The U.S. oil -- and natural gas -- drilling rig count is beating expectations and more upside is likely, analysts with Raymond James & Associates Inc. said Monday.

In a note to clients, J. Marshall Adkins, James M. Rollyson and Christopher Butschek increased their 2011 rig count forecast to 1,750 rigs from the April estimate of 1,495 rigs. The gas rig forecast was increased by 100, or 14%, to 930 for the coming year, while the oil rig count forecast was upped by 150 rigs to 809.

The new forecast implies that 2011 U.S. activity will be up 13% on a year-over-year basis, and up 61% from 2009.

"Our outdated April rig count forecast underestimated both the growth in oil-related activity and the resiliency of natural gas activity in a $4.00/Mcf gas world," wrote the trio in Raymond James' Energy Stat of the Week. "As a result, our total rig count forecast from six months ago is already over 150 rigs higher than we had predicted (almost all oil)."

Exploration and production companies are expected to continue to focus on oily and liquids-rich basins, and the shift toward horizontal drilling also is seen continuing.

"We believe these liquids-rich basins could see as many as 300 incremental rigs by the end of 2011," wrote Adkins and his colleagues. "This trend should more than offset a steady but modest decline in the dry gas rig count, which we believe will total no more than 100 rigs in 2011."

Gas-driven drilling has remained "stubbornly strong in the face of questionable gas prices," said the analysts. "A key driver of this upside has been a shift in gas drilling to liquids-rich gas plays in the Barnett, Eagle Ford and Granite Wash basins. The strong liquids content makes these plays economical even at current price, and as many as 100 incremental rigs could be added over the course of the next year and a half."

Increases in the liquids-rich plays also could offset the losses in drier gas basins, such as the Haynesville, Fayetteville and Woodford shales, said analysts. The shift to liquids-rich plays "provided much of the upside" in the new forecast, but the analysts said other dynamics are in play, including:

However, the shale plays are seeing "nowhere near the 2008 highs," said Adkins and his team. "Consensus investor perceptions say drilling isn't economical in the older, dry gas shale plays at $4.00/Mcf gas prices. Economic or not, the facts suggest that the activity downside from these basins is overstated."

The Barnett, Fayetteville and Woodford basins "now total just under 150 rigs," and in the Haynesville Shale the rig count has "hovered" in the low 100s area since early this year.

"While diminishing leasehold drilling could knock this down in 2011, it is unlikely to be more than 50 rigs (or a 50% reduction). All in, we are now looking for only about a 100-rig decline next year in these dry gas shale plays."

The energy team at Tudor, Pickering, Holt & Co. (TPH) on Monday said any hope for a gas price recovery this year "sits with old man winter." TPH analysts haven't adjusted their price forecast for 4Q2010, which is $4.50/Mcf for gas and $70/bbl for oil, "but it's easy to assume we're leaning a little lower on gas and little higher on oil -- we'll wait awhile and see what fundamentals and the market are telling us as we roll into fall and early winter before making any adjustments to our current thoughts/forecasts."

Regional differentials versus Henry Hub gas prices have expanded "to the downside" in 3Q2010 compared to the previous quarter in most areas, said the TPH team. "Appalachia is still seeing positive differentials on average," but even there "differentials are getting squeezed and trending down." Basis differentials in the Rockies had been declining each quarter up until 1Q2010 since the peak in mid-2008, but they "continue to expand and are currently at minus 85 cents/MMBtu compared with minus 46 cents/MMBtu in 2Q2010."

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