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Transocean Ltd. Reports Second Quarter 2010 Results

ZUG, SWITZERLAND, Aug 04, 2010 (MARKETWIRE via COMTEX) -- Transocean Ltd. (NYSE: RIG) (SIX: RIGN) today reported net income attributable to controlling interest for the three months ended June 30, 2010 of $715 million, or $2.22 per diluted share, on revenues of $2.505 billion. The results compare to net income attributable to controlling interest of $806 million, or $2.49 per diluted share, on revenues of $2.882 billion, for the three months ended June 30, 2009.

Second quarter 2010 results included increased expenses associated with the Macondo well incident of $82 million, or $69 million after tax at our Annual Effective Tax Rate. These expenses include insurance deductibles, legal costs, increased insurance premiums, internal investigation costs and professional fees.

In addition, second quarter 2010 results were favorably impacted by $249 million, after tax, as follows:

  • A $267 million gain resulting from insurance recoveries associated with the loss of Deepwater Horizon,
  • Partially offset by $18 million of expenses primarily relating to litigation matters not associated with the Macondo well incident.

Second quarter 2009 results were adversely impacted by certain net charges, after tax, totaling $96 million, or $0.30 per diluted share, including $67 million primarily related to write-downs of assets held for sale and a $29 million net loss primarily related to discrete tax items, the retirement of debt and the sale of an interest in a joint venture.

Operations Quarterly Review

Revenues for the three months ended June 30, 2010 decreased to $2.505 billion compared to $2.602 billion during the three months ended March 31, 2010. The $97 million decrease was primarily due to contract drilling revenue reductions, including $80 million resulting from the stacking of rigs, $69 million from rigs operating on contracts at lower dayrates, $61 million from increased rig time in shipyards and mobilizations and $37 million associated with the loss of Deepwater Horizon. The decrease was partially offset by an $80 million increase in drilling management services revenues, a $54 million increase in contract drilling revenue from newly-constructed ultra-deepwater rigs commencing or continuing operations in the second quarter and $16 million of other minor variances.

Operating and maintenance expenses totaled $1.358 billion for the second quarter 2010, up approximately 14 percent compared to $1.196 billion for the prior quarter. The $162 million quarter-to-quarter increase in operating and maintenance costs occurred as a result of $82 million of increased costs from insurance deductibles and legal costs associated with the Macondo well incident, a $65 million increase in drilling management services costs and $17 million of additional operating costs related to increased activity associated with newly-constructed ultra-deepwater rigs.

General and administrative expenses were $58 million for the second quarter 2010, compared to $63 million in the first quarter 2010. The $5 million decrease was primarily due to higher share-based compensation expenses in the first quarter.

Liquidity and Interest Expense

Interest expense, net of amounts capitalized in the second quarter 2010, totaled $141 million, compared to $132 million in the prior quarter. The increase was primarily due to reduced capitalized interest related to the commencement of operations of newly-constructed ultra-deepwater drillships in the first and second quarters. As of June 30, 2010, total debt was $11.426 billion, compared to $11.439 billion as of March 31, 2010, a decrease of $13 million.

Cash flow from operating activities totaled $1.269 billion for the second quarter 2010, up from $1.172 billion for the first quarter 2010.

As of June 30, 2010, the company had cash and cash equivalents of $2.888 billion, compared to $1.586 billion at March 31, 2010. The increase is principally due to operating cash flow and the receipt of $560 million in insurance proceeds for the loss of Deepwater Horizon.

Effective Tax Rate

Transocean's reported Effective Tax Rate(1) for the second quarter 2010 was 12.0 percent and included certain discrete items consisting primarily of the gain resulting from the insurance recoveries on the loss of Deepwater Horizon and changes in prior years tax estimates. Excluding these discrete items the Annual Effective Tax Rate(2) for the second quarter was 16.3 percent.

Update on Distribution Through Par Value Reduction

In May 2010, at our Annual General Meeting, our shareholders approved a cash distribution in the form of a par value reduction in the aggregate amount of CHF 3.44 per issued share, equal to approximately $3.19 using an exchange rate of USD 1.00 to CHF 1.08 as of the close of trading on June 30, 2010. We expect the cash distribution to be calculated and paid in four quarterly installments. Under Swiss law, upon satisfaction of all legal requirements, we must submit an application to the commercial register in the Canton of Zug to register the applicable par value reduction. We have submitted to the commercial register of the Canton of Zug our application for registration of the initial installment. The cantonal commercial register is currently reviewing our application, and although we believe that all registration requirements have been met, the Swiss authorities have indicated to us that the review process will take longer than customary in light of lawsuits filed in the U.S. and served on the company in Switzerland. They have indicated that they will seek guidance from the Swiss Federal Office of the Commercial Register on whether the requirements for the registration of the first installment have been met. Given the expected extended review of our application by the competent Swiss authorities, the payment of the first installment will be delayed. If the Swiss authorities disagree with our view that all registration requirements have been met, our ability to pay the distribution installments could be further delayed or restricted indefinitely. A delay of the first installment will likely also result in a delay of the remaining three installments, which were expected to be paid in October 2010, January 2011 and April 2011, subject to the satisfaction of the applicable Swiss legal requirements.

Update on Discussions with the U.S. Department of Justice

On June 28, 2010, we received a letter from the U.S. Department of Justice (DOJ) asking us to meet with them to discuss our financial responsibilities in connection with the Macondo well incident and requesting that we provide them certain financial and organizational information. The letter also requested that we provide the DOJ advance notice of certain corporate actions involving the transfer of cash or other assets outside the ordinary course of business. After preliminary discussions with the DOJ, we have voluntarily agreed to provide them with 30 days notice prior to repurchasing any additional shares under our share repurchase program and prior to making substantial cash payments out of our U.S. entities, other than in the ordinary course of business. We expect to engage in further discussions with the DOJ in the future.

Update on Macondo Well Incident

We have filed a Quarterly Report on Form 10-Q with the United States Securities and Exchange Commission, including the relevant drilling contract between subsidiaries of Transocean and BP as an exhibit. The Form 10-Q includes updated information on the Macondo well incident. To view the Form 10-Q filing, please use the following link: http://www.deepwater.com/fw/main/SEC-Filings-57.html.

Forward-Looking Statements

Statements regarding the distribution to shareholders, including the timing and amount of the distribution and review by the Swiss authorities, share repurchases and discussions with the DOJ, as well as any other statements that are not historical facts, are forward-looking statements that involve certain risks, uncertainties and assumptions. These include but are not limited to compliance with legal requirements, operating hazards and delays, actions by governmental and regulatory authorities, customers and other third parties, the future price of oil and gas, the actual revenues earned and other factors detailed in the company's most recent Form 10-K, Form 10-Q and other filings with the Securities and Exchange Commission ("SEC"), which are available free of charge on the SEC's website at www.sec.gov. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated. Additional information regarding the distribution may be found in the company's most recent Form 10-Q, proxy statement and other filings made with the SEC.

Conference Call Information

Transocean will conduct a teleconference call at 10:00 a.m. EDT, 4:00 p.m. CEST, on August 5, 2010. To participate, dial +1 719-325-4929 and refer to confirmation code 1148497 approximately five to 10 minutes prior to the scheduled start time of the call.

In addition, the conference call will be simultaneously broadcast over the Internet in a listen-only mode and can be accessed by logging onto Transocean's website at www.deepwater.com and selecting "Investor Relations." A file containing four charts to be discussed during the conference call, titled "2Q10 Charts," has been posted to Transocean's website and can be found by selecting "Investor Relations/Quarterly Toolkit." The conference call may also be accessed via the Internet at www.CompanyBoardroom.com by typing in Transocean's New York Stock Exchange trading symbol, "RIG."

A telephonic replay of the conference call should be available after 1:00 p.m. EDT, 7:00 p.m. CEST, on August 5, and can be accessed by dialing +1 719-457-0820 or +1 888-203-1112 and referring to the passcode 1148497. Also, a replay will be available through the Internet and can be accessed by visiting either of the above-referenced Worldwide Web addresses.

Transocean is the world's largest offshore drilling contractor and the leading provider of drilling management services worldwide. With a fleet of 139 mobile offshore drilling units plus three ultra-deepwater newbuild drillships under construction, Transocean's fleet is considered one of the most modern and versatile in the world due to its emphasis on technically demanding segments of the offshore drilling business. Transocean owns or operates a contract drilling fleet of 45 High-Specification Floaters (Ultra-Deepwater, Deepwater and Harsh-Environment semisubmersibles and drillships), 26 Midwater Floaters, 10 High-Specification Jackups, 55 Standard Jackups and other assets utilized in the support of offshore drilling activities worldwide.

(1) Effective Tax Rate is defined as income tax expense divided by income before income taxes. See the accompanying schedule entitled "Supplemental Effective Tax Rate Analysis."

(2) Annual Effective Tax Rate is defined as income tax expense excluding various discrete items (such as changes in estimates and tax on items excluded from income before income tax expense) divided by income before income tax expense excluding gains on sales and similar items pursuant to the accounting standards for income taxes and estimating the annual effective tax rate. See the accompanying schedule entitled "Supplemental Effective Tax Rate Analysis."

                     TRANSOCEAN LTD. AND SUBSIDIARIES
             CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (In millions, except per share data)
                              (Unaudited)
                                 Three months ended     Six months ended
                                      June 30,              June 30,
                                --------------------  --------------------
                                  2010       2009       2010       2009
                                ---------  ---------  ---------  ---------
Operating revenues
    Contract drilling revenues  $   2,290  $   2,625  $   4,731  $   5,459
    Contract drilling
     intangible revenues               29         75         62        179
    Other revenues                    186        182        314        362
                                ---------  ---------  ---------  ---------
                                    2,505      2,882      5,107      6,000
                                ---------  ---------  ---------  ---------
Costs and expenses
    Operating and maintenance       1,358      1,277      2,554      2,448
    Depreciation, depletion and
     amortization                     400        360        801        715
    General and administrative         58         53        121        109
                                ---------  ---------  ---------  ---------
                                    1,816      1,690      3,476      3,272
                                ---------  ---------  ---------  ---------
Loss on impairment                     --        (67)        (2)      (288)
Gain (loss) on disposal of
 assets, net                          268         (4)       254         --
                                ---------  ---------  ---------  ---------
Operating income                      957      1,121      1,883      2,440
                                ---------  ---------  ---------  ---------
Other income (expense), net
    Interest income                     5          1         10          2
    Interest expense, net of
     amounts capitalized             (141)      (114)      (273)      (250)
    Gain (loss) on retirement
     of debt                           --         (8)         2        (10)
    Other, net                         (3)        (8)        10         --
                                ---------  ---------  ---------  ---------
                                     (139)      (129)      (251)      (258)
                                ---------  ---------  ---------  ---------
Income before income tax
 expense                              818        992      1,632      2,182
Income tax expense                     98        184        227        435
                                ---------  ---------  ---------  ---------
Net income                            720        808      1,405      1,747
Net income (loss) attributable
 to noncontrolling interest             5          2         13         (1)
                                ---------  ---------  ---------  ---------
Net income attributable to
 controlling interest           $     715  $     806  $   1,392  $   1,748
                                =========  =========  =========  =========
Earnings per share
    Basic                       $    2.23  $    2.50  $    4.32  $    5.43
    Diluted                     $    2.22  $    2.49  $    4.31  $    5.42
Weighted average shares
 outstanding
    Basic                             319        320        320        320
    Diluted                           320        321        321        321
                        TRANSOCEAN LTD. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                        (In millions, except share data)
                                                  June 30,    December 31,
                                                    2010          2009
                                                ------------  ------------
                                                (Unaudited)
Assets
Cash and cash equivalents                       $      2,888  $      1,130
Accounts receivable, net of allowance for
 doubtful accounts of $41 and $65 at June 30,
 2010 and December 31, 2009, respectively              2,254         2,385
Materials and supplies, net of allowance for
 Obsolescence of $66 at June 30, 2010 and
 December 31, 2009                                       467           462
Deferred income taxes, net                               121           104
Assets held for sale                                      --           186
Other current assets                                     184           209
                                                ------------  ------------
        Total current assets                           5,914         4,476
                                                ------------  ------------
Property and equipment                                27,377        27,383
Property and equipment of consolidated variable
 interest entities                                     2,179         1,968
Less accumulated depreciation                          7,034         6,333
                                                ------------  ------------
     Property and equipment, net                      22,522        23,018
                                                ------------  ------------
Goodwill                                               8,132         8,134
Other assets                                             984           808
                                                ------------  ------------
        Total assets                            $     37,552  $     36,436
                                                ============  ============
Liabilities and equity
Accounts payable                                $        968  $        780
Accrued income taxes                                     154           240
Debt due within one year                               1,580         1,568
Debt of consolidated variable interest entities
 due within one year                                      82           300
Other current liabilities                              1,884           730
                                                ------------  ------------
        Total current liabilities                      4,668         3,618
                                                ------------  ------------
Long-term debt                                         8,862         8,966
Long-term debt of consolidated variable
 interest entities                                       902           883
Deferred income taxes, net                               710           726
Other long-term liabilities                            1,683         1,684
                                                ------------  ------------
        Total long-term liabilities                   12,157        12,259
                                                ------------  ------------
Commitments and contingencies
Shares, CHF 15.00 par value, 502,852,947
 authorized, 167,617,649 conditionally
 authorized, 335,235,298 issued at June 30, 2010
 and December 31, 2009; 318,916,207 and
 321,223,882 outstanding at June 30, 2010 and
 December 31, 2009, respectively                       4,479         4,472
Additional paid-in capital                             6,421         7,407
Treasury shares, at cost, 2,863,267 and none
 held at June 30, 2010 and December 31, 2009,
 respectively                                           (240)           --
Retained earnings                                     10,400         9,008
Accumulated other comprehensive loss                    (336)         (335)
                                                ------------  ------------
     Total controlling interest shareholders'
      equity                                          20,724        20,552
                                                ------------  ------------
     Noncontrolling interest                               3             7
                                                ------------  ------------
        Total equity                                  20,727        20,559
                                                ------------  ------------
        Total liabilities and equity            $     37,552  $     36,436
                                                ============  ============
                       TRANSOCEAN LTD. AND SUBSIDIARIES
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                      (In millions, except share data)
                                          Three months    Six months ended
                                         ended June 30,       June 30,
                                        ----------------  ----------------
                                          2010     2009     2010     2009
                                        -------  -------  -------  -------
Cash flows from operating activities
Net income                              $   720  $   808  $ 1,405  $ 1,747
Adjustments to reconcile net income to
 net cash provided by operating
 activities
     Amortization of drilling
      contract intangibles                  (29)     (75)     (62)    (179)
     Depreciation, depletion and
      amortization                          400      360      801      715
     Share-based compensation expense        18       24       53       43
     Excess tax benefit from
      share-based compensation plans         (1)      --       (1)      (1)
     (Gain) loss on disposal of assets,
      net                                  (268)       4     (254)      --
     Loss on impairment                      --       67        2      288
     (Gain) loss on retirement of debt       --        8       (2)      10
     Amortization of debt issue costs,
      discounts and premiums, net            51       57      100      109
     Deferred income taxes                  (12)      20      (34)      26
     Other, net                              (6)      14       (1)      23
     Deferred revenue, net                    7       49      158       43
     Deferred expenses, net                 (23)     (37)     (37)     (35)
     Changes in operating assets and
      liabilities                           412      277      313      228
                                        -------  -------  -------  -------
Net cash provided by operating
 activities                               1,269    1,576    2,441    3,017
                                        -------  -------  -------  -------
Cash flows from investing activities
    Capital expenditures                   (300)    (947)    (679)  (1,655)
    Proceeds from disposal of assets,
     net                                     10       --       51        8
    Proceeds from insurance recoveries
     for loss of drilling unit              560       --      560       --
    Proceeds from payments on notes
     receivable                              11       --       21       --
    Proceeds from short-term
     investments                             --      172        5      393
    Purchases of short-term investments      --     (234)      --     (234)
    Joint ventures and other
     investments, net                        (1)      --       (1)      --
                                        -------  -------  -------  -------
Net cash provided by (used in)
 investing activities                       280   (1,009)     (43)  (1,488)
                                        -------  -------  -------  -------
Cash flows from financing activities
    Change in short-term borrowings,
     net                                    (46)    (476)    (177)    (500)
    Proceeds from debt                       --      231       54      319
    Repayments of debt                      (22)    (708)    (275)  (1,410)
    Payments for warrant exercises, net      --      (13)      --      (13)
    Purchases of shares held in
     treasury                              (180)      --     (240)      --
    Proceeds from (taxes paid for)
     share-based compensation plans,
     net                                      3        5       (1)      22
    Excess tax benefit from share-based
     compensation plans                       1       --        1        1
    Other, net                               (3)      (1)      (2)      (4)
                                        -------  -------  -------  -------
Net cash used in financing activities      (247)    (962)    (640)  (1,585)
                                        -------  -------  -------  -------
Net increase (decrease) in cash and
 cash equivalents                         1,302     (395)   1,758      (56)
Cash and cash equivalents at beginning
 of period                                1,586    1,302    1,130      963
                                        -------  -------  -------  -------
Cash and cash equivalents at end of
 period                                 $ 2,888  $   907  $ 2,888  $   907
                                        =======  =======  =======  =======
                                 TRANSOCEAN LTD.
                           FLEET OPERATING STATISTICS
                                Operating Revenues ($ Millions) (1)
                          ------------------------------------------------
                               Three months ended        Six months ended
                          ----------------------------  ------------------
                          June 30,    March   June 30,  June 30,  June 30,
                            2010    31, 2010    2009      2010      2009
                          --------  --------  --------  --------  --------
Contract Drilling
 Revenues
  High-Specification
   Floaters:
    Ultra Deepwater
     Floaters             $    809  $    901  $    673  $  1,710  $  1,375
    Deepwater Floaters         382       390       406       772       819
    Harsh Environment
     Floaters                  166       176       159       342       317
  Total
   High-Specification
   Floaters                  1,357     1,467     1,238     2,824     2,511
  Midwater Floaters            521       522       644     1,044     1,352
  High-Specification
   Jackups                      93        94       128       186       278
  Standard Jackups             312       352       608       664     1,298
  Other Rigs                     7         6         7        13        20
Subtotal                     2,290     2,441     2,625     4,731     5,459
Contract Intangible
 Revenue                        29        33        75        62       179
Other Revenues
  Client Reimbursable
   Revenues                     38        40        48        78        98
  Integrated Services and
   Other                        11        30        52        42       105
  Drilling Management
   Services                    129        51        74       179       145
  Oil and Gas Properties         8         7         8        15        14
Subtotal                       186       128       182       314       362
Total Company             $  2,505  $  2,602  $  2,882  $  5,107  $  6,000
                                    Average Daily Revenue  (1)
                          ------------------------------------------------
                               Three months ended       Six months ended
                          ----------------------------  ------------------
                          June 30,    March   June 30,  June 30,  June 30,
                            2010    31, 2010    2009      2010      2009
                          --------  --------  --------  --------  --------
  High-Specification
   Floaters:
    Ultra Deepwater
     Floaters             $482,100  $486,000  $450,500  $484,100  $450,800
    Deepwater Floaters    $395,800  $383,800  $339,600  $389,600  $338,200
    Harsh Environment
     Floaters             $428,500  $400,100  $374,500  $413,400  $362,500
  Total
   High-Specification
   Floaters               $447,800  $443,200  $397,600  $445,400  $395,700
  Midwater Floaters       $319,000  $331,600  $302,700  $325,200  $308,900
  High-Specification
   Jackups                $146,100  $166,000  $161,400  $155,500  $165,700
  Standard Jackups        $117,100  $133,100  $149,200  $125,000  $152,900
  Other Rigs              $ 72,000  $ 72,700  $ 48,300  $ 72,400  $ 47,300
Total Drilling Fleet      $284,200  $298,300  $255,900  $291,300  $256,200
                                          Utilization (1)
                          ------------------------------------------------
                               Three months ended       Six months ended
                          ----------------------------  ------------------
                          June 30,    March   June 30,  June 30,  June 30,
                            2010    31, 2010    2009      2010      2009
                          --------  --------  --------  --------  --------
  High-Specification
   Floaters:
    Ultra Deepwater
     Floaters                   76%       88%       91%       82%       94%
    Deepwater Floaters          66%       71%       82%       68%       84%
    Harsh Environment
     Floaters                   85%       98%       93%       91%       96%
  Total
   High-Specification
   Floaters                     74%       83%       88%       78%       90%
  Midwater Floaters             69%       67%       84%       68%       86%
  High-Specification
   Jackups                      70%       63%       87%       66%       93%
  Standard Jackups              53%       53%       82%       53%       85%
  Other Rigs                    50%       50%       59%       50%       80%
Total Drilling Fleet            64%       66%       84%       65%       87%
(1)  Average daily revenue is defined as contract drilling revenue earned
     per revenue earning day in the period.  A revenue earning day is
     defined as a day for which a rig earns dayrate after commencement of
     operations.  Utilization is defined as the total actual number of
     revenue earning days in the period as a percentage of the total
     number of calendar days in the period for all drilling rigs in our
     fleet.
                      Transocean Ltd. and Subsidiaries
                 Supplemental Effective Tax Rate Analysis
                              (In millions)
                                   Three months ended     Six months ended
                               -------------------------  ----------------
                                 June    March     June     June     June
                                  30,      31,      30,      30,      30,
                                 2010     2010     2009     2010     2009
                               -------  -------  -------  -------  -------
Income before income taxes     $   818  $   814  $   992  $ 1,632  $ 2,182
 Add back (subtract):
    Litigation matters              12        -        -       12        -
    Gain on loss of Deepwater
     Horizon                      (267)       -        -     (267)       -
    Loss on disposal of other
     assets, net                     -       14        3       14        3
    Loss on impairment of
     goodwill and intangible
     assets                          -        2        9        2        9
    Loss on impairment of
     other assets                    -       21        -       21        -
    Loss on impairment of
     assets held for sale            -        -       58        -      279
    (Gain) loss on retirement
     of debt                         -       (2)       8       (2)      10
    GSF merger related costs
     and other, net                  -        6        2        6        8
                               -------  -------  -------  -------  -------
Adjusted income before income
 taxes                             563      855    1,072    1,418    2,491
Income tax expense                  98      129      184      227      435
 Add back (subtract):
    Loss on impairment of oil
     and gas properties             (7)       7        -        -        -
    GSF merger related costs         -        1        -        1        1
    Tax effect of the Patient
     Protection and Affordable
     Care Act                        -       (2)       -       (2)       -
    Changes in estimates (1)         1       (7)     (16)      (6)     (52)
                               -------  -------  -------  -------  -------
Adjusted income tax expense
 (2)                           $    92  $   128  $   168  $   220  $   384
                               =======  =======  =======  =======  =======
Effective Tax Rate (3)            12.0%    15.8%    18.5%    13.9%    19.9%
Annual Effective Tax Rate (4)     16.3%    15.0%    15.7%    15.5%    15.4%
(1) Our estimates change as we file tax returns, settle disputes with tax
    authorities or become aware of other events and include changes in (a)
    deferred taxes, (b) valuation allowances on deferred taxes and (c)
    other tax liabilities.
(2) The three months ended June 30, 2010 includes $4 million of additional
    tax expense (benefit) reflecting the catch-up effect of an increase
    (decrease) in the annual effective tax rate from the previous quarter
    estimate.
(3) Effective Tax Rate is income tax expense divided by income before
    income taxes.
(4) Annual Effective Tax Rate is income tax expense excluding various
    discrete items (such as changes in estimates and tax on items excluded
    from income before income taxes) divided by income before income
    taxes excluding gains and losses on sales and similar items pursuant
    to the accounting standards for income taxes and estimating the annual
    effective tax rate.

SOURCE: Transocean Ltd.

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