Please ensure Javascript is enabled for purposes of website accessibility

Here’s Why RigNet Inc. Surged on Friday

By Matthew DiLallo - Apr 11, 2016 at 8:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The offshore communications company got caught up in the oil price rally.


Image source: RigNet. 

What: Shares of RigNet (RNET) jumped on Friday, closing exactly 10% higher. Fueling its rally was the jump in oil prices, after crude closed up 6.4% to just under $40 a barrel.

So what: Crude oil spiked last week, closing up 8% on signs that fundamentals within the global oil market are improving. U.S. oil production is expected to continue to decline because of the resumption of the decline in active oil rigs. According to an update by Baker Hughes (BHI), the oil rig count fell for the third straight week and is now down to just 354 active rigs, which is 50 less than this time last year and well off the peak before oil prices crashed. With fewer and fewer rigs working, it is virtually impossible for U.S. oil producers to maintain their current production rate, which clearly peaked and has started to decline.

US Crude Oil Field Production Chart

US Crude Oil Field Production data by YCharts

In addition to sinking production in the U.S., oil production at other large global producers appears poised to be frozen at its January level. At least that's if a proposed production freeze between OPEC and Russia goes through. While that freeze has been rumored to be falling apart, major oil suppliers are scheduled to meet on April 17 to discuss the proposal with the market, hopeful that an agreement will be reached.

Typically a falling rig count and a production freeze would be bad news for oilfield-service companies like Baker Hughes or RigNet, and in the short term it is bad news. However, it's a longer-term net positive because it should enable the oil market to recovery quicker thus leading to a sustainable improvement in the oil price, which would lead to better activity levels for both companies. It's this hope of better days ahead that fueled RigNet's stock on Friday.

Now what: While the oil market seems to be getting better slowly, it still has a long way to go before conditions return to some sense of normality. Further, oil is much too low for oil producers to invest all that much into new offshore oil and gas projects, which is what RigNet needs. Not only that, but even once oil recovers to the level they need, probably in the $70 a barrel range, it still could be a year before they can even commit more capital offshore. That means it could be quite some time before RigNet's financials begin to improve, suggesting that a lot more volatility could be in the cards. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

RigNet, Inc. Stock Quote
RigNet, Inc.
Baker Hughes Incorporated Stock Quote
Baker Hughes Incorporated

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.