Rig Report Shows Second Consecutive Week of U.S. Gains, Internationals Bludgeoned
Baker Hughes (BHI) said Friday, June 8, that U.S. oil rigs have climbed for the second consecutive week, juxtaposing a disheartening international rig count reported earlier in the day and bringing the domestic oil and gas rig count to 440, an increase of 9 rigs over last week.
The news does not directly correlate with what future markets have been feigning in recent days as both global and U.S. benchmarks had plummeted prior to Friday.
Brent crude futures for September delivery had climbed 39 cents to $46.79 per barrel around 1:20 p.m. EDT on Friday after hitting 2-month lows in the previous session, while West Texas Intermediate contracts for August delivery traded up 31 cents at $45.45 per barrel.
Nevertheless, Baker Hughes calculates the the number of active rigs in the U.S. increased by 10 to 351 from 341 last week, while U.S. natural gas rigs were down 1 to 88 versus 89 last week and miscellaneous rigs came in the same at 1.
Baker Hughes' U.S. rig count is down 423 rigs from last year's count of 863, with oil rigs down 294, gas rigs down 129, and miscellaneous rigs unchanged at 1.
The U.S. offshore rig count remained flat again this week at 19, but is down by 12 rigs year-over-year.
Prior to Friday's report, Credit Suisse analysts noted 29 rigs had gone back to work over the previous four weeks and said their current information shows most rigs have gone to work at dayrates in the $15,000 to $16,000 range.
Credit Suisse wrote July 7 that investors have been led to believe that all of the incremental rigs put back to work would be Tier 1 rigs, described as 1,500 horsepower AC rigs, but the firm noted only about 75% of those rigs have been the Tier 1 1,500 HP AC rigs.
"That is a majority, but it is not all, and we would expect that to continue" Credit Suisse' James Wicklund wrote. "The best rig is the one that does the best job on the well being drilled. Yellow cabs (mechanical rigs) are still on the streets in spite of Uber (walking rigs)."
Meanwhile, the day's international rig report was not as promising, according to Baker Hughes, with second quarter activity finishing down 7% from the last period and 19% year-over-year.
The June international count was down 28 rigs from May to 927, with onshore rigs declining 22 and offshore rigs dropping by 6. International rigs numbered 1118 one year ago, Baker Hughes data shows.
Latin America, which saw rig activity drop 18% quarter-over-quarter, continues to be the weakest link, according to Tudor, Pickering, Holt analysts. The firm pointed to an onshore activity decline of 11 rigs month-over-month, with both Venezuela and Argentina down 8.
The Venezuela numbers come as no surprise as the world's first and second largest oilfield equipment and services providers, Schlumberger (SLB) - Get Report and Halliburton (HAL) - Get Report, both cautioned in May likely activity pullbacks in the distressed country as it has failed to pay its bills on time.
Schlumberger is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells SLB? Learn more now.
Land activity was similarly weak in the Asia-Pacific region, however, Tudor pointed out Friday, noting a decline of 8 rigs from a month ago. The analysts said the overall drop was driven by declines in a "smattering of countries" throughout the region.
"Looking ahead, even as oil price continues to migrate higher, prior cycles have shown that [capital expenditures] plans for the collective base of [international] E&P operators don't usually change on a dime, so we expect [international] activity to continue trickling lower before finding its cyclical trough sometime early-2017," the firm wrote.
The positive news for U.S. oil rigs comes as jobs numbers for June were also reported. The U.S. nonfarm payrolls report showed that 287,000 jobs were added in June, well above economists' expectations of 175,000. The report was the best beat since December 2009. The 35,000 workers returning from a May strike at Verizon (VZ) - Get Report boosted the headline figure.
The U.S. unemployment rate rose to 4.9% from 4.7%, while the labor force participation rate increased to 62.7%. Average hourly wages rose 0.1% to $25.61.