Given the current sub-$2 natural gas prices and lower crude oil prices, Raymond James & Associates last week lowered its forecast for North American oil and gas drilling activity in the first quarter of 2002, but the consulting firm anticipates activity to quickly rebound in the second quarter, fueled by stronger gas prices.

For the United States, the energy analysts now predict that the rig count will decline by a total of 350 rigs, or nearly 27%, for a low of 950 rigs in operation during the February/March period. This latest forecast signals a further decline of 150 active rigs over what was predicted by Raymond James in July.

“Since our July drilling forecast reduction, U.S. drilling activity has declined slightly faster than we originally expected. Specifically, the offshore rig market has declined much more than we thought, down nearly 25% since April. While the onshore drilling market has held up better than offshore, it has recently started to fall precipitously,” the Raymond James energy team said in a “Stat of the Week” last Monday.

“We had originally anticipated a 200-rig decline (15%) from the near-1,300 mark in July. Now, we expect the U.S. rig count to decline by 350 rigs” to 950 rigs in early 2002.

“Even though we are lowering our activity forecast, it is important to note that we still expect a fairly quick recovery in activity after a first quarter [2002] bottom. Contrary to many others, we expect strengthening natural gas prices next spring to drive a rebound in the rig count, starting in the second quarter, ending the year with roughly 1,100 rigs in operation,” the analysts predicted.

Raymond James sees some contraction in Canadian drilling activity occurring in 2002. “While we expect to see strengthening commodity prices throughout 2002 (averaging $26/bbl oil and $3.50/MMBtu gas), we are modeling a 12% decline in Canadian drilling activity levels, as most of the drilling occurs in the first few months of the year. Specifically, we expect to see about 17,000 wells drilled in Canada this year, falling to about 15,000 wells next year. Because of some capacity additions to the Canadian rig fleet, we expect to see rig utilization fall by about 15% in 2002.”

As a result, Raymond James said its earnings estimates for oilfield service companies were “coming down.” While this new forecast “will impact estimates negatively for nearly all of our coverage universe, it particularly affects those with North American, natural gas exposure (such as drilling contractors, rig equipment manufacturers, offshore construction and/or support companies and other gas-driven service companies).”

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