Transocean's Swell

Jim Cramer: Transocean's Swell

Before the private-equity nonsense struck, Transocean (RIG) was rivaling National Oilwell Varco (NOV) and Schlumberger (SLB) for king of oil service.

It should have been: Transocean has the longest contracts, the best day rates, the least leverage to North America -- essentially none -- and the best deepwater profile. Then Transocean went and did the smartest thing it could possibly do: merge with GlobalSantaFe (GSF), offering a fantastic new company to shareholders. It was a brilliant move.

Interestingly, the deal put the stock in the hands of arbs, the worst possible place to be. The arbitrage style has been bunched with so many other strategies that have been failing that if Transocean had done nothing at all, instead of bettering itself with this transaction, its stock would be much, much higher -- probably closer to $120.

You can only imagine, though, if you are an arb in lots of fields, including fixed income, and the redemptions are coming all at once and fast and furious from the funds of funds -- what are you going to sell: CDOs or Transocean?

So Transocean got tagged.

Now is the time, with oil at $73 a barrel, to buy some Transocean and take advantage of the arb throwaway. Transocean is so much cheaper than Schlumberger at $95, and it could be up gigantically as the deal draws to a conclusion and is fully funded.

I know people don't even want to touch this stuff. But I know that everyone is going to be rooting around and dusting off their oil and gas plays now that oil declined to slide into the $60s.

Transocean's the play.