It’s beginning to sound like an auction. Sell-side downgrades are coming to the land drilling sector with the rapidity of an auctioneer’s chant. Each week produces another dim view for the sector. Original bidding for the U.S. land sector started 2012 calling for an increase of 7 to 10% in 2012 rig count based on projections for operating spending.
The next round called for that increase to drop to the low single digits, thanks to the collapse in natural gas prices. Operators added oil rigs to offset the price-induced decline in gas rigs.

The latest round of bidding has the industry going negative in rig employment stretching into late 2013 on the basis of too much oil production and too little demand — meaning lower oil and gas-directed rig counts. The worst-case scenario to date is Raymond James, which projects a 500-unit drop in domestic rig count through 2013.
Global Hunter Securities is the latest to pile on. This week, senior analyst Brian Uhlmer called for a 4.1% activity decline, or 78 rigs, through the end of 2012.

“We believe declining NGL prices and the lack of takeaway capacity will result in net rig reductions in the Cana, DJ/Niobrara, Granite Wash and Marcellus,” Uhlmer wrote in a July 9 research note.
What’s changed is a belief on the part of sell-side analysts that the industry would hit its trough sometime in the third quarter 2012 to a developing consensus that the land drilling industry won’t hit bottom until late 2013.

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