With oil prices falling and natural gas prices still persistently low, oilfield services companies are facing a potential downturn in the months ahead, but it won’t be like the pullback in late 2008 and early 2009, according to energy analysts.

The third quarter is now in the rear view mirror, and analysts have begun to look at the oilfield sector’s prospects going into 2012.

“While the pullback to date has certainly been painful, there is still potential for things to get worse for oilfield service stocks,” said J. Marshall Adkins and his team at Raymond James & Associates Inc. “That said, we see some nuances that make this pullback different from 2008.” According to the team:

“Even though we recognize the potential for more short-term downside to the energy stocks, we would argue that the underlying fundamentals for the oilfield service industry are meaningfully better today than they were in 2008,” wrote Adkins and his colleagues. “Additionally, it appears that the market is already pricing in a meaningful decline in oilfield service earnings.”

Mike Graham, president of Encana Corp.’s Canadian division, said Tuesday the company has been proactive in mitigating its risks associated with inflation but rising oilfield services costs are a pressing issue. He said a big impact has been a lack of equipment available, which in turn has pushed up prices.

“The key elements pushing inflation up are wages, steel and services,” said Graham. “Encana is primarily a gas company but oil has a significant impact on costs. For instance, we use diesel to run our equipment. In addition, there is demand for services and margin expectations from service companies, particularly completion services.”

Costs are expected to “recede in the coming years as new equipment comes into the market,” he said. But in the meantime, Encana has undertaken “supply management initiatives” that include establishing long-term contracts and continuously improving operations.

“We see a rise in costs of 7-9% this year,” said Graham. However, Encana’s realized cost inflation will be 4-6% “with a bias toward the lower end of the range” because of its initiatives.

The Raymond James analysts said the big difference between 2008 and today is oil, which is the main activity driver in U.S. drilling. Three years ago it was natural gas.

“Natural gas…has been chronically oversupplied since early 2008 and we expect this to continue for the next several years,” said Adkins and his team. “Our oil model, on the other hand, is suggesting rapidly declining global oil inventories and dangerously low levels of OPEC excess capacity despite subpar oil demand growth over the next few years. In other words, oil fundamentals are bullish.”

The GOM also is giving a lift to oilfield services, they said. Three years ago GOM drilling and permitting activity was falling from relatively high levels that had been achieved in 2006 and 2007. Today the activity is increasing “from an extremely depressed post-Macondo base in 2010.”

And as Encana is proving, today there generally are more long-term and take-or-pay contracts on pressure pumping in the North American drilling and services space, said the Raymond James team. It’s more “than we’ve ever seen.”

There was “mixed” U.S. land data last week, according to Tudor, Pickering, Holt & Co.’s (TPH) Weekly Rig Roundup. The roundup looks at the rig data compiled by RigData, Smith Bits and Baker Hughes Inc. (BHI). The “disproportional” RigData increase, which indicated a gain of 54 rigs for the week ending Sept. 30, was the largest since February 2010, said TPH. BHI reported the addition of five rigs, while Smith Bits was down a rig week/week (w/w).

Most of the RigData uptick was driven by private operators, which reported an additional 38 rigs, TPH said. Meanwhile, BHI reported that its oil-directed count was down 10 rigs w/w, while gas-directed activity gained 11 rigs. Basins with the largest w/w increases were Williston (plus 10), Appalachia (plus nine) and Midland, TX (plus nine).

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