Ogling Transocean

Once again it's time to check in on Transocean (NYSE: RIG), the doyen of the deepwater. As with bride-to-be GlobalSantaFe (NYSE: GSF), Transocean's dramatic results did not disappoint.

Revenues for the quarter were up 7% sequentially, even though utilization eased a smidge. Results left last year's figures in the dust, thanks to 50% higher dayrates. Operating income nearly doubled, and net income more than tripled, due to benefits from Hercules Offshore's (NYSE: HERO) buyout of TODCO, along with some other non-operating goodies.

High dayrates are great and all, but last quarter's rates, or even today's rates, don't tell you a lot about tomorrow. Rates go up, until they don't. That's why it's critical to keep an eye on contract backlog. Let's look at the growth in backlog over the past few quarters.

Do you see what I see? Backlog isn't just growing -- it's accelerating. The end of the second quarter saw backlog up $400 million. This quarter, jackup backlog alone was jacked up by that much. Yes, shallow, unloved jackups -- the ones that make Wall Streeters squirm. Actually, the undulating jackup market has also made Transocean's CEO uneasy for two years running. It's nice to see him readily admit he's been wrong.

Transocean has done a bang-up job on backlog, but is the stock a buy? Maybe, but you have to wonder what insight you have at this point that other investors are missing. Back in May, I noted a fair amount of market skepticism, but that was around $90 a share. Now, everyone's transfixed with Transocean.

If you seek to invest like a business owner, rather than that guy who put a rattlesnake in his mouth, I happen to think that margin mavens Ensco International (NYSE: ESV) and Noble (NYSE: NE) are most deserving of your drilling dollars.