NEW ORLEANS—Expectations of rising rig count are now dancing like sugar plums in the heads of drilling contractors and the analysts who follow them. In fact, the view of both the domestic and international drilling markets has been bullishly upbeat at the Howard Weil Energy Conference following 18 months of relatively flat rig count.

Nabors Industries Ltd. CEO Anthony Petrello told Howard Weil attendees Tuesday that an internally sponsored Nabors survey projected a 2% to 4% compound annual growth rate in rig count through 2018 for North America, and a slightly higher growth rate internationally.

Furthermore, the Tier I technology rig market will grow at 5% to 7% during that time and ultra high spec rigs, which Petrello defined as walking, pad-capable 1,500 horsepower units, will see double-digit growth of more than 300 rigs.

“Our outlook is favorable, but still measured,” Petrello said. “So far this year, operator cash flows have generally benefitted from stronger-than-budgeted oil and gas prices.”

And that unexpected windfall will prompt operators to spend more on field work even as the pace of widely touted drilling efficiency gains slowed in 2013.

“There are several factors that play to this change including, first, the diminishing impact of newbuild introduction and the idling of legacy rigs,” Petrello said. The CEO also cited a slowdown in the rate of adoption for pad drilling as the practice matured in well-established basins, coupled with the law of diminishing returns.

“This leads us to believe that we may be approaching a point where incremental drilling will require incremental rigs,” Petrello said. “This contrasts with the last two years when industry rig count remained flat as rig productivity improvements offset demand.”

Petrello said that Nabors was seeing demand for rigs rising as customers express interest in newbuild units, including Nabors’ new Pace X rig. The company unveiled the design one year ago and built 17 units last year. Nabors expects to have 35 of the self-moving higher spec units deployed at the end of 2014 and can increase its newbuild cadence from two to four rigs if customer demand warrants.

At the same time, Nabors is seeing increased demand for rigs internationally.

“We believe we are in the early stages of a sustained upturn following five years of challenges,” Petrello told conference attendees. “We started seeing signs of this last year.”

The Houston-based drilling contractor constructed 13 newbuild land rigs in 2013 and finished 11 major upgrades for the international market. Those rigs will be deployed overseas through the first-quarter 2015, providing an eventual revenue contribution of $1.9 billion over the life of the contract. Nabors displayed a slide showing a sharp uptick in its international rig employment beginning in the third-quarter 2014 with contracted international rigs moving from about 100 at the end of 2013 to more than 120 in early 2015.

“The economic impact of an international rig can be two to five times current rate margins in the lower 48,” Petrello said.

Despite pre-announcing a shortfall in first-quarter revenues on the basis of winter weather impacts on the company’s pressure pumping fleet, Nabors’ management team said fundamentals in pressure pumping are improving. The contractor has 20 of 24 pressure pumping crews at work currently. Unfortunately, 15 of those crews are located in the Bakken and other northern markets and have been hard hit by the abnormally cold winter.

Petrello said pent-up demand from the difficult winter will prompt a demand increase for well stimulation services near-term and Nabors management was becoming more constructive on the pressure pumping segment in the intermediate term as attrition worked its way through the market, placing a floor under pricing. Coupling attrition with rising demand will stabilize pricing and improve the supply/demand imbalance that has penalized the pressure pumping sector since 2012.

“Many of you here have asked when will we see price turning,” Petrello said. “We think it is still too early to call that turn, especially considering the amount of idled horsepower than can quickly come back to market.”

The Nabors presentation came a little more than a week following the death of long-time CEO Eugene Isenberg. It was the 27th time for Nabors to present at Howard Weil.

Contact the author, Richard Mason, at rmason@hartenergy.com.