(U.S. drilling stock story, updated for latest U.S. rig count)



) -- The rumors of the death of the U.S. land drilling market were greatly exaggerated, and the latest drillers to benefit from the U.S. drilling market resilience are

Bronco Drilling

( BRNC) and

Union Drilling

( UDRL) with both stocks soaring on Friday after quarterly results that came in ahead of expectations.

Union Drilling ended trading on Friday up 28%, on what for it is huge volume of 462,000 shares traded -- Union Drilling has average daily volume of less than 50,000 shares. Bronco Drilling ended Friday up 10% on trading of 1.2 million shares, more than four times its average day's volume.

The upward trend in shares of the U.S. land drillers was extreme on Friday morning, but it was part of a trend that has sent these and other shares in the U.S. land drilling market to 52-week high levels since bottoming out last October.

The 2010 backdrop for the U.S. land drillers was the bearish thesis that U.S. rig counts and pricing power had to slow, and margins erode, as the glutted natural gas market outweighed any incremental gains for oil-directed activity.

The pricing peak, though, and rig count decline, haven't occurred, even though investors and analyst feared its arrival.

In February, oil services company



reported that the number of rigs aiming for oil in the U.S. was at its highest level since 1987, which was twice last year's level of land-based U.S. oil rigs.

On Friday, Baker-Hughes reported that the number of rigs actively exploring for oil and natural gas in the U.S. increased again this week to 1,707 -- 899 rigs were exploring for gas and 801 for oil. A year ago, the count was 1,396.

Bronco Drilling beat on both the top and bottom line on Friday morning, with earnings of 6 cents per share, versus the consensus estimate for a 1 cent loss, and with revenues rising 134.6% year over year to $37.3 million, versus the consensus at $36.7 million.

Union Drilling, which was upgraded to a buy at Gabelli Securities on Friday, also beat its earnings bogey for the past quarter, by 10 cents, with a one cent loss, though revenue came in a little below the Wall Street mark.

The pattern in the U.S. land drillers has been the same since October 2010 earnings season, when bears expected the pricing peak in the U.S. market to start to rear its ugly head. More heavily covered U.S. land drilling plays like

Helmerich & Payne

( BRNC) and


(PTEN) - Get Patterson-UTI Energy, Inc. Report

have followed the oil services chart straight up since last October.

An analyst who covers the U.S. drillers but not Bronco or Union specifically said that another point to consider in the strength of these stocks is that aside from deepwater-related stocks that tanked in the wake of Macondo, the U.S. land drillers were the subsector underperformer within the oil services sector in 2010.

"The story has been switched around and there is now greater confidence in the North American land drilling market, with continued strength in oil-directed activity," said the oil services analyst who couldn't be quoted in a story about stocks he does not specifically cover.

The analyst explained that concerns in 2010 focused on the natural gas market glut pushing rig counts in North America down and even as the oil rig count was expected to rise, it wouldn't be able to make up for the natural gas declines.

"People were expecting a flat market in 2011 but we are seeing continued growth, and the strength in the oil plays is outpacing the natural gas weakness," the analyst explained, adding that spending plans from drillers in 2011 have also added to the optimistic outlook.

The current unrest in Northern Africa and the Middle East has helped, too, pushing crude oil prices higher and driving up energy stocks, though at some point, the price of oil also will have the power to send energy stocks lower on fears of a global economic slowdown, especially with even the laggard U.S. land drilling stocks now testing 52-week high levels.

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On Friday, oil was dominant again in market headlines, with the price of U.S. light sweet crude topping $104 and Brent crude back over $115.

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Escalation of violence in Libya was again the cause of the oil price spike, as the International Energy Agency upped its estimate of the production shutdown in Libyan oil to 1 million barrels per day. The previous IEA estimate had been a range of 850,000 barrels to 1 million barrels per day. Libya produces roughly 1.6 to 17 million barrels of oil per day.

Even the weak natural gas market has provided a few recent signs of unexpected drilling potential, though, with the big deals between


(ECA) - Get Encana Corporation Report



(PTR) - Get PetroChina Company Limited Sponsored ADR Report

, and

Chesapeake Energy

(CHK) - Get Chesapeake Energy Corporation Report


BHP Billiton

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suggesting that natural gas drilling activity may even receive an incremental activity boost, the analyst noted.

"Driller reports across the board have been better than expected and margins have not declined with day rig pricing increases and costs in check. Analysts have been able to raise numbers a bit further and there's a general expansion for the land drilling group, especially given that they were among the worst performers last year," the analyst said.

-- Written by Eric Rosenbaum from New York.


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