U.S. Oil Rig Count Reaches 25 Year High on Jump in Oil Prices

Baker Hughes (NYSE:BHI) recently released its weekly rig count for North America, reporting that the oil rig count in the U.S. stood at its highest level since 1987, the year the company started providing the break up between oil and natural gas rigs. ^[1] The oil rig count in the U.S. touched 1,293, up 28 over the past week, signaling that high oil prices were pushing exploration activity towards oil exploration. Low gas prices are also forcing exploration and production (E&P) firms to shift activity towards oil-rich plays. These changing trends in the North American E&P scene are also likely to impact the performance of other oilfield services players such as Halliburton (NYSE:HAL).

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Oil exploration up

Oil prices have been rising over the past few weeks because of the political tension in the Middle East and some improvements in the global economic outlook. High oil prices tend to spur investments in exploration and production activity by boosting the cash flows of upstream firms and improving their ability to generate finances for new projects. New exploration projects increase the rig count and result in higher revenues for oilfield services firms like Baker Hughes, which provide an array of E&P as well as production enhancement services. High oil prices are also pushing companies to spend on technologies that can reduce the natural output declines seen in mature fields.

The tightness in the supply situation seen in the global oil markets is pushing prices up as the U.S. and E.U. seek to replace Iranian oil. The oil rig count is also increasing because low gas prices are forcing companies to target liquids exploration. The gas rig count in the U.S. has shown declines over the past eight weeks because of weak gas pricing. ^[1]

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1. Oil Rig Count Hits 25-Year High, Zacks [↩] [↩]