Shares in onshore drilling contractors have rallied alongside natural gas prices, but some say it's too early to call a recovery in the market that has been dogged by overcapacity.
Land-based drilling companies have outperformed most oilfield service companies this year, as cold winter weather and smaller-then-expected imports of liquefied natural gas have pushed gas futures prices up nearly 40 percent.
But so far, there are only small signs of life in the U.S. onshore markets, suggesting that the stocks may have gotten ahead of themselves.
"While we can't blame most for jumping on the bullish bandwagon, our view is that natural gas prices still fall this summer," Raymond James wrote in a note to clients last week. "This should drive activity lower and leave the market oversupplied and overly optimistic."
As a result, Wall Street earnings estimates are too high and need to be lowered, the firm said.
Raymond James sees higher imports of LNG and increased production weighing on natural gas prices in coming months, although the research firm has become less bearish in its outlook due to the winter's colder than expected weather.
Still, shares of Nabors Industries Ltd are up 15 percent this year, Grey Wolf Inc has risen 15 percent, Patterson-UTI Energy Inc is up 16 percent and Pioneer Drilling Co has climbed 25 percent.
By comparison, an index of drilling companies which includes offshore drillers .15GSPOILD is up about 1 percent on the year.
In January, analysts had forecast gas prices would average $7.30 per thousand BTU, up from $6.95 in 2007, although many experts have raised their expectations by about $1 in recent weeks because of strong demand.
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