As oil prices increase, rig count rises
New exploration projects result in higher revenue for oilfield services companies like Baker Hughes.
The rig count in the U.S. touched 1,293, up 28 over the past week. Low gas prices are also forcing exploration and production (E&P) companies to shift activity toward oil-rich plays. These changing trends in the North American E&P scene are also likely to affect the performance of other oilfield services players such as Halliburton (HAL).
Oil exploration up
Oil prices have been rising over the past few weeks because of the political tensions 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 companies and improving their ability to generate finances for new projects.
New exploration projects increase the rig count and result in higher revenue for oilfield services companies 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.
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