Reality: Drilling dayrates are high and still going higher.

Market: Sell the drillers.

Reality: New drilling capacity additions have been modest.

Market: Sell the drillers.

Reality: Exploration budgets suggest the next few years will see lots of new drilling activity.

Market: Sell the drillers.

Reality: Plenty of natural gas companies can still make lots of money at lower gas prices.

Market: Sell the drillers.

That, in a nutshell, is the environment faced by companies like TODCO (NYSE:THE), as well as others like Nabors (NYSE:NBR), Transocean (NYSE:RIG), and DiamondOffshore (NYSE:DO). Every time natural gas prices trade lower, the sector gets kicked in the teeth.

With this market environment, it looks like TODCO is going to face summary execution for its fourth-quarter earnings. Revenue was up 45% (missing the average estimate by about 1.5% or $2.2 million) and net income was up strong on a year-over-year basis, as well as up about 11% from the third quarter.

The operating statistics for the quarter were a mixed bag, but still seem to reflect favorably on the market. Overall operating days rose nearly 7%, and the utilization rate increased from 48% to 56% this quarter; both of those figures were also up slightly on a sequential basis. While the company did see lower operating days and utilization in the Gulf, dayrates rose 52%, whereas utilization, operating days, and dayrates all rose in the company's inland and international operations.

As I suggested in the beginning, the actual operating environment for drillers is still pretty favorable. Dayrates are still rising and companies are increasingly willing to sign long-term contracts and commit themselves to historically high rates for long stretches of time. You don't do that unless you foresee a robust demand for drilling in the future and fear not being able to get enough rigs. In other words, big energy companies like Petrobras (NYSE:PBR) aren't known for being colossally stupid, so maybe there's a reason they're committing to long-term deals.

TODCO isn't perfect, and I'm personally more drawn to the deepwater drillers like Transocean, but what's going on in the market now is just brutal. Given that drillers are historically more volatile than energy companies, the market action over the past couple of months might chase a lot of people away from this sector. If that continues, though, maybe some real values will start to emerge.

For more Foolish thoughts on the drillers:

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).