Offshore driller GlobalSantaFe (NYSE:GSF) took on a little water Wednesday, missing its December quarter estimates. While sales were pretty good at $498 million, up about 4% over last year, earnings per share of $0.15 (net of a charge) missed the Wall Street estimate of $0.19.

How is that possible? When you can't watch financial news these days without hearing about the high price of oil, shouldn't oil drillers be raking in the cash? Not necessarily, as GlobalSantaFe would suggest.

Locked into pre-existing contracts, GlobalSantaFe wasn't able to benefit from rising drilling rates until those contracts expired. But the company has succeeded in rolling over old contracts, and the new rates have ranged from 10% to 40% higher than those on the old contracts and are in line with the going rates. To see signs of this improvement, look to the fourth quarter, where contract drilling income rose 165% on an 8% revenue increase.

In addition to scoring higher rates on those rolled-over contracts, the company has two new ultra-deepwater units coming online in 2005. With a very modern fleet relative to its peers and the new-and-improved contracts, GlobalSantaFe should be able to operate more profitably in the future.

But while the contract drilling business looks to be on the upswing, the company's turnkey drilling management operation is an albatross. For the full year, this business was phenomenally unprofitable; it posted operating income of $6.7 million on revenues of $531.5 million. Given the low returns and high risk of this sector, the company would be wise to jettison this turnkey turkey, but GlobalSantaFe has made no such announcements.

Earnings and free cash flow, unfortunately, aren't much help in valuing this company; it has very little of either. Investors might be tempted to value the company based on 2005's estimated earnings, but remember that this is a company with three straight quarterly misses. What's more, the range for '05 estimates stretches from $1.10 to $1.50 per share, a wide variance that suggests that even the analysts aren't sure what's going to happen.

Book value, though, may provide a little assistance. At about 1.8 times book, GlobalSantaFe trades at a discount compared with its peer group and historical range of price-to-book. How much of that discount is warranted by the risk involved is for each investor to decide.

While there are many reasons to believe 2005 will be a strong year for GlobalSantaFe, there's also no shortage of risk. Investors with a wildcatter streak might just want to take a chance on a better '05 for the company, but this stock is definitely not for the faint of heart.

Fool contributor Stephen Simpson holds a CFA. He has no ownership interest in any stocks mentioned.