From Sterne Agee analysts:
Energy & Industrials
Analysts: Peter Arment / Michael S. Dudas, CFA / Stephen D. Gengaro / Michael Ward, CFA / Tim Rezvan, CFA / Todd Vencil, CFA / Sal Vitale / Kevin Bennett, CFA / Grant Fox / Truman Hobbs / Satyadeep Jain, CFA / Josh W. Sullivan / Patrick Uotila, CPA
Energy and Industrials Weekly -- Rig Count Activity Update
The U.S. rig count has started creeping higher since the April trough despite headwinds from lower gas activity. Overall, the rig count has advanced 27 rigs from the early April trough (1,738) and is basically unchanged year-to-date at 1,765 rigs with oil rigs up 79 (6.0%) and gas rigs down 77 (17.9%). We expect rig count growth to improve throughout 2H13 and 2014 driven by rising oil drilling near term and higher gas activity in late 2013/2014.
• United States Rig Count: The United States total rig count stands at 1,765 rigs, down from 1,771 last week and has declined 11% year-over-year (1,984 rigs). The decline is largely attributed to the drop in gas rigs which were 588 a year ago while oil rigs were 1,386; currently, there are 1,406 oil rigs (+1.6%) and a mere 354 gas rigs, down 39.8% from a year ago.
• Oil Rigs on the Rise: Oil rigs currently make up 79.6% of the United States total rig count (latest data June 7th from Baker Hughes) versus 71.2% a year ago. The up-tick stems from operators continuing to seek out oily basins as oil prices offer a more compelling return versus natural gas resource plays. Oil rigs averaged 1,407 for the month of May, up 2.4% from an average of 1,374 in April 2013, which were almost the same as last year's May average of 1,373.
• Gas Rigs Bottoming and Stagnant: The gas rig count in the United States appears to be bottoming as gas rigs have stood around 354 for the past four weeks. Gas rigs have declined significantly from a year ago averaging 600 for May last year and now currently stand at 353, down over 40% on the year. Month-over-month gas rigs have dropped 5.9% from the 374 average in April. The improving natural gas backdrop will likely lead to rising gas drilling in 2H13 and 2014.
• International Rigs Slowly Rising: The international rig count for May totaled 1,283 rigs, down 1.4% or 25 rigs sequentially, and up marginally (0.4%) year-over-year to 1,203 from 1,198 excluding Iraq (80 rigs) in May 2013 and Syria (27 rigs) in May 2012. All regions declined sequentially excluding the Middle East which grew 2.3% led by an 8 rig increase in Iraq. Sequentially rigs in Latin America (-1.2%), Europe (-8.8%), Africa (-0.8%), Asia Pacific (-3.1%) all experienced a pullback in activity. Year-over-year Europe improved 5.1% to 124 rigs, Asia pacific remained flat at 249 rigs, and Africa grew 49.4% to 124 rigs from 83 last May. Latin America dropped 7.2% on the year to 424 rigs and the Middle East declined 3.1% to 282 rigs, excluding Iraq (80 rigs in May 2013) and Syria (27 rigs in May 2012).
• Favorite Names: Our favorite large cap stock in Oilfield Services is Halliburton (HAL – $43.01 – Buy PT $45); Superior Energy (SPN – $27.27 – Buy PT $34) and TETRA Technologies (TTI – $10.98 – Buy PT $12) are our preferred mid-cap and small-cap names, respectively. All three companies stand to benefit from the likely rise in the U.S. land rig count in 2H13 and 2014 and the associated completions work. Also, these three companies have exposure to the growing deepwater and international markets.
Chesapeake Energy Corp,the Oklahoma-based firm is the No. 1 driller in Ohio.
Rig Count Interactive Map by Baker Hughes, an energy services company.
Shale Sheet Fracking, a Youngstown Vindicator blog.
The Ohio Environmental Council, a statewide eco-group based in Columbus.
Earthjustice, a national eco-group.
People's Oil and Gas Collaborative-Ohio, a grass-roots group in Northeast Ohio.
Concerned Citizens of Medina County, a grass-roots group.
No Frack Ohio, a Columbus-based grass-roots group.
Fracking: Gas Drilling's Environmental Threat by ProPublica, an online journalism site.
Pipeline, blog from Pittsburgh Post-Gazette on Marcellus shale drilling.
Allegheny Front, environmental public radio for Western Pennsylvania.