Explaining that a lot has happened since the company’s last rig count forecast released in December, Raymond James & Associates analyst J. Marshall Adkins said the company is adjusting its rig count forecast downward by 60 rigs. Adkins added that given the sharp rebound in commodity prices, he believes the bottom in U.S. rig activity is “very near.”

Since the December forecast, the U.S. rig count has fallen by 16% to a low of 738 rigs. At the same time, natural gas prices have risen by more than 70% since their low set earlier this year, and crude oil prices have risen by more than 30% since late December, he said. Despite the current rig count level, which is about 60 rigs below the analyst’s December forecast, the timing of the bottom appears to be generally on track with Adkins’ expectations.

“Accordingly, we are lowering our annual rig count forecast to reflect the first quarter shortfall,” Adkins said in Raymond James’ Stat of the Week . “More importantly, our bullish outlook for both oil and natural gas suggest a healthy rebound in drilling activity throughout the course of 2002 and 2003.”

Just last week, Raymond James analyst Wayne Andrews cited stronger, supply-driven fundamentals as reason for a more bullish near-term gas outlook, which should support higher natural gas prices during the second and third quarters. The company raised its second and third quarter 2002 price forecasts from $2.80/MMBtu and $3.65/MMBtu to $3.50/MMBtu and $3.75/MMBtu, respectively (see NGI, April 8). This increases its full-year 2002 Henry Hub natural gas price forecast from $3.25/MMBtu to $3.45/MMBtu. Raymond James also introduced its 2003 price forecast of $3.75/MMBtu.

Adkins pointed out that recent inquiries into several drilling contractors also support the idea that rig activity, as well as pricing appears to be bottoming in recent weeks. He added that it also seems likely that the Baker Hughes rig count data may lag what contractors are experiencing by as much as three to four weeks, as occurred at the peak of last year.

“Contrary to many others, we expect strengthening natural gas prices through the summer to drive a rebound in rig activity starting in the second quarter, with a 2002 average rig count of roughly 885 rigs,” Adkins said. “Additionally, we expect this strength to carry over into 2003, with an average of 1,100 rigs in operation.”

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