US Oil and Natural Gas Rig Count: Close to a Turnaround
(Continued from Prior Part)
Offshore rig count fall
In the week ending June 19, 2015, the US offshore rig count fell by two to 27—compared to the previous week. The offshore rig count touched this level twice in the past three weeks. Offshore rig counts have averaged 30 over the past two months.
With last week’s fall, the average four-week US offshore rig count fall is one. In comparison, the rig count reduction averaged one in the four weeks ending June 12. It fell by two in the four weeks before that.
The offshore rig count is nearly 59% off its four-year high of 66 in August 2014. In the 12 months to June 19, the offshore rig count fell by 32. Despite this, the current offshore rig count is still strong—compared to its mid-2010 low of 12 after the Deepwater Horizon disaster.
Offshore rigs are different
Offshore wells are more expensive than onshore wells, but they have much longer production lives. Offshore projects also have long lead times. Falling crude oil prices don’t affect planned offshore production in the short term.
The Louisiana section of the Gulf of Mexico accounts for almost all US offshore drilling. According to the EIA (U.S. Energy Information Administration), 13 projects are expected to start in the Gulf of Mexico in the next two years—eight in 2015 and five in 2016.
Jack-up rig utilization
According to the industry news organization Rigzone, the utilization of jack-up rigs stood at 61.6% on June 19, 2015. In comparison, utilization was ~77% a year ago. Offshore rig counts indicate how busy rig operators like Transocean (RIG) and Ensco (ESV) are at any given time.
Jack-up rigs are mobile offshore drilling units that perform drilling and workover operations to lift energy. Rigzone estimates that jack-up rig use will likely fall below 50% in 2015 due to lower crude oil prices.
Trends in the offshore rig count also indicate offshore energy activity by upstream and integrated energy companies. ExxonMobil (XOM) and Royal Dutch Shell (RDS.A) have offshore operations. ExxonMobil accounts for 15.87% of the Energy Select Sector SPDR ETF (XLE). It also accounts for 1.93% of the SPDR S&P 500 ETF Trust (SPY).
Steady production, led by a stable rig count in the Gulf of Mexico, will also help midstream MLPs (master limited partnerships) like Energy Products Partners (EPD), Shell Midstream Partners, L.P. (SHLX), and Markwest Energy Partners (MWE) that operate in the Gulf of Mexico region.
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