Baker Hughes Stock Worth $72 on Shale Oil and Growing Rig Count

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For oil services company Baker Hughes Incorporated (NYSE:BHI) shareholders as well as Swiss-based Transocean Limited (NYSE:RIG), this has been a somewhat frustrating year. It is difficult to pinpoint the reason for their poor stock prices, particularly when there is so much to like. Of course, the global economic crisis has impacted all companies , but with so much good news coming from the Dakotas and Texas it remains a bit of head scratcher. Thankfully the upsides for investors of Baker Hughes are many.

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North Dakota and Texas Shale Oil Rush

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There have always been huge supplies of shale oil in both North Dakota and Texas. Part of the problem has been getting to it in a cost effective manner. To solve the dilemma, oil drilling and service companies borrowed a page from natural gas producers. The process of horizontal drilling and hydraulic fracturing, both processes used in natural gas production, is now being used to reach shale oil.

North Dakota, home of the largest shale oil field in the country [1], is reaping the benefits of these technologies. This is especially exciting for Baker Hughes investors as North America Rig Services make up nearly 60% of the company’s Trefis stock price estimate. Add Texas to the mix, and the potential impact on BHI is enormous. In 2004 about 350,000 barrels of shale oil was produced. That compares with over 8 million barrels so far this year alone.

Number of Rigs Are Up, And The Baker Hughes Stock Price Should Follow

Another positive for investors is the continued rise in rig count. There were 1,894 in 2010, a significant increase from the prior year. According to BHI’s weekly rig count report [2] that number has risen to 2,016. Increased rigs, an old-fashioned oil boon in North Dakota and Texas and a slowly strengthening economy all bode well for BHI. Trefis recently revised the Baker Hughes price estimate to $72, about 15% ahead of the current market price.

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Notes:
  1. Shale Oil: The Rush for Black Gold, energy NOW! []
  2. U.S. Rig Count Falls by 10, Zacks []