Everyone from investors to suppliers studies the rig count every week. Here’s a look at how it’s compiled.
People who follow Wall Street depend enormously on the Standard & Poor’s 500, the Dow Jones Average, and the NASDAQ Composite indices for information on the economy. In the oil and gas business, the Baker Hughes Rig Count is widely relied upon to gauge the industry’s pulse, in conjunction with other sources, on the demand for products and services in the industry.
“The Baker Hughes Rig Count represents ‘active’ rigs that are actually drilling during the week,” notes Alondra Oteyza, Baker Hughes’ director of investor relations.
Not only do suppliers and producers rely on rig count data, the Baker Hughes Rig Count is also widely used by energy investors and by the media in reports on industry activity. The Baker Hughes Rig Count has earned its high esteem in the industry in part because of the rigor of its criteria.
Baker Hughes purposely includes only those rigs that are significant consumers of oilfield services and excludes cable tool rigs, very small truck-mounted rigs, or rigs that can operate without a permit. Although rotary rigs are the primary rigs counted, at times, non-rotary rigs may be included in the count, depending on how they are employed at the drilling site. Besides distinguishing between U.S. and Canadian rigs and oil and gas drilling platforms, the Baker Hughes Rig Count provides information on onshore and offshore drilling, rig counts among major petroleum-producing states, and counts by oil-and-gas producing basins.
Unsurprisingly, the North American rig count has dropped by more than 50 percent in the past year: 1,073 rigs were active as of August 28, in contrast to the 2,323 rigs logged during the same period last year. That smaller number parallels the current abundance of oil and gas on the worldwide market, which has depressed prices.
Today, there’s an oversupply of oil on the market, which has driven oil producers to lower spending and reduce the number of active rigs, Oteyza notes. What’s more, because the rig count is down, the demand for products and services for the drilling industry has also declined.
Nevertheless, the Baker Hughes Rig Count is nowhere near its historical bottom. The lowest rig count for the U.S. was recorded on April 23, 1999 at 488 rigs. Canada’s low (29) was recorded more than half a decade earlier, on April 24, 1992. The highest weekly U.S. rig count was 4,530, which was recorded on December 28, 1981. During the first half of the 1980s, overproduction of petroleum produced a glut on the world market, resulting in a six-year-long decline in oil prices, culminating with a 46 percent price drop in 1986. This created a severe downturn in the economies of petroleum-producing states.
Baker Hughes was formed in 1987 by the merger of Baker International and Hughes Tool Company, both of which began in the early years of the 20th century. Hughes Tool – founded by the illustrious entrepreneur Howard Hughes – began compiling data on rig operators in the 1930s and 1940s to better market its oilfield drill bits. This eventually became the Baker Hughes Rig Count.
In 1944, Hughes Tool began publishing weekly counts of U.S. and Canadian rig activity, and launched its monthly international rig count in 1975. The North American rig count comes out at noon, central time, on the last day of the working week, every week of the year.
One factor that has wrought the most change on the U.S. oilfield operations, Oteyza explains, is technology. “Because of advances in technology, today’s unconventional wells are drilled much faster and yield more oil and gas than they did in the past – and they remain active wells longer than the wells did in previous generations,” Oteyza notes. “So, with fewer rigs we can now drill more wells and produce more oil in the U.S. than we ever have before.
“Despite this trend, the Baker Hughes Rig Count is just as critical for the industry today as it was when it was first published almost 75 years ago.”