In response to investors’ questions regarding when natural gas drilling activity would pick up, Raymond James & Associates analyst J. Marshall Adkins said it already has, and will continue through the remainder of 2003 and into 2004.

In Raymond James’ Stat of the Week, Adkins said that in reality, drilling activity this year has been “very strong and, barring a couple of non-market related issues, would have been even stronger.” As proof, the analyst noted that the U.S. rig count currently stands at 1,109 rigs, up nearly 30% since the beginning of the year. He added that it now appears that exploration and production companies have gotten past their fears of a natural gas price collapse at the end of storage injection season.

Forecasting a prolonged increase in rig activity ahead, Adkins predicts that 2003 will average around +/- 1,030 rigs for the year (10 below his original forecast), with more room to grow in 2004. “We think an average of 1,200 rigs is achievable,” he said.

With the rig count up and prices still high, Adkins broached the subject on whether there has been a “disconnect” between the rig count and commodity prices. “The facts suggest this disconnect perception is way overblown,” he said. “To begin with, it is important to understand that there has always been about a two-month lag between commodity price changes and its impact on drilling permits. Likewise, there has been about a two-month lag between permits and the rig count.”

When natural gas prices started to decline in July through August, Adkins said drilling permits naturally declined. When gas rebounded strongly in October, permits responded by trending higher as well. He added that drilling permits have increased for five straight weeks, which points toward higher drilling activity over the next several months.

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