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Transocean Ltd. Reports Second Quarter 2012 Results

August 1, 2012

Aug 01, 2012 (Marketwire via COMTEX) 

ZUG, SWITZERLAND--(August 1, 2012) - Transocean Ltd. (NYSE: RIG) (SIX: RIGN)

  • Second quarter 2012 revenues were $2.575 billion compared with $2.337 billion in the first quarter 2012;
  • Excluding an additional $750 million for estimated loss contingencies associated with the Macondo well incident, second quarter 2012 operating and maintenance expenses were $1.607 billion compared with $1.463 billion in the first quarter 2012;
  • Second quarter 2012 net loss attributable to controlling interest was $304 million, which included $560 million of net unfavorable items. This compares with the first quarter 2012 net income attributable to controlling interest of $10 million, which included $181 million of net unfavorable items;
  • Revenue efficiency(1) was 92.5 percent in the second quarter, compared with 90.6 percent in the first quarter 2012;
  • Fleet utilization(2) was 66 percent in the second quarter, compared with 61 percent in the first quarter 2012;
  • Cash flows from operating activities were $459 million in the second quarter, which compares with $540 million in the first quarter 2012;
  • Second quarter 2012 Annual Effective Tax Rate(3) was 31.1 percent compared with 27.6 percent in the first quarter 2012;
  • New contracts totaling $4.7 billion were secured in the Fleet Status Report periods April 18, 2012 through July 18, 2012. Backlog at July 18th was $22.9 billion, a net increase of $2.3 billion. Since July 18, 2012, additional contracts totaling $144 million were secured; and
  • Prior period consolidated financial statements have been adjusted to correct for an error primarily related to the recognition of assets for insurance recoveries for legal and other costs associated with the Macondo well incident. These corrections, described in Appendix A to this release, are immaterial to the prior period consolidated financial statements.

Transocean Ltd. (NYSE: RIG) (SIX: RIGN) today reported a net loss attributable to controlling interest of $304 million, or $0.86 per diluted share, for the three months ended June 30, 2012. Second quarter 2012 results included net unfavorable items of $560 million, or $1.58 per diluted share. The results compare with net income attributable to controlling interest of $124 million, or $0.39 per diluted share, for the three months ended June 30, 2011. Second quarter 2011 results included net unfavorable items of $36 million, or $0.11 per diluted share, primarily associated with impairment losses on three standard jackups and charges related to unfavorable discrete tax items.

Net unfavorable items, after tax, impacting the second quarter of 2012 included the following:

  • $750 million, or $2.12 per diluted share, for estimated loss contingencies associated with the Macondo well incident that the company believes is probable and for which a reasonable estimate can be made at this time. This estimate will be adjusted to reflect new information and future developments as they become known;
  • $145 million, or $0.41 per diluted share, associated with discrete tax benefits;
  • $64 million, or $0.18 per diluted share, net gain on the sale of Transocean Nordic, Transocean Shelf Explorer, Roger W. Mowell, and GSF Adriatic II;
  • $14 million, or $0.04 per diluted share, loss associated with Quantum's exchange of its 50 percent interest in Transocean Pacific Drilling Inc. for Transocean Ltd.'s shares;
  • $12 million, or $0.03 per diluted share, in impairments of long-lived assets classified as held for sale; and
  • $7 million, or $0.02 per diluted share, primarily associated with a gain on disposal of the discontinued operations of Challenger Minerals Inc.

Operations Quarterly Review

Revenues for the three months ended June 30, 2012 were $2.575 billion, compared with revenues of $2.337 billion during the three months ended March 31, 2012. Contract drilling revenues increased $170 million mainly due to fewer shipyard days and higher revenue efficiency(1) primarily on High Specification Floaters. Total fleet revenue efficiency(1) was 92.5 percent for the second quarter, compared with 90.6 percent in the first quarter 2012. Other revenues increased $68 million to $185 million for the second quarter 2012, compared with $117 million in the prior quarter, primarily due to increased activity levels in the company's drilling management services reporting unit outside the U.S. GOM.

Excluding $750 million for estimated loss contingencies associated with the Macondo well incident, operating and maintenance expenses totaled $1.607 billion for the second quarter 2012. This compares with $1.463 billion in the first quarter 2012. The increase in operating and maintenance expenses was partly due to approximately $82 million in higher costs incurred on rigs undergoing shipyard, maintenance, survey and repair projects. In addition, drilling management services activity levels outside the U.S. GOM increased operating and maintenance costs by $62 million. 

General and administrative expenses were $79 million for the second quarter 2012 compared with $69 million in the previous quarter. The increase was primarily due to transaction costs associated with the Quantum exchange.

Correction of Prior Period Consolidated Financial Statements

Please note that previously reported consolidated financial statements have been adjusted to reflect prior period corrections primarily related to the recognition of assets for insurance recoveries for legal and other costs associated with the Macondo well incident. These corrections are immaterial to the prior year consolidated financial statements. 

For the three months ended March 31, 2012, the corrections reduced income from continuing operations by $55 million and net income attributable to controlling interest by $32 million. For the three months ended June 30, 2011, the corrections reduced income from continuing operations by $31 million, and net income attributable to controlling interest by $31 million. Additional details of these corrections, as well as required reconciliations, are provided in Appendix A.

Income Taxes

Transocean's second quarter Effective Tax Rate(4) was 8.6 percent compared with 47.2 percent in the first quarter 2012. The decrease in the Effective Tax Rate(4) was due to favorable changes in estimates mainly for settlement of prior year's tax liabilities. Transocean's Annual Effective Tax Rate(3) for the second quarter 2012, which excludes various favorable discrete items totaling $145 million, was 31.1 percent. This compares with 27.6 percent for the prior quarter. The increase was primarily due to changes in the blend of income that is taxed based on gross revenues versus pre-tax income and rig movements between taxing jurisdictions, among other things. Second quarter 2012 income tax expense included an adjustment of $5 million, or $0.01 per diluted share, required to reflect an increase in the Annual Effective Tax Rate(3) to 29.6 percent for the six months ended June 30, 2012, from 27.6 percent for the first quarter of 2012.

Other Items

For the second quarter, interest expense, net of amounts capitalized, was $183 million, compared with $180 million in the first quarter 2012. Capitalized interest for the second quarter 2012 was $12 million compared with $13 million in the prior quarter. Interest income decreased to $13 million in the second quarter, compared with $15 million in the first quarter 2012.

Cash flows from operating activities were $459 million for the second quarter compared with $540 million for the first quarter 2012. Capital expenditures decreased to $236 million for the second quarter compared with $260 million in the first quarter of 2012. The lower capital expenditures were primarily due to timing of shipyard milestone payments associated with the company's newbuild program.

Forward-Looking Statements

Statements included in this news release, including those regarding estimates of Transocean's goodwill or long-lived asset impairments and the estimated loss contingencies associated with the Macondo well incident, are forward-looking statements that involve certain assumptions. These statements are based on currently available competitive, financial, and economic data along with our current operating plans and involve risks and uncertainties including, but not limited to, market conditions, Transocean's results of operations, the effect and results of litigation, assessments and contingencies, and other factors detailed in "Risk Factors" and elsewhere in Transocean's filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize (or the other consequences of such a development worsen), or should underlying assumptions prove incorrect, actual outcomes may vary materially from those forecasted or expected. Transocean disclaims any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise.

Conference Call Information

Transocean will conduct a teleconference call at 10:00 a.m. EDT, 4:00 p.m. CEST, on Thursday, August 2, 2012. To participate, dial +1 719-325-4929 and refer to confirmation code 4582389 approximately 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 http://www.deepwater.com/ and selecting "Investor Relations." A file containing four charts that may be discussed during the conference call, titled "2Q12 Charts," has been posted to Transocean's website and can also be found by selecting "Investor Relations/Quarterly Toolkit." The conference call may also be accessed via the Internet at http://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 2, 2012, and can be accessed by dialing +1 719-457-0820 or +1 888-203-1112 and referring to the confirmation code 4582389. Also, a replay will be available through the Internet and can be accessed by visiting either of the above-referenced internet addresses. Both replay options will be available for approximately 30 days.

About Transocean

Transocean is a leading international provider of offshore contract drilling services for oil and gas wells. We own or have partial ownership interests in and operate a fleet of 128 mobile offshore drilling units consisting of 49 High-Specification Floaters (Ultra-Deepwater, Deepwater and Harsh-Environment semisubmersibles and drillships), 25 Midwater Floaters, 10 High-Specification Jackups, 43 Standard Jackups and one swamp barge. In addition, we have two Ultra-Deepwater Drillships and three High-Specification Jackups under construction. The company specializes in technically demanding sectors of the global offshore drilling business with a particular focus on deepwater and harsh environment drilling services, and believes that it operates one of the most versatile offshore drilling fleets in the world. 

(1) Revenue efficiency is defined as actual revenue divided by the highest amount of total revenue which could have been earned during the relevant period(s). See the accompanying schedule entitled "Revenue Efficiency."

(2) 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 the company's fleet. See the accompanying schedule entitled "Utilization."

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

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

For more information about Transocean, please visit the website at http://www.deepwater.com/.

   
TRANSOCEAN LTD. AND SUBSIDIARIES  
   
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
   
(In millions, except per share data)  
(Unaudited)  
   
    Three months ended
June 30,
    Six months ended
June 30,
 
    2012     2011     2012     2011  
                                 
Operating revenues                                
  Contract drilling revenues   $ 2,390     $ 2,096     $ 4,610     $ 4,056  
  Other revenues     185       238       302       422  
      2,575       2,334       4,912       4,478  
Costs and expenses                                
  Operating and maintenance     2,357       1,528       3,820       2,905  
  Depreciation and amortization     345       359       700       713  
  General and administrative     79       66       148       133  
      2,781       1,953       4,668       3,751  
Loss on impairment     (12 )     (25 )     (239 )     (25 )
Gain (loss) on disposal of assets, net     55       (1 )     51       7  
Operating income (loss)     (163 )     355       56       709  
                                 
Other income (expense), net                                
  Interest income     13       5       28       20  
  Interest expense, net of amounts capitalized     (183 )     (147 )     (363 )     (292 )
  Other, net     (6 )     (5 )     (24 )     (2 )
      (176 )     (147 )     (359 )     (274 )
Income (loss) from continuing operations before income tax expense     (339 )     208       (303 )     435  
Income tax (benefit) expense     (29 )     77       (12 )     143  
Income (loss) from continuing operations     (310 )     131       (291 )     292  
Income (loss) from discontinued operations, net of tax     7       2       6       174  
                                 
Net income (loss)     (303 )     133       (285 )     466  
Net income (loss) attributable to noncontrolling interest     1       9       9       23  
Net income (loss) attributable to controlling interest   $ (304 )   $ 124     $ (294 )   $ 443  
                                 
Earnings (loss) per share-basic                                
  Earnings (loss) from continuing operations   $ (0.88 )   $ 0.38     $ (0.85 )   $ 0.84  
  Earnings (loss) from discontinued operations     0.02       0.01       0.02       0.54  
  Earnings (loss) per share   $ (0.86 )   $ 0.39     $ (0.83 )   $ 1.38  
                                   
Earnings (loss) per share-diluted                                
  Earnings (loss) from continuing operations   $ (0.88 )   $ 0.38     $ (0.85 )   $ 0.84  
  Earnings (loss) from discontinued operations     0.02       0.01       0.02       0.54  
  Earnings (loss) per share   $ (0.86 )   $ 0.39     $ (0.83 )   $ 1.38  
                                 
Weighted-average shares outstanding                                
  Basic     353       320       352       319  
  Diluted     353       320       352       320  
                                   
                                   
                                   
TRANSOCEAN LTD. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In millions, except share data)
(Unaudited)
 
    June 30,
2012
  December 31,
2011
Assets          
Cash and cash equivalents   $ 3,964     $ 4,017  
Accounts receivable, net of allowance for doubtful accounts of $28 at June 30, 2012 and December 31, 2011     2,124       2,176  
Materials and supplies, net of allowance for obsolescence of $81 and $73 at June 30, 2012 and December 31, 2011, respectively     676       627  
Deferred income taxes, net     142       142  
Assets held for sale     9       26  
Other current assets     452       537  
    Total current assets     7,367       7,525  
                 
Property and equipment     30,559       29,037  
Property and equipment of consolidated variable interest entities     813       2,252  
Less accumulated depreciation     9,165       8,756  
  Property and equipment, net     22,207       22,533  
Goodwill     3,099       3,217  
Other assets     1,769       1,757  
    Total assets   $ 34,442     $ 35,032  
                 
Liabilities and equity                
Accounts payable   $ 917     $ 880  
Accrued income taxes     121       89  
Debt due within one year     2,772       1,942  
Debt of consolidated variable interest entities due within one year     28       245  
Other current liabilities     2,888       2,372  
    Total current liabilities     6,726       5,528  
                 
Long-term debt     9,862       10,756  
Long-term debt of consolidated variable interest entities     177       593  
Deferred income taxes, net     487       519  
Other long-term liabilities     1,581       1,893  
    Total long-term liabilities     12,107       13,761  
                 
Commitments and contingencies                
Redeemable noncontrolling interest     --       116  
                 
Shares, CHF 15.00 par value, 402,282,355 authorized, 167,617,649 conditionally authorized, and 373,830,649 and 365,135,298 issued at June 30, 2012 and December 31, 2011, respectively; 359,284,907 and 349,805,793 outstanding at June 30, 2012 and December 31, 2011, respectively     5,127       4,982  
Additional paid-in capital     7,472       7,211  
Treasury shares, at cost, 2,863,267 held at June 30, 2012 and December 31, 2011     (240 )     (240 )
Retained earnings     3,780       4,180  
Accumulated other comprehensive loss     (516 )     (496 )
  Total controlling interest shareholders' equity     15,623       15,637  
  Noncontrolling interest     (14 )     (10 )
    Total equity     15,609       15,627  
    Total liabilities and equity   $ 34,442     $ 35,032  
                     
                     
                     
TRANSOCEAN LTD. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
 
(In millions)
(Unaudited)
 
    Three months ended
June 30,
    Six months ended
June 30,
 
    2012     2011     2012     2011  
                         
Cash flows from operating activities                            
   Net income (loss)   $ (303 )   $ 133     $ (285 )   $ 466  
   Adjustments to reconcile to net cash provided by operating activities                                
    Amortization of drilling contract intangibles     (12 )     (10 )     (23 )     (20 )
    Depreciation and amortization     345       359       700       713  
    Share-based compensation expense     25       27       48       54  
    Loss on impairment     12       25       239       25  
    (Gain) loss on disposal of assets, net     (55 )     1       (51 )     (7 )
    (Gain) loss on disposal of discontinued operations, net     (10 )     --       (10 )     (169 )
    Amortization of debt issue costs, discounts and premiums, net     17       36       35       62  
    Deferred income taxes     (26 )     12       (43 )     36  
    Other, net     20       14       41       11  
    Changes in deferred revenue, net     7       (3 )     (5 )     43  
    Changes in deferred expenses, net     28       (48 )     (21 )     (84 )
    Changes in operating assets and liabilities     411       (206 )     374       (400 )
Net cash provided by operating activities     459       340       999       730  
                                 
Cash flows from investing activities                                
  Capital expenditures     (236 )     (293 )     (496 )     (533 )
  Proceeds from disposal of assets, net     144       5       185       18  
  Proceeds from disposal of discontinued operations, net     17       --       17       259  
  Other, net     13       (27 )     25       (33 )
Net cash used in investing activities     (62 )     (315 )     (269 )     (289 )
                                 
Cash flows from financing activities                                
  Changes in short-term borrowings, net     (260 )     5       (260 )     56  
  Proceeds from debt     --       --       --       5  
  Repayments of debt     (173 )     (202 )     (320 )     (249 )
  Proceeds from restricted cash investments     84       --       192       --  
  Deposits to restricted cash investments     (74 )     --       (116 )     --  
  Distribution of qualifying additional paid-in capital     --       (254 )     (278 )     (254 )
  Other, net     8       3       (1 )     (4 )
Net cash used in financing activities     (415 )     (448 )     (783 )     (446 )
                                 
Net decrease in cash and cash equivalents     (18 )     (423 )     (53 )     (5 )
Cash and cash equivalents at beginning of period     3,982       3,772       4,017       3,354  
Cash and cash equivalents at end of period   $ 3,964     $ 3,349     $ 3,964     $ 3,349  
                                 
                                 
                                 
TRANSOCEAN LTD. AND SUBSIDIARIES
FLEET OPERATING STATISTICS
 
    Operating Revenues (in millions) (1)
    Three months ended   Six months ended
June 30,
    June 30,
2012
  March 31,
2012
  June 30,
2011
  2012   2011
Contract Drilling Revenues                              
  High-Specification Floaters:                              
    Ultra Deepwater Floaters   $ 1,141   $ 1,092   $ 1,005   $ 2,233   $ 1,849
    Deepwater Floaters     328     242     238     570     528
    Harsh Environment Floaters     264     255     181     519     331
  Total High-Specification Floaters     1,733     1,589     1,424     3,322     2,708
  Midwater Floaters     337     347     376     684     776
  Jackups:                              
    High-Specification Jackups     102     78     48     180     79
    Standard Jackups     200     189     230     389     459
  Total Jackups     302     267     278     569     538
  Other Rigs     7     6     8     13     14
 Total Contract Drilling Revenues     2,379     2,209     2,086     4,588     4,036
 Contract Intangible Revenue     11     11     10     22     20
 Other Revenues                              
  Client Reimbursable Revenues     41     48     40     89     77
  Integrated Services and Other     6     -     15     6     30
  Drilling Management Services     138     69     183     207     315
Total Other Revenues     185     117     238     302     422
Total Company   $ 2,575   $ 2,337   $ 2,334   $ 4,912   $ 4,478
                               
    Average Daily Revenue (1)
    Three months ended   Six months ended
June 30,
    June 30,
2012
  March 31, 2012   June 30,
2011
  2012   2011
  High-Specification Floaters:                              
    Ultra Deepwater Floaters   $ 537,000   $ 534,900   $ 516,600   $ 536,000   $ 493,100
    Deepwater Floaters     379,200     357,800     396,400     369,800     396,200
    Harsh Environment Floaters     433,200     478,600     430,100     454,400     417,100
  Total High-Specification Floaters     481,600     488,800     479,900     485,000     460,800
  Midwater Floaters     295,800     275,600     333,000     285,200     322,400
  High-Specification Jackups     138,400     116,900     110,300     128,200     108,700
  Standard Jackups     89,900     91,200     111,700     90,500     110,400
  Other Rigs     77,800     73,300     76,400     75,600     74,900
Total Drilling Fleet   $ 305,400   $ 301,100   $ 312,100   $ 303,300   $ 302,400
                               
  (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.
                               
                               
                               
TRANSOCEAN LTD. AND SUBSIDIARIES
FLEET OPERATING STATISTICS (continued)
 
    Utilization (2)
    Three months ended   Six months ended
June 30,
    June 30,
2012
  March 31,
2012
  June 30,
2011
  2012   2011
  High-Specification Floaters:                    
    Ultra Deepwater Floaters   87%   83%   80%   85%   79%
    Deepwater Floaters   59%   47%   41%   53%   46%
    Harsh Environment Floaters   96%   84%   93%   90%   88%
  Total High-Specification Floaters   79%   71%   69%   75%   69%
  Midwater Floaters   52%   56%   54%   54%   57%
  High-Specification Jackups   84%   81%   56%   83%   48%
  Standard Jackups   55%   47%   43%   51%   43%
  Other Rigs   100%   98%   50%   99%   50%
Total Drilling Fleet   66%   61%   55%   64%   55%
                     
  (2) 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.
 
 
 
    Revenue Efficiency(3)
    Trailing Five Quarters and Historical Data
                             
    2Q 2012   1Q 2012   4Q 2011   3Q 2011   2Q 2011   FY 2011   FY 2010
                             
Ultra Deepwater   92.2%   89.4%   89.5%   86.4%   89.3%   87.7%   88.6%
Deepwater   92.1%   83.2%   88.1%   87.7%   93.9%   89.4%   90.3%
Harsh Environment Floaters   98.1%   97.8%   98.0%   94.4%   98.4%   97.4%   96.0%
Midwater Floaters   87.4%   90.8%   94.2%   90.8%   91.9%   92.6%   92.5%
High Specification Jackups   95.1%   93.4%   94.3%   97.3%   95.6%   95.6%   95.3%
Standard Jackups   97.3%   97.8%   96.4%   98.2%   98.4%   97.7%   97.3%
Others   99.4%   97.3%   98.6%   99.5%   97.6%   98.7%   98.4%
                             
Total Fleet   92.5%   90.6%   91.9%   89.5%   92.1%   90.9%   91.7%
                             
  (3) Revenue efficiency is defined as actual revenue divided by the highest amount of total revenue which could have been earned during the relevant period(s).              
                               
                               
                               
TRANSOCEAN LTD. AND SUBSIDIARIES
SUPPLEMENTAL EFFECTIVE TAX RATE ANALYSIS
(In US$ millions, except percentages)
                                         
    Three months ended     Six months ended  
    June 30,
2012
    March 31,
2012
    June 31,
2011
    June 30,
2012
    June 30,
2011
 
                                         
Income (loss) from continuing operations before income taxes   $ (339 )   $ 36     $ 208     $ (303 )   $ 435  
  Add back (subtract):                                        
  Litigation matters     750       --       --       750       --  
  Gain on disposal of other assets, net     (64 )     --       --       (64 )     (9 )
  Loss on impairment of goodwill and other assets     12       227       25       239       25  
  Loss on redeemed noncontrolling interest     14       11       --       25       --  
  Other, net     --       1       --       1       5  
Adjusted income from continuing operations before income taxes     373       275       233       648       456  
                                         
Income tax (benefit) expense from continuing operations     (29 )     17       77       (12 )     143  
  Add back (subtract):                                        
  Loss on impairment     --       30       --       30       --  
  Changes in estimates (1)     145       29       (13 )     174       (33 )
  Other, net     --       --       --       --       2  
Adjusted income tax expense from continuing operations (2)   $ 116     $ 76     $ 64     $ 192     $ 112  
                                         
Effective Tax Rate (3)     8.6 %     47.2 %     37.0 %     4.0 %     32.9 %
                                         
Annual Effective Tax Rate (4)     31.1 %     27.6 %     27.5 %     29.6 %     24.6 %
     
(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 and six months ended June 30, 2012 includes $5 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.
     
     
     

TRANSOCEAN LTD. AND SUBSIDIARIES
APPENDIX A

Correction of Errors in Previously Reported Consolidated Financial Statements

We perform assessments of our contingencies and corresponding assets for insurance recoveries on an ongoing basis to evaluate the appropriateness of our balances and disclosures for such contingencies and insurance recoveries. We establish liabilities for estimated loss contingencies when we believe a loss is probable and the amount of the probable loss can be reasonably estimated. We recognize corresponding assets for those loss contingencies that we believe are probable of being recovered through insurance. In performing these assessments in the three months ended June 30, 2012, we identified an error in our previously issued financial statements for the year ended December 31, 2011 and the three months ended March 31, 2012 related to the recognition of assets for insurance recoveries related to legal and other costs totaling $67 million and $37 million, respectively, which we have concluded should not have been recorded because they were not probable of recovery.

We assessed the materiality of this error in accordance with SEC Staff Accounting Bulletin ("SAB") No. 99, Materiality and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements ("SAB 108"), using both the rollover method and the iron curtain method, as defined in SAB 108, and concluded the error, inclusive of other adjustments discussed below, was immaterial to prior years but could be material to the current year. Under SAB 108, if the prior year error that, if corrected in the current year, would be material to the current year, the prior year financial statements should be corrected, even though such correction previously was immaterial to the prior year financial statements. Correcting prior year financial statements for immaterial errors does not require our previously filed reports to be amended, but rather these corrections will be made the next time we file the prior period consolidated financial statements.

In addition to the adjustments in 2011 and 2012 related to the assets for insurance recoveries, we recorded other adjustments related to the years ended December 31, 2011 and 2010 and the three months ended March 31, 2012 to correct for immaterial errors for repair and maintenance costs, income taxes, discontinued operations, and the allocation of net income attributable to noncontrolling interest. These other adjustments were not previously recorded in the appropriate periods, as we concluded that they were immaterial to our previously issued consolidated financial statements.

For the three months ended March 31, 2012, the correction of these errors reduced income from continuing operations by $55 million and net income attributable to controlling interest by $32 million. For the three and six month periods ended June 30, 2011, correction of these errors reduced income from continuing operations by $31 million and $34 million, respectively, and net income attributable to controlling interest by $31 million and $22 million, respectively. For the year ended December 31, 2011, correction of these errors increased loss from continuing operations by $31 million and net loss attributable to controlling interest by $29 million. For the year ended December 31, 2010, correction of these errors reduced income from continuing operations by $19 million and net income attributable to controlling interest by $35 million. The summary of adjustments for increases and (decreases) to net income (loss) from continuing operations and net income (loss) attributable to controlling interest for the applicable periods were as follows (in millions):

                     
      Three months
ended
    Six months
ended
    Years
ended
 
    March 31,
2012
    June 30,
2011
    June 30,
2011
    December 31,
2011
    December 31,
2010
 
                                         
Legal and other costs   $ (37 )   $ (19 )   $ (30 )   $ (67 )   $ --  
Repair and maintenance costs     --       (32 )     (48 )     11       (11 )
Income tax (expense) benefit     7       5       20       16       (4 )
Other immaterial adjustments, net     (25 )     15       24       9       (4 )
Net adjustment to income from continuing operations     (55 )     (31 )     (34 )     (31 )     (19 )
Net adjustment to income from discontinued operations, net of tax     14       --       (4 )     (14 )     --  
Net adjustment to net income attributable to noncontrolling interest     9       --       16       16       (16 )
Net adjustment to net income attributable to controlling interest   $ (32 )   $ (31 )   $ (22 )   $ (29 )   $ (35 )
                                         

The effects of the corrections of the errors on our consolidated statements of operations and balance sheets are presented in the tables below. The corrections of the errors had no effect on our consolidated statements of comprehensive income (loss) other than the effect of the changes to net income (loss) for each period. The corrections of the errors had no effect on the previously reported amounts of operating, investing, and financing cash flows in our consolidated statements of cash flows.

 
TRANSOCEAN LTD. AND SUBSIDIARIES
APPENDIX A
 
Correction of Errors in Previously Reported Consolidated Financial Statements (continued)
 
    Three months ended March 31, 2012  
    Previously reported     Adjustments     As
adjusted
 
Operating revenues                        
  Contract drilling revenues   $ 2,214     $ 6     $ 2,220  
  Other revenues     117       --       117  
        2,331       6       2,337  
 Costs and expenses                        
  Operating and maintenance     1,410       53       1,463  
  Depreciation and amortization     351       4       355  
  General and administrative     69       --       69  
      1,830       57       1,887  
Loss on impairment     (227 )     --       (227 )
Gain (loss) on disposal of assets, net     (4 )     --       (4 )
Operating income (loss)     270       (51 )     219  
                         
Other income (expense), net                        
  Interest income     15       --       15  
  Interest expense, net of amounts capitalized     (180 )     --       (180 )
  Other, net     (7 )     (11 )     (18 )
      (172 )     (11 )     (183 )
Income (loss) from continuing operations before income tax expense     98       (62 )     36  
Income tax (benefit) expense     24       (7 )     17  
Income (loss) from continuing operations     74       (55 )     19  
Income (loss) from discontinued operations, net of tax     (15 )     14       (1 )
                         
Net income (loss)     59       (41 )     18  
Net income (loss) attributable to noncontrolling interest     17       (9 )     8  
Net income (loss) attributable to controlling interest   $ 42     $ (32 )   $ 10  
                         
Earnings (loss) per share-basic                        
  Earnings (loss) from continuing operations   $ 0.16     $ (0.13 )   $ 0.03  
  Earnings (loss) from discontinued operations     (0.04 )     0.04       --  
  Earnings (loss) per share   $ 0.12     $ (0.09 )   $ 0.03  
                         
Earnings (loss) per share-diluted                        
  Earnings (loss) from continuing operations   $ 0.16     $ (0.13 )   $ 0.03  
  Earnings (loss) from discontinued operations     (0.04 )     0.04       --  
  Earnings (loss) per share   $ 0.12     $ (0.09 )   $ 0.03  
                         
                         
                         
TRANSOCEAN LTD. AND SUBSIDIARIES
APPENDIX A
 
Correction of Errors in Previously Reported Consolidated Financial Statements (continued)
 
    Three months ended June 30, 2011     Six months ended June 30, 2011  
    Previously reported     Adjustments     As
adjusted
    Previously reported     Adjustments     As
adjusted
 
Operating revenues                                                
  Contract drilling revenues   $ 2,096     $ --     $ 2,096     $ 4,056     $ --     $ 4,056  
  Other revenues     238       --       238       422       --       422  
        2,334       --       2,334       4,478       --       4,478  
 Costs and expenses                                                
  Operating and maintenance     1,492       36       1,528       2,851       54       2,905  
  Depreciation and amortization     359       --       359       713       --       713  
  General and administrative     66       --       66       133       --       133  
      1,917       36       1,953       3,697       54       3,751  
Loss on impairment     (25 )     --       (25 )     (25 )     --       (25 )
Gain (loss) on disposal of assets, net     (1 )     --       (1 )     7       --       7  
Operating income (loss)     391       (36 )     355       763       (54 )     709  
                                                 
Other income (expense), net                                                
  Interest income     5       --       5       20       --       20  
  Interest expense, net of amounts capitalized     (147 )     --       (147 )     (292 )     --       (292 )
  Other, net     (5 )     --       (5 )     (2 )     --       (2 )
      (147 )     --       (147 )     (274 )     --       (274 )
Income (loss) from continuing operations before income tax expense     244       (36 )     208       489       (54 )     435  
Income tax (benefit) expense     82       (5 )     77       163       (20 )     143  
Income (loss) from continuing operations     162       (31 )     131       326       (34 )     292  
Income (loss) from discontinued operations, net of tax     2       --       2       178       (4 )     174  
                                                 
Net income (loss)     164       (31 )     133       504       (38 )     466  
Net income (loss) attributable to noncontrolling interest     9       --       9       39       (16 )     23  
Net income (loss) attributable to controlling interest   $ 155     $ (31 )   $ 124     $ 465     $ (22 )   $ 443  
                                                 
Earnings (loss) per share-basic                                                
  Earnings (loss) from continuing operations   $ 0.47     $ (0.09 )   $ 0.38     $ 0.89     $ (0.05 )   $ 0.84  
  Earnings (loss) from discontinued operations     0.01       --       0.01       0.55       (0.01 )     0.54  
  Earnings (loss) per share   $ 0.48     $ (0.09 )   $ 0.39     $ 1.44     $ (0.06 )   $ 1.38  
                                                   
 Earnings (loss) per share-diluted                                                
  Earnings (loss) from continuing operations   $ 0.47     $ (0.09 )   $ 0.38     $ 0.89     $ (0.05 )   $ 0.84  
  Earnings (loss) from discontinued operations     0.01       --       0.01       0.55       (0.01 )     0.54  
  Earnings (loss) per share   $ 0.48     $ (0.09 )   $ 0.39     $ 1.44     $ (0.06 )   $ 1.38  
                                                 
 
 
TRANSOCEAN LTD. AND SUBSIDIARIES
APPENDIX A
 
Correction of Errors in Previously Reported Consolidated Financial Statements (continued)
 
    Year ended December 31, 2011     Year ended December 31, 2010  
    Previously reported     Adjustments     As
adjusted
    Previously reported     Adjustments     As
adjusted
 
Operating revenues                                                
  Contract drilling revenues   $ 8,380     $ (6 )   $ 8,374     $ 8,986     $ --     $ 8,986  
  Other revenues     762       --       762       480       --       480  
        9,142       (6 )     9,136       9,466       --       9,466  
 Costs and expenses                                                
  Operating and maintenance     6,956       45       7,001       5,074       15       5,089  
  Depreciation and amortization     1,449       (4 )     1,445       1,536       --       1,536  
  General and administrative     288       --       288       246       --       246  
      8,693       41       8,734       6,856       15       6,871  
Loss on impairment     (5,229 )     --       (5,229 )     (1,010 )     --       (1,010)  
Gain (loss) on disposal of assets, net     4       --       4       257       --       257  
Operating income (loss)     (4,776 )     (47 )     (4,823 )     1,857       (15 )     1,842  
                                                 
Other income (expense), net                                                
  Interest income     44       --       44       23       --       23  
  Interest expense, net of amounts capitalized     (621 )     --       (621 )     (567 )     --       (567 )
  Other, net     (81 )     --       (81 )     (23 )     --       (23 )
      (658 )     --       (658 )     (567 )     --       (567 )
Income (loss) from continuing operations before income tax expense     (5,434 )     (47 )     (5,481 )     1,290       (15 )     1,275  
Income tax (benefit) expense     395       (16 )     379       336       4       340  
Income (loss) from continuing operations     (5,829 )     (31 )     (5,860 )     954       (19 )     935  
Income (loss) from discontinued operations, net of tax     197       (14 )     183       34       --       34  
                                                 
Net income (loss)     (5,632 )     (45 )     (5,677 )     988       (19 )     969  
Net income (loss) attributable to noncontrolling interest     93       (16 )     77       27       16       43  
Net income (loss) attributable to controlling interest   $ (5,725 )   $ (29 )   $ (5,754 )   $ 961     $ (35 )   $ 926  
                                                 
Earnings (loss) per share-basic                                                
  Earnings (loss) from continuing operations   $ (18.40 )   $ (0.05 )   $ (18.45 )   $ 2.88     $ (0.11 )   $ 2.77  
  Earnings (loss) from discontinued operations     0.61       (0.04 )     0.57       0.11       --       0.11  
  Earnings (loss) per share   $ (17.79 )   $ (0.09 )   $ (17.88 )   $ 2.99     $ (0.11 )   $ 2.88  
                                                   
 Earnings (loss) per share-diluted                                                
  Earnings (loss) from continuing operations   $ (18.40 )   $ (0.05 )   $ (18.45 )   $ 2.88     $ (0.11 )   $ 2.77  
  Earnings (loss) from discontinued operations     0.61       (0.04 )     0.57       0.11       --       0.11  
  Earnings (loss) per share   $ (17.79 )   $ (0.09 )   $ (17.88 )   $ 2.99     $ (0.11 )   $ 2.88  
                                                   
 
 
TRANSOCEAN LTD. AND SUBSIDIARIES
APPENDIX A
 
Correction of Errors in Previously Reported Consolidated Financial Statements (continued)
 
    December 31, 2011     December 31, 2010  
    Previously reported     Adjustments     As
adjusted
    Previously reported     Adjustments     As
adjusted
 
Assets                                                
Cash and cash equivalents   $ 4,017     $ --     $ 4,017     $ 3,394     $ (40 )   $ 3,354  
Accounts receivable, net                                                
  Trade     2,049       --       2,049       1,653       --       1,653  
  Other     127       --       127       190       --       190  
Materials and supplies, net     627       --       627       514       --       514  
Deferred income taxes, net     142       --       142       115       --       115  
Assets held for sale     26       --       26       --       --       --  
Other current assets     621       (84 )     537       329       43       372  
    Total current assets     7,609       (84 )     7,525       6,195       3       6,198  
                                                 
Property and equipment     29,037       --       29,037       26,721       --       26,721  
Property and equipment of consolidated variable interest entities     2,252       --       2,252       2,214       --       2,214  
Less accumulated depreciation     8,760       (4 )     8,756       7,616       --       7,616  
  Property and equipment, net     22,529       4       22,533       21,319       --       21,319  
Goodwill     3,205       12       3,217       8,132       --       8,132  
Other assets     1,745       12       1,757       1,165       --       1,165  
    Total assets   $ 35,088     $ (56 )   $ 35,032     $ 36,811     $ 3     $ 36,814  
                                                 
Liabilities and equity                                                
Accounts payable   $ 880     $ --     $ 880     $ 832     $ --     $ 832  
Accrued income taxes     89       --       89       109       --       109  
Debt due within one year     1,942       --       1,942       1,917       --       1,917  
Debt of consolidated variable interest entities due within one year     97       148       245       95       148       243  
Other current liabilities     2,350       22       2,372       883       12       895  
    Total current liabilities     5,358       170       5,528       3,836       160       3,996  
                                                 
Long-term debt     10,756       --       10,756       8,354       --       8,354  
Long-term debt of consolidated variable interest entities     741       (148 )     593       855       (148 )     707  
Deferred income taxes, net     523       (4 )     519       575       10       585  
Other long-term liabilities     1,903       (10 )     1,893       1,791       --       1,791  
    Total long-term liabilities     13,923       (162 )     13,761       11,575       (138 )     11,437  
                                                 
Commitments and contingencies                                                
Redeemable noncontrolling interest     116       --       116       25       16       41  
                                                 
Shares     4,982       --       4,982       4,482       --       4,482  
Additional paid-in capital     7,211       --       7,211       7,504       --       7,504  
Treasury shares, at cost     (240 )     --       (240 )     (240 )     --       (240 )
Retained earnings     4,244       (64 )     4,180       9,969       (35 )     9,934  
Accumulated other comprehensive loss     (496 )     --       (496 )     (332 )     --       (332 )
  Total controlling interest shareholders' equity     15,701       (64 )     15,637       21,383       (35 )     21,348  
  Noncontrolling interest     (10 )     --       (10 )     (8 )     --       (8 )
    Total equity     15,691       (64 )     15,627       21,375       (35 )     21,340  
    Total liabilities and equity   $ 35,088     $ (56 )   $ 35,032     $ 36,811     $ 3     $ 36,814