Baker Hughes Relies On Oil Exploration As Gas Rig Count Falls
Oilfield services player Baker Hughes (NYSE:BHI) came out with its latest rig count report, showing that the number of rigs directed towards gas exploration continued to fall as low gas prices caused explorers to trim down on new wells. However, the industry outlook in North America continued to remain strong as activity shifted to oil rich plays.
With gas prices falling to less than $2 / Million British thermal units (MMBtu), the shift towards liquids has picked up pace as companies are becoming more cautious about investing in pure gas plays. Natural gas rig count fell below 600 last week. [1] Baker Hughes and Halliburton (NYSE:HAL) are among the main players in the North American oilfield services market.
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Rig count shift
The gas rig count in the U.S. has been dropping over the past several months as low prices have made new exploration unattractive. Despite a fall in gas rig count, prices are still recovering slowly because of excess inventory, uncertainty over the relation between new drilling and production levels and new production as a by-product of oil drilling. Analysts estimate that the a gas rig count between 600-650 would be needed to match supply and demand in the American market. Low gas prices are also shifting exploration to oil rich plays such as the Bakken Shale in North Dakota, where the rig count has increased to an all time high of 1,372. We expect these changes to have a long term impact on the operations of Baker Hughes.
The growth of oil directed drilling is helping Baker Hughes and other oilfield services players withstand the fall in gas drilling. Over the long term, the shift bodes well for he industry as oil drilling is more service intensive than gas exploration. In addition to producing high priced liquids, these wells also give out gas, which can be sold separately. A shift towards liquids rich exploration should have a long term positive impact on the revenue per rig figure for Baker Hughes.
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