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Drilling activity and demand for drilling rigs are both down. As of early May Transocean (RIG) reported that it had stacked—that is temporarily pulled out of service—nine rigs with the definite possibility of stacking another five to 10 in 2009. Day rates for its jackup drilling rigs had tumbled 40% from their peak in 2008. But that’s actually a pretty decent performance. In the collapse from 1997-1999 rates fell by 70%. The rebound in drilling activity isn’t at hand—although the climb in oil prices back to $70 a barrel sure helps—but with 136 ocean drilling rigs (including 39 deepwater rigs) Transocean is by far the best positioned company in the world to profit from a post-recession expansion of deep water drilling. The replacement value — what it would cost to duplicate Transocean’s biggest-in-the-industry fleet of deep-water rigs today — comes to $123.97 a share. So at a recent price of $75 a share, a patient value investor is getting about $1.67 a share in assets for $1. When will the stock’s price recognize that value? I’d guess 2010. As of July 1, I’m upping my target price to $85 a share by March 2010 from the prior $74 a share by December 2009. (Full disclosure: I own shares of Transocean in my personal portfolio.)