Ah, Spring. It’s the time when a young man’s fancy turns to love, according to Lord Tennyson. But if a young man is working in oil and gas, that fancy turns instead to readjusting expectations for the year ahead.

Yes, it’s that time of year when we toss out those 90-day old annual forecasts that populated industry trade publications as 2012 arrived.

You recall the old narrative: a double-digit increase in capital spending was an early harbinger of further expansion in the domestic drilling market and additional proof that the international arena was on the verge of a significant activity increase.

The narrative was nice while it lasted. But a funny thing happened on the way to spring 2012. Domestically, natural gas prices per Mcf dropped below the value of a large Starbucks latte. Natural gas drilling followed suit, with significant rig count declines in the Haynesville and other dry gas drilling regions.

By the time 4Q earnings calls wound down in early March, operators were discussing reduced domestic budgets for any project that involved methane. It seems the term “gas” had become a four-letter word.

So where does that leave us for 2012?

The new narrative calls for a flat rig count domestically as operators target liquids, even as they reduce gas-drilling efforts. The good news is that operators should see relief from escalating field costs. Pressure pumping capacity additions made sense in an aggressive oil and gas market. Now that the gas market is weakening and assets are rotating into liquid plays, the inflection point on when the industry overbuilds has moved into 2012 versus the 2013 event the pressure pumpers discussed previously.

Internationally, the offshore is the place to be as deep water rapidly develops momentum in West Africa, Brazil, and the Gulf of Mexico (GoM). By year-end, accelerating tightness in the ultra-deepwater segment should increase rig rates and tighten equipment availability in both the deepwater and midwater segments.

Meanwhile, the jackup market gives every indication of improvement globally. In some cases, it involves markets like the Middle East where the Saudis are expanding programs to offset potential global supply disruptions. Closer to home, the GoM shelf has become more intriguing as it undergoes consolidation. Perhaps the most notable indicator that the times are changing was found when a long-time onshore midcap operator acquired its first offshore shelf package to generate cash to finance development in the Mississippi Lime.

Gulf oil and gas as a free cash flow generator? Now that’s something to stir a young man’s fancy.