!Oilwell Drillers Experience has taught me to invest in companies with high expections of future earning because as more investors realize the company will have higher expected earning, they will bid up the share price of the stock. Always on the look out for industries and companies with improving earnings outlook, I recently looked into rig renters – companies like Atwood Oceanics ([ATW]), Diamond Offshore Drilling (DO), and TransOcean (RIG). These companies own the deepwater drilling platforms called floaters and jack ups which they rent to oil exploration companies. Oil exploration companies rent out the oil drilling platforms in long term contracts that range from a couple of months to a few years. The high price of crude has created demand for rigs to drill for profitable oil wells. Demand exceeds supply and it take years to build new rigs, which cost 10 of millions of dollars to build. As a result, recently rig daily rates have jumped dramatically higher. For example, Atwood Oceanics announced on June 26, 2006 an agreement to rent it rig named the ATWOOD SOUTHERN CROSS. Revenues from the contract are estimated at US$13 Million (based upon the single firm well plus some rig mobilization time totaling approximately 43 days) or US$26 Million if the option well is drilled. The daily rate works out to $302,000 a day. The average daily rental rate for the same rig in 2005 was $28,000 per day. The difference of $274,000 flows to the before tax income. Earning for companies such as Atwood Oceanics will jump substantially as contracts negotiated in late 2004 and 2005 when crude oil prices were $40 to $50 a barrel expired and the companies such as Atwood negotiated new rig daily rental rates at dramatically higher rates. They can do this because drillers have firm expectations for oil to stay at $70 a barrel or higher for the next couple of years or longer. The drillers will pay the high prices for the drilling platforms because the $70 oil justifies the high cost of drilling. Energy Information Adminstration (www.eia.doe.gov) forecasts backup the driller expectations. The EIA forcasts demand for oil with continue to grow and that crude oil prices of WTI (West Texas Intermediate) for the remainder of 2006 and 2007 will decline slightly from the current price of about $70 to an average price of $68 a barrel. Analysts’ projection published at the Atwood internet site show earning growing from 2.40 in the fiscal year 2006 to 5.46 in 207 and 9:16 in 2008. Another reason for the glowing earning projections is that an Atwood subsidiary has contracted for the construction of a mobile self- elevating LeTourneau SUPER 116 Jack-up at a cost of $150-160 million for September 30, 2008 delivery. Rental income from the LeTourneau could represent as much as $2.10 a share of the increase in projected profit. Even if you assume that Atwood PE falls to 10 in 2008 because of lower future expectations (actually they may be higher if oil prices go to $100 a barrel by then), with earnings of $9 the price would rise to $90 from June 30, 2006 price of $49. Other companies in the industry have the same story to tell as Atwood. Diamond Offshore Drilling, Inc., a leading deepwater drilling contractor, owns and operates one of the largest fleets of offshore drilling units in the world. The company’s diverse fleet consists of 30 semi submersibles, 13 jack-ups and one dynamically positioned drill ship. In the the spring 2006 issue of their rigamarole magazine the write that ‘Day rates for jack up rigs have soared to $130,000 a day in December 2005 from $28,000 per day “According to ODS-PETRODATA’s estimates,worldwide demand for jack-ups will increase by 35–54 rigs over the next two years, with10–15 new jack-ups needed in Saudi Arabiaalone. Combined industry sources estimate that only 46 new builds are currently scheduled to come to market from 2005 through 2008.“As you look at the jack-up markets in 2006, we’re very positive,” Marchon said. “We see continued pricing gains in the GOM on the jackup side. By the end of 2006, the global jack-up market is expected to be short by 30 to 40 rigs,” “You only have 10 new build jackups coming into the market in 2006 and 20 in 2007, and those numbers aren’t likely to change much because of shipyard constraints and equipment bottlenecks. You’re not going to get a rig before 2008, even if the unit is ordered today.To meet the demand the industry is building about 45 new build jack-ups that will come to market through 2008,.including Diamond Offshore’s ultra-premium rigs Ocean Shield and Ocean Scepter, both slated for delivery in the first quarter of 2008. In early march, 2006 TransOcean reported that earnings for the first quarter doubled from the same period in 2005. They forecast continued strong earning growth. ‘Within its fleet of 33 High-Specification Floaters, the company has had notable success in securing long-term contracts at attractive dayrates, contributing to an unprecedented level of visible activity towards the end of the decade. At present, 22 of the company's 33 High- Specification Floaters, in addition to a contract for the newbuild rig Discoverer Clear Leader and a second Sedco 700 Series semisubmersible rig upgrade, are contracted into or beyond 2009 with the High-Specification Floaters contributing an estimated $12 billion toward the company's total contract backlog at May 1, 2006 of approximately $17 billion. Demand for deepwater rigs with availability in the next 24 to 30 months continues to exceed supply, resulting in the delay of some drilling programs. In addition, a number of operators continue to express interest in newbuild deepwater rigs with anticipated delivery dates after 2008. At present, an estimated 3% of the company's High-Specification Floater fleet contract days for the remainder of 2006 are uncommitted, while approximately 15% are uncommitted in 2007 and approximately 21% are uncommitted in 2008.’ The downside is that crude prices may fall back to the $50 level and drilling cancel contracts for the platforms. With continued 8% annual growth in India and 10% annual growth in China, the demand for oil remains strong. These three companies confirm the outstanding earning potential for the business of renting the drilling platforms the own. The recent down turn represents a buying opportunity.