Though the U.S. land rig counts fell slightly last week, we continue to believe that onshore market will outperform offshore in the near term. The weekly (09.24.2010) release on rig counts from Baker Hughes Inc. (BHI) showed that the U.S. land rig counts were down by 5 to 1635 from the previous week (09.17.2010).
The onshore-weighted companies will likely continue to enjoy the same favorable situation as they experienced in the second quarter driven by the deepwater moratorium through the end of November.
We believe that the companies with maximum exposure in shale plays such as Bakken and Eagle Ford will benefit more due to oil-centric drilling activity. Liquid drilling activity has been gaining momentum as is indicated by the increasing trend in rig counts. Last week, oil rig count increased by 3 to 673 in the U.S.
On the other hand, the companies that have strong Gulf exposure will likely underperform. This fact is reflected in the region’s decreasing trend in rig count. In the Gulf, rig count has reduced by 6 to 15.
While Eagle Ford and Bakken Shale are most promising onshore destinations with solid liquid economics, others such as Granite Wash and the Paermian Basin also appear encouraging. Companies such as Chesapeake Energy Corp. (CHK) and ConocoPhillips (COP) have been increasingly pursuing drilling activity in these promising plays.
We believe that the pressure pumping market appears compelling as operators seem to be using more of this service to get more frac capacity (that allows operators to cut down on the time required to fracture a well), which should bode well for margins. On this front, we have a favorable view on drillers such as Halliburton Company (HAL) and Schlumberger Ltd. (SLB).