Bullish on Deepwater Drilling, Bulllish on Rowan and Ensco

Tickers in this article: BHI ESV FCX RDC SLB TLM
NEW YORK ( TheStreet) -- It's hard not to be bullish about the outlook for the deepwater, off-shore drillers including Rowan and Ensco . After the profitable earnings report delivered last week by the "King Kong" of oil services companies, Sclumberger as well as Baker Hughes , the outlook is rosier for the sector.

Both SLB and BHI mentioned during their conference calls that there's a renewed demand for deepwater drilling in the Gulf of Mexico off the coast of the U.S. That kind of drilling and the kind that reaches down to "Davey Jones' locker" (a.k.a ultra-deep water drilling) is going on all around the globe. New technologies are making this kind of exploration and production for energy sources more profitable than ever.

Even the intermediate-size companies in this space should enjoy a boost from the resurgence of deep-water drilling.

Rowan is one of those, with a market cap of close to $4.6 billion. It's a major provider of global offshore contract drilling services, focused on safely and efficiently fulfilling the demanding offshore drilling needs of its customers. RDC claims that it maintains a 90-year commitment to the safety and development of employees and has cultivated one of the most experienced, skilled and dedicated workforces in its industry.

Rowan holds a leading position in high-specification jackup rigs and its fleet of 30 jackup rigs operates worldwide, including the Middle East, the North Sea, the Mediterranean, Trinidad, Southeast Asia and the Gulf of Mexico. The company will enter the ultra-deepwater market with four high-specification drill-ships expected to be delivered starting in late 2013.

In its latest update on its fleet contract status, RDC disclosed on Oct. 24 that it was awarded an estimated 285-day contract with Freeport-McMoRan in the Gulf of Mexico commencing mid-October 2013 at a standby rate of $150,000 per day and then at $180,000 per day commencing mid-December 2013, above its previous day rate of $160,000 per day. The increase in the day rate of nearly 13% above its previous average speaks to growing deep water drilling demand.

On one of its drilling rigs, the "Rowan Stravanger", the company was awarded a 120-day accommodation work with Talisman Energy in the Norwegian sector of the North Sea commencing May 2014 at $413,000 per day. Now you understand the dollar signs in my eyes when I speak of the profitability of deepwater, offshore drilling contracts.

Rowan steps into the earnings confessional on Nov. 5. The 37 analysts that cover RDC are looking for an average earnings-per-share (EPS) increase of 42 cents, up from 39 cents from the same quarter a year ago. The same analysts estimate that revenue and sales growth for the quarter will have increased by more than 8%.

RDC doesn't offer a dividend yield, but its forward (one-year) PE ratio is a tantalizing 10.3. As of the last quarter ending June 30, it had total cash of over $1 billion, which equals total cash per share of $8.10. Its total debt at that point was $2.01 billion. At the closing price on Monday of $36.88, it was below its book value per share of $37.87. Rowan still looks fairly valued, but its share price may be impacted one way or the other by the Nov. 5th earnings report.