U.S. land drillers and rig manufacturers will benefit the mostin the next year as the nation’s rig count continues to outpaceexpectations, according to a research report released Monday byRaymond James & Associates. And even though the seismicbusiness has recently lagged, it also holds excellent earningsprospects for the future, said the analysts.

“The bottom line is that we think exceptionally strong naturalgas fundamentals have driven the U.S. rig count to its near-termcapacity,” said energy analyst director J. Marshall Adkinsyesterday in his Stat of the Week. “Specifically, we think a BakerHughes rig count of 1,100 is possible by the end of the year ascontractors continue to add refurbished rigs into the market.”

Adkins said that throughout the coming year, the rig count isonly expected to increase another 150 rigs, as refurbished andnewly built rigs gradually become available. “More important forinvestors, with the rig count at 100% effective utilization,dayrates should trend substantially higher. In other words, wethink it is even more likely that the U.S. land drilling rig fleetwill reach replacement cost economics in the next 12 months.”

In the past six months, Raymond James has “been forced” torevise its U.S. rig count forecast upward three times. Its averageOctober rig count of 1,054 was already above its year-end forecastof 1,050. By the end of this year, Adkins now thinks the U.S. rigcount will reach 1,100, and by the end of next year, it will standbetween 1,150 and 1,250.

“While we expected demand for rigs to be exceptionally strong,we have underestimated the ability of drilling contractors to findcrews and refurbish rigs this quickly,” said Adkins.

Most noticeable to Raymond James’ analysts is how contractorshave been able to attract crews by offering higher wages and byrefurbishing rigs faster than anticipated. For the past fewquarters land rig rates have increased to $500 a day from $200 aday. “However, we have seen evidence of dayrates going up $200 to$500 a day per month as available rigs are increasingly difficultto find.”

In related good news, Adkins said recently that even though therecovery in seismic earnings will “tend to lag that of thedrillers,” in the long-term, the outlook for these companies isexcellent.

Raymond James reported that the transforming seismic business inthe past five years has led to major changes in the way thebusiness is analyzed. And despite the fact that the seismicbusiness has been falling behind, Adkins attributes the trend inthe way the business has become more efficient.

The emergence of “spec data libraries” has caused the seismicbusiness to become a “lagging result of the rig count rather than aleading indicator of the rig count.” Also, improved data hasallowed the industry to develop more “meaningful” prospects thanfive years ago.

“Even though seismic efficiency gains are likely to continueinto the future, we are convinced that substantially higher levelsof drilling activity over the next five years will lead to ameaningful increase in the number of seismic crews,” said Adkins.”Although it may take several years before the crew count returnsto 1997 levels, seismic companies are likely to benefit near termfrom increased processing and sales of existing library data.”

©Copyright 2000 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.