THE BIGGEST DEEPWATER FIND so far is the Tupi field, discovered in 2007 off the coast of Brazil and estimated to contain five billion to eight billion barrels of oil. By way of comparison, all the remaining oil reserves in the U.K. North Sea are perhaps five billion barrels, energy experts reckon. Other oil strikes off Brazil, moreover, have sparked speculation, Vig relates, that future fields may encompass reserves "some multiple of Tupi's." Eventually, production from Tupi may top one million barrels a day, but not until at least 2014, or seven years after its discovery, Vig stresses. Which is why oil giants like Petroleo Brasileiro (PBR), or Petrobras (which discovered Tupi), and deepwater super-majors like ExxonMobil (XOM), which fattened its exploration budget 11% this year, set long-range drilling agendas that are rarely disturbed by short-term gyrations in oil.

THE BIGGEST DEEPWATER FIND so far is the Tupi field, discovered in 2007 off the coast of Brazil and estimated to contain five billion to eight billion barrels of oil. By way of comparison, all the remaining oil reserves in the U.K. North Sea are perhaps five billion barrels, energy experts reckon. Other oil strikes off Brazil, moreover, have sparked speculation, Vig relates, that future fields may encompass reserves "some multiple of Tupi's." Eventually, production from Tupi may top one million barrels a day, but not until at least 2014, or seven years after its discovery, Vig stresses. Which is why oil giants like Petroleo Brasileiro (PBR), or Petrobras (which discovered Tupi), and deepwater super-majors like ExxonMobil (XOM), which fattened its exploration budget 11% this year, set long-range drilling agendas that are rarely disturbed by short-term gyrations in oil.

TRANSOCEAN LAYS CLAIM to roughly a third of the deepest drilling rigs in the world. The crown jewels of its 136-rig fleet are 34 deep and ultradeep rigs. Rolling off the assembly line are 10 more ultradeep rigs, slated to work under long-term contracts as early as this year. Unlike its two large competitors, Transocean is shouldering a pile of debt, the legacy of its November 2007 merger with rival GlobalSantaFe. That merger catapulted Transocean to the top of the heap. Revenue last year topped $12.6 billion, and the company's stock-market value is now $19.5 billion. Long-term debt, though, stands at 45% of total capital. While management estimates free cash flow from the backlog will handily exceed maturing debt, including some $4 billion coming due next year, investors worry debt could become a problem in a severe downturn. Transocean's backlog has shrunk $1 billion in the past two months, to $38.7 billion, reflecting the troubles of a small unit drilling fixed-priced wells in the shallow gulf, a softening in the North Sea market for midwater semis and a global fall-off in demand for jack-ups. Of Transocean's 65 jack-ups, 31 roll off contract this year. Deepwater rigs, happily, are a whole different story -- an "encouraging" one, says Chief Executive Bob Long. Nearly all Transocean's deepwater rigs are booked for this year, 90% for next year and 70% for 2011. These contracts account for 75% of the company's $38.7 billion backlog. Moreover, with some smaller rivals strapped for cash and shelving plans for super-expensive new-builds, Long expects the deepwater market in 2011 and 2012 to be "even stronger than we expected a year ago."Transocean's margins are lush. On every $1 of sales in 2008, it posted a flashy 33-cent net, thanks in part to a light 15% tax rate (something the company, by its recent move from the Cayman Islands to Switzerland, hopes to preserve). Vig expects net of $13 to $13.25 a share for 2009 and about $13 for 2010. That compares with $13.09 a share last year, including charges (or $14.33 without.) At $61, shares are going for 4.7 times estimates for this year and next.

Like Transocean, Diamond has a few idle rigs. Nonetheless, its $10.3 billion backlog looks pretty solid. Deep and midwater floaters, which last year chipped in an outsized 85% of operating profit, are virtually all under contract this year and more than 70% booked through 2010. Comforting, too, is Diamond's super balance sheet, with cash and securities outweighing long-term debt, and no big outlays on tap for new builds. The company's deepwater strategy has centered on "economically" upgrading its fleet by taking a semi capable of drilling in, say, 2,000 feet of water and substantially refurbishing it, increasing its drilling depth to 6,000, 8,000 and even 10,000 feet of water. Cash-rich Diamond, in any protracted downturn, has the wherewithal to snap up first-rate equipment on the cheap. The fat balance sheet, combined with generous cash flows, also allows the company to pay out handsome special dividends, which, together with the regular ones, totaled $6.75 in the past 12 months. At the stock's current price of 66, that means Diamond stockholders (including Loews) are getting a yield of 10.2% on their investment. Not bad when 10-year Treasuries yield 2.8%. As Peter Vig puts it, "I like getting paid up front." Earnings will come in at $10.25 a share this year, Vig believes, and about $10.15 next, up from $9.43 last year. If he is right, shares are fetching about 6.4 times this year's expected net and 6.5 times the projection for 2010. Within a year, he sees the stock selling at 80-plus.

Some 80% of Noble's rigs are booked this year, and 40% through 2010. Though relatively small in number, Noble's deepwater fleet -- including four rigs yet to be delivered, three of them already under contract -- accounts for 80% of a $10.9 billion backlog, equal to 3.3 years of revenue. Noble has made judicious use of its extra cash flow by repurchasing its own stock. In the fourth quarter, for example, it bought two million shares at 21 and change. In the low-to-mid-20s, Noble's shares are going for roughly half what it would cost to replace its fleet. Noble's stock sells at only 1.2 times tangible book. Eric Ende, a portfolio manager at Los Angeles-based First Pacific Advisors, likes companies in niche industries with nice balance sheets and stellar margins. He's bullish on deepwater drilling and finds Noble's shares "ridiculously depressed." In 12 to 18 months, he thinks the stock could double.

Most of Diamond's deep and ultradeep rigs are drilling in the Gulf of Mexico for such customers as Murphy (MUR), Devon Energy (DVN) and Anadarko (APC). Two are working for Petrobras off the coast of Brazil.

Most of Diamond's deep and ultradeep rigs are drilling in the Gulf of Mexico for such customers as Murphy (MUR), Devon Energy (DVN) and Anadarko (APC). Two are working for Petrobras off the coast of Brazil.

Most of Diamond's deep and ultradeep rigs are drilling in the Gulf of Mexico for such customers as Murphy (MUR), Devon Energy (DVN) and Anadarko (APC). Two are working for Petrobras off the coast of Brazil.