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“Huge backdoor profits from the oil boom”

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That’s the most intriguing part of this latest ad I had sent in by a reader –

“The World’s Best Oil Stock is Selling for 30 Cents on the Dollar!”

The ad comes to us courtesy of Trend Advisor, a newsletter service that, you guessed it, would like you to sign up for a subscription to hear about this great oil company.

But you know, as long as the Stock Gumshoe is around — who needs a subscription? That is, as long as I can keep up — I’ve got about 30 of these things waiting for attention at the moment so I probably can’t get to them all.

But this one, I can tell you … no problem.

Here are the clues:

“The world’s last big oil fields can’t be unlocked without its technology” (I’d call that a little bit of an exagerration, there are other companies with similar capabilities, though they’re smaller)

“Profits will almost triple in the next 12 months.”

“Order backlog worth almost as much as the whole company” (maybe not as dramatically impressive as you’d guess — plenty of companies sell for a small multiple of sales.)

Now selling for a PE of 5.5 … on 2008 earnings estimates.

Earned six cents a share in 2003 … and estimated to earn up to $8 in 2007.

“It’s about as close to free money as you’re ever going to see”

He goes on to sell the company some more, and to provide a little more info to make sure the clues are abundantly clear — this is an oil driller, with deepwater capability, and in his estimation the leading deepwater drilling company in the world (with 19 of the 23 current depth records).

So probably everyone has guessed this one, right?

Biggest deepwater driller?

That has to be, once we put on our sleuthing caps for a moment …

Transocean (RIG)

The numbers match — RIG did pull in 6 cents in earnings in 2003, and they do hold most of the depth records … and they are certainly the biggest deepwater drilling company in the world.

And thanks to the Stock Gumshoe, you needn’t subscribe to anything to find out the name of the company.

Though frankly, with the paucity of big names in this space — Global SantaFe, Noble, and a few others are the only sizable US-based ones — this isn’t that tough a teaser.

And while I’m firmly behind the general thesis — that deepwater drilling is in a huge sweet spot over the next three to five years, not unlike the one the tankers enjoyed from 2003-2006 — I’m not invested in RIG. I am invested in the industry through a competitor, but I certainly don’t think we’re looking at “free money” here — I think the odds are in the drillers favor, but if oil prices get below $50 and stay there, good luck getting someone to sign on the dotted line for half a million dollars a day for your latest gee-whiz deepwater drillship starting in 2011 (contracts are getting signed very far in the future today, since the drilling inventory takes much longer to build up than the oil price takes to climb).

Just as an aside, because I don’t generally like to put too much of my opinion in here: Personally, my largest stock holding over at oneguysinvestments.com is SeaDrill, which has been part of consolidation rumors for months and is a challenger for RIG when it comes to deepwater drilling capacity in the 2009-2010 timeframe. You can read my writeups on this company here if you like, but I also don’t see anything wrong with RIG if you do want to invest in this space — though in my opinion there are better names to get involved with that have more growth in store. And for full disclosure, I also own shares in Keppel Corp., the Singaporean conglomerate that builds many of these deepwater rigs.

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