The good times may not be over in the contract drilling market, but the end could be in sight. With new jack-ups and deepwater rigs scheduled to come on line in the next few years, and companies like Petrobras (NYSE:PBR) getting more aggressive about saving money on drilling, the 2008-2009 period could represent the high-water mark in this drilling cycle. But investors aren't waiting to cover themselves, sending shares of deepwater specialist Transocean (NYSE:RIG) down in Thursday trading.

Revenue rose 17% this quarter from the year-ago level as utilization stayed basically flat and dayrates picked up about 25% for the fleet as a whole. Compared to the first quarter, overall utilization fell slightly and dayrates were up about 8%. Margins, though, were not strong. Adjusted operating income rose less than 4% and field operating income was up about 5% from last year but down on a sequential basis.

Some Fools might be asking themselves why shares of drilling and service companies are so volatile when energy prices are so high and companies like ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), and the like are so busy trying to sink new wells. Well, one way to think about it is this: Imagine the energy sector as a big merry-go-round with the major producers in the middle, smaller producers a little further out, and drillers closest to the outer edge (particularly jack-up drillers). The wheel may turn only a little bit from the perspective of those in the middle, but it's a much wilder ride out on the rim.

Transocean does have a few advantages going its way. First, it has a sizable backlog of business (bigger than Diamond Offshore (NYSE:DO) and GlobalSantaFe (NYSE:GSF), for instance), and that makes it less vulnerable to a downturn in rates. Second, deepwater rigs are more expensive to build and require more expertise to operate, so it's not as vulnerable to me-too competitors as shallow water operators. Third, there is a correlation between rig rates and complexity, and Transocean is on the right side of that equation, though that won't completely shield it if overall rates across the drilling world begin to fall.

More risk-tolerant investors might want to take their chances with shallow water operators like ENSCO (NYSE:ESV) and Rowan, but Transocean's larger backlog should give it a bit more security if times get tougher. That said, if management can't start producing better margins, more investors will begin to question whether they'll be capable of grabbing all the money that's available between now and 2008-2009.

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