The Oil Rig Count : The Indicator from Planet Money One of the best gauges of the state of the oil business is a pretty simple one: just count the drilling rigs.
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The Oil Rig Count

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The Oil Rig Count

The Oil Rig Count

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GREG TUBBS: My name is Greg Tubbs. I'm with True Drilling out of Casper, Wyo.


So what kind of oil do you have in Wyoming?

TUBBS: (Laughter) There's some heavy and there's some light.

VANEK SMITH: True drilling is a small company. It has about 15 drilling rigs. Oil producers will hire them to drill new oil and natural gas wells all over the region.

TUBBS: Wyoming, Colorado, North Dakota, Texas - wherever.


Oil wells don't produce oil forever. They've usually got a few really productive years, and then after that there's a long, slow decline where production tapers off. So oil companies have to constantly be drilling new wells. At least that's the case when oil prices are high. When oil prices drop, oil companies hold back. They don't drill as many wells. And then companies like True Drilling have to tighten their belts.

VANEK SMITH: To try and prepare for these changes, there is an indicator that Greg and his colleagues watch like a hawk, that in fact the whole oil business watches like a hawk. It is called the Baker Hughes rig count.

TUBBS: So we monitor that Baker Hughes count continuously and have been for ever since I've been in the industry.

VANEK SMITH: So you look at it every week.


VANEK SMITH: This is THE INDICATOR. I'm Stacey Vanek Smith.

GARCIA: And I'm Cardiff Garcia. Today's indicator is 995. That is how many oil drilling rigs were burrowing into U.S. soil this week. That's almost 200 more than this time last year.

VANEK SMITH: Nine hundred and ninety-five drills a-drilling.


GARCIA: There are almost a million wells producing oil and gas in the United States. And when an oil or gas company wants to drill a new well, they call a company like True Drilling. And True Drilling then sends a drill to the new site. But the drill is broken down into pieces and strapped onto dozens of trucks.

VANEK SMITH: How big are the drilling rigs? Are they...

TUBBS: They're about let's say 140 feet tall.

VANEK SMITH: That's big. And you just, like, connect them up? You put them together like a...

TUBBS: Just like Legos.

VANEK SMITH: (Laughter) Like big Legos. OK.

Cardiff, if I have a photo of these drilling rigs right here. In fact, this is from...


VANEK SMITH: ..True Drilling's website. There they are.

GARCIA: It looks like something out of the late 19th century actually.

VANEK SMITH: It looks like a - it's just like a little tower, little white, metal tower.

GARCIA: The rigs are set up, and then True Drilling starts drilling for oil. And during that time True Drilling will send Baker Hughes an email saying, hey, we're drilling. And then their rigs are counted in the rig count.

VANEK SMITH: The drilling takes anywhere from five days to three weeks, and it's counted in the rig count that whole time. When the drill hits oil, it stops, a pump is put in place to actually continue to get the oil out of the ground, and the drill is no longer counted in the rig count. Not until it starts to drill at the next site. The Baker Hughes rig count started in 1944. It comes out every week on Friday at noon Central Time.

GARCIA: If the rig count is dropping, it means the oil business is slowing down, which is why everyone in the oil industry watches the rig count.

AMY MYERS JAFFE: So it's basically something that's used sort of as an indicator for whether U.S. oil production is going to be on the rise or on the decline the same way we might look at the unemployment number to have a sense of whether the U.S. economy is strong or weak.

GARCIA: She said indicator.


VANEK SMITH: Indicator, whoo (ph).

GARCIA: Drink.

VANEK SMITH: Anyway (laughter), Amy says when the price of oil goes up or down, it has reverberations all over the world. We feel it when we're filling up our gas tanks. Multinational companies feel it when they're moving things and people around the globe.

GARCIA: Knowing if the price of oil is going to go up or down can make a big difference to companies' budgets and how they plan.

JAFFE: The best way of doing that is to try to have a handle on how much supply you think there's going to be. There's a lot of money at risk and potential to be made if you can get that forecast correct.

VANEK SMITH: The cycles in oil can be pretty big. Ten years ago, when the price of oil was more than a hundred dollars a barrel, the Baker Hughes rig count was over 2,000.

GARCIA: When the price of oil fell sharply a couple of years ago, the number of active drilling rigs dropped to around 400, one-fifth as many.

VANEK SMITH: Greg Tubbs says he remembers that moment very well because every week he'd get an email alert with the Baker Hughes number, and every week the number of active drilling rigs in the U.S. would be getting lower and lower and lower.

Did you feel, like, dread at that time before you'd open up the email?

TUBBS: What I was doing was checking my resume. What can I do now? And is Walmart hiring?

VANEK SMITH: It just seemed scary?

TUBBS: It was very scary. Yes. You know, we've been through these cycles before, but that one was one of the deeper cycles that we've gone through. And it lasted a long time.

GARCIA: Oil prices started rising sharply last summer, and business picked back up. But the recount has only slowly crept up since then. In the past, this might have been bad news for the oil industry. It might have suggested that demand for oil wasn't growing very fast either. Greg actually thinks something else might be going on.

TUBBS: We can't find labor.

VANEK SMITH: So you just can't, like, hire people fast enough.

TUBBS: We can't find the people to hire.

VANEK SMITH: Are you having to, like, turn down jobs because you don't have enough people or...

TUBBS: Yes, we are.

GARCIA: This is just one company. But it is true that the labor market is really tight right now. Greg says employers are having to compete for workers. And drilling jobs are dangerous, and they require long hours. So labor might be artificially holding down the rig count. It might not really be a reflection of the demand for drilling.

VANEK SMITH: And the supply story has changed as well. In the past, an oil well was kind of an oil well. Wells tended to produce a pretty standard amount of oil. But now with fracking and horizontal drilling, one oil well might produce twice or three times as much as another well. In fact, Amy Myers Jaffe says all of these high-tech competitors to Baker Hughes have been cropping up to try and get an even better gauge on how much oil is being drilled.

JAFFE: You even have big data firms and satellite firms that will sell you data that show you how much of a shadow there is on a tank farm that has oil in the tanks or how much equipment is being moved from one location to another. So we've gotten very, very sophisticated today.

VANEK SMITH: Seventy years ago, knowing how many drills were drilling in the U.S. pretty much told you everything you needed to know about the oil business. But the industry has changed a lot. Amy says the Baker Hughes rig count is still one of the biggest oil indicators around. But it has a lot of company now, and soon Greg and his colleagues might be looking at another indicator or series of indicators to get a real idea of what is going on in the oil business.


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