US Offshore Rig Count Now 50% Off Record Highs
US Rig Count Losses Decelerate (Part 7 of 9)
The offshore rig count is down
In the previous article of this series, we discussed the US onshore rig count. For the week ended March 27, the offshore rig count decreased by three to 34. The offshore rig count is now at its lowest since October 2011.
The offshore rig count is now nearly 50% off its four-year high of 66 that it reached on August 29, 2014. In the last year, the offshore rig count fell by 16. Nevertheless, the current offshore rig count is strong compared to its mid-2010 low of ~12.
Why the offshore rig count was strong
Offshore wells are more expensive, but they have much longer production lives. This means that production is steady and can last for decades. Offshore wells also have long lead times, so falling crude oil prices won’t affect production in the short term. Unlike the case with onshore shale rig work, offshore rig activity responds slowly to a depressed crude oil price environment.
The offshore rig count can gauge the extent of energy exploration and the activity levels of integrated companies. Chevron Corporation (CVX), Anadarko Petroleum (APC), and Exxon Mobil (XOM) together account for 31.1% of the Energy Select Sector SPDR ETF (XLE).
These energy companies operate in deepwater oilfields and benefit from higher offshore oil and gas production. XOM makes up 1.93% of the SPDR S&P 500 ETF’s (SPY) market capitalization.
In the next part of this series, we’ll learn more about US offshore rigs, particularly the drilling activity in the Gulf of Mexico.
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