It's still too soon to say whether the expected second-half 2002 upturn in exploration will arrive as scheduled, despite higher natural gas prices and a strengthening rig count. Small and midsize land drillers report that most of their customers are hesitant about making commitments for 2002's final six months. "We had all 13 of our rigs working up until a couple of weeks ago. We stacked one rig [in early June], and we'll stack another shortly," says Martin Mosvold, president of Scandrill Inc., Houston. "The large producers have the funds, but they're not sure what they want to do. They tell us they have not received authorization from their boards to move ahead. That could change during the next three months." James F. Justiss Jr., president of Justiss Drilling Co., Jena, Louisiana, says, "Our calls picked up two or three months ago, then seemed to slack off. That may be more a reflection of our clients: most of our customers are independents. We've been doing a lot of quoting in recent months, but it's been more for their cost analysis than for actually starting wells. A lot of independents want to know how much it will cost to drill a well so they can get partners and financing. It means the work's going to be delayed until the funds are raised." Producers are preparing to increase their expenditures, but are not advertising this, says Marshall D. Adkins, oil-service analyst for Raymond James & Associates Inc., Houston. "It appears operators are keeping their capital spending plans close to the vest in an effort to delay the inevitable-increases in oilfield-service costs. However, given the accelerating declines in U.S. gas production during the past three quarters, it seems only a matter time before drilling activity explodes once again to try and right the ship." "It's still very slow," says Gary Hoggatt, drilling superintendent, True Drilling LLC, Casper, Wyoming. "A few operators have started, for various reasons, but the rig count in this region hasn't grown much. Most Rocky Mountain producers don't get the Nymex or Henry Hub price for their gas, so activity here has remained slow. We're starting to receive calls, but it's nothing like we experienced a year ago." Jim Daniels, executive vice president, Murfin Drilling Co. Inc., reports no great change in southwestern Kansas, southeastern Colorado and the Oklahoma Panhandle, where the Wichita, Kansas-based land driller sinks wells for producers looking for gas. "Our big increase has been with oil producers in northwest Kansas. That part of the state has gone well because oil prices appear more stable, and oil wells can go into production sooner. All the majors have moved out, and it's entirely independents up there. They're very sensitive to prices, because it's all cash flow to them. And the pull depth is around 4,000 feet, compared with 7,500 in the southwestern part of the state, where bigger rigs with blowout preventers are required." Max Whiteley, vice president of operations, Leonard Hudson Drilling Co. Inc., Pampa, Texas, says, "It's increasing marginally, but not nearly to the extent I expected with gas and oil prices where they have been these last three months. With gas prices staying above $3 going into June, I expected more demand. The marginal increase certainly is not an elastic response to the downturn we saw in the fourth quarter." He thinks producers may be hesitant because oil-service expenses were high last year and they spent more money than they intended. Soft gas prices in the third and fourth quarters also may have made them wonder if current commodity price strength reflects political uncertainty more than actual demand, Whiteley adds. "Finally, there's a psychological hangover from September 11, the Enron scandal and all the problems that Wall Street is having. This is a speculative business, and we're the first ones to get the taps turned off when the situation gets tighter." Weekly domestic rig totals are down year-to-year from 2001, when Henry Hub gas prices began the year at $9.80 per million Btu (MMBtu) before a generally steady drop to $3.82 on June 1, 2001. But drilling activity this spring roughly repeated that of the spring of 2000, when spot prices were above $3 per MMBtu. One big difference from 2000 is this spring's gas demand was steady, while the country was in an economic recession instead of a boom, says Sherman E. Smith, president of Service Drilling Southwest LLC, Borger, Texas. "Last winter was pretty warm, but we stayed busy. We're getting more calls than we did six months ago. But it's not a heavy storm-more like a steady stream. Rigs are starting up, and several producers we talk to want to drill more wells." McVay Drilling Co. president Ted McVay suggests activity in southeastern New Mexico and West Texas remain sluggish, although his Hobbs, New Mexico-based company is running all four of its rigs. "The number of prospects we've discussed is about the same as in the first quarter, which obviously was substantially less than last year's first quarter. I would say it has been flat since the third quarter of 2001. While gas prices have met, and actually surpassed, expectations, I don't think the demand for drilling has reflected that. I'm actually surprised how slow it is." Other regions go through wider drilling demand swings than West Texas and southeastern New Mexico, according to McVay. "We had a decline, but I think we stabilized at a higher level than most areas. Some parts of the country went from six or seven rigs to none, while we went from 29 or 30 to 19. We're luckier than most because we're a small company working for a limited number of operators who stay active." McVay Drilling has worked for EOG Resources Co. since 1991 and Marathon Oil Corp. since 1992, and recently added Occidental Petroleum Corp. as a primary client. "The better blessing of all this is that when these three customers give us a window, I can do work for three or four other independents. It gives the larger companies a breather, and satisfies smaller companies-those whose operations are not continuous, who drill two or three wells a year. They don't have the personnel to work continuously. The same guy who sits on a rig drilling a well sits on the pulling unit completing it." Murfin Drilling does most of its gas drilling for Anadarko Petroleum Corp., Chesapeake Energy Corp. and Oxy with four rigs. "In southwest Kansas, the majors and large independents control the Hugoton Basin's shallow rights, although they've farmed some of it out. So if they decide not to drill, we have to move a little farther out to find new customers," says Daniels. "There are still quite a few idle rigs down there. We have some well service units in the area too, and business hasn't been good for them either. We're getting more well-service business up north." Good long-term relationships with customers have helped several land drillers keep employees. "Of about 130 men on our crews, we were only about one man short this week," says Smith. "We try to keep a nucleus at work on our rigs. We also kept all our tool pushers-14 for 12 rigs. We've had to lay off a few roughnecks, but our yard employees have kept busy. We have a lot of repairs on rigs that need to be done, and take care of that when drilling demand is down. We haven't had to cut wages, so our men are good drillers. But we also are dealing with a relatively small margin, which we can handle for a year or two because we're privately held." "We have 80 employees, 73 of whom have been here at least 90 days in one of the slowest periods in recent years. That tells me I have a less than 10% turnover, which is unbelievable," says McVay. "Fifty-eight of them were eligible for our company's 401k program, which means they've been here at least six months. We have one rig that has gone six years without a lost-time accident, and most of its crew has been here for at least three years." Marathon, EOG and Oxy contribute by not asking McVay Drilling to push its crews to the limit, and by keeping permits current so each rig can move from well to well and run steadily. "It makes everyone look like a rocket scientist," McVay says. "My crew members have mortgages, where most people are afraid to take them out."