For the first time in many years, the current land rig up-cycle has not led to an exponential increase in land dayrates, offering substantial upside in stock prices for all U.S. land drillers for the foreseeable future, according to the Raymond James Energy Group’s latest Stat of the Week.

Analysts J. Marshall Adkins and James M. Rollyson noted that to date, the land drilling industry has seen a 30%-plus rise in the rig count but only a 5-10% increase in average 2003 dayrates. “That being said, if Nabors and Patterson-UTI decide to push utilization rather than dayrates, we would likely see only modest increases in dayrates until these two 500-pound gorillas run out of rigs.”

Two scenarios could play out over the next two to four years, said analysts. “Under the first scenario, we would expect a much more rapid rise in earnings generation, although lower stock price multiples could be realized due to the rapid, potentially unsustainable rise in earnings.” In the second scenario, “more sustained growth in earnings performance is also likely to drive modestly higher stock price multiples.”

Analysts noted that under either scenario, “stocks should be very attractive investment vehicles” for the next several years. “The only real difference is a matter of timing and investor patience. In both cases, investors should be rewarded with a near doubling of stock prices, or even more.”

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