2 Offshore Rig Companies With a Lot to Like

NEW YORK ( TheStreet) -- Today is an opportunistic moment to own businesses that lease mobile, offshore deepwater drilling units that explore for oil and gas. These units can also establish offshore production wells helping the client pump up profits.

Take a company like Atwood Oceanics ( ATW), the Houston-based company that owns a fleet of approximately 13 mobile offshore drilling units.

They are mainly located in the United States, Gulf of Mexico, the Mediterranean Sea, offshore West Africa, offshore Southeast Asia and offshore Australia. ATW also has three ultra-deepwater drill ships and two high-specification jack ups under construction.

It's a lucrative business that involves terms like "day-rates" and "ultra-deepwater drillship contracts," which are often used to define the value of companies like ATW. For example, on Monday ATW announced that one of its subsidiaries has been awarded a drilling services contract for the ultra-deepwater drillship Atwood Achiever by a subsidiary of Kosmos Energy ( KOS) for an exploration program commencing in Morocco.

The three-year contract agreement for the 12,000 feet water-depth-capable, dynamically positioned drillship that is currently under construction gives us some insight as to how companies like ATW make big bucks. The agreement specifies a base operating rate of approximately $595,000 per day which will be grossed up for all applicable taxes, and a firm duration of three years.

That means for every 10 operating days the Atwood Achiever, which will be ready for delivery in the summer of 2014, performs its services ATW will gross at least $5.95 million. This contract adds $652 million in revenue backlog, bringing Atwood's total revenue backlog to approximately $3.9 billion as of Monday.

The news and details of the company's operations can be found at its user-friendly Web site, which clearly spells out the scope, mission and priorities of Atwood Oceanics.

Currently selling at less than nine times forward (one-year) earnings with a price-to-earnings-to-growth (PEG) ratio (five-year expected) of only 0.53, ATW is an underpriced value that for now is sailing under the radar of the Smart Money. Then there's its $3.61 billion market cap, which makes ATW a bite-size prey.

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