As oil prices increase, rig count rises
New exploration projects result in higher revenue for oilfield services companies like Baker Hughes.
Baker Hughes (BHI) recently released its weekly rig count for North America, reporting the highest level since 1987, the year the company started providing the breakup between oil and natural gas rigs. 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.
If one looks carefully at the graph above it indicates that the number of rigs drilling for oil has been increasing almost since the day President Obama took office.
A record number of rigs are now drilling for oil in the U.S., the most in 25 years. SEARCH: 'Baker Hughes Rig Count Hits Record'
More rigs are now drilling in the deepwater Gulf than before the BP Deepwater Horizon explosion in 2010. SEARCH: 'More Oil Drilling Rigs In Gulf'
The U.S. consumes about 19 million barrels of oil per day of which about 9 mbd is imported, most from the Western Hemisphere. There is plenty of oil available to meet our needs, in fact the U.S. is now a net exporter of over 400,000 barrels of refinery products per day. SEARCH: 'U.S Exports Refined Fuels'
The U.S. has about 1.5% of the world's known reserves of crude oil, this simply is not enough to effect the price of oil on the world market. SEARCH: 'Drill Baby Drill Won't Lower Gas Prices'
One million acres on the U.S./Mexico maritime border has just been opened for new offshore drilling. SEARCH: 'US, Mexico Agree To Cooperate On Energy'
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