"As the land-drilling sector reaches replacement-cost pricing-an achievement that could happened in as little as 12 to 18 months-we believe UTI could reach well north of $100 per share," says J. Marshall Adkins, managing director, energy research, for Raymond James & Associates in Houston. The firm has initiated coverage of UTI with a Strong Buy on the stock and a 12-month target of $71 per share. Headquartered in Houston, UTI Energy is one of the largest providers of contract land-drilling services in North America. The company has 144 rigs operating primarily in Texas, Oklahoma, New Mexico, the Rocky Mountains and western Canada-following the recent acquisition of Phelps Drilling. In addition to providing contract drilling services, the company, through its Universal Well Services Inc. subsidiary, conducts pressure pumping operations, primarily in the northern Appalachian region of the U.S. "The outlook for UTI Energy is exceptional since the world's oil and gas markets are experiencing some of the best prices ever seen," says Adkins. "We believe these high energy prices are sustainable and should lead to very strong drilling markets during the next several years. Land drilling, particularly in natural gas-driven North America, is poised for continued growth through 2001 and 2002." UTI Energy's rig fleet lies right in the "sweet spot" of the U.S. land-drilling market, the analyst notes. About 70% of all the wells drilled domestically during the past five years have been in the 5,000- to 15,000-foot range. "Since more than 70% of [the drilling capability of] UTI's rig fleet falls within this range, the company should see greater percentage increases in both utilization and dayrates as demand for rigs [that drill in this depth range] increases even further." Based on UTI Energy's average second-quarter dayrates of roughly $7,500, the company's Lower-48 rig fleet is currently operating at only 50% to 60% of replacement cost, he adds. "However, with the Baker Hughes' U.S. rig count hovering at around 1,000 active rigs, the domestic land-rig market is quickly approaching full capacity. And as utilization pushes upward, land-rig dayrates are likely to move up sharply toward replacement-cost levels." Adkins conservatively estimates that UTI Energy and the rest of the land-rig industry will hit replacement-cost economics within the next two to three years. "However, given current rig utilization trends, it's highly possible that UTI will experience this type of pricing environment within the next 12 months. Therefore, there should be substantial upside to our current-but conservative-2001 earnings estimates." The analyst is convinced that improvement in the U.S. land-rig business is a long-term-five- to 10-year-trend instead of a short-term blip. "Because of this, UTI Energy should experience substantial growth opportunity over and above the 'peak earnings' that many investors believe is realized when dayrates reach replacement-cost levels." Note: Analysis took place 9-7-00 when UTI closed at $41.50 and was reaffirmed 10-2 when $47.38. Currently, some 18.5 million shares are outstanding. The recent 52-week price range was $48.63-$14.75.