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Just wanted to share that I'm a new RIG investor, 5,000 shares sitting in my portfolio. Started getting interested at $60... then it dropped under $50... waited a few more weeks, and then started buying around $54, all the way to $65 a few days ago.

I'm expecting this to be a $100 stock again in 12 months or so. Here are the main reasons why:

- Consistent net margins of 25%+ and a current P/E of only 7. That's unheard of for a company the size of RIG. It only needs to go to a P/E of 11 to make it to $100/share.

- Pending authorization of $1.0B dividend distribution by the Swiss government. This was already in process, but the Swiss government put it on hold, pending the outcome of the oil spill. RIG has now requested that it be allowed to distribute the money, since the oil spill, at least from RIG's point of view, is basically over. When approved, this will give the stock a ~5.0% yield, based on current price of $63.30

- Oil prices creeping higher over the next 6 to 12 months. Oil now stands at ~$85 a barrel, from $77 only two months ago. Going into Q4, with the economy showing signs of life, the tendency is to keep pushing higher, maybe going as high as $100 for next year. Higher oil prices means oil deposits that were previously not economical, will now start to become interesting. These deposits normally need either harsh weather or deepwater ( > 3000 feet) rigs, both of which RIG has a lot of experience in, and for which it can charge a pretty penny.

- The government drilling ban in the Gulf of Mexico is expected to end around November 30th. There was talk of this ban ending a little earlier, especially since it's directly impacting the economies of Louisiana, Texas and Florida, but there hasn't been any indication from the government either way. When the ban finally ends, the stock should get a nice boost.

- Depending on who you choose to believe, RIG has a backlog of $20B-$30B over the next year. That's contracted, in the books, for drilling projects. Not pie-in-the-sky promises.

- Directly because of the Gulf of Mexico oil spill, there will be much more focus on safety, both enforced from within the company, and from outside in the form of government and industry regulation. Future contracts will also become much more specific on which party is responsible for what. This will increase operational costs, but will ensure it's very unlikely we'll see another oil spill in the near future.

Basically, this is the same very profitable company of 9 months ago, with one less rig (it only has 137 now), but much more focused on safety and procedures. Yes, the industry will now have tougher regulation, and yes, costs will be slightly higher because of this, including insurance premiums. But overall, that does not merit a 30% discount to the stock price, especially with higher oil prices and an upcoming dividend in the wings.

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No. of Recommendations: 1
Just a quick note regarding the drilling ban. If you go to the ATPG board, TMFDoodlebugger (probably the single greatest source of info regarding oil and gas companies) recently talked about how the ban might end but the length of time to get permits will likely increase. Here is a link:

As far as RIG potential, I agree with you that it is severely undervalued. I don't know how quickly it will recover but I do believe it will recover entirely.

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I think you'll see your $100/sh and then some! Thanks so much, TMF, for that fine article on Gulf opportunities due to the spill. I picked RIG from the list and got in with a basis of $50 and change. Now I only wish I'd gotten more shares (and may still.)

-- Dale in Woodville
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No. of Recommendations: 0
I hope you are both right!
I've been a fairly longterm investor in RIG but I sold everything last year. Following the disaster I couldn't help but buy back in. I've now got a long-term LEAP call option at $55 that epires in Jan 2012.

The time value of the option is quite significant so I will look to sell it before that portion degrades too much. However it's nice to see it in the money now.
Hopefully as time progresses the memories of the disaster will fade from investors minds and the stock can appreciae again.

To a great extent I think the extra rules and regulations that will be imposed will create a greater burden for the oil companies rather than the rig operators. But the simple fact is they will HAVE to stick with (deepwater) offshore drilling as that is where the limited resources are to be found.
There is no way that offshore drilling will be stopped. There is just too much need for it. So whatever the new rules, all involved will just have to adapt. And the biggest and best in the business will be best placed to fully understand and apply the rules.


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