Baker Hughes' U.S. Rig Count Jumps for Second Week in a Row

Baker Hughes' (BHI) rig count report showed oil and gas rigs operating in the U.S. hit 414 this week, an increase of 6 rigs over last week and a sign that the oil industry is beginning to recover with higher oil and gas prices.

U.S. oil rigs were up by 3 to 328 over 325 last week while U.S. natural gas rigs were also up by 3 to 85 versus 82 last week and miscellaneous rigs came in the same at 1. Offshore and inland water rigs showed no change over last week at 21 and 5, respectively, but land rigs increased by 6 to 388 versus 382 last week.

Last week Baker Hughes reported that the rig count increased for the first-time since August of 2015, pointing to a possible end to the industry downturn.

The oilfield services giant reported earlier in the week that the international rig count was up 9 rigs, or 1%, to 955 in May over April, the first month-to-month increase since September of last year.

In recent months supply disruptions have helped push oil prices upward to more than $51 per barrel, most recently the blowing up of an Eni (E) pipeline in Nigeria run by its Agip unit, although this week the rise in the value of the U.S. dollar eased them back down to just over $50. Natural gas prices have also been inching upward on lower production figures, jumping 6% yesterday to $2.617 per million British thermal units, their highest level since late September.

Analysts at Tudor, Pickering, Holt & Co. said Friday they think the gas rig count has bottomed out and could be headed higher sooner than expected given the rally. They expect unconstrained basins like the Haynesville, which are approaching break-even economics with new completion techniques, will be the first area to add back capital.

TPH noted this week that its favorite large, liquid names in a recovery include Chevron (CVX) , Royal Dutch Shell (RDS.A) , Anadarko Petroleum (APC) , Devon Energy (DVN) , Pioneer Natural Resources (PXD) , Baker Hughes and Halliburton Co. (HAL) .

In oilfield services, Wunderlich Securities analyst Jason Wangler said completion-focused services are expected to get the first spending and activity in a recovery, benefiting Patterson-UTI Energy (PTEN) and Basic Energy Services (BAS) . But it will take longer for the actual rig count to turn around along with those providing services around rigs, hurting Patterson-UTI Energy and Pioneer Energy Services (PES) with their direct drilling exposure and Superior Drilling Products (SDPI) given its focus on drilling solutions.

TPH predicts the rig count will be as high as 650 rigs next year if crude oil trades between $55 and $60 per barrel but RBC thinks oil needs to trade above $50 for an extended period before the industry sees a material ramp-up in activity. The KLR Group expects the U.S. gas rig count will average about 115 rigs this year.

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