The energy services industry and related exchange traded funds are striking oil as the U.S. increase the number of rigs to develop and expand the country’s untapped oil sources.
Year-to-date, the Market Vectors Oil Services (NYSEArca: OIH) is up 10.5% and iShares Dow Jones U.S. Oil Equipment Index (NYSEArca: IEZ) increased 10.2%. In comparison, the S&P 500 energy sector index rose 6.2% so far this year.
The number of oil rigs jumped by 15 to 1,588 this week, the most since Baker Hughes Inc. separated the oil and gas rig counts in 1987, Bloomberg reports. Additionally, rigs targeting crude outside the major basins increased by 19 to a record 399, with Oklahoma numbers near a six-year high.
So far this year, the total U.S. rig count is up 151 on the oil exploration boom.
Bolstering demand for oil rigs, drillers have expanded into new oil sources as hydraulic fracturing and horizontal drilling allows companies to pull deposits out of shale formations.
“People are looking for new oil in other areas,” James Williams, president of energy consulting firm WTRG Economics, said in the article. “The potential of return is good because the price of oil is still high and the cost of leasing outside of the major basins is low. If you can discover oil there and have a fairly large leasehold, the potential returns on your investment are high.”
The increased interest to drill into new source has benefited the service industry that caters toward big oil companies. Specifically, OIH and IEZ include heavy tilts toward Schlumberger (NYSE: SLB) and Halliburton (NYSE: HAL), which combined make up over 30% of the two ETFs’ total allocations.
“The incremental barrel of oil being produced is increasingly coming from areas (deep water, oil shale, the Arctic) that demand more services expertise and technology,” according to Morningstar analyst John Gabriel. “Such a dynamic supports healthy long-term industry trends and pricing power.”
Market Vectors Oil Services
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Max Chen contributed to this article.