It’s always interesting digging into the details of what’s happening with oil and gas production. Often there’s useful information provided by the companies themselves. Baker Hughes (BHI) for example publishes a global rig count every month. It covers most oil producing regions, and shows that the global rig count (counting those in use) has barely changed from the Summer. The average for 2014 was 3,578 and December’s figure was 3,570. So far, on a global level, rig use is not down much, although in their earnings call this morning BHI did warn that operating conditions would be challenging this year because of the drop in oil. Incidental, the U.S. and Canada represent a big chunk of the global. Together, they closed the year at 2,257 rigs so 63% of the global total and slightly above the 2014 average but down 4% from November.
What did jump out at us though was the increase in use in some Middle Eastern countries. Saudi Arabia has been increasing all year, from 89 in January 2014 to 115 in December. The UAE similarly went from 28 to 36. So far, these countries don’t look as if they’re cutting back, as indeed the Saudis regularly remind us.
Another small but interesting nugget came from the Halliburton (HAL) call. They noted that the volume of sand used in fracking was +46% in 4Q14 compared with a year ago. This is consistent with comments from U.S. Silica (SLCA), that more mature wells use greater volumes of sand to maximize production. We think SLCA is attractively priced at current levels, and the indications we see are that their business of providing fracking sand is less vulnerable to falling oil prices than some may think. We are not invested in BHI or HAL.