NBR), Patterson-UTI Energy (Nasdaq:PTEN), Helmerich & Payne (NYSE:HP), etc. in gauging the overall business environment of the oil and gas industry.
Analysis of the Data
Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 1,980 for the week ended June 1, 2012. This was down by 3 from the previous week's count and represents the second decrease in as many weeks.
Despite this, the current nationwide rig count is more than double that of the 6-year low of 876 (in the week ended June 12, 2009) and significantly exceeds the prior-year level of 1,854. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ending August 29 and September 12.
Rigs engaged in land operations descended by 2 to 1,911, while inland waters activity was down by 1 to 21 rigs. Meanwhile, offshore drilling remained steady at 48 units.
Natural Gas Rig Count: The natural gas rig count decreased for the eighteenth time in 21 weeks to 588 (a drop of 6 rigs from the previous week). As per the most recent report, the number of gas-directed rigs is at their lowest level since October 15, 1999 and is down more than 37% from its 2011 peak of 936, reached during mid-October.
The current natural gas rig count remains 63% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 887 active natural gas rigs.
Oil Rig Count: The oil rig count was up by 3 to 1,386. The current tally – the highest since Baker Hughes started breaking up oil and natural gas rig counts in 1987 – is way above the previous year's rig count of 959. It has recovered strongly from a low of 179 in June 2009, rising more than 7.7 times.
Miscellaneous Rig Count: The miscellaneous rig count (primarily drilling for geothermal energy) at 6 remained unchanged from the previous week.
Rig Count by Type: The number of vertical drilling rigs rose by 10 to 580, while the horizontal/directional rig count (encompassing new drilling technology that has the ability to drill and extract gas from dense rock formations, also known as shale formations) was down by 13 at 1,400. In particular, horizontal rig units – that reached an all-time high of 1,193 in May this year – decreased by 8 from last week's level to 1,183
As mentioned above, the natural gas rig count has been falling since the last few weeks, 346 rigs in fact (or 37%) from the recent highs of 934 in October 28.
Is this bullish for natural gas fundamentals? The answer is "no," if we look at the U.S. production and the shift in rig composition.
With horizontal rig count – the technology responsible for the abundant gas drilling in domestic shale basins – currently close to its all-time high, output from these fields remains robust. As a result, gas inventories remain at elevated levels – up some 35% above the benchmark five-year average levels.
Hamstrung by this huge surplus, natural gas prices have dropped more than 51% from 2011 peak of $4.92 per million Btu (MMBtu) in June to the current level of around $2.40 (referring to spot prices at the Henry Hub, the benchmark supply point in Louisiana). Incidentally, prices hit a 10-year low of $1.82 during late April.
To make matters worse, a near-record mild weather across most of the country curbed natural gas demand for heating, leading to an early beginning for the stock-building season. The grossly oversupplied market continues to pressure commodity prices in the backdrop of sustained strong production.
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