Once again reducing its near-term oil and natural gas activity forecast, Raymond James & Associates Inc. said on Dec. 24 that the deteriorating oil and gas prices from two months ago still appear to be “weighing on the minds” of exploration and production companies.

The analyst firm said the lack of winter weather — which has sent gas surplus skyrocketing — and a “game of chicken” between OPEC and non-OPEC countries — which has continued to put pressure on near-term oil prices — have combined to force it to lower the industry’s near-term drilling activity forecast by 16%.

In Raymond James Stat of the Week, the company said it is lowering its active rig count by 150 rigs, declining to a February/March low of 800 active rigs. In October, the analyst firm called for a 350-rig decline from July’s mark of near 1,300. With the latest outlook, Raymond James is now estimating an overall 38% decline in active rigs.

“All of these factors, and more, have caused drilling activity to decline faster than we imagined and versus any other time in history,” said Raymond James in its report. “As such, we are once again reducing our near-term activity forecast.”

Despite the drop off, Raymond James said it still expects a “fairly quick recovery” in drilling after the activity level reaches bottom in the first quarter 2002.

“In contrast to many others, we expect strengthening natural gas prices next spring to drive a rebound in the rig count starting in the second quarter, with a 2002 average rig count of roughly 950 rigs,” the analyst firm said. “Additionally, we are calling for 1,200 average rigs in operation in 2003.”

However, due to the current downtrend in drilling activity, Raymond James said that its earning estimates for oilfield service companies are being “trimmed once again.” More importantly, the company said it believes that the market is more focused on the “improving macro environment” in 2002 for gas and oil and the prospects for an earnings upswing in 2003 and beyond.

“Now that the bottom appears to be in place for stocks, we believe that NOW is the time to own oilfield service stocks for the long-term as the risk/reward ratio is extremely compelling,” Raymond James said.

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