**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**______________________**





**FORM
      10-Q**


(Mark
      One)


**x**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





**For
      the quarterly period ended September 30, 2005**





**OR**





**o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





**For
      the transition period from ______ to ______.**





**Commission
      file number 333-75899**


**______________________**





**TRANSOCEAN
      INC**.


(Exact
      name of registrant as specified in its charter)


**______________________**





**Cayman****Islands**
            **66-0582307**(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification No.)





**4
                Greenway Plaza****Houston,
                Texas**
            **77046**(Address
                of principal executive offices)
            (Zip
                Code)





Registrant’s
      telephone number, including area code: **(713)
      232-7500**


**______________________**





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No
o




Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act). Yes x  No
o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o No x





As
      of
      October 31, 2005, 330,082,373 ordinary shares, par value $0.01 per share,
      were outstanding.









**TRANSOCEAN
      INC.**





**INDEX
      TO FORM 10-Q**





**QUARTER
      ENDED** **SEPTEMBER
      30, 2005**








Page**PART
                I - FINANCIAL INFORMATION****Item
                1.**Financial
                Statements (Unaudited)Condensed
                Consolidated Statements of
                OperationsThree
                and Nine Months Ended September 30, 2005 and 2004
            1Condensed
                Consolidated Statements of Comprehensive IncomeThree
                and Nine Months Ended September 30, 2005 and 2004
            2Condensed
                Consolidated Balance SheetsSeptember
                30, 2005 and December 31, 2004
            3Condensed
                Consolidated Statements of Cash
                FlowsThree
                and Nine Months Ended September 30, 2005 and 2004
            4Notes
                to Condensed Consolidated Financial
                Statements
            5**Item
                2.**Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations
            20**Item
                3.**Quantitative
                and Qualitative Disclosures About Market
                Risk
            40**Item
                4.**Controls
                and Procedures
            41**PART
                II - OTHER INFORMATION****Item
                1.**Legal
                Proceedings
            41**Item
                2.**Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            41**Item
                6.**Exhibits
            42


*Index*




**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


(In
      millions, except per share data)


(Unaudited)





Three
                Months Ended
              September
                30,
            
            Nine
                Months Ended
              September
                30,2005
            
            2004
            
            2005
            
            2004Operating
                RevenuesContract
                drilling revenues
            
            $
            735.6
            
            $
            607.1
            
            $
            2,018.3
            
            $
            1,789.5Other
                revenues
            
            
            27.0
            
            
            44.7
            
            
            102.2
            
            
            147.5762.6
            
            
            651.8
            
            
            2,120.5
            
            
            1,937.0Costs
                and ExpensesOperating
                and maintenance
            
            
            439.8
            
            
            432.9
            
            
            1,267.3
            
            
            1,251.5Depreciation
            
            
            102.1
            
            
            133.9
            
            
            304.0
            
            
            398.4General
                and administrative
            
            
            19.4
            
            
            15.2
            
            
            55.5
            
            
            44.3561.3
            
            
            582.0
            
            
            1,626.8
            
            
            1,694.2Gain
                from sale of assets, net
            
            
            2.2
            
            
            1.3
            
            
            37.9
            
            
            28.9Operating
                Income
            
            
            203.5
            
            
            71.1
            
            
            531.6
            
            
            271.7Other
                Income (Expense), netEquity
                in earnings of unconsolidated affiliates
            
            
            1.8
            
            
            1.7
            
            
            8.3
            
            
            7.7Interest
                income
            
            
            5.2
            
            
            2.5
            
            
            14.0
            
            
            6.5Interest
                expense
            
            
            (24.5
            )
            
            (42.6
            )
            
            (87.4
            )
            
            (132.6
            )Gain
                from TODCO Stock Sales
            
            
            -
            
            
            129.4
            
            
            165.0
            
            
            168.8Loss
                on retirement of debt
            
            
            (0.6
            )
            
            -
            
            
            (7.3
            )
            
            (28.1
            )Other,
                net
            
            
            9.7
            
            
            0.1
            
            
            5.6
            
            
            0.4(8.4
            )
            
            91.1
            
            
            98.2
            
            
            22.7Income
                Before Income Taxes and Minority Interest
            
            
            195.1
            
            
            162.2
            
            
            629.8
            
            
            294.4Income
                Tax Expense
            
            
            24.7
            
            
            6.3
            
            
            65.8
            
            
            74.2Minority
                Interest
            
            
            -
            
            
            1.0
            
            
            -
            
            
            (5.4
            )Net
                Income
            
            $
            170.4
            
            $
            154.9
            
            $
            564.0
            
            $
            225.6Earnings
                Per ShareBasic
            
            $
            0.52
            
            $
            0.48
            
            $
            1.73
            
            $
            0.70Diluted
            
            $
            0.50
            
            $
            0.47
            
            $
            1.68
            
            $
            0.70Weighted
                Average Shares OutstandingBasic
            
            
            328.9
            
            
            320.9
            
            
            326.2
            
            
            320.7Diluted
            
            
            340.8
            
            
            330.5
            
            
            338.5
            
            
            324.4




See
      accompanying notes.


1
 *Index*




**TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**
 (In
        millions)
 (Unaudited)




Three
                Months Ended
              September
                30,
            
            Nine
                Months Ended
              September
                30,2005
            
            2004
            
            2005
            
            2004Net
                Income
            
            $
            170.4
            
            $
            154.9
            
            $
            564.0
            
            $
            225.6Other
                Comprehensive Income (Loss), net of taxAmortization
                of gain on terminated interest rate swaps
            
            
            (0.1
            )
            
            −
            
            
            (0.3
            )
            
            (0.2
            )Change
                in unrealized loss on securities available for sale
            
            
            −
            
            
            0.2
            
            
            0.3
            
            
            0.1Minimum
                pension liability adjustments (net of tax expense of $0.7 and $0.2
                for the
                nine months ended September 30, 2005 and September 30, 2004,
                respectively)
            
            
            −
            
            
            (0.1
            )
            
            1.4
            
            
            0.4Other
                Comprehensive Income (Loss)
            
            
            (0.1
            )
            
            0.1
            
            
            1.4
            
            
            0.3Total
                Comprehensive Income
            
            $
            170.3
            
            $
            155.0
            
            $
            565.4
            
            $
            225.9




See
      accompanying notes.


2
 *Index*




**TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 (In
        millions, except per share data)




September
                30,
            
            December
                31,2005
            
            2004(Unaudited)**ASSETS**Cash
                and Cash Equivalents
            
            $
            596.8
            
            $
            451.3Accounts
                Receivable, net of allowance for doubtful accounts of $18.0 and $16.8
                at
                September 30, 2005 and December 31, 2004, respectively
            
            
            596.5
            
            
            442.0Materials
                and Supplies, net of allowance for obsolescence of $18.5 and $20.3
                at
                September 30, 2005 and December 31, 2004, respectively
            
            
            155.2
            
            
            144.7Deferred
                Income Taxes, net
            
            
            19.9
            
            
            19.0Other
                Current Assets
            
            
            36.3
            
            
            52.1Total
                Current Assets
            
            
            1,404.7
            
            
            1,109.1Property
                and Equipment
            
            
            9,802.6
            
            
            9,732.9Less
                Accumulated Depreciation
            
            
            2,983.6
            
            
            2,727.7Property
                and Equipment, net
            
            
            6,819.0
            
            
            7,005.2Goodwill
            
            
            2,254.9
            
            
            2,251.9Investments
                in and Advances to Unconsolidated Affiliates
            
            
            6.4
            
            
            109.2Deferred
                Income Taxes
            
            
            60.9
            
            
            43.8Other
                Assets
            
            
            226.7
            
            
            239.1Total
                Assets
            
            $
            10,772.6
            
            $
            10,758.3**LIABILITIES
                AND SHAREHOLDERS’ EQUITY**Accounts
                Payable
            
            $
            200.8
            
            $
            180.8Accrued
                Income Taxes
            
            
            38.1
            
            
            17.1Debt
                Due Within One Year
            
            
            400.0
            
            
            19.4Other
                Current Liabilities
            
            
            266.6
            
            
            213.0Total
                Current Liabilities
            
            
            905.5
            
            
            430.3Long-Term
                Debt
            
            
            1,197.7
            
            
            2,462.1Deferred
                Income Taxes, net
            
            
            144.9
            
            
            124.1Other
                Long-Term Liabilities
            
            
            322.7
            
            
            345.2Total
                Long-Term Liabilities
            
            
            1,665.3
            
            
            2,931.4Commitments
                and ContingenciesMinority
                Interest
            
            
            4.1
            
            
            4.0Preference
                Shares, $0.10 par value; 50,000,000 shares authorized, none issued
                and
                outstanding
            
            
            −
            
            
            −Ordinary
                Shares, $0.01 par value; 800,000,000 shares authorized, 330,077,072
                and
                321,533,998 shares issued and outstanding at September 30, 2005 and
                December 31, 2004, respectively
            
            
            3.3
            
            
            3.2Additional
                Paid-in Capital
            
            
            10,935.4
            
            
            10,695.8Accumulated
                Other Comprehensive Loss
            
            
            (23.0
            )
            
            (24.4
            )Retained
                Deficit
            
            
            (2,718.0
            )
            
            (3,282.0
            )Total
                Shareholders’ Equity
            
            
            8,197.7
            
            
            7,392.6Total
                Liabilities and Shareholders’ Equity
            
            $
            10,772.6
            
            $
            10,758.3




See
        accompanying notes.
 3
 *Index*




**TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 (In
        millions)
 (Unaudited)




Three
                Months Ended
              September
                30,
            
            Nine
                Months Ended
              September
                30,2005
            
            2004
            
            2005
            
            2004**Cash
                Flows from Operating Activities**Net
                income
            
            $
            170.4
            
            $
            154.9
            
            $
            564.0
            
            $
            225.6Adjustments
                to reconcile net income to net cash provided by operating
                activitiesDepreciation
            
            
            102.1
            
            
            133.9
            
            
            304.0
            
            
            398.4Stock-based
                compensation expense
            
            
            6.2
            
            
            4.2
            
            
            12.1
            
            
            17.7Deferred
                income taxes
            
            
            (8.8
            )
            
            (7.6
            )
            
            (6.6
            )
            
            20.4Equity
                in earnings of unconsolidated affiliates
            
            
            (1.8
            )
            
            (1.7
            )
            
            (8.3
            )
            
            (7.7
            )Net
                (gain)/loss from disposal of assets
            
            
            (0.7
            )
            
            1.4
            
            
            (34.2
            )
            
            (23.6
            )Gain
                from TODCO Stock Sales
            
            
            -
            
            
            (129.4
            )
            
            (165.0
            )
            
            (168.8
            )Loss
                on retirement of debt
            
            
            0.6
            
            
            -
            
            
            7.3
            
            
            28.1Amortization
                of debt-related discounts/premiums, fair value adjustments and issue
                costs, net
            
            
            (0.8
            )
            
            (5.1
            )
            
            (6.3
            )
            
            (17.6
            )Deferred
                income, net
            
            
            (22.0
            )
            
            1.0
            
            
            (9.9
            )
            
            15.1Deferred
                expenses, net
            
            
            18.0
            
            
            (5.8
            )
            
            27.1
            
            
            (18.5
            )Tax
                benefit from exercise of options to purchase and vesting of ordinary
                shares under stock-based compensation plans
            
            
            15.2
            
            
            -
            
            
            20.1
            
            
            -Other
                long-term liabilities
            
            
            5.5
            
            
            (1.5
            )
            
            18.0
            
            
            5.4Other,
                net
            
            
            (15.6
            )
            
            3.7
            
            
            (16.9
            )
            
            (0.6
            )Changes
                in operating assets and liabilitiesAccounts
                receivable
            
            
            (27.1
            )
            
            8.6
            
            
            (146.7
            )
            
            (23.2
            )Accounts
                payable and other current liabilities
            
            
            14.5
            
            
            61.0
            
            
            85.6
            
            
            61.1Income
                taxes receivable/payable, net
            
            
            (20.1
            )
            
            3.4
            
            
            (13.0
            )
            
            5.4Other
                current assets
            
            
            2.0
            
            
            5.0
            
            
            (18.1
            )
            
            (10.6
            )Net
                Cash Provided by Operating Activities
            
            
            237.6
            
            
            226.0
            
            
            613.2
            
            
            506.6**Cash
                Flows from Investing Activities**Capital
                expenditures
            
            
            (35.3
            )
            
            (45.1
            )
            
            (144.9
            )
            
            (99.8
            )Proceeds
                from disposal of assets, net
            
            
            2.3
            
            
            4.3
            
            
            62.8
            
            
            46.3Proceeds
                from TODCO Stock Sales, net
            
            
            -
            
            
            269.9
            
            
            271.9
            
            
            425.6Joint
                ventures and other investments, net
            
            
            -
            
            
            4.3
            
            
            4.5
            
            
            9.0Net
                Cash Provided by (Used in) Investing Activities
            
            
            (33.0
            )
            
            233.4
            
            
            194.3
            
            
            381.1**Cash
                Flows from Financing Activities**Repayments
                on revolving credit agreement
            
            
            -
            
            
            -
            
            
            -
            
            
            (200.0
            )Repayments
                on other debt instruments
            
            
            (592.4
            )
            
            (11.8
            )
            
            (880.2
            )
            
            (407.0
            )Net
                proceeds from issuance of ordinary shares under stock-based compensation
                plans
            
            
            36.7
            
            
            5.0
            
            
            196.1
            
            
            20.0Proceeds
                from issuance of ordinary shares upon exercise of warrants
            
            
            6.0
            
            
            -
            
            
            10.6
            
            
            -Decrease
                in cash dedicated to debt service
            
            
            -
            
            
            -
            
            
            12.0
            
            
            -Other,
                net
            
            
            (0.6
            )
            
            1.1
            
            
            (0.5
            )
            
            1.1Net
                Cash Used in Financing Activities
            
            
            (550.3
            )
            
            (5.7
            )
            
            (662.0
            )
            
            (585.9
            )Net
                Increase (Decrease) in Cash and Cash Equivalents
            
            
            (345.7
            )
            
            453.7
            
            
            145.5
            
            
            301.8Cash
                and Cash Equivalents at Beginning of Period
            
            
            942.5
            
            
            322.1
            
            
            451.3
            
            
            474.0Cash
                and Cash Equivalents at End of Period
            
            $
            596.8
            
            $
            775.8
            
            $
            596.8
            
            $
            775.8




See
        accompanying notes.
 4
 *Index*




**TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTED
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Unaudited)




**Note
      1** ― **Nature
      of Business and Principles of Consolidation**





Transocean
      Inc. (together with its subsidiaries and predecessors, unless the context
      requires otherwise, “Transocean,” “we,” “us” or “our”) is a leading
      international provider of offshore contract drilling services for oil and gas
      wells. We contract our drilling rigs, related equipment and work crews primarily
      on a dayrate basis to drill oil and gas wells. We also provide additional
      services, including integrated well services. At September 30, 2005, we owned,
      had partial ownership interests in or operated 92 mobile offshore and barge
      drilling units. As of this date, our assets consisted of 32 High-Specification
      semisubmersibles and drillships (“floaters”), 24 Other Floaters, 25 Jackup Rigs
      and 11 Other Rigs.





On
      January 31, 2001, we completed a merger transaction (the “R&B Falcon
      merger”) with R&B Falcon Corporation (“R&B Falcon”). At the time of the
      merger, R&B Falcon operated a diverse global drilling rig fleet consisting
      of drillships, semisubmersibles, jackup rigs and other units including the
      Gulf
      of Mexico Shallow and Inland Water segment fleet. R&B Falcon and the Gulf of
      Mexico Shallow and Inland Water segment later became known as TODCO (together
      with its subsidiaries and predecessors, unless the context requires otherwise,
      “TODCO”) and the TODCO segment, respectively. In preparation for the initial
      public offering discussed below, we transferred all assets and businesses out
      of
      R&B Falcon that were unrelated to the Gulf of Mexico Shallow and Inland
      Water business.





In
      February 2004, we completed an initial public offering (the “TODCO IPO”) of
      common stock of TODCO in which we sold 13.8 million shares of TODCO class A
      common stock, representing 23 percent of TODCO’s total outstanding shares. In
      September 2004 and December 2004, respectively, we completed additional public
      offerings of TODCO common stock (respectively referred to as the “September 2004
      Offering” and “December 2004 Offering” and, together with the TODCO IPO, the
“2004 Offerings”). We sold 17.9 million shares of TODCO’s class A common stock
      (30 percent of TODCO’s total outstanding shares) in the September 2004 Offering
      and 15.0 million shares of TODCO’s class A common stock (25 percent of TODCO’s
      total outstanding shares) in the December 2004 Offering. Prior to the December
      2004 Offering, we held TODCO class B common stock, which was entitled to five
      votes per share (compared to one vote per share of TODCO class A common stock)
      and converted automatically into class A common stock upon any sale by us to
      a
      third party. In connection with the December 2004 Offering, we converted all
      of
      our remaining TODCO class B common stock not sold in the 2004 Offerings into
      shares of class A common stock. After the 2004 Offerings, we held a 22 percent
      ownership and voting interest in TODCO, represented by 13.3 million shares
      of
      class A common stock. See Note 3.





We
      consolidated TODCO in our financial statements as a business segment through
      December 16, 2004 and that portion of TODCO that we did not own was reported
      as
      minority interest in our consolidated statements of operations and balance
      sheet. As a result of the conversion of the TODCO class B common stock into
      class A common stock, we no longer had a majority voting interest in TODCO
      and
      no longer consolidated TODCO in our financial statements but accounted for
      our
      remaining investment using the equity method of accounting.





In
      May
      2005 and June 2005, respectively, we completed a public offering of TODCO common
      stock and a sale of TODCO common stock pursuant to Rule 144 under the Securities
      Act of 1933, as amended (respectively referred to as the “May Offering” and the
“June Sale,” collectively referred to as the “2005 Offering and Sale,” and,
      collectively with the 2004 Offerings, the “TODCO Stock Sales”). We sold 12.0
      million shares of TODCO’s class A common stock (20 percent of TODCO’s total
      outstanding shares) in the May Offering and our remaining 1.3 million shares
      of
      TODCO’s class A common stock (2 percent of TODCO’s total outstanding shares) in
      the June Sale. After the May Offering, we accounted for our remaining investment
      using the cost method of accounting. As a result of the June Sale, we no longer
      own any shares of TODCO’s common stock. See Note 3.





For
      investments in joint ventures and other entities that do not meet the criteria
      of a variable interest entity or where we are not deemed to be the primary
      beneficiary for accounting purposes of those entities that meet the variable
      interest entity criteria, we use the equity method of accounting where our
      ownership is between 20 percent and 50 percent or where our ownership is more
      than 50 percent and we do not have significant control over the unconsolidated
      affiliate. We use the cost method of accounting for investments in
      unconsolidated affiliates where our ownership is less than 20 percent and where
      we do not have significant influence over the unconsolidated affiliate. We
      consolidate those investments that meet the criteria of a variable interest
      entity where we are deemed to be the primary beneficiary for accounting purposes
      and for entities in which we have a majority voting interest. Intercompany
      transactions and accounts are eliminated.


5
 *Index*




**TRANSOCEAN
          INC. AND SUBSIDIARIES**
 **NOTED
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Unaudited)




**Note
      2** ― **Summary
      of Significant Accounting Policies**





*Basis
      of Presentation* —Our
      accompanying condensed consolidated financial statements have been prepared
      without audit in accordance with accounting principles generally accepted in
      the
      United States for interim financial information and with the instructions to
      Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange
      Commission (“SEC”). Accordingly, pursuant to such rules and regulations, these
      financial statements do not include all disclosures required by accounting
      principles generally accepted in the U.S. for complete financial statements.
      The
      condensed consolidated financial statements reflect all adjustments, which
      are,
      in the opinion of management, necessary for a fair presentation of financial
      position, results of operations and cash flows for the interim periods. Such
      adjustments are considered to be of a normal recurring nature unless otherwise
      identified. Operating results for the three and nine months ended September
      30,
      2005 are not necessarily indicative of the results that may be expected for
      the
      year ending December 31, 2005 or for any future period. The accompanying
      condensed consolidated financial statements and notes thereto should be read
      in
      conjunction with the audited consolidated financial statements and notes thereto
      included in our Annual Report on Form 10-K for the year ended December 31,
      2004.





*Accounting
      Estimates* —The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the U.S. requires management to make estimates and
      assumptions that affect the reported amounts of assets, liabilities, revenues,
      expenses and disclosure of contingent assets and liabilities. On an ongoing
      basis, we evaluate our estimates, including those related to bad debts,
      materials and supplies obsolescence, investments, intangible assets and
      goodwill, property and equipment and other long-lived assets, income taxes,
      workers’ insurance, pensions and other postretirement benefits, other employment
      benefits and contingent liabilities. We base our estimates on historical
      experience and on various other assumptions we believe are reasonable under
      the
      circumstances, the results of which form the basis for making judgments about
      the carrying values of assets and liabilities that are not readily apparent
      from
      other sources. Actual results could differ from such estimates.





*Cash
      and Cash Equivalents—* As
      a
      result of the *Deepwater
      Nautilus* project
      financing in 1999, we were required to maintain in cash an amount to cover
      certain principal and interest payments. Such restricted cash, classified as
      other current assets in the condensed consolidated balance sheet, was $12.0
      million at December 31, 2004. As a result of the repayment of the project
      financing (see Note 6), the restricted cash balance was released in May 2005.





*Change
      in Estimate* —During
      the fourth quarter of 2004, we extended the useful life of four rigs, which
      had
      estimated useful lives ranging from 30 to 32 years, to 35 years. We determined
      35 years was appropriate for each of these rigs based on the contracts these
      rigs were then operating under as well as the additional life-extending work,
      upgrades and inspections we have performed on these rigs. In the three and
      nine
      months ended September 30, 2005, the impact of the life extension of these
      four
      rigs was a reduction in depreciation expense of $3.4 million ($0.01 per diluted
      share) and $12.9 million ($0.04 per diluted share), respectively, which had
      no
      tax effect, and such reduction is expected to be approximately $16 million
      ($0.05 per diluted share) in 2005.





*Stock-Based
      Compensation* —Effective
      January 1, 2003, we account for stock-based compensation using the fair value
      recognition provisions of the Financial Accounting Standards Board’s (“FASB”)
      Statement of Financial Accounting Standard (“SFAS”) 123, *Accounting
      for Stock-Based Compensation* ,
      for all
      awards granted or modified on or subsequent to January 1, 2003. We account
      for
      awards granted prior to January 1, 2003 using the intrinsic value method under
      Accounting Principles Board Opinion (“APB”) 25, *Accounting
      for Stock Issued to Employees,* and
      related interpretations (see “ ― New
      Accounting Pronouncements”).


6
 *Index*




**TRANSOCEAN
          INC. AND SUBSIDIARIES**
 **NOTED
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Unaudited)


If
      compensation expense for grants to employees under our long-term incentive
      plan
      prior to January 1, 2003 was recognized using the fair value method of
      accounting under SFAS 123 rather than the intrinsic value method under APB
      25,
      net income and earnings per share would have been reduced to the pro forma
      amounts indicated below (in millions, except per share data):




Three
                  Months Ended
                September
                  30,
              
              Nine
                  Months Ended
                September
                  30,2005
              
              2004
              
              2005
              
              2004Net
                  Income as Reported
              
              $
              170.4
              
              $
              154.9
              
              $
              564.0
              
              $
              225.6Add
                  back: Stock-based compensation expense included in reported net
                  income,
                  net of related tax effects
              
              
              4.5
              
              
              3.2
              
              
              9.8
              
              
              12.5Deduct:
                  Total stock-based compensation expense determined under the fair
                  value
                  method for all awards, net of related tax effectsLong-Term
                  Incentive Plan
              
              
              (2.5
              )
              
              (4.0
              )
              
              (9.9
              )
              
              (17.4
              )Employee
                  Stock Purchase Plan
              
              
              (1.1
              )
              
              (0.6
              )
              
              (2.7
              )
              
              (2.0
              )Pro
                  Forma Net Income
              
              $
              171.3
              
              $
              153.5
              
              $
              561.2
              
              $
              218.7Basic
                  Earnings Per ShareAs
                  Reported
              
              $
              0.52
              
              $
              0.48
              
              $
              1.73
              
              $
              0.70Pro
                  Forma
              
              
              0.52
              
              
              0.48
              
              
              1.72
              
              
              0.68Diluted
                  Earnings Per ShareAs
                  Reported
              
              $
              0.50
              
              $
              0.47
              
              $
              1.68
              
              $
              0.70Pro
                  Forma
              
              
              0.51
              
              
              0.47
              
              
              1.67
              
              
              0.67




*New
      Accounting Pronouncements* —In
      May
      2005, the FASB issued SFAS 154, *“Accounting
      Changes and Error Corrections,”* which
      requires retrospective application to all prior period financial statements
      presented for voluntary changes in accounting principle unless it is
      impracticable.  This statement replaces APB 20, *Accounting
      Changes* ,
      and
      SFAS 3, *Reporting
      Accounting Changes in Interim Financial Statements* , though
      it carries forward the guidance in those pronouncements with respect to
      accounting for changes in estimates, changes in reporting entity and the
      correction of errors.  SFAS 154 is effective for accounting changes and
      corrections of errors made in fiscal years beginning after December 15, 2005.
      We
      will adopt SFAS 154 effective January 1, 2006, and we do not expect the adoption
      of this statement to have an impact on our consolidated financial position,
      results of operations or cash flows.





In
      December 2004, the FASB issued SFAS 123 (revised 2004) (“SFAS
      123(R)”), *Share-Based
      Payment* ,
      which
      is a revision of SFAS 123, *Accounting
      for Stock-Based Compensation* .
      SFAS
      123(R) supersedes APB 25, *Accounting
      for Stock Issued to Employees* ,
      and
      amends SFAS 95, *Statement
      of Cash Flows* .
      While
      the approach in SFAS 123(R) is similar to the approach described in SFAS 123,
      SFAS 123(R) requires recognition in the income statement of all share-based
      payments to employees, including grants of employee stock options, based on
      their fair values, and pro forma disclosure is no longer an alternative. The
      SEC
      has deferred the implementation date, and we are now required to adopt SFAS
      123(R) no later than January 1, 2006.





SFAS
      123(R) permits adoption using one of two methods, a modified prospective method
      (“Prospective Method”) or a modified retrospective method (“Retrospective
      Method”). With the Prospective Method, costs are recognized beginning with the
      effective date based on the requirements of SFAS 123(R) for (i) all share-based
      payments granted after the effective date of SFAS 123(R), and (ii) all awards
      granted to employees prior to the effective date of SFAS 123(R) that remain
      unvested on the effective date. The Retrospective Method applies the
      requirements of the Prospective Method but further permits entities to restate
      all prior periods presented based on the amounts previously recognized under
      SFAS 123 for purposes of pro forma disclosures.


7
 *Index*




**TRANSOCEAN
          INC. AND SUBSIDIARIES**
 **NOTED
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Unaudited)


Although
      we will adopt SFAS 123(R) effective January 1, 2006, we have not yet determined
      which method we will use. We adopted the fair-value-based method of accounting
      for share-based payments effective January 1, 2003 using the modified
      prospective method as described in SFAS 148, *Accounting
      for Stock-Based Compensation-Transition and Disclosure* .
      While
      we currently use the Black-Scholes-Merton formula to estimate the value of
      stock
      options granted to employees, which is an acceptable share-based award valuation
      model, we may choose some other model that is also acceptable in determining
      fair value of stock awards upon adoption of SFAS 123(R). Because SFAS 123(R)
      must be applied to unvested awards granted and accounted for under APB 25,
      any
      additional compensation costs not previously recognized under SFAS 123 will
      be
      recognized under SFAS 123(R). Our APB 25 options vested in the third quarter
      of
      2005. If we adopt SFAS 123(R) using the Prospective Method, there would be
      no
      impact on our consolidated financial position, results of operations or cash
      flows. If we adopt using the Retrospective Method, the impact would approximate
      the amounts described in our pro forma net income and earnings per share
      disclosure (see “ ― Stock-Based
      Compensation”). In addition to the compensation cost recognition requirements,
      SFAS 123(R) also requires the tax deduction benefits for an award in excess
      of
      recognized compensation cost be reported as a financing cash flow rather than
      as
      an operating cash flow, which is currently required under SFAS 95. While we
      cannot estimate what these amounts will be in the future (because they depend
      on, among other things, when employees exercise stock options), we reported
      operating cash flows related to tax deduction benefits of $15.2 million and
      $20.1 million for the three and nine months ended September 30, 2005,
      respectively. We reported operating cash flows related to the tax deduction
      benefits of $5.9 million for the year ended December 31, 2004.





*Reclassifications* —Certain
      reclassifications have been made to prior period amounts to conform with the
      current period’s presentation.





**Note
      3** ― **TODCO
      Stock Sales**





We
      sold
      12.0 million shares of TODCO’s class A common stock, representing 20 percent of
      TODCO’s total outstanding shares, at $20.50 per share in the May Offering. We
      sold our remaining 1.3 million shares of TODCO’s class A common stock,
      representing 2 percent of TODCO’s total outstanding shares, at $23.57 per share
      in the June Sale. We received net proceeds of $271.9 million from the 2005
      Offering and Sale and recognized a gain of $165.0 million ($0.49 per diluted
      share), which had no tax effect, in the second quarter of 2005 and represented
      the excess of net proceeds received over the net book value of the shares sold
      in the 2005 Offering and Sale.





In
      September 2004, we completed the September 2004 Offering in which we sold 17.9
      million shares of TODCO’s class A common stock, representing 30 percent of
      TODCO’s total outstanding shares, at $15.75 per share. We received net proceeds
      of $269.9 million from the September 2004 Offering and recognized a gain of
      $129.4 million ($0.40 per diluted share), which had no tax effect, in the third
      quarter of 2004 and represented the excess of net proceeds received over the
      net
      book value of the TODCO shares sold in the September 2004 Offering.





In
      February 2004, we completed the TODCO IPO in which we sold 13.8 million shares
      of TODCO’s class A common stock, representing 23 percent of TODCO’s total
      outstanding shares, at $12.00 per share. We received net proceeds of $155.7
      million from the TODCO IPO and recognized a gain of $39.4 million ($0.12 per
      diluted share), which had no tax effect, in the first quarter of 2004 and
      represented the excess of net proceeds received over the net book value of
      the
      shares sold in the TODCO IPO.





In
      conjunction with the closing of the TODCO IPO, TODCO granted restricted stock
      and stock options to some of its employees under its long-term incentive plan
      and some of these awards vested at the time of grant. In accordance with the
      provisions of SFAS 123, TODCO recognized compensation expense of $5.6 million
      ($0.02 per Transocean’s diluted share), which had no tax effect, in the first
      quarter of 2004 as a result of the immediate vesting of these awards. In
      addition, certain of TODCO’s employees held options that were granted prior to
      the TODCO IPO to acquire our ordinary shares. In accordance with the employee
      matters agreement with TODCO, these options were modified at the TODCO IPO
      date,
      which resulted in the accelerated vesting of the options and the extension
      of
      the term of the options through the original contractual life. In connection
      with the modification of these options, TODCO recognized additional compensation
      expense of $1.5 million, which had no tax effect, in the first quarter of 2004.


8
 *Index*




**TRANSOCEAN
          INC. AND SUBSIDIARIES**
 **NOTED
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Unaudited)


**Note
      4** ― **Asset
      Acquisition, Dispositions and Retirements**





*Asset
      Acquisition* —In
      May
      2005, we purchased for $42.5 million the semisubmersible rig *M.G.
      Hulme, Jr.,* which
      we
      had previously operated under a lease arrangement. See Note 11.





*Asset
      Dispositions and Retirements* —In
      June
      2005, we sold the jackup rig *Transocean
      Jupiter* and a
      land rig for net proceeds of $23.5 million and recognized a gain of $14.0
      million ($9.1 million, or $0.03 per diluted share, net of tax).





In
      January 2005, we completed the sale of the semisubmersible rig *Sedco
      600* for net
      proceeds of $24.9 million and recognized a gain of $18.8 million ($0.06 per
      diluted share), which had no tax effect. At December 31, 2004, this asset was
      held for sale in the amount of $5.6 million and was included in other current
      assets in our condensed consolidated balance sheet.





During
      the nine months ended September 30, 2005, we sold certain other assets for
      net
      proceeds of approximately $14.4 million. We recorded net gains of $5.1 million
      ($4.3 million, or $0.01 per diluted share, net of tax).





In
      June
      2004, in our Transocean Drilling segment, we completed the sale of the
      semisubmersible rig *Sedco
      602* for
      net
      proceeds of $28.0 million and recognized a gain of $21.6 million ($0.07 per
      diluted share), which had no tax effect. During the nine months ended September
      30, 2004, we settled insurance claims and sold marine support vessels and
      certain other assets for net proceeds of approximately $18.3 million. We
      recorded net gains of $1.9 million ($1.5 million, net of tax) and $5.4 million
      ($0.02 per diluted share), which had no tax effect, in our Transocean Drilling
      and TODCO segments, respectively.





**Note
      5** ― **Income
      Taxes**





We
      are a
      Cayman Islands company registered in Barbados, and we are not subject to income
      tax in the Cayman Islands. Income taxes have been provided based upon the tax
      laws and rates in the countries in which operations are conducted and income
      is
      earned. There is no expected relationship between the provision for or benefit
      from income taxes and income or loss before income taxes because the countries
      in which we operate have taxation regimes that vary not only with respect to
      nominal rate, but also in terms of the availability of deductions, credits
      and
      other benefits. Variations also arise because income earned and taxed in any
      particular country or countries may fluctuate from year to year.





The
      estimated annual effective tax rates for the nine months ended September 30,
      2005 and 2004, respectively, were based on estimated 2005 and 2004 annual income
      before income taxes and minority interest after adjusting for certain items,
      such as a portion of net gains on sales of assets, items related to the
      disposition of TODCO (see Note 3) and losses on retirements of debt (see Note
      6). The tax effect, if any, of the excluded items as well as settlements of
      prior year tax liabilities and changes in prior year tax estimates are all
      treated as discrete period tax expenses or benefits in accordance with APB
      28, *Interim
      Financial Reporting* .
      The
      impact of the various discrete tax items was reflected in the income tax expense
      for the three and nine months ended September 30, 2005 and 2004 in the period
      in
      which they occurred.


9
 *Index*




**TRANSOCEAN
          INC. AND SUBSIDIARIES**
 **NOTED
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Unaudited)


Under
      the
      tax sharing agreement entered into between us and TODCO at the time of the
      TODCO
      IPO, we are entitled to receive from TODCO payment for most of the tax benefits
      TODCO generated prior to the TODCO IPO that they utilize subsequent to the
      TODCO
      IPO. While TODCO was included in our consolidated statements of operations
      and
      balance sheet as a consolidated subsidiary until the fourth quarter of 2004,
      we
      followed the provisions of SFAS 109, *Accounting
      for Income Taxes,* which
      allowed us to evaluate the recoverability of the deferred tax assets associated
      with the tax sharing agreement considering TODCO’s deferred tax liabilities.
      Because we no longer own shares of TODCO, TODCO is no longer included as a
      consolidated subsidiary in our financial statements. Future payments we receive
      from TODCO’s utilization of the pre-TODCO IPO deferred tax assets will be
      recognized in other income as those amounts are realized based on the filing
      of
      TODCO’s tax returns. We received $8.5 million and $21.5 million in estimated
      payments from TODCO during the nine months ended September 30, 2005 related
      to
      TODCO’s expected utilization of such tax benefits for the 2004 tax year and a
      portion of the 2005 tax year, respectively. In September 2005, TODCO filed
      its
      2004 U.S. federal income tax return and we recognized $10.1 million ($0.03
      per
      diluted share) as other income in our consolidated income statement and set
      up a
      receivable for $2.5 million in our consolidated balance sheet. The amounts
      received pertaining to TODCO’s 2004 state income tax returns and 2005 federal
      and state income tax returns were deferred in other current liabilities in
      our
      consolidated balance sheet. We will recognize these estimated payments as other
      income when TODCO finalizes and files its 2004 state income tax returns and
      2005
      income tax returns **.** Estimated
      tax benefits in excess of $300 million remain to be utilized by TODCO under
      the
      tax sharing agreement, although the ultimate amount and timing of the
      utilization is highly contingent on a variety of factors including potential
      revisions to the tax benefits upon examination by the U.S. Internal Revenue
      Service (“IRS”), which is currently reviewing our 2002 and 2003 tax years and
      the amount of taxable income that TODCO realizes in future years.





As
      a
      result of the deconsolidation of TODCO from our other U.S. subsidiaries for
      U.S.
      federal income tax purposes in conjunction with the TODCO IPO (see Note 3),
      we
      established an initial valuation allowance in the first quarter of 2004 of
      $31.0
      million ($0.9 per diluted share) against the estimated deferred tax assets
      of
      TODCO in excess of its deferred tax liabilities, taking into account prudent
      and
      feasible tax planning strategies as required by SFAS 109. We adjusted the
      initial valuation allowance during 2004 to reflect changes in our estimate
      of
      the ultimate amount of TODCO’s deferred tax assets. An allocation of tax
      benefits between TODCO and our other U.S. subsidiaries occurred in the third
      quarter of 2005 upon the filing of our 2004 U.S. consolidated federal income
      tax
      return. As a result of this allocation, we recorded additional income tax
      expense of approximately $8 million ($0.02 per diluted share) in the third
      quarter of 2005 to adjust the previously estimated allocation. This allocation
      is subject to potential revision upon subsequent IRS audit of our tax return
      and
      such revision, should it occur, could impact our effective tax rate for future
      years as well as the ultimate amount of payments by TODCO under the tax sharing
      agreement.





We
      operate through our various subsidiaries in a number of countries throughout
      the
      world. Consequently, we are subject to changes in tax laws, treaties and
      regulations in and between the countries in which we operate, including treaties
      that the U.S. has with other nations. A material change in these tax laws,
      treaties or regulations, including those in and involving the U.S., could result
      in a higher effective tax rate on our worldwide earnings.





Our
      income tax returns are subject to review and examination in the various
      jurisdictions in which we operate. In October 2004, we received from the IRS
      examination reports setting forth proposed changes to the U.S. federal income
      tax reported for the period 1999-2000. The proposed changes total approximately
      $195 million, exclusive of interest. While we have agreed to certain
      non-material adjustments, we believe our returns are materially correct as
      filed
      and intend to defend ourselves vigorously. The IRS is currently auditing our
      2002 and 2003 tax years. No examination report has been received at this time.
      While we cannot predict or provide assurance as to the final outcome, we do
      not
      expect the liability, if any, resulting from the proposed changes to have a
      material adverse effect on our consolidated financial position and results
      of
      operations although it could have such an effect on our consolidated cash
      flows.





In
      September 2004, the Norwegian tax authorities initiated inquiries related to
      a
      restructuring transaction undertaken in 2001 and 2002 and a dividend payment
      made during 2001. In February 2005, we filed a response to these inquiries.
      In
      March 2005, pursuant to court orders, the Norwegian tax authorities took action
      to obtain additional information regarding these transactions. Based on these
      inquiries, we believe the Norwegian authorities are contemplating a tax
      assessment on the dividend of approximately $102 million based on exchange
      rates
      in effect at September 30, 2005, plus penalty and interest. No assessment has
      been made, and we believe such an assessment would be without merit. While
      we cannot predict or provide assurance as to the final outcome, we do not expect
      the liability, if any, resulting from the inquiry to have a material adverse
      effect on our consolidated financial position, results of operations and cash
      flows.


10
 *Index*




**TRANSOCEAN
          INC. AND SUBSIDIARIES**
 **NOTED
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Unaudited)


In
      addition, other tax authorities have examined the amounts of income and expense
      subject to tax in their jurisdiction for prior periods. We are currently
      contesting various non-U.S. assessments that have been asserted and would expect
      to contest any future U.S. or non-U.S. assessments. While we cannot predict
      or
      provide assurance as to the final outcome, we do not expect the liability,
      if
      any, resulting from existing or future assessments to have a material adverse
      effect on our consolidated financial position and results of operations although
      it may have such an effect on our consolidated cash flows.





**Note
      6** ― **Debt**





Debt,
      net
      of unamortized discounts, premiums and fair value adjustments, is comprised
      of
      the following (in millions):





September
                30,
            
            December
                31,2005
            
            20047.31%
                Nautilus Class A1 Amortizing Notes - final maturity May
                2005
            
            $
            -
            
            $
            19.46.95%
                Senior Notes, due April 2008
            
            
            -
            
            
            263.16.625%
                Notes, due April 2011
            
            
            183.8
            
            
            785.77.375%
                Senior Notes, due April 2018
            
            
            246.9
            
            
            246.9Zero
                Coupon Convertible Debentures, due May 2020 (put options exercisableMay
                2008 and May 2013)
            
            
            17.4
            
            
            17.01.5%
                Convertible Debentures, due May 2021 (put options exercisable May
                2006,
                May 2011 and May 2016) (a)
            
            
            400.0
            
            
            400.08%
                Debentures, due April 2027
            
            
            56.8
            
            
            56.87.45%
                Notes, due April 2027 (put options exercisable April 2007)
            
            
            95.2
            
            
            95.07.5%
                Notes, due April 2031
            
            
            597.6
            
            
            597.6Total
                Debt
            
            
            1,597.7
            
            
            2,481.5Less
                Debt Due Within One Year (a)
            
            
            400.0
            
            
            19.4Total
                Long-Term Debt
            
            $
            1,197.7
            
            $
            2,462.1


_________________


(a)
            The
                1.5% Convertible Debentures are classified as debt due within one
                year
                since the holders can exercise their right to require us to repurchase
                the
                debentures in May 2006.


11
 *Index*




**TRANSOCEAN
          INC. AND SUBSIDIARIES**
 **NOTED
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Unaudited)


The
      scheduled maturity of our debt assumes the bondholders exercise their rights
      to
      require us to repurchase the 1.5% Convertible Debentures, 7.45% Notes and Zero
      Coupon Convertible Debentures in May 2006, April 2007 and May 2008,
      respectively. The scheduled maturities are at face value except for the Zero
      Coupon Convertible Debentures, which are included at the price we would be
      required to pay should the bondholders exercise their right to require us to
      repurchase the debentures in May 2008. The scheduled maturities are as follows
      (in millions):





Twelve
                MonthsEnding
              September
                30,2006
            
            $
            400.02007
            
            
            100.02008
            
            
            19.02009
            
            
            -2010
            
            
            -Thereafter
            
            
            1,069.4Total
            
            $
            1,588.4





*Revolving
      Credit Agreement* —In
      July
      2005, we entered into a $500.0 million, five-year revolving credit agreement
      (the “Revolving Credit Agreement”). The Revolving Credit Agreement bears
      interest, at our option, at a base rate or at the London Interbank Offered
      Rate
      (“LIBOR”) plus a margin that can vary from 0.19 percent to 0.58 percent
      depending on our non-credit enhanced senior unsecured public debt rating. A
      facility fee, varying from 0.06 percent to 0.17 percent depending on our
      non-credit enhanced senior unsecured public debt rating, is incurred on the
      daily amount of the underlying commitment, whether used or unused, throughout
      the term of the facility. A utilization fee, varying from 0.05 percent to 0.10
      percent depending on our non-credit enhanced senior unsecured public debt
      rating, is payable if amounts outstanding under the Revolving Credit Agreement
      are greater than or equal to 50 percent of the total underlying commitment.
      At
      September 30, 2005, the applicable margin, facility fee and utilization fee
      were
      0.225 percent, 0.075 percent and 0.10 percent, respectively. The Revolving
      Credit Agreement requires compliance with various covenants and provisions
      customary for agreements of this nature, including a debt to total tangible
      capitalization ratio, as defined by the Revolving Credit Agreement, of not
      greater than 60 percent. At September 30, 2005, no amount was outstanding under
      the Revolving Credit Agreement.





In
      conjunction with entering into the Revolving Credit Agreement, we terminated
      our
      $800.0 million, five-year revolving credit agreement dated December 2003 and
      recognized a loss on the termination of this agreement of $0.8 million in the
      third quarter of 2005.





*Debt
      Repurchases, Redemptions and Repayments* —In
      July
      2005, we acquired, pursuant to a tender offer, a total of $534.4 million, or
      approximately 76.3 percent, of the aggregate principal amount of our 6.625%
      Notes due April 2011 at 110.578 percent of face value, or $590.9 million, plus
      accrued and unpaid interest. In the third quarter of 2005, we recognized a
      gain
      on the redemption of debt of $0.2 million, which had no tax effect and reflected
      adjustments for the unamortized fair value adjustment on a previously terminated
      interest rate swap. We funded the repurchase with existing cash balances.





In
      May
      2005, we repaid the remaining principal amount outstanding of the 7.31% Nautilus
      Class A1 amortizing note,  plus
      accrued and unpaid interest, in accordance with its scheduled maturity. We
      funded the repayment from existing cash balances.





In
      March
      2005, we redeemed our $247.8 million aggregate principal amount outstanding
      6.95% Senior Notes due April 2008 at the make-whole premium price provided
      in
      the indenture. We redeemed these notes at 108.259 percent of face value, or
      $268.2 million, plus accrued and unpaid interest. In the first quarter of 2005,
      we recognized a loss on the redemption of debt of $6.7 million ($0.02 per
      diluted share), which had no tax effect and reflected adjustments for fair
      value
      of the debt at the date of the R&B Falcon merger and the unamortized fair
      value adjustment on a previously terminated interest rate swap. We funded the
      redemption with existing cash balances.


12
 *Index*




**TRANSOCEAN
          INC. AND SUBSIDIARIES**
 **NOTED
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Unaudited)


In
      March
      2004, we redeemed our $289.8 million aggregate principal amount outstanding
      9.5%
      Senior Notes due December 2008 at the make-whole premium price provided in
      the
      indenture. We redeemed these notes at 127.796 percent of face value, or $370.3
      million, plus accrued and unpaid interest. In the first quarter of 2004, we
      recognized a loss on the redemption of debt of $28.1 million ($0.09 per diluted
      share), which had no tax effect and reflected adjustments for fair value of
      the
      debt at the date of the R&B Falcon merger and the unamortized fair value
      adjustment on a previously terminated interest rate swap. We funded the
      redemption with existing cash balances, which included proceeds from the TODCO
      IPO.





**Note
      7** — **Interest
      Rate Swaps**





In
      2003,
      we terminated all our outstanding interest rate swaps, which were designated
      as
      fair value hedges, and recognized $173.5 million as a fair value adjustment
      to
      the underlying long-term debt in our consolidated balance sheet. We amortize
      this amount as a reduction to interest expense over the remaining life of the
      underlying debt. During the three and nine months ended September 30, 2005,
      such
      reduction amounted to $1.3 million and $8.3 million ($0.02 per diluted share),
      respectively. During the three and nine months ended September 30, 2004, such
      reduction amounted to $5.8 million ($0.02 per diluted share) and $18.2 million
      ($0.06 per diluted share), respectively. As a result of the redemption of our
      6.95% Senior Notes in March 2005 and 9.5% Senior Notes in March 2004, we
      recognized $13.2 million and $22.0 million, respectively, of the unamortized
      fair value adjustment as a reduction to our loss on redemption of debt (see
      Note
      6). In
      addition, as a result of the repurchase of our 6.625% Notes in July 2005, we
      recognized $62.0 million of the unamortized fair value adjustment as an offset
      to our loss on repurchase of debt, which resulted in a gain on this repurchase
      in the third quarter of 2005 (see Note 6). There were no tax effects related
      to
      these reductions.





At
      September 30, 2005 and December 31, 2004, we had no outstanding interest rate
      swaps.





**Note
      8** ― **Segments**





Through
      December 16, 2004, our operations were aggregated into two reportable segments:
      (i) Transocean Drilling and (ii) TODCO. The Transocean Drilling segment consists
      of floaters, jackups and other rigs used in support of offshore drilling
      activities and offshore support services. The TODCO segment consisted of our
      interest in TODCO, which conducts jackup, drilling barge, land rig, submersible
      and other operations located in the U.S. Gulf of Mexico and inland waters,
      Mexico, Trinidad and Venezuela. The organization and aggregation of our business
      into the two segments were based on differences in economic characteristics,
      customer base, asset class, contract structure and management structure. In
      addition, the TODCO segment fleet was highly dependent upon the U.S. natural
      gas
      industry while the Transocean Drilling segment’s operations are more dependent
      upon the worldwide oil industry. As a result of the deconsolidation of TODCO
      (see Note 1), we now operate in one industry segment, the Transocean Drilling
      segment.





Our
      Transocean Drilling segment fleet operates in a single, global market for the
      provision of contract drilling services. The location of our rigs and the
      allocation of resources to build or upgrade rigs are determined by the
      activities and needs of our customers. Accounting policies of the segments
      are
      the same as those described in Note 2 within “Item 8. Financial Statements and
      Supplementary Data” included in our Annual Report on Form 10-K for the year
      ended December 31, 2004. We accounted for intersegment revenue and expenses
      as
      if the revenue or expenses were to third parties at current market
      prices.


13
 *Index*




**TRANSOCEAN
          INC. AND SUBSIDIARIES**
 **NOTED
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Unaudited)




Operating
      revenues and income before income taxes and minority interest by segment were
      as
      follows (in millions):





Three
                Months Ended
              September
                30,
            
            Nine
                Months Ended
              September
                30,2005
            
            2004
            
            2005
            
            2004Operating
                RevenuesTransocean
                Drilling
            
            $
            762.6
            
            $
            558.7
            
            $
            2,120.5
            
            $
            1,689.4TODCO
            
            
            -
            
            
            93.1
            
            
            -
            
            
            247.6Total
                Operating Revenues
            
            $
            762.6
            
            $
            651.8
            
            $
            2,120.5
            
            $
            1,937.0Operating
                Income (Loss) Before General and Administrative ExpenseTransocean
                Drilling
            
            $
            222.9
            
            $
            88.7
            
            $
            587.1
            
            $
            354.7TODCO
                (a)
            
            
            -
            
            
            (2.4
            )
            
            -
            
            
            (38.7
            )222.9
            
            
            86.3
            
            
            587.1
            
            
            316.0Unallocated
                general and administrative expense
            
            
            (19.4
            )
            
            (15.2
            )
            
            (55.5
            )
            
            (44.3
            )Unallocated
                other income (expense), net
            
            
            (8.4
            )
            
            91.1
            
            
            98.2
            
            
            22.7Income
                Before Income Taxes and Minority Interest
            
            $
            195.1
            
            $
            162.2
            
            $
            629.8
            
            $
            294.4


______________


(a)
            The
                three and nine months ended September 30, 2004 includes $6.9 million
                and
                $26.3 million, respectively, of operating and maintenance expense
                that
                TODCO classified as general and administrative
                expense.





Depreciation
      expense by segment was as follows (in millions):





Three
                Months Ended
              September
                30,
            
            Nine
                Months Ended
              September
                30,2005
            
            2004
            
            2005
            
            2004Transocean
                Drilling
            
            $
            102.1
            
            $
            110.0
            
            $
            304.0
            
            $
            326.4TODCO
            
            
            -
            
            
            23.9
            
            
            -
            
            
            72.0Total
                Depreciation Expense
            
            $
            102.1
            
            $
            133.9
            
            $
            304.0
            
            $
            398.4





Total
      capital expenditures by segment were as follows (in millions):





Three
                Months Ended
              September
                30,
            
            Nine
                Months Ended
              September
                30,2005
            
            2004
            
            2005
            
            2004Transocean
                Drilling
            
            $
            35.3
            
            $
            42.6
            
            $
            144.9
            
            $
            93.6TODCO
            
            
            -
            
            
            2.5
            
            
            -
            
            
            6.2Total
                Capital Expenditures
            
            $
            35.3
            
            $
            45.1
            
            $
            144.9
            
            $
            99.8


14
 *Index*




**TRANSOCEAN
          INC. AND SUBSIDIARIES**
 **NOTED
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Unaudited)




**Note
      9** ― **Earnings
      Per Share**





The
      reconciliation of the numerator and denominator used for the computation of
      basic and diluted earnings per share is as follows (in millions, except per
      share data):





Three
                Months Ended
              September
                30,
            
            Nine
                Months Ended
              September
                30,2005
            
            2004
            
            2005
            
            2004**Numerator
                for Basic Earnings per Share**Net
                Income for basic earnings per share
            
            $
            170.4
            
            $
            154.9
            
            $
            564.0
            
            $
            225.6**Numerator
                for Diluted Earnings per Share**Net
                Income
            
            $
            170.4
            
            $
            154.9
            
            $
            564.0
            
            $
            225.6Add
                back interest expense on the 1.5% convertible debentures
            
            
            1.6
            
            
            1.6
            
            
            4.7
            
            
            -Net
                Income for diluted earnings per share
            
            $
            172.0
            
            $
            156.5
            
            $
            568.7
            
            $
            225.6**Denominator
                for Diluted Earnings per Share**Weighted-average
                shares outstanding for basic earnings per share
            
            
            328.9
            
            
            320.9
            
            
            326.2
            
            
            320.7Effect
                of dilutive securities:Employee
                stock options and unvested stock grants
            
            
            3.6
            
            
            2.5
            
            
            4.0
            
            
            2.2Warrants
                to purchase ordinary shares
            
            
            2.8
            
            
            1.6
            
            
            2.8
            
            
            1.51.5%
                convertible debentures
            
            
            5.5
            
            
            5.5
            
            
            5.5
            
            
            -Adjusted
                weighted-average shares and assumed conversions for diluted earnings
                per
                share
            
            
            340.8
            
            
            330.5
            
            
            338.5
            
            
            324.4**Basic
                Earnings Per Share**Net
                Income
            
            $
            0.52
            
            $
            0.48
            
            $
            1.73
            
            $
            0.70**Diluted
                Earnings Per Share**Net
                Income
            
            $
            0.50
            
            $
            0.47
            
            $
            1.68
            
            $
            0.70





Ordinary
      shares subject to issuance pursuant to the conversion features of the Zero
      Coupon Convertible Debentures are not included in the calculation of adjusted
      weighted-average shares and assumed conversions for diluted earnings per share
      because the effect of including those shares is anti-dilutive for all periods
      presented. Ordinary shares subject to issuance pursuant to the conversion
      features of the 1.5% Convertible Debentures are not included in the calculation
      of the adjusted weighted-average shares and assumed conversions for diluted
      earnings per share for the nine months ended September 30, 2004 because the
      effect of including those shares is anti-dilutive.





In
      September 2004, the Emerging Issues Task Force (“EITF”) of the FASB reached a
      consensus on issue No. 04-08, *The
      Effect of Contingently Convertible Instruments on Diluted Earnings per Share* (“EITF
      04-08”), which was effective for reporting periods ending after December 15,
      2004. Contingently convertible instruments within the scope of EITF 04-08 are
      instruments that contain conversion features that are contingently convertible
      or exercisable based on (a) a market price trigger or (b) multiple contingencies
      if one of the contingencies is a market price trigger for which the instrument
      may be converted or share settled based on meeting a specified market condition.
      EITF 04-08 requires companies to include shares issuable under convertible
      instruments in diluted earnings per share computations (if dilutive) regardless
      of whether the market price trigger (or other contingent feature) has been
      met.
      In addition, prior period earnings per share amounts presented for comparative
      purposes must be restated. EITF 04-08 did not have an effect on our diluted
      earnings per share for the nine months ended September 30, 2004. For the three
      months ended September 30, 2004, diluted earnings per share was reduced by
      $0.01
      as a result of the implementation of EITF 04-08.


15
 *Index*




**TRANSOCEAN
          INC. AND SUBSIDIARIES**
 **NOTED
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Unaudited)


**Note
      10** ― **Contingencies**





*Legal
      Proceedings* —Several
      of our subsidiaries have been named, along with other defendants, in several
      complaints that have been filed in the Circuit Courts of the State of
      Mississippi involving over 700 persons that allege personal injury arising
      out
      of asbestos exposure in the course of their employment by some of these
      defendants between 1965 and 1986. The complaints also name as defendants certain
      of TODCO's subsidiaries to whom we may owe indemnity and other unaffiliated
      defendant companies, including companies that allegedly manufactured drilling
      related products containing asbestos that are the subject of the complaints.
      The
      number of unaffiliated defendant companies involved in each complaint ranges
      from approximately 20 to 70. The complaints allege that the defendant drilling
      contractors used those asbestos-containing products in offshore drilling
      operations, land based drilling operations and in drilling structures, drilling
      rigs, vessels and other equipment and assert claims
      based on, among other things, negligence and strict liability, and claims
      authorized under the Jones Act. The plaintiffs seek, among other things, awards
      of unspecified compensatory and punitive damages. The trial court has ordered
      that the plaintiffs provide additional information regarding their employment
      histories. We have not yet had an opportunity to conduct any discovery nor
      have
      we been able to definitively determine the number of plaintiffs that were
      employed by our subsidiaries or otherwise have any connection with our drilling
      operations. We intend to defend ourselves vigorously and, based on the limited
      information available to us at this time, we do not expect the liability, if
      any, resulting from these matters to have a material adverse effect on our
      consolidated financial position, results of operations and cash
      flows.




In
        1990
        and 1991, two of our subsidiaries were
        served with various assessments collectively valued at approximately $7 million
        from the municipality of Rio de Janeiro, Brazil to collect a municipal tax
        on
        services. We believe that neither subsidiary is liable for the taxes and
        have
        contested the assessments in the Brazilian administrative and court systems.
        We
        have received several adverse rulings by various courts with respect to a
        June
        1991 assessment, which is valued at approximately $6 million. We are continuing
        to challenge the assessment, however, and have an action to stay execution
        of a
        related tax foreclosure proceeding. We expect that the government will attempt
        to enforce the judgment on this assessment and that the amount claimed may
        exceed the amounts we believe are at issue.  We have received a favorable
        ruling in connection with a disputed August 1990 assessment but the government
        has appealed that ruling. We also are awaiting a ruling from the Taxpayer's
        Council in connection with an October 1990 assessment. If our defenses are
        ultimately unsuccessful, we believe that the Brazilian government-controlled
        oil
        company, Petrobras, has a contractual obligation to reimburse us for municipal
        tax payments requiredto be paid by them. We do not expect the liability,
        if any, resulting from these assessments to have a material adverse effect
        on
        our consolidated financial position, results of operations and cash
        flows.
  The
        Indian Customs Department, Mumbai, filed a “show cause notice” against one of
        our subsidiaries and various third parties in July 1999. The show cause notice
        alleged that the initial entry into India in 1988 and other subsequent movements
        of the *Trident
        II* jackup
        rig operated by the subsidiary constituted imports and exports for which
        proper
        customs procedures were not followed and sought payment of customs duties
        of
        approximately $31 million based on an alleged 1998 rig value of $49 million,
        plus interest and penalties, and confiscation of the rig. In January 2000,
        the
        Customs Department issued its order, which found that we had imported the
        rig
        improperly and intentionally concealed the import from the authorities, and
        directed us to pay a redemption fee of approximately $3 million for the rig
        in
        lieu of confiscation and to pay penalties of approximately $1 million in
        addition to the amount of customs duties owed. In February 2000, we filed
        an
        appeal with the Customs, Excise and Service Tax Appellate Tribunal (“CESTAT”)
        (formerly known as the Customs, Excise and Gold (Control) Appellate Tribunal),
        together with an application to have the confiscation of the rig stayed pending
        the outcome of the appeal. In March 2000, the CESTAT ruled on the stay
        application, directing that the confiscation be stayed pending the appeal.
        The
        CESTAT issued its order on our appeal on February 2, 2001, and while it found
        that the rig was imported in 1988 without proper documentation or payment
        of
        duties, the redemption fee and penalties were reduced to less than $0.1 million
        in view of the ambiguity surrounding the import practice at the time and
        the
        lack of intentional concealment by us. The CESTAT further sustained our position
        regarding the value of the rig at the time of import as $13 million and ruled
        that subsequent movements of the rig were not liable to import documentation
        or
        duties in view of the prevailing practice of the Customs Department, thus
        limiting our exposure as to custom duties to approximately $6 million. Although
        CESTAT did not grant us the benefit of a customs duty exemption due to the
        absence of the required documentation, CESTAT left it open for our subsidiary
        to
        seek such documentation from the Ministry of Petroleum. Following the CESTAT
        order, we tendered payment of redemption, penalty and duty in the amount
        specified by the order by offset against a $0.6 million deposit and $10.7
        million guarantee previously made by us. The Customs Department
        attempted to draw the entire guarantee, alleging the actual duty payable
        is
        approximately $22 million based on an interpretation of the CESTAT order
        that we
        believe is incorrect. This action was stopped by an interim ruling of the
        High
        Court, Mumbai on writ petition filed by us. We and the Customs Department
        both
        filed appeals with the Supreme Court of India against the order of the CESTAT,
        and both appeals were admitted. The Supreme Court has dismissed the Customs
        Department appeal and affirmed the CESTAT order but the Customs Department
        has
        not agreed with our interpretation of that order. We are contesting their
        interpretion. We and our customer agreed to pursue and obtained the
        issuance of the required documentation from the Ministry of Petroleum that,
        if
        accepted by the Customs Department, would reduce the duty to nil. The Customs
        Department did not accept the documentation or agree to refund the duties
        already paid. We are pursuing our remedies against the Customs Departmentand our customer. We do not expect the liability, if any, resulting
        from
        this matter to have a material adverse effect on our consolidated financial
        position, results of operations and cash flows.


16
 *Index*




**TRANSOCEAN
          INC. AND SUBSIDIARIES**
 **NOTED
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Unaudited)




In
      October 2001, TODCO was notified by the U.S. Environmental Protection Agency
      ("EPA") that the EPA had identified a subsidiary as a potentially responsible
      party in connection with the Palmer Barge Line superfund site located in Port
      Arthur, Texas. Based upon the information provided by the EPA and a review
      of
      TODCO's internal records to date, TODCO disputes its designation as a
      potentially responsible party. Pursuant to the master separation agreement
      with
      TODCO, we are responsible and will indemnify TODCO for any losses TODCO incurs
      in connection with this action. We do not expect the liability, if any,
      resulting from this matter to have a material adverse effect on our consolidated
      financial position, results of operations and cash flows.





In
      August
      2003, a judgment of approximately $9.5 million was entered by the Labor Division
      of the Provincial Court of Luanda, Angola, against us and one of our labor
      contractors, Hull Blyth, in favor of certain former workers on several of our
      drilling rigs. The workers were employed by Hull Blyth to work on several
      drilling rigs while the rigs were located in Angola. When the drilling contracts
      concluded and the rigs left Angola, the workers' employment ended. The workers
      brought suit claiming that they were not properly compensated when their
      employment ended. In addition to the monetary judgment, the Labor Division
      ordered the workers to be hired by us. We believe that this judgment is without
      sufficient legal foundation and have appealed the matter to the Angola Supreme
      Court. We further believe that Hull Blyth has an obligation to protect us from
      any judgment. We do not expect the liability, if any, resulting from this matter
      to have a material adverse effect on our consolidated financial position,
      results of operations and cash flows.





One
      of
      our subsidiaries is involved in an action with respect to customs penalties
      relating to the *Sedco
      710* semisubmersible drilling rig. Prior to our merger with Sedco Forex, this
      drilling rig, which was working for Petrobras in Brazil at the time, had been
      admitted into the country on a temporary basis under authority granted to a
      Schlumberger entity. Prior to the Sedco Forex merger, the drilling contract
      was
      moved to an entity that would become one of our subsidiaries. In early 2000,
      the
      drilling contract was extended for another year. On January 10, 2000, the
      temporary import permit granted to the Schlumberger entity expired, and renewal
      filings were not made until later that January. In April 2000, the Brazilian
      customs authorities cancelled the import permit. The Schlumberger entity filed
      an action in the Brazilian federal court of Campos for the purpose of extending
      the temporary admission. Other proceedings were also initiated in order to
      secure the transfer of the temporary admission to our subsidiary. Ultimately,
      the court permitted the transfer to our entity but has not ruled that the
      temporary admission could be extended without the payment of a financial
      penalty. During the first quarter of 2004, the customs office renewed its
      efforts to collect a penalty and issued a second assessment for this penalty
      but
      has now done so against our subsidiary. The assessment is for approximately
      $61
      million. We believe that the amount of the assessment, even if it were
      appropriate, should only be approximately $6 million and should in any event
      be
      assessed against the Schlumberger entity. We and Schlumberger are contesting
      our
      respective assessments. We have put Schlumberger on notice that we consider
      any
      assessment to be the responsibility of Schlumberger. We do not expect the
      liability, if any, resulting from this matter to have a material adverse effect
      on our consolidated financial position, results of operations and cash
      flows.





We
      are
      involved in a number of other lawsuits, all of which have arisen in the ordinary
      course of our business. We do not expect the liability, if any, resulting from
      these matters to have a material adverse effect on our consolidated financial
      position, results of operations and cash flows.





*Self
      Insurance* —We
      are
      self-insured for the deductible portion of our insurance coverage. In the
      opinion of management, adequate accruals have been made based on known and
      estimated exposures up to the deductible portion of our insurance coverages.
      Management believes that claims and liabilities in excess of the amounts accrued
      are adequately insured.


17
 *Index*




**TRANSOCEAN
          INC. AND SUBSIDIARIES**
 **NOTED
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Unaudited)


*Letters
      of Credit and Surety Bonds* —We
      had
      letters of credit outstanding totaling $245.4 million and $182.2 million at
      September 30, 2005 and December 31, 2004, respectively. These letters of credit
      guarantee various contract bidding and performance activities under various
      uncommitted lines provided by several banks.





As
      is
      customary in the contract drilling business, we also have various surety bonds
      in place that secure customs obligations relating to the importation of our
      rigs
      and certain performance and other obligations. Surety bonds outstanding totaled
      $8.0 million and $7.6 million at September 30, 2005 and December 31, 2004,
      respectively.





**Note
      11** ― **Off-Balance
      Sheet Arrangement**





We
      leased
      the semisubmersible rig *M.
      G.
      Hulme, Jr.* from
      Deep Sea Investors, L.L.C. (“Deep Sea Investors”), a special purpose entity
      formed by several leasing companies to acquire the rig from one of our
      subsidiaries in November 1995 in a sale/leaseback transaction. We accounted
      for
      the lease of this semisubmersible drilling rig as an operating lease. We
      recorded $4.6 million and $9.5 million of such rent expense in the nine months
      ended September 30, 2005 and 2004, respectively. In May 2005, we purchased
      the
      rig for $42.5 million. The rig was reflected as property and equipment in the
      consolidated balance sheet at September 30, 2005.





Effective
      December 31, 2003, we adopted and applied the provisions of FASB Interpretation
      (“FIN”) 46, *Consolidation
      of Variable Interest Entities* ,
      as
      revised December 31, 2003, for all variable interest entities. FIN 46 requires
      the consolidation of variable interest entities in which an enterprise absorbs
      a
      majority of the entity’s expected losses, receives a majority of the entity’s
      expected residual returns, or both, as a result of ownership, contractual or
      other financial interests in the entity. Because the sale/leaseback agreement
      was with an entity in which we had no direct investment, we were not entitled
      to
      receive the financial information of the leasing entity and the equity holders
      of the leasing company would not release the financial statements or other
      financial information to us in order for us to make the determination of whether
      the entity was a variable interest entity. In addition, without the financial
      statements or other financial information, we were unable to determine if we
      were the primary beneficiary of the entity and, if so, what we would have
      consolidated. We had no exposure to loss as a result of the sale/leaseback
      agreement. As a result of the purchase of the *M.
      G.
      Hulme, Jr.* ,
      we are
      no longer associated with Deep Seas Investors and, as such, are no longer
      required to review for FIN 46 applicability.


18
 *Index*




**TRANSOCEAN
          INC. AND SUBSIDIARIES**
 **NOTED
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 (Unaudited)


**Note
      12** ― **Retirement
      Plans and Other Postemployment Benefits**





*Defined
      Benefit Pension Plans* —We
      have
      several defined benefit pension plans, both funded and unfunded, covering
      substantially all U.S. employees. We also have various defined benefit plans
      in
      certain non-U.S. locations as well as certain frozen plans acquired in
      connection with the R&B Falcon merger. Net periodic benefit cost for these
      defined benefit pension plans included the following components (in
      millions):





Three
                Months EndedSeptember
                30,
            
            Nine
                Months EndedSeptember
                30,2005
            
            2004
            
            2005
            
            2004**Components
                of Net Periodic Benefit Cost (a)**Service
                cost
            
            $
            4.5
            
            $
            4.7
            
            $
            13.6
            
            $
            12.5Interest
                cost
            
            
            4.4
            
            
            4.1
            
            
            13.3
            
            
            12.4Expected
                return on plan assets
            
            
            (5.1
            )
            
            (4.9
            )
            
            (15.4
            )
            
            (14.6
            )Amortization
                of transition obligation
            
            
            0.1
            
            
            0.1
            
            
            0.2
            
            
            0.2Amortization
                of prior service cost
            
            
            (1.0
            )
            
            (0.9
            )
            
            (0.6
            )
            
            (0.6
            )Recognized
                net actuarial losses
            
            
            2.1
            
            
            1.5
            
            
            4.0
            
            
            2.8SFAS
                88 settlements/curtailments
            
            
            -
            
            
            -
            
            
            2.1
            
            
            -Benefit
                cost
            
            $
            5.0
            
            $
            4.6
            
            $
            17.2
            
            $
            12.7


______________


(a)
            Amounts
                are before income tax effect.





*Postretirement
      Benefits Other Than Pensions (“OPEB”)* —We
      have
      several unfunded contributory and noncontributory OPEB plans covering
      substantially all of our U.S. employees. Net periodic benefit cost for these
      other postretirement plans included the following components (in
      millions):





Three
                Months EndedSeptember
                30,
            
            Nine
                Months EndedSeptember
                30,2005
            
            2004
            
            2005
            
            2004**Components
                of Net Periodic Benefit Cost (a)**Service
                cost
            
            $
            0.4
            
            $
            0.3
            
            $
            1.0
            
            $
            0.8Interest
                cost
            
            
            0.5
            
            
            0.5
            
            
            1.6
            
            
            1.6Amortization
                of prior service cost
            
            
            (0.6
            )
            
            (0.6
            )
            
            (1.7
            )
            
            (1.7
            )Recognized
                net actuarial losses
            
            
            0.4
            
            
            0.3
            
            
            1.2
            
            
            1.1Benefit
                cost
            
            $
            0.7
            
            $
            0.5
            
            $
            2.1
            
            $
            1.8


______________


(a)
            Amounts
                are before income tax effect.


19
 *Index*




**Item
        2. Management’s Discussion and Analysis of Financial Condition
        and Results of Operations**


The
      following information should be read in conjunction with the unaudited condensed
      consolidated financial statements included under “Item 1. Financial Statements”
herein and the audited consolidated financial statements and the notes thereto
      and “Item 7. Management’s Discussion and Analysis of Financial Condition and
      Results of Operations” included in our Annual Report on Form 10-K for the year
      ended December 31, 2004.





**Overview**





Transocean
      Inc. (together with its subsidiaries and predecessors, unless the context
      requires otherwise, “Transocean,” “we,” “us” or “our”) is a leading
      international provider of offshore contract drilling services for oil and gas
      wells. As of October 31, 2005, we owned, had partial ownership interests in
      or
      operated 92 mobile offshore and barge drilling units. As of this date, our
      fleet
      included 32 High-Specification semisubmersibles and drillships (“floaters”), 24
      Other Floaters, 25 Jackup Rigs and 11 Other Rigs.





Our
      mobile offshore drilling fleet is considered one of the most modern and
      versatile fleets in the world. Our primary business is to contract these
      drilling rigs, related equipment and work crews primarily on a dayrate basis
      to
      drill oil and gas wells. We specialize in technically demanding segments of
      the
      offshore drilling business with a particular focus on deepwater and harsh
      environment drilling services. We also provide additional services, including
      integrated services.





Key
      measures of our total company results of operations and financial condition
      are
      as follows:





Three
                Months EndedSeptember
                30,
            
            
            
            Nine
                Months EndedSeptember
                30,2005
            
            2004
            
            Change
            
            2005
            
            2004
            
            Change(In
                millions, except dayrates and percentages)**Average
                dayrate (a)(c)(d)**
            
            $
            107,100
            
            $
            69,800
            
            $
            37,300
            
            $
            102,400
            
            $
            70,300
            
            $
            32,100**Utilization
                (b)(c)(d)**
            
            
            82
            %
            
            58
            %
            
            N/A
            
            
            79
            %
            
            56
            %
            
            N/A**Statement
                of Operations (c)**Operating
                revenues
            
            $
            762.6
            
            $
            651.8
            
            $
            110.8
            
            $
            2,120.5
            
            $
            1,937.0
            
            $
            183.5Operating
                and maintenance expense
            
            
            439.8
            
            
            432.9
            
            
            6.9
            
            
            1,267.3
            
            
            1,251.5
            
            
            15.8Operating
                income
            
            
            203.5
            
            
            71.1
            
            
            132.4
            
            
            531.6
            
            
            271.7
            
            
            259.9Net
                income
            
            
            170.4
            
            
            154.9
            
            
            15.5
            
            
            564.0
            
            
            225.6
            
            
            338.4





September
                30,
            
            December
                31,2005
            
            2004
            
            Change(In
                millions)**Balance
                Sheet Data (at end of period) (c)**Cash
            
            $
            596.8
            
            $
            451.3
            
            $
            145.5Total
                Assets
            
            
            10,772.6
            
            
            10,758.3
            
            
            14.3Total
                Debt
            
            
            1,597.7
            
            
            2,481.5
            
            
            (883.8
            )


_____________________


“N/A”
      means not applicable.





(a)
            Average
                dayrate is defined as contract drilling revenue earned per revenue
                earning
                day. A revenue earning day is defined as a day for which a rig earns
                dayrate after commencement of
                operations.


(b)
            Utilization
                is the total actual number of revenue earning days as a percentage
                of the
                total number of calendar days in the
                period.


(c)
            We
                consolidated TODCO’s (together with its subsidiaries and predecessors,
                unless the context requires otherwise, “TODCO,” a publicly traded company
                and a former wholly-owned subsidiary) results of operations and financial
                condition in our consolidated financial statements through December
                16,
                2004. We deconsolidated TODCO effective December 17, 2004 and subsequently
                accounted for our investment in TODCO under the equity method of
                accounting through May 18, 2005, at which time our ownership interest
                fell
                below 20 percent.See
                “―Significant Events.”


(d)
            Excludes
                a drillship engaged in scientific geological coring activities,
                the*Joides Resolution*,
                that is owned by a joint venture in which we have a 50 percent interest
                and is accounted for under the equity method of
                accounting.


20
 *Index*


2005
      has
      been an exceptional year for the industry with strong demand and increasing
      dayrates for all asset classes.  Leading dayrates are at record levels for
      most rig classes and customers are contracting rigs for longer terms than
      we
      have seen historically for rigs other than newbuilds.  Interest in
      high-specification floaters is particularly strong and we are seeing interest
      on
      the part of some customers to discuss availability of rigs starting as far
      out
      as 2008.  As a result of the level of activity industrywide, we are seeing
      increases in our cost structure.  A shortage of qualified people is driving
      compensation cost up and suppliers are increasing prices as their backlogs
      build.  These labor and vendor price increases, while meaningful, are
      not significant in comparison with the dayrate increases we are seeing for
      2006
      and beyond.





Our
      revenues and operating and maintenance expenses for the nine months ended
      September 30, 2005 increased from the prior year due to increased activity
      resulting in higher average dayrates and higher labor and rig maintenance costs
      within our Transocean Drilling fleet, partially offset by the deconsolidation
      of
      TODCO effective December 17, 2004 (see “—Operating Results”) and decreased
      integrated services provided to our clients. For the nine months ended September
      30, 2005, our revenues and our operating and maintenance expenses were adversely
      effected as a result of damage sustained to two of our High-Specification
      semisubmersibles during hurricanes Katrina and Rita in the third quarter of
      2005
      (see “—Significant Events”). Our financial results for the nine months ended
      September 30, 2005 included the recognition of gains from our May 2005 public
      offering (the “May Offering”) and June 2005 sale (the “June Sale,” and, together
      with the May Offering, the “2005 Offering and Sale”) of TODCO common stock
      pursuant to Rule 144 under the Securities Act of 1933, as well as gains from
      the
      sale of three rigs and other income recognized under the TODCO tax sharing
      agreement, partially offset by charges pertaining to losses on retirement of
      debt (see “—Significant Events”). Our financial results for the nine months
      ended September 30, 2004 included gains recognized on the TODCO initial public
      offering (“TODCO IPO”) and September 2004 additional public offering of TODCO
      common stock (“September 2004 Offering”) and a gain from the sale of a rig,
      partially offset by a tax valuation allowance adjustment and stock option
      expense recorded in connection with the TODCO IPO as well as a charge pertaining
      to a loss on retirement of debt (see “—Operating Results”). Cash increased
      during the nine months ended September 30, 2005 primarily as a result of
      proceeds received from the 2005 Offering and Sale, the sale of rigs and
      exercises of stock options, as well as cash provided by operating activities,
      partially offset by increased capital expenditures and the early retirements
      of
      debt.





Through
      December 16, 2004, our operations were aggregated into two reportable segments:
      (i) Transocean Drilling and (ii) TODCO. The Transocean Drilling segment consists
      of floaters, jackups and other rigs used in support of offshore drilling
      activities and offshore support services. The TODCO segment consisted of our
      interest in TODCO, which conducts jackup, drilling barge, land rig, submersible
      and other operations in the U.S. Gulf of Mexico and inland waters, Mexico,
      Trinidad and Venezuela. The organization and aggregation of our business into
      the two segments were based on differences in economic characteristics, customer
      base, asset class, contract structure and management structure. In addition,
      the
      TODCO segment fleet was highly dependent upon the U.S. natural gas industry
      while the Transocean Drilling segment’s operations are more dependent upon the
      worldwide oil industry. As a result of the deconsolidation of TODCO (see
“—Operating Results”), we now operate in one business segment, the Transocean
      Drilling segment.





Our
      Transocean Drilling segment fleet operates in a single, global market for the
      provision of contract drilling services. The location of our rigs and the
      allocation of resources to build or upgrade rigs are determined by the
      activities and needs of our customers.





We
      categorize our fleet as follows: (i) “High-Specification Floaters,” consisting
      of our “Fifth-Generation Deepwater Floaters,” “Other Deepwater Floaters” and
“Other High-Specification Floaters,” (ii) “Other Floaters,” (iii) “Jackups” and
      (iv) “Other Rigs.” Within our High-Specification Floaters category, we consider
      our Fifth-Generation Deepwater Floaters to be the semisubmersibles *Deepwater
      Horizon* , *Cajun
      Express* , *Deepwater
      Nautilus* , *Sedco
      Energy* and *Sedco
      Express* and
      the drillships *Deepwater
      Discovery* , *Deepwater
      Expedition* , *Deepwater
      Frontier* , *Deepwater
      Millennium* , *Deepwater
      Pathfinder* , *Discoverer
      Deep Seas* , *Discoverer
      Enterprise* and *Discoverer
      Spirit* .
      These
      rigs were built in the construction cycle that occurred from approximately
      1996
      to 2001 and have high-pressure mud pumps and a water depth capability of 7,500
      feet or greater. The Other Deepwater Floaters are generally those other semisubmersible
      rigs and drillships that have a water depth capacity of at least 4,500 feet.
      The
      Other High-Specification Floaters, built as fourth-generation rigs in the mid
      to
      late 1980’s, are capable of drilling in harsh environments and have greater
      displacement than previously constructed rigs resulting in larger variable
      load
      capacity, more useable deck space and better motion characteristics. The Other
      Floaters category is generally comprised of those non-high-specification
      floaters with a water depth capacity of less than 4,500 feet. The Jackups
      category consists of our jackup fleet, and the Other Rigs category consists
      of
      other rigs that are of a different type or use. These categories reflect how
      we
      view, and how we believe our investors and the industry generally view, our
      fleet, and reflect our strategic focus on the ownership and operation of premium
      high-specification floating rigs and jackups.




21
 *Index*


**Significant
        Events**


*Hurricane
      Damage*—In the third quarter of 2005, two of our semisubmersible rigs, the
*Deepwater Nautilus* and the *Transocean Marianas*, sustained
      damage during hurricanes Katrina and Rita. During hurricane Katrina, the
*Deepwater Nautilus* sustained damage to its mooring system and lost
      approximately 3,200 feet of marine riser and a portion of its subsea well
      control system. The rig was undergoing repairs during hurricane Rita and was
      set
      adrift following the failure of a tow line utilized by a towing vessel. Also
      during hurricane Rita, the *Transocean Marianas* sustained damage to its
      mooring system, was forced off its drilling location and was grounded in shallow
      water. The *Deepwater Nautilus* is expected to be out of service for
      30 to 45 days in the fourth quarter of 2005 and an additional 60 days in the
      first half of 2006 assuming we will be able to use the subsea equipment that
      we
      are in the process of recovering. Repairs to the *Transocean Marianas*
      are expected to take three to four months and the rig is expected to return
      to
      service in the first quarter of 2006. Depending on the timing of the repairs,
      we
      currently estimate the total lost revenue plus repair, crew and other costs
      for
      the two rigs to impact operating income by approximately $40 million to $50
      million in the fourth quarter of 2005 and $25 million to $35 million in 2006,
      net of expected insurance proceeds. In addition, we also expect to spend
      approximately $30 million on capital expenditures to replace damaged equipment.
      Operating income in the third quarter of 2005 was negatively impacted by
      approximately $3 million due to lost revenue and higher operating and
      maintenance costs on the *Transocean Marianas* and the *Deepwater
      Nautilus*. See “—Outlook−Insurance.” These higher costs were offset during
      the quarter by a temporary reduction in maintenance costs on the remainder
      of
      the U.S. Gulf of Mexico fleet as projects were delayed due to the disruption
      caused by the hurricanes.





*Asset
      Acquisition* —In
      May
      2005, we purchased the semisubmersible rig *M.
      G.
      Hulme, Jr* .,
      which
      we had previously operated under a lease arrangement. See “—Off-Balance Sheet
      Arrangement.”





*Asset
      Dispositions* —In
      January 2005, we completed the sale of the semisubmersible rig *Sedco
      600* for net
      proceeds of $24.9 million and recognized a gain on the sale of $18.8 million.
      In
      June 2005, we sold the jackup rig *Transocean
      Jupiter* and a
      land rig for net proceeds of $23.5 million and recognized a gain on the sale
      of
      $14.0 million in the second quarter of 2005.





*Debt
      Repurchase and Redemption* —In
      March
      2005, we redeemed our $247.8 million aggregate principal amount outstanding
      6.95% Senior Notes due April 2008 at the make-whole premium price provided
      in
      the indenture. We redeemed these notes at 108.259 percent of face value, or
      $268.2 million, plus accrued and unpaid interest. In the first quarter of 2005,
      we recognized a loss on the redemption of debt of $6.7 million, which reflected
      adjustments for fair value of the debt at the date of the merger (“R&B
      Falcon merger”) with R&B Falcon Corporation (“R&B Falcon”) and the
      unamortized fair value adjustment on a previously terminated interest rate
      swap.
      We funded the redemption with existing cash balances.





In
      July
      2005, we acquired, pursuant to a tender offer, a total of $534.4 million, or
      approximately 76.3 percent, of the aggregate principal amount of our 6.625%
      Notes due April 2011 at 110.578 percent of face value, or $590.9 million, plus
      accrued and unpaid interest. In the third quarter of 2005, we recognized a
      gain
      on the repurchase of $0.2 million, which reflected adjustments for the
      unamortized fair value adjustment on a previously terminated interest rate
      swap.
      We funded the repurchase with existing cash balances.


22
 *Index*


*Revolving
      Credit Agreement* —In
      July
      2005, we entered into a $500.0 million, five-year revolving credit agreement
      (the “Revolving Credit Agreement”). In conjunction with entering into this
      facility, we terminated our $800.0 million, five-year revolving credit agreement
      dated December 2003 and recognized a loss on the termination of this agreement
      of $0.8 million in the third quarter of 2005.





*TODCO* —We
      sold
      12.0 million shares of TODCO’s class A common stock representing 20 percent of
      TODCO’s total outstanding shares at $20.50 per share in the May Offering. We
      sold our remaining 1.3 million shares of TODCO’s class A common stock
      representing 2 percent of TODCO’s total outstanding shares at $23.57 in the June
      Sale. After the May Offering, we accounted for our remaining investment using
      the cost method of accounting. As a result of the June Sale, we no longer own
      any shares of TODCO’s common stock. In the second quarter of 2005, we received
      net proceeds of $271.9 million from the 2005 Offering and Sale and recognized
      a
      gain of $165.0 million, which had no tax effect and represented the excess
      of
      net proceeds received over the net book value of the shares sold in the 2005
      Offering and Sale. We refer collectively to the 2005 Offering and Sale and
      the
      public offerings of TODCO Class A common stock in 2004 as the “TODCO Stock
      Sales.”





*TODCO
      Tax Sharing Agreement* —In
      September 2005, we recognized $10.1 million in other income related to the
      TODCO
      tax sharing agreement as a result of TODCO filing its 2004 U.S. federal income
      tax return. See “—Outlook−Tax Matters.”





**Outlook**





*Drilling
      Market* **—** Oil
      and
      natural gas commodity prices continue to be strong, and we expect prices to
      remain high for the near future relative to historical price levels. Future
      price expectations have historically been a key driver for offshore drilling
      demand. However, the availability of quality drilling prospects, exploration
      success, relative production costs, the stage of reservoir development and
      political and regulatory environments also affect our customers’ drilling
      programs.





Prospects
      for our 32 High-Specification Floaters continue to be robust. We have signed
      a
      number of new contracts or extensions for our High-Specification Floaters that
      reflect the strong activity in this sector. We have been awarded three-year
      contracts for the *Discoverer
      Seven Seas* ,
      the *Discoverer
      Spirit* and the *Deepwater
      Millennium* ,
      and
      two-year contracts for the *Deepwater
      Pathfinder* **** and
      the *Deepwater
      Expedition* .
      We have
      entered into contract extensions for a four-year program for the *Transocean
      Arctic* ,
      a
      three-year program for the *Polar
      Pioneer* and a
      one-year program for the *Transocean
      Leader* .
      We
      continue to believe that, over the long term, deepwater exploration and
      development drilling opportunities in the Gulf of Mexico, West Africa and India
      and other emerging deepwater market sectors represent a significant source
      of
      future deepwater rig demand. We continue to see an appreciable customer
      preference for using fifth-generation equipment in these deepwater areas, which
      we believe has led to a near-term shortage of these highest specification rigs.
      At November 2, 2005, 80 percent of our High-Specification Floaters fleet days
      are contracted in 2006.





Our
      Other
      Floaters fleet, comprised of 23 semisubmersible rigs and one drillship,
      continues to benefit from improving activity levels in all regions. In the
      U.K.
      sector of the North Sea, our five most recent contract awards within this fleet
      have dayrates ranging from $140,000 to $250,000. These five contracts have
      varying commencement dates during 2005 and 2006 and some extend into 2007.
      Customer activity levels outside of the U.K. sector of the North Sea are
      expected to be stable to higher through 2006. We continue to evaluate contract
      opportunities that could result in the reactivation of up to three of our idle
      rigs. Should a decision be made to reactivate any of the idle units, they are
      not expected to be operational before the second quarter of 2006. At November
      2, 2005 ,
      approximately 57 percent of our Other Floaters fleet days are contracted through
      2006.


We
        also
        recently entered into an agreement with a subsidiary of Royal Dutch Petroleum
        (Shell) for the upgrade of a *Sedco
        700* -class
        semisubmersible in our Others Floaters fleet. Under the agreement, Shell
        is
        committed to a three-year contract to be finalized by the parties based upon
        stated drilling contract principles. We expect the upgrade to be completed
        in
        approximately May 2007, subject to finalization of project arrangements and
        other factors, at a cost of approximately $300 million depending upon final
        specifications and other factors. Drilling operations would commence after
        commissioning and acceptance following the shipyard work. Shell has the right
        to
        terminate the contract if the shipyard work is not completed by February
        15,
        2008. We are also in discussions with several other clients regarding the
        possible upgrade to deepwater drilling capability of other semisubmersibles
        in
        our Others Floaters fleet. If successful, we expect any such other upgrade
        project to require approximately 24 months to complete at a cost of
        approximately $300 million per unit depending upon final specifications and
        other factors.




23
 *Index*


The
      outlook for activity for the jackup market sector continues to remain strong,
      particularly in South East Asia, India and West Africa. We expect to remain
      at
      or near full utilization for our Jackups fleet in the near term. However, we
      continue to monitor the potential effect of newbuild jackups, which have
      scheduled delivery dates ranging from the fourth quarter of 2005 through 2009.
      The addition of rig capacity could have an adverse impact on utilization and
      dayrates. At November 2, 2005, 58 percent of the Jackups fleet days are
      contracted in 2006.





The
      increase in demand, particularly in our High-Specification Floaters fleet,
      has
      produced a significant increase in our revenue backlog in 2005. This increase
      is
      driven by both increased dayrates and a number of long-term contracts we have
      been able to secure.





We
      expect
      downtime during the fourth quarter of 2005 to result from planned shipyard
      projects, reactivations and/or mobilizations for the *Sedco
      Energy, Sedco 707, Peregrine I, Transocean Driller, Trident 4, Trident 8* and *Shelf Explorer* ,
      as well
      as for the *Transocean
      Marianas* and the *Deepwater
      Nautilus* due to
      the hurricane incidents described above. These rig mobilizations and shipyard
      projects are expected to have an adverse impact on revenues and operating
      income. In addition, vendor price increases and rising labor costs due to
      increased drilling activity are expected to increase operating and maintenance
      costs. The combination of these trends is expected to lead to a level of
      operating and maintenance costs in the fourth quarter that is higher than the
      third quarter.





We
      expect
      a significant number of our rigs to incur shipyard and mobilization time in
      2006, which will have an adverse effect on 2006 revenues and operating and
      maintenance costs. In addition, our labor, rig maintenance and insurance costs
      are escalating due to increased drilling activity. We expect our operating
      and
      maintenance expense and general and administrative expense to be higher in
      2006
      as compared to 2005, although due to higher dayrates we expect our revenue
      growth to continue to outpace our cost increases.





Our
      shipyard projects, including the *Sedco 700*-class rig upgrade for Shell,
      any potential rig reactivations and other major upgrades, are subject to risks
      of delay and cost overruns for a variety of reasons, including some outside
      of
      our control. A delay could adversely affect any drilling contract for the rig
      following the shipyard work, depending upon the drilling contract
      terms. The agreement with Shell for the *Sedco 700*-class rig
      upgrade requires the shipyard work to be completed by February 15, 2008. Shell
      has the right to terminate the contract should the shipyard work fail to be
      completed by that time.





We
      also
      expect that a number of pre-existing, fixed-price contract options will be
      exercised by our customers, which will preclude us from taking full advantage
      of
      increased market rates for those rigs subject to these contract options. We
      have
      nine existing contracts with fixed-priced or capped options for dayrates that
      we
      believe are less than current market dayrates.





We
      continue to monitor the potential effects of announced newbuild deepwater
      drilling rigs and deepwater upgrade projects. Since most of these units have
      scheduled completion dates in 2008 and beyond, we are unable to predict what
      effect, if any, the additional capacity will have on the drilling market. While
      we currently believe demand for deepwater drilling services will remain strong
      into 2008, the addition of deepwater rig capacity could have an adverse impact
      on utilization and dayrates.





The
      offshore contract drilling market remains highly competitive and cyclical,
      and
      it has been historically difficult to forecast future market conditions.
      Declines in oil and/or gas prices and other risks may reduce rig demand and
      adversely affect utilization and dayrates. Major operator and national oil
      company capital budgets are key drivers of the overall business climate, and
      these may change within a fiscal year depending on exploration results and
      other
      factors. Additionally, increased competition for our customers’ drilling budgets
      could come from, among other areas, land-based energy markets in Africa, Russia,
      other former Soviet Union States, the Middle East and Alaska.





Our
      operations are geographically dispersed in oil and gas exploration and
      development areas throughout the world. Rigs can be moved from one region to
      another, but the cost of moving a rig and the availability of rig-moving vessels
      may cause the supply and demand balance to vary somewhat between regions.
      However, significant variations between regions do not tend to persist long-term
      because of rig mobility. Consequently, we operate in a single, global offshore
      drilling market.


24
 *Index*


As
      of
      November 2, 2005, approximately 81 percent of our total fleet days were
      committed for the remainder of 2005 and approximately 63 percent for the year
      2006.





*Insurance* —We
      renewed our insurance policy for 12 months effective May 1, 2005, with terms
      similar to those under our prior policy. We have maintained a per occurrence
      insurance deductible of $10 million per year on our hull and machinery and
      personal injury insurance and a $5 million deductible on third party property
      damage insurance. We also have an additional aggregate deductible of $20 million
      that is applied to any hull and machinery occurrence until it has been
      exhausted. After the $20 million aggregate deductible is fully exhausted, the
      hull and machinery deductible of $10 million per occurrence continues to apply.
      We do not carry insurance for loss of revenue. As a result of damages to two
      of
      our semisubmersible rigs, the *Deepwater Nautilus* and *Transocean
      Marianas* ,
      sustained during hurricanes Katrina and Rita, we expect to fully exhaust our
      per
      occurrence and aggregate deductibles and expect to receive insurance
      proceeds of approximately $10 million (see “—Significant Events”).





*Tax
      Matters* **—** We
      are a
      Cayman Islands company registered in Barbados. We operate through our various
      subsidiaries in a number of countries throughout the world. Consequently, we
      are
      subject to changes in tax laws, treaties and regulations in and between the
      countries in which we operate, including treaties that the U.S. has with other
      nations. A material change in these tax laws, treaties or regulations, including
      those in and involving the U.S., could result in a higher effective tax rate
      on
      our worldwide earnings.





Our
      income tax returns are subject to review and examination in the various
      jurisdictions in which we operate. In October 2004, we received from the U.S.
      Internal Revenue Service (“IRS”) examination reports setting forth proposed
      changes to the U.S. federal income tax reported for the period 1999-2000. The
      maximum amount of additional tax based on the proposed changes would be
      approximately $195 million, exclusive of interest. While we have agreed to
      certain non-material adjustments, we believe our returns are materially correct
      as filed and intend to defend ourselves vigorously. The IRS is currently
      auditing our 2002 and 2003 tax years. No examination report has been received
      at
      this time. While we cannot predict or provide assurance as to the final outcome,
      we do not expect the liability, if any, resulting from the proposed changes
      to
      have a material adverse effect on our consolidated financial position or results
      of operations although it may have such an effect on our consolidated cash
      flows.





In
      September 2004, the Norwegian tax authorities initiated inquiries related to
      a
      restructuring transaction undertaken in 2001 and 2002 and a dividend payment
      made during 2001. In February 2005, we filed a response to these inquiries.
      In
      March 2005, pursuant to court orders, the Norwegian tax authorities took action
      to obtain additional information regarding these transactions. Based on these
      inquiries, we believe the Norwegian authorities are contemplating a tax
      assessment on the dividend of approximately $102 million based on exchange
      rates
      in effect at September 30, 2005, plus penalty and interest. No assessment has
      been made, and we believe such an assessment would be without merit. While
      we cannot predict or provide assurance as to the final outcome, we do not expect
      the liability, if any, resulting from the inquiry to have a material adverse
      effect on our consolidated financial position, results of operations and cash
      flows.





In
      addition, other tax authorities have examined the amounts of income and expense
      subject to tax in their jurisdiction for prior periods. We are currently
      contesting various non-U.S. assessments that have been asserted and would expect
      to contest any future U.S. or non-U.S. assessments. We do not expect the
      liability, if any, resulting from existing or future assessments to have a
      material adverse effect on our current consolidated financial position, results
      of operations and cash flows. We
      cannot
      predict with certainty the outcome or effect of any of the tax assessments
      described herein. There can be no assurance that our beliefs or expectations
      as
      to the outcome or effect of any tax assessment we are contesting will prove
      correct and the eventual outcome of these matters could materially differ from
      management's current estimates.





As
      a
      result of the deconsolidation of TODCO from our other U.S. subsidiaries for
      U.S.
      federal income tax purposes in conjunction with the TODCO IPO, we established
      an
      initial valuation allowance in the first quarter of 2004 of approximately $31.0
      million against the estimated deferred tax assets of TODCO in excess of its
      deferred tax liabilities, taking into account prudent and feasible tax planning
      strategies as required by the Financial Accounting Standards Board’s (“FASB”)
      Statement of Financial Accounting Standard (“SFAS”) 109, *Accounting
      for Income Taxes* . We
      adjusted the initial valuation allowance during 2004 to reflect changes in
      our
      estimate of the ultimate amount of TODCO’s deferred tax assets. An allocation of
      tax benefits between TODCO and our other U.S. subsidiaries occurred in the
      third
      quarter of 2005 upon the filing of our 2004 U.S. consolidated federal income
      tax
      return. As a result of this allocation, we recorded additional income tax
      expense of approximately $8 million in the third quarter of 2005 to adjust
      the
      previously estimated allocation. This allocation is subject to potential
      revision upon subsequent IRS audit of our tax return and such revision, should
      it occur, could impact our effective tax rate for future years as well as the
      ultimate amount of payments by TODCO under the tax sharing
      agreement.


25
 *Index*


Under
      the
      tax sharing agreement entered into between us and TODCO in connection with
      the
      TODCO IPO, we are entitled to receive from TODCO payment for most of the tax
      benefits generated prior to the TODCO IPO that TODCO utilizes subsequent to
      the
      TODCO IPO. As long as TODCO was our consolidated subsidiary, we followed the
      provisions of SFAS 109, which allowed us to evaluate the recoverability of
      the
      deferred tax assets associated with the tax sharing agreement considering the
      deferred tax liabilities of TODCO. We recorded a valuation allowance for the
      excess of these deferred tax assets over the deferred tax liabilities of TODCO,
      also taking into account prudent and feasible tax planning strategies as
      required by SFAS 109. Because we no longer have a majority ownership or voting
      interest in TODCO, we no longer include TODCO as a consolidated subsidiary
      in
      our financial statements and we are no longer able to apply the provisions
      of
      SFAS 109 in accounting for the utilization of these deferred tax assets. As
      a
      result, we recorded a non-cash charge of $167.1 million, which had no tax
      effect, in the fourth quarter of 2004 related to contingent amounts due from
      TODCO under the tax sharing agreement. In future years, as TODCO generates
      taxable income and utilizes its pre-TODCO IPO tax assets, TODCO is required
      to
      pay us for the benefits received in accordance with the provisions of the tax
      sharing agreement. We will recognize those amounts as other income as those
      amounts are realized, which is based on when TODCO files its annual tax returns.
      During the nine months ended September 30, 2005, we received $30.0 million
      in
      estimated payments from TODCO related to TODCO’s expected utilization of such
      tax benefits for the 2004 and 2005 tax years. Of the $30.0 million received,
      $8.5 million and $21.5 million was received for the 2004 tax year and a portion
      of the 2005 tax year, respectively. In September 2005, TODCO filed its 2004
      U.S.
      federal income tax return and we recognized $10.1 million as other income in
      our
      consolidated income statement and set up a receivable for $2.5 million in our
      consolidated balance sheet. The amounts received pertaining to TODCO’s 2004
      state income tax returns and 2005 federal and state income tax returns were
      deferred in other current liabilities in our consolidated balance sheet. We
      will
      recognize these estimated payments as other income when TODCO finalizes and
      files its 2004 state income tax returns and 2005 income tax returns **.** Estimated
      tax benefits in excess of $300 million remain to be utilized by TODCO under
      the
      tax sharing agreement, although the ultimate amount and timing of the
      utilization is highly contingent on a variety of factors including potential
      revisions to the tax benefits upon examination by the IRS, which is currently
      reviewing our 2002 and 2003 tax years and the amount of taxable income that
      TODCO realizes in future years.




We
        have a
        dispute with TODCO concerning payment to us under the tax sharing agreement
        for
        the tax benefit that TODCO derives from exercises of Transocean stock options
        held by employees of TODCO. We believe TODCO owes us approximately $11 million
        based on options exercised through the six months ended June 30, 2005.  We
        will not recognize any income related to this issue until we receive
        payment from TODCO.


26
 *Index*


**Performance
      and Other Key Indicators**





*Fleet
      Utilization and Dayrates* —The
      following table shows our average dayrates and utilization for the quarterly
      periods ended on or prior to September 30, 2005. We consolidated TODCO’s results
      of operations and financial condition in our condensed consolidated financial
      statements through December 16, 2004 (see “—Operating Results”). See “—Overview”
for a definition of average dayrate, revenue earning day and utilization.





Three
                Months EndedSeptember
                30, 2005
            
            June
                30, 2005
            
            September
                30, 2004Average
                Dayrates*Transocean
                Drilling Segment:*High-Specification
                FloatersFifth-Generation
                Deepwater Floaters
            
            $
            197,100
            
            $
            197,100
            
            $
            193,400Other
                Deepwater Floaters
            
            $
            141,700
            
            $
            132,700
            
            $
            103,900Other
                High-Specification Floaters
            
            $
            166,300
            
            $
            170,500
            
            $
            111,200Total
                High-Specification Floaters
            
            $
            168,800
            
            $
            165,500
            
            $
            142,200Other
                Floaters
            
            $
            90,400
            
            $
            82,400
            
            $
            65,400Jackups
            
            $
            58,900
            
            $
            58,200
            
            $
            52,500Other
                Rigs
            
            $
            48,000
            
            $
            47,000
            
            $
            44,700Segment
                Total
            
            $
            107,100
            
            $
            103,100
            
            $
            91,100*TODCO
                Segment (a)*
            
            $
            -
            
            $
            -
            
            $
            27,300Total
                Drilling Fleet
            
            $
            107,100
            
            $
            103,100
            
            $
            69,800Utilization*Transocean
                Drilling Segment:*High-Specification
                FloatersFifth-Generation
                Deepwater Floaters
            
            
            94
            %
            
            92
            %
            
            83
            %Other
                Deepwater Floaters
            
            
            83
            %
            
            80
            %
            
            78
            %Other
                High-Specification Floaters
            
            
            99
            %
            
            90
            %
            
            84
            %Total
                High-Specification Floaters
            
            
            89
            %
            
            86
            %
            
            81
            %Other
                Floaters
            
            
            68
            %
            
            63
            %
            
            45
            %Jackups
            
            
            98
            %
            
            94
            %
            
            81
            %Other
                Rigs
            
            
            51
            %
            
            57
            %
            
            44
            %Segment
                Total
            
            
            82
            %
            
            79
            %
            
            67
            %*TODCO
                Segment (a)*
            
            
            -
            
            
            -
            
            
            45
            %Total
                Drilling Fleet
            
            
            82
            %
            
            79
            %
            
            58
            %


__________________________


(a)
            TODCO
                was deconsolidated effective December 17, 2004 (see “—Operating
                Results”).


27
 *Index*




**Financial
      Condition**





***September
      30, 2005 compared to December 31, 2004***




September
                  30,
              
              December
                  31,2005
              
              2004
              
              Change
              
              %
                  Change(In
                  millions, except % change)Total
                  Assets
              
              $
              10,772.6
              
              $
              10,758.3
              
              $
              14.3
              
              
              0.1
              %


The
      increase in assets was mainly due to increases in cash and cash equivalents
      and
      accounts receivable of $145.5 million and $154.5 million, respectively,
      partially offset by decreases in property and equipment of $186.2 million and
      investments in unconsolidated affiliates of $102.9 million. The increase in
      cash
      and cash equivalents related primarily to net proceeds received from the 2005
      Offering and Sale (see “—Significant Events”), the exercise of stock options
      ($196.1 million), the sale of assets ($62.8 million) and cash from operations
      during the nine months ended September 30, 2005, partially offset by the
      repayment of debt ($880.2 million) and capital expenditures ($144.9 million)
      (see “—Capital Expenditures, Acquisitions and Dispositions”). The increase in
      accounts receivable is primarily related to the increase in activity during
      the
      first nine months of 2005. The decrease in property and equipment primarily
      related to depreciation and asset disposals, partially offset by capital
      expenditures. The decrease in investments in unconsolidated affiliates primarily
      related to the 2005 Offering and Sale.





**Liquidity
      and Capital Resources**





**Sources
      and Uses of Cash**





Nine
                Months Ended
              September
                30,2005
            
            2004
            
            Change(In
                millions)**Net
                Cash Provided by Operating Activities**Net
                income
            
            $
            564.0
            
            $
            225.6
            
            $
            338.4Depreciation
            
            
            304.0
            
            
            398.4
            
            
            (94.4
            )Other
                non-cash items
            
            
            (162.6
            )
            
            (150.1
            )
            
            (12.5
            )Working
                capital
            
            
            (92.2
            )
            
            32.7
            
            
            (124.9
            )$
            613.2
            
            $
            506.6
            
            $
            106.6





Net
      cash
      provided by operating activities increased due to an increase in cash generated
      from net income, partially offset by a decrease in cash related to working
      capital items, which resulted primarily from an increase in accounts receivable
      as a result of activity and dayrate improvement.




28
 *Index*


Nine
                Months Ended
              September
                30,2005
            
            2004
            
            Change(In
                millions)**Net
                Cash Provided by Investing Activities**Capital
                expenditures
            
            $
            (144.9
            )
            $
            (99.8
            )
            $
            (45.1
            )Proceeds
                from disposal of assets, net
            
            
            62.8
            
            
            46.3
            
            
            16.5Proceeds
                from TODCO Stock Sales, net
            
            
            271.9
            
            
            425.6
            
            
            (153.7
            )Other,
                net
            
            
            4.5
            
            
            9.0
            
            
            (4.5
            )$
            194.3
            
            $
            381.1
            
            $
            (186.8
            )





Net
      cash
      provided by investing activities for the nine months ended September 30, 2005
      decreased $186.8 million from the corresponding prior year period. The decrease
      in cash provided by investing activities is primarily the result of a decrease
      in net proceeds from the TODCO Stock Sales of $153.7 million and an increase
      in
      capital expenditures of $45.1 million, partially offset by an increase in net
      proceeds from asset sales of $16.5 million, over the corresponding prior year
      period. Capital expenditures in 2005 included $42.5 million for the purchase
      of
      the *M.
      G.
      Hulme, Jr.* (see
“―Off-Balance Sheet Arrangement”).




Nine
                  Months Ended
                September
                  30,2005
              
              2004
              
              Change(In
                  millions)**Net
                  Cash Used in Financing Activities**Repayments
                  on revolving credit agreement
              
              $
              -
              
              $
              (200.0
              )
              $
              200.0Repayments
                  on other debt instruments
              
              
              (880.2
              )
              
              (407.0
              )
              
              (473.2
              )Net
                  proceeds from issuance of ordinary shares under stock-based compensation
                  plans
              
              
              196.1
              
              
              20.0
              
              
              176.1Proceeds
                  from issuance of ordinary shares upon exercise of warrants
              
              
              10.6
              
              
              -
              
              
              10.6Decrease
                  in cash dedicated to debt service
              
              
              12.0
              
              
              -
              
              
              12.0Other,
                  net
              
              
              (0.5
              )
              
              1.1
              
              
              (1.6
              )$
              (662.0
              )
              $
              (585.9
              )
              $
              (76.1
              )


Net
      cash
      used in financing activities increased in 2005 compared to 2004 primarily due
      to
      higher debt repayments, which included scheduled debt repayments, the early
      redemption of our 6.95% Senior Notes and the repurchase of approximately 76.3
      percent of our 6.625% Notes by means of a tender offer. In the nine months
      ended
      September 30, 2005, we received higher proceeds from stock option and warrant
      exercises compared to the same period in 2004. The decrease in cash dedicated
      to
      debt service of $12.0 million resulted from the repayment of the *Deepwater
      Nautilus* project
      financing in May 2005 and the subsequent release of the restrictions on the
      related cash.





**Capital
      Expenditures, Acquisitions and Dispositions**





From
      time
      to time, we review possible acquisitions of businesses and drilling rigs and
      may
      in the future make significant capital commitments for such purposes. We may
      also consider investments related to major rig upgrades or new rig construction
      if supported by firm contracts. Any such acquisition, upgrade or new rig
      construction could involve the payment by us of a substantial amount of cash
      or
      the issuance of a substantial number of additional ordinary shares or other
      securities. We would likely fund the cash portion of any such acquisition
      through cash balances on hand, the incurrence of additional debt, sales of
      assets, issuance of ordinary shares or other securities or a combination
      thereof. We recently were awarded a contract for the upgrade of a *Sedco
      700*-class rig for Shell and are currently in discussion with other clients
      for potential major upgrades of some of our other semisubmersible rigs in our
      Other Floaters fleet to deepwater drilling capabilities. See “―Outlook.” In
      addition, from time to time, we review possible dispositions of drilling units.


29
 *Index*


*Capital
      Expenditures*—Capital expenditures totaled $144.9 million during the nine
      months ended September 30, 2005, which included the purchase of the *M.G.
      Hulme, Jr.* We expect to spend approximately $85 million during the last
      quarter of 2005 on our existing fleet, including $20 million required and funded
      by our drilling contracts, as well as corporate infrastructure. These amounts
      are dependent upon the actual level of operational and contracting activity.
      In
      addition, during the fourth quarter of 2005, we expect to spend another $7
      million to replace equipment damaged during hurricanes Katrina and Rita on
      the
*Deepwater Nautilus* and the *Transocean Marianas*. These amounts
      do not include capital expenditures which would be incurred as a result of
      any
      of the major upgrade opportunities being discussed with clients or rig
      reactivations, although we do not expect to incur any significant capital
      expenditures in the foruth quarter of 2005 relating to the *Sedco
      700*-class rig upgrade (see “—Outlook”). We intend to fund the cash
      requirements relating to our capital expenditures through available cash
      balances, cash generated from operations and asset sales. We also have available
      credit under our revolving credit agreement (see “—Sources of Liquidity”) and
      may utilize other commercial bank or capital market financings.





*Dispositions* —In
      June
      2005, we sold the jackup rig *Transocean
      Jupiter* and a
      land rig for net proceeds of $23.5 million and recognized a gain of $14.0
      million. In January 2005, we completed the sale of the semisubmersible rig *Sedco
      600* for net
      proceeds of $24.9 million and recognized a gain of $18.8 million.





During
      the nine months ended September 30, 2005, we sold certain other assets for
      net
      proceeds of approximately $14.4 million and we recorded net gains of $5.1
      million.





**Sources
      and Uses of Liquidity**





Our
      primary sources of liquidity in the third quarter of 2005 were our cash flows
      from operations, proceeds from issuance of ordinary shares upon the exercise
      of
      stock options and warrants and existing cash balances. Our primary uses of
      cash
      were debt repayments and capital expenditures. At September 30, 2005, we had
      $596.8 million in cash and cash equivalents.





We
      expect
      to use existing cash balances, internally generated cash flows and proceeds
      from
      asset sales to fulfill anticipated obligations such as scheduled debt
      maturities, capital expenditures and working capital needs. From time to time,
      we may also use bank lines of credit to maintain liquidity for short-term cash
      needs.





When
      cash
      on hand, cash flows from operations and proceeds from asset sales exceed our
      expected liquidity needs, including major upgrades, new rig construction and/or
      drilling rig acquisitions, we may use a portion of such cash to repurchase
      our
      ordinary shares. We may also allow cash balances to increase and will continue
      to consider the reduction of debt prior to scheduled maturities.





In
      October 2005, our board of directors authorized us to repurchase up to $2
      billion of our ordinary shares.  The
      ordinary shares may be repurchased from time to time in open market or private
      transactions. Decisions to repurchase will be based upon our ongoing
      capital requirements, the price
      of
      our shares, regulatory considerations, cash flow generation, general market
      conditions and other factors. We plan to fund the program from current and
      future cash balances and do not intend to use debt to fund share repurchases.
      The repurchase program does not have an
      established expiration date and may
      be suspended or discontinued at any time. There can be no assurance regarding
      the number of shares, if any, that will be repurchased under the
      program.


30
 *Index*


At
      September 30, 2005 and December 31, 2004, our total debt was $1,597.7 million
      and $2,481.5 million, respectively. Net debt, a non-GAAP financial measure
      defined as total debt less cash and cash equivalents, at such dates was $1,000.9
      million and $2,030.2 million, respectively. During the nine months ended
      September 30, 2005, we reduced net debt by $1,029.3 million. The reconciliation
      of total debt to net debt at carrying value is as follows (in
      millions):





September
                30,
            
            December
                31,2005
            
            2004Total
                Debt
            
            $
            1,597.7
            
            $
            2,481.5Less:
                Cash and cash equivalents
            
            
            596.8
            
            
            451.3Net
                Debt
            
            $
            1,000.9
            
            $
            2,030.2





We
      believe net debt provides useful information regarding the level of our
      indebtedness by reflecting the amount of indebtedness assuming cash and
      investments are used to repay debt. Net debt declined each year since 2001
      because cash flows, primarily from operations and asset sales, have exceeded
      capital expenditures.





Our
      internally generated cash flow is directly related to our business and the
      market sectors in which we operate. Should the drilling market deteriorate,
      or
      should we experience poor results in our operations, cash flow from operations
      may be reduced. We have, however, continued to generate positive cash flow
      from
      operating activities over recent years and expect cash flow will continue to
      be
      positive over the next year.





In
      July
      2005, we entered into a bank line of credit under a $500.0 million, five-year
      revolving credit agreement. At October 31, 2005, $500.0 million remained
      available under the new revolving credit agreement. In conjunction with entering
      into this facility, we terminated our $800.0 million, five-year revolving credit
      agreement dated December 2003.





The
      new
      revolving credit agreement requires compliance with various covenants and
      provisions customary for agreements of this nature, including a debt to total
      tangible capitalization ratio, as defined by the credit agreement, not greater
      than 60 percent. There is no interest coverage covenant associated with this
      facility. Other provisions of the credit agreement include limitations on
      creating liens, incurring subsidiary debt, transactions with affiliates,
      sale/leaseback transactions and mergers and sale of substantially all assets.
      Should we fail to comply with these covenants, we would be in default and may
      lose access to this facility. We are also subject to various covenants under
      the
      indentures pursuant to which our public debt was issued, including restrictions
      on creating liens, engaging in sale/leaseback transactions and engaging in
      merger, consolidation or reorganization transactions. A default under our public
      debt could trigger a default under our credit line and cause us to lose access
      to this facility.




In
      April
      2001, the Securities and Exchange Commission (“SEC”) declared effective our
      shelf registration statement on Form S-3 for the proposed offering from time
      to
      time of up to $2.0 billion in gross proceeds of senior or subordinated debt
      securities, preference shares, ordinary shares and warrants to purchase debt
      securities, preference shares, ordinary shares or other securities. At October
      31, 2005, $1.6 billion in gross proceeds of securities remained unissued under
      the shelf registration statement.





Our
      access to debt and equity markets may be reduced or closed to us due to a
      variety of events, including, among others, downgrades of our debt ratings,
      industry conditions, general economic conditions, market conditions and market
      perceptions of us and our industry.





**Derivative
      Instruments**





In
      2003,
      we terminated all our outstanding interest rate swaps, which were designated
      as
      fair value hedges, and recognized $173.5 million as a fair value adjustment
      to
      long-term debt in our consolidated balance sheet. We amortize this amount as
      a
      reduction to interest expense over the life of the underlying debt. During
      the
      three and nine months ended September 30, 2005, such reduction amounted to
      $1.3
      million and $8.3 million, respectively. As a result of the redemption of our
      6.95% Senior Notes in March 2005, we recognized $13.2 million of the unamortized
      fair value adjustment as a reduction to our loss on redemption of debt. In
      addition, as a result of the repurchase of our 6.625% Notes in July 2005 (see
      “—Significant Events”), we recognized $62.0 million of the unamortized fair
      value adjustment as an offset to our loss on repurchase of debt, which resulted
      in a gain on this repurchase in the third quarter of 2005. We expect the
      amortization of the unamortized premiums remaining on the terminated interest
      rate swaps to reduce interest expense by $0.7 million during the last three
      months of 2005.


31
 *Index*


**Operating
      Results**





***Quarter
      ended September 30, 2005 compared to quarter ended September 30,
      2004***





Following
      is an analysis of our Transocean Drilling segment operating results, as well
      as
      an analysis of income and expense categories that we have not allocated to
      our
      segment. See “—Overview” for a definition of average dayrate, revenue earnings
      day and utilization.





*Transocean
      Drilling Segment*





Three
                Months EndedSeptember
                30,2005
            
            2004
            
            Change
            
            %
                Change(In
                millions, except day amounts and percentages)Revenue
                earning days
            
            
            6,870
            
            
            5,793
            
            
            1,077
            
            
            19
            %Utilization
            
            
            82
            %
            
            67
            %
            
            N/A
            
            
            22
            %Average
                dayrate
            
            $
            107,100
            
            $
            91,100
            
            $
            16,000
            
            
            18
            %Contract
                drilling revenues
            
            $
            735.6
            
            $
            528.0
            
            $
            207.6
            
            
            39
            %Other
                revenues
            
            
            27.0
            
            
            30.7
            
            
            (3.7
            )
            
            (12
            )%762.6
            
            
            558.7
            
            
            203.9
            
            
            36
            %Operating
                and maintenance expense
            
            
            (439.8
            )
            
            (360.5
            )
            
            (79.3
            )
            
            22
            %Depreciation
            
            
            (102.1
            )
            
            (110.0
            )
            
            7.9
            
            
            (7
            )%Gain
                from sale of assets, net
            
            
            2.2
            
            
            0.5
            
            
            1.7
            
            
            N/MOperating
                income before general and administrative expense
            
            $
            222.9
            
            $
            88.7
            
            $
            134.2
            
            
            N/M


_________________


“N/A”
      means not applicable


“N/M”
      means not meaningful





The
      $207.6 million increase in contract drilling revenues was primarily related
      to
      increased activity for all asset classes resulting in higher average dayrates
      and utilization. Revenue also increased by approximately $17.0 million as a
      result of the strike in Norway and the *Trident
      20* and *Jim
      Cunningham* incidents in 2004 with no comparable activity in 2005.





Operating
      and maintenance expenses increased by $79.3 million primarily from increased
      activity, pay raises to employees and vendor price increases resulting in higher
      labor and rig maintenance costs. Partially offsetting these increases were
      decreased operating and maintenance expenses related primarily to lower property
      damage and personal injury insurance claim expenses in the third quarter of
      2005, and the fire on the *Trident
      20* in the
      third quarter of 2004 with no comparable activity in 2005.





The
      decrease in depreciation expense was due primarily to extending the useful
      lives
      of four rigs with original useful lives from 30 to 32 years to 35 years and
      the
      reduction in depreciation on one rig and certain other equipment that were
      substantially depreciated during 2004.


32
 *Index*




*Total
      Company Results of Operations*





Three
                Months EndedSeptember
                30,2005
            
            2004
            
            Change
            
            %
                Change(In
                millions, except % change)General
                and Administrative Expense
            
            $
            19.4
            
            $
            15.2
            
            $
            4.2
            
            
            28
            %Other
                (Income) Expense, netEquity
                in earnings of unconsolidated affiliates
            
            
            (1.8
            )
            
            (1.7
            )
            
            (0.1
            )
            
            6
            %Interest
                income
            
            
            (5.2
            )
            
            (2.5
            )
            
            (2.7
            )
            
            N/MInterest
                expense
            
            
            24.5
            
            
            42.6
            
            
            (18.1
            )
            
            (42
            )%Gain
                from TODCO Stock Sales
            
            
            -
            
            
            129.4
            
            
            (129.4
            )
            
            N/MLoss
                on retirement of debt
            
            
            0.6
            
            
            -
            
            
            0.6
            
            
            N/MOther,
                net
            
            
            (9.7
            )
            
            (0.1
            )
            
            (9.6
            )
            
            N/MIncome
                Tax Expense
            
            
            24.7
            
            
            6.3
            
            
            18.4
            
            
            N/MMinority
                Interest
            
            
            -
            
            
            1.0
            
            
            (1.0
            )
            
            N/M


_________________________


“N/M”
      means not meaningful





The
      increase in general and administrative expense was primarily attributable to
      increases of approximately $1.8 million in labor and stock based compensation
      expense and $2.2 million in accounting, legal and professional
      fees.





The
      decrease in interest expense was primarily attributable to reductions of $16.6
      million associated with debt that was redeemed, retired or repurchased during
      or
      subsequent to the third quarter of 2004. Additional decreases resulted from
      $1.1
      million of interest expense in the third quarter of 2004 on TODCO’s debt with no
      comparable activity for the same period in 2005.





During
      the third quarter of 2004, we recognized gains of $129.4 million from TODCO
      Stock Sales. See “—TODCO Segment.”





The
      $9.6
      million favorable change in other, net primarily relates to $10.1 million of
      income recognized under the tax sharing agreement with TODCO in the third
      quarter of 2005. See “—Significant Events.”





We
      operate internationally and provide for income taxes based on the tax laws
      and
      rates in the countries in which we operate and earn income. There is no expected
      relationship between the provision for income taxes and income before income
      taxes. The estimated annual effective tax rates for 2005 and 2004 were estimated
      to be approximately 17 percent and 44 percent, respectively, based on estimated
      2005 and 2004 annual income before income taxes and minority interest after
      adjusting for certain items such as a portion of net gains on sales of assets,
      items related to the disposition of TODCO and losses on retirements of debt.
      The
      tax effect, if any, of the excluded items as well as settlements of prior year
      tax liabilities and changes in prior year tax estimates are all treated as
      discrete period tax expenses and benefits. The impact of the various discrete
      period tax items was a net benefit of $8.5 million reflected in the third
      quarter of 2005 resulting in an effective tax rate of 13 percent on income
      before income taxes and minority interest.****The discrete
      items included a benefit of $13.1 million for the reduction in a valuation
      allowance related to U.K. net operating losses to record the expected
      realization of those losses based on improved market conditions and a benefit
      for the resolution of non-U.S. audits, partially offset by an expense to record
      a change in estimate related to the deferred tax assets retained by us after
      the
      disposition of TODCO. The estimated annual effective tax rate at September
      30,
      2004 increased from approximately 35 percent estimated at June 30, 2004 as
      a
      result of developments in the third quarter on certain international tax
      disputes and changes in the expected amount and geographical concentration
      of
      income. The net beneficial impact of the various discrete items of $18.3
      million, including a decrease of approximately $14.0 million in the valuation
      allowance established at the time of the TODCO IPO and the catch-up effect
      of
      the increase in the annual effective tax rate, were reflected in the
      third quarter of 2004 resulting in an effective tax rate of 4 percent on income
      before income taxes and minority interest.


33
 *Index*




***Nine
      months ended September 30, 2005 compared to nine months ended September 30,
      2004***





Following
      is an analysis of our Transocean Drilling segment operating results, as well
      as
      an analysis of income and expense categories that we have not allocated to
      our
      segment.





*Transocean
      Drilling Segment*





Nine
                Months EndedSeptember
                30,2005
            
            2004
            
            Change
            
            %
                Change(In
                millions, except day amounts and percentages)Revenue
                earnings days
            
            
            19,705
            
            
            17,525
            
            
            2,180
            
            
            12
            %Utilization
            
            
            79
            %
            
            68
            %
            
            N/A
            
            
            16
            %Average
                dayrate
            
            $
            102,400
            
            $
            90,200
            
            $
            12,200
            
            
            14
            %Contract
                drilling revenues
            
            $
            2,018.3
            
            $
            1,580.1
            
            $
            438.2
            
            
            28
            %Other
                revenues
            
            
            102.2
            
            
            109.3
            
            
            (7.1
            )
            
            (6
            )%2,120.5
            
            
            1,689.4
            
            
            431.1
            
            
            26
            %Operating
                and maintenance expense
            
            
            (1,267.3
            )
            
            (1,031.8
            )
            
            (235.5
            )
            
            23
            %Depreciation
            
            
            (304.0
            )
            
            (326.4
            )
            
            22.4
            
            
            (7
            )%Gain
                from sale of assets, net
            
            
            37.9
            
            
            23.5
            
            
            14.4
            
            
            61
            %Operating
                income before general and administrative expense
            
            $
            587.1
            
            $
            354.7
            
            $
            232.4
            
            
            66
            %


_________________


“N/A”
      means not applicable


“N/M”
      means not meaningful





The
      $438.2 million increase in contract drilling revenues was primarily related
      to
      increased activity resulting in higher average dayrates and utilization, lower
      revenues in 2004 of approximately $22.0 million resulting from a labor strike
      in
      Norway, a fire on the *Trident
      20* and the *Jim
      Cunningham* well
      control incident with no comparable activity in 2005. Partially offsetting
      these
      increases was a decrease in revenue of approximately $13.7 million resulting
      from the 2004 favorable settlement of the 2003 *Discoverer
      Enterprise* riser
      separation incident with no comparable activity in 2005.





Other
      revenues for the nine months ended September 30, 2005 decreased $7.1 million
      primarily due to a $18.3 million decrease in integrated services revenue,
      partially offset by an increase of $8.1 million from client reimbursable revenue
      and compensation received in 2005 relating to a 2004 labor strike of $4.9
      million.





Operating
      and maintenance expenses increased by $235.5 million primarily from increased
      activity, pay raises to employees and vendor price increases resulting in higher
      labor and rig maintenance costs. Operating and maintenance expenses also
      increased as a result of the favorable settlement in 2004 of an insurance claim
      and a turnkey dispute with no comparable activity in 2005 and increased local
      personnel taxes in 2005 related to stock option exercises and restricted stock
      vestings with no comparable activity in 2004. Partially offsetting these
      increases were expenses incurred related to a fire on the *Trident
      20* in 2004
      with no comparable activity in 2005, a favorable settlement of a vendor dispute
      and lower property damage and personal injury insurance claim expenses in
      2005.





The
      decrease in depreciation expense was due primarily to extending the useful
      lives
      of four rigs, with original useful lives from 30 to 32 years to 35 years, and
      the reduction in depreciation on two rigs and certain other equipment that
      were
      substantially depreciated during 2004.





During
      the nine months ended September 30, 2005, we
      recognized net gains of $37.9 million related to the sale of the semisubmersible
      rig *Sedco
      600* ,
      the
      jackup rig *Transocean
      Jupiter* ,
      a land
      rig and the sale of other assets. During the nine months ended September 30,
      2004, this segment recognized net gains of $23.5 million related to the sale
      of
      the semisubmersible rig *Sedco
      602* and the
      sale of other assets.


34
 *Index*


*Total
      Company Results of Operations*





Nine
                Months EndedSeptember
                30,2005
            
            2004
            
            Change
            
            %
                Change(In
                millions, except % change)General
                and Administrative Expense
            
            $
            55.5
            
            $
            44.3
            
            $
            11.2
            
            
            25
            %Other
                (Income) Expense, netEquity
                in earnings of unconsolidated affiliates
            
            
            (8.3
            )
            
            (7.7
            )
            
            (0.6
            )
            
            8
            %Interest
                income
            
            
            (14.0
            )
            
            (6.5
            )
            
            (7.5
            )
            
            N/MInterest
                expense
            
            
            87.4
            
            
            132.6
            
            
            (45.2
            )
            
            (34
            )%Gain
                from TODCO Stock Sales
            
            
            (165.0
            )
            
            (168.8
            )
            
            3.8
            
            
            (2
            )%Loss
                on retirement of debt
            
            
            7.3
            
            
            28.1
            
            
            (20.8
            )
            
            (74)
            %Other,
                net
            
            
            (5.6
            )
            
            (0.4
            )
            
            (5.2
            )
            
            N/MIncome
                Tax Expense
            
            
            65.8
            
            
            74.2
            
            
            (8.4
            )
            
            (11
            )%Minority
                Interest
            
            
            -
            
            
            (5.4
            )
            
            5.4
            
            
            N/M


_________________________


“N/M”
      means not meaningful





The
      increase in general and administrative expense was primarily attributable to
      increases of approximately $4.8 million in accounting, legal and professional
      fees as well as $4.0 million in increased personnel cost and rent expense.





The
      increase in interest income was primarily due to an increase in average cash
      balances for 2005 compared to 2004 and an increase in interest rates on cash
      investments, the combination of which resulted in an increase in interest income
      of $6.5 million.





The
      decrease in interest expense was primarily attributable to reductions of $41.2
      million associated with debt that was redeemed, retired or repurchased during
      or
      subsequent to the nine months ended September 30, 2004. Additional decreases
      resulted from $3.3 million of interest expense in the nine months ended
      September 30, 2004 on TODCO’s debt with no comparable activity for the same
      period in 2005.





Gains
      from TODCO Stock Sales decreased $3.8 million during the nine months ended
      September 30, 2005 compared to the same period in 2004. See “—TODCO
      Segment.”





During
      the nine months ended September 30, 2005, we recognized losses of $7.3 million
      related to the early redemption and repurchase of $782.2 million aggregate
      principal amount of our debt (see “—Significant Events”). During the nine months
      ended September 30, 2004, we recognized a $28.1 million loss related to the
      early redemption of $289.8 million aggregate principal amount of our
      debt.





The
      $5.2
      million favorable change in other, net primarily relates to $10.1 million of
      income recognized under the tax sharing agreement with TODCO (see
      “―Significant Events”) ,
      partially offset by the effect of foreign currency exchange rate changes on
      our
      monetary assets and liabilities denominated in non-U.S. currencies.





We
      operate internationally and provide for income taxes based on the tax laws
      and
      rates in the countries in which we operate and earn income. There is no expected
      relationship between the provision for income taxes and income before income
      taxes. The estimated annual effective tax rates for 2005 and 2004 were estimated
      to be approximately 17 percent and 44 percent, respectively, based on estimated
      2005 and 2004 annual income before income taxes and minority interest after
      adjusting for certain items such as a portion of net gains on sales of assets,
      items related to the disposition of TODCO and losses on retirements of debt.
      The
      tax effect, if any, of the excluded items as well as settlements of prior year
      tax liabilities
      and changes in prior year tax estimates are all treated as discrete period
      tax
      expenses or benefits. The impact of the various discrete period tax items was
      a
      net benefit of $9.3 million reflected in the nine months ended September 30,
      2005, resulting in an effective tax rate of 10 percent on earnings before income
      taxes and minority interest. The discrete items included a benefit of $17.7
      million for the reduction in a valuation allowance related to U.K. net operating
      losses to record the expected realization of those losses based on improved
      market conditions and a benefit for the resolution of non-U.S. audits, partially
      offset by expenses related to asset dispositions and changes in estimates
      related to deferred tax assets retained by us after the disposition of TODCO.
      For the nine months ended September 30, 2004, the impact of the various discrete
      items was a net expense of $12.7 million, including a provision for a valuation
      allowance of approximately $17.0 million related to the TODCO IPO, resulting
      in
      an effective tax rate of 25 percent on income before income taxes and minority
      interest.


35
 *Index*


The
      decrease in minority interest was primarily attributable to the deconsolidation
      of TODCO.





*TODCO
      Segment*





In
      February 2004, we completed the TODCO IPO, in which we sold 13.8 million shares
      of TODCO class A common stock, representing 23 percent of TODCO’s total
      outstanding shares. In September 2004 and December 2004, respectively, we
      completed additional public offerings of TODCO common stock (respectively
      referred to as the “September 2004 Offering” and “December 2004 Offering” and,
      together with the TODCO IPO, the “2004 Offerings”). We sold 17.9 million shares
      of TODCO’s class A common stock (30 percent of TODCO’s total outstanding shares)
      in the September 2004 Offering and 15.0 million shares of TODCO’s class A common
      stock (25 percent of TODCO’s total outstanding shares) in the December 2004
      Offering. Prior to the December 2004 Offering, we held TODCO class B common
      stock, which was entitled to five votes per share (compared to one vote per
      share of TODCO class A common stock) and converted automatically into class
      A
      common stock upon any sale by us to a third party. In connection with the
      December 2004 Offering, we converted all of our remaining TODCO class B common
      stock not sold in the 2004 Offerings into shares of class A common stock. After
      the 2004 Offerings, we held a 22 percent ownership and voting interest in TODCO,
      represented by 13.3 million shares of class A common stock.





We
      consolidated TODCO in our financial statements as a business segment through
      December 16, 2004, and that portion of TODCO that we did not own was reflected
      as minority interest in our consolidated statements of operations and balance
      sheets. We deconsolidated TODCO from our consolidated statements of operations
      and balance sheets effective December 17, 2004 and subsequently accounted for
      our investment in TODCO under the equity method of accounting. After the May
      Offering, we accounted for our remaining investment using the cost method of
      accounting. As a result of the June Sale, we no longer own any shares of TODCO’s
      common stock.





**Critical
      Accounting Policies and Estimates**





Our
      discussion and analysis of our financial condition and results of operations
      are
      based upon our condensed consolidated financial statements. This discussion
      should be read in conjunction with disclosures included in the notes to our
      condensed consolidated financial statements related to estimates, contingencies
      and new accounting pronouncements. Significant accounting policies are discussed
      in Note 2 to our condensed consolidated financial statements included elsewhere
      and in Note 2 to our consolidated financial statements in our Annual Report
      on
      Form 10-K for the year ended December 31, 2004. The preparation of these
      financial statements requires us to make estimates and judgments that affect
      the
      reported amounts of assets, liabilities, revenues, expenses and related
      disclosure of contingent assets and liabilities. On an on-going basis, we
      evaluate our estimates, including those related to bad debts, materials and
      supplies obsolescence, investments, property and equipment, intangible assets
      and goodwill, income taxes, workers’ insurance, pensions and other
      post-retirement and employment benefits and contingent liabilities. We base
      our
      estimates on historical experience and on various other assumptions that are
      believed to be reasonable under the circumstances, the results of which form
      the
      basis for making judgments about the carrying values of assets and liabilities
      that are not readily apparent from other sources. Actual results may differ
      from
      these estimates under different assumptions or conditions.





For
      a
      discussion of the critical accounting policies and estimates that we use in
      the
      preparation of our condensed consolidated financial statements, see "Item 7.
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations" in our Annual Report on Form 10-K for the year ended December 31,
      2004. There have been no material changes to these policies during the nine
      months ended September 30, 2005. These policies require significant judgments
      and estimates used in the preparation of our consolidated financial statements.
      Management has discussed each of these critical accounting policies and
      estimates with the audit committee of the board of directors.


36
 *Index*


**Retirement
      Plans and Other Postemployment Benefits**





*Defined
      Benefit Pension Plans* —We
      have
      several defined benefit pension plans, both funded and unfunded, covering
      substantially all U.S. employees. We also have various defined benefit plans
      in
      certain non-U.S. locations as well as certain frozen plans acquired in
      connection with the R&B Falcon merger.





For
      the
      funded plans, our funding policy consists of reviewing the funded status of
      these plans annually and contributing an amount at least equal to the minimum
      contribution required under the Employee Retirement Income Security Act of
      1974
      (ERISA) or other applicable funding regulations. Employer contributions to
      the
      funded plans are based on actuarial computations that establish the minimum
      contribution required under ERISA and the maximum deductible contribution for
      income tax purposes, or other applicable funding regulations.





*Postretirement
      Benefits Other Than Pensions* ― We **** have
      several unfunded contributory and noncontributory postretirement benefit plans
      covering substantially all of our U.S. employees. Funding for these plans is
      to
      cover benefit payments of plan participants as they are incurred.





**Off-Balance
      Sheet Arrangement**





We
      leased
      the semisubmersible rig *M.
      G.
      Hulme, Jr.* from
      Deep Sea Investors, L.L.C. (“Deep Sea Investors”), a special purpose entity
      formed by several leasing companies to acquire the rig from one of our
      subsidiaries in November 1995 in a sale/leaseback transaction. We accounted
      for
      the lease of this semisubmersible drilling rig as an operating lease. We
      recorded $4.6 million and $9.5 million of such rent expense in the nine months
      ended September 30, 2005 and 2004, respectively. In May 2005, we purchased
      the
      rig for $42.5 million. The rig was reflected as property and equipment in the
      consolidated balance sheet at September 30, 2005.





Effective
      December 31, 2003, we adopted and applied the provisions of FASB Interpretation
      (“FIN”) 46, *Consolidation
      of Variable Interest Entities* ,
      as
      revised December 31, 2003, for all variable interest entities. FIN 46 requires
      the consolidation of variable interest entities in which an enterprise absorbs
      a
      majority of the entity’s expected losses, receives a majority of the entity’s
      expected residual returns, or both, as a result of ownership, contractual or
      other financial interests in the entity. Because the sale/leaseback agreement
      was with an entity in which we had no direct investment, we were not entitled
      to
      receive the financial information of the leasing entity and the equity holders
      of the leasing company would not release the financial statements or other
      financial information to us in order for us to make the determination of whether
      the entity was a variable interest entity. In addition, without the financial
      statements or other financial information, we were unable to determine if we
      were the primary beneficiary of the entity and, if so, what we would have
      consolidated. We had no exposure to loss as a result of the sale/leaseback
      agreement. As a result of the purchase of the *M.
      G.
      Hulme, Jr.* ,
      we are
      no longer associated with Deep Seas Investors and, as such, are no longer
      required to review for FIN 46 applicability.





**New
      Accounting Pronouncements**





In
      May
      2005, the FASB issued SFAS 154, *“Accounting
      Changes and Error Corrections,”* which
      requires retrospective application to all prior period financial statements
      presented for voluntary changes in accounting principle unless it is
      impracticable.  This statement replaces APB 20, *Accounting
      Changes* ,
      and
      SFAS 3, *Reporting
      Accounting Changes in Interim Financial Statements* , though
      it carries forward the guidance in those pronouncements with respect to
      accounting for changes in estimates, changes in reporting entity and the
      correction of errors.  SFAS 154 is effective for accounting changes and
      corrections of errors made in fiscal years beginning after December 15, 2005.
      We
      will adopt SFAS 154 effective January 1, 2006, and we do not expect the adoption
      of this statement to have an impact on our consolidated financial position,
      results of operations or cash flows.


37
 *Index*


In
      December 2004, the FASB issued SFAS 123 (revised 2004) (“SFAS
      123(R)”), *Share-Based
      Payment* ,
      which
      is a revision of SFAS 123, *Accounting
      for Stock-Based Compensation* .
      SFAS
      123(R) supersedes APB 25, *Accounting
      for Stock Issued to Employees* ,
      and
      amends SFAS 95, *Statement
      of Cash Flows* .
      While
      the approach in SFAS 123(R) is similar to the approach described in SFAS 123,
      SFAS 123(R) requires recognition in the income statement of all share-based
      payments to employees, including grants of employee stock options, based on
      their fair values, and pro forma disclosure is no longer an alternative. The
      SEC
      has deferred the implementation date, and we are now required to adopt SFAS
      123(R) no later than January 1, 2006.





SFAS
      123(R) permits adoption using one of two methods, a modified prospective method
      (“Prospective Method”) or a modified retrospective method (“Retrospective
      Method”). With the Prospective Method, costs are recognized beginning with the
      effective date based on the requirements of SFAS 123(R) for (i) all share-based
      payments granted after the effective date of SFAS 123(R), and (ii) all awards
      granted to employees prior to the effective date of SFAS 123(R) that remain
      unvested on the effective date. The Retrospective Method applies the
      requirements of the Prospective Method but further permits entities to restate
      all prior periods presented based on the amounts previously recognized under
      SFAS 123 for purposes of pro forma disclosures.





Although
      we will adopt SFAS 123(R) effective January 1, 2006, we have not yet determined
      which method we will use. We adopted the fair-value-based method of accounting
      for share-based payments effective January 1, 2003 using the Prospective Method
      as described in SFAS 148, *Accounting
      for Stock-Based Compensation-Transition and Disclosure* .
      While
      we currently use the Black-Scholes-Merton formula to estimate the value of
      stock
      options granted to employees, which is an acceptable share-based award valuation
      model, we may choose some other model that is also acceptable in determining
      fair value of stock awards upon adoption of SFAS 123(R). Because SFAS 123(R)
      must be applied to unvested awards granted and accounted for under APB 25,
      any
      additional compensation costs not previously recognized under SFAS 123 will
      be
      recognized under SFAS 123(R). Our APB 25 options vested in the third quarter
      of
      2005. If we adopt SFAS 123(R) using the Prospective Method, there would be
      no
      impact on our consolidated financial position, results of operations or cash
      flows. If we adopt using the Retrospective Method, the impact would approximate
      the amounts described in our pro forma net income and earnings per share
      disclosure in Note 2 to our condensed consolidated financial statements under
      “Item 1. Financial Statements” included elsewhere in this quarterly report. In
      addition to the compensation cost recognition requirements, SFAS 123(R) also
      requires the tax deduction benefits for an award in excess of recognized
      compensation cost be reported as a financing cash flow rather than as an
      operating cash flow, which is currently required under SFAS 95. While we cannot
      estimate what these amounts will be in the future (because they depend on,
      among
      other things, when employees exercise stock options), we reported operating
      cash
      flows related to tax deduction benefits of $15.2 million and $20.1 million
      for
      the three and nine months ended September 30, 2005, respectively. We reported
      operating cash flows related to the tax deduction benefits of $5.9 million
      for
      the year ended December 31, 2004.




38
 *Index*


**Forward-Looking
        Information**


The
      statements included in this quarterly report regarding future financial
      performance and results of operations and other statements that are not
      historical facts are forward-looking statements within the meaning of Section
      27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
      Act
      of 1934. Statements to the effect that we or management “anticipates,”
“believes,” “budgets,” “estimates,” “expects,” “forecasts,” “intends,” “plans,”
“predicts,” or “projects” a particular result or course of events, or that such
      result or course of events “could,” “might,” “may,” “scheduled” or “should”
occur, and similar expressions, are also intended to identify forward-looking
      statements. Forward-looking statements in this quarterly report include, but
      are
      not limited to, statements involving contract commencements, contract option
      exercises, revenues, expenses, commodity prices, customer drilling programs,
      supply and demand, utilization rates, dayrates, contract backlog, planned
      shipyard projects and rig mobilizations and their effects, the upgrade project
      for the *Sedco 700*-class rig with Shell, other major upgrades, rig
      relocations, expected downtime (including downtime with respect to the
*Deepwater Nautilus* and *Transocean Marianas*), the impact of the
      hurricane damage to the *Deepwater Nautilus* and *Transocean
      Marianas* on operating income, capital expenditures and insurance proceeds,
      future activity in the deepwater, mid-water and the shallow and inland water
      market sectors, market outlook for our various geographical operating sectors,
      capacity constraints for fifth-generation rigs, rig classes and business
      segments, effects of new rigs on the market, the valuation allowance for
      deferred net tax assets of TODCO, the TODCO tax sharing dispute, intended
      reduction of debt and other uses of excess cash, including ordinary share
      repurchases, the timing and funding of share repurchases, planned asset sales,
      timing of asset sales, proceeds from asset sales, our effective tax rate,
      changes in tax laws, treaties and regulations, our Sarbanes-Oxley Section 404
      process, changes in our internal control structure and the impact of these
      changes on the overall effectiveness of our controls, our other expectations
      with regard to market outlook, operations in international markets, expected
      capital expenditures, results and effects of legal proceedings and governmental
      audits and assessments, adequacy of insurance, liabilities for tax issues,
      recognition of loss on termination of our prior revolving credit agreement,
      recognition of gain on debt repurchase, liquidity, cash flow from operations,
      adequacy of cash flow for our obligations, effects of accounting changes,
      adoption of accounting policies, pension plan contributions and the timing
      and
      cost of completion of capital projects. Such statements are subject to numerous
      risks, uncertainties and assumptions, including, but not limited to, those
      described in “Item 7. Management’s Discussion and Analysis of Financial
      Condition and Results of Operations―Risk Factors” included in our Annual Report
      on Form 10-K for the year ended December 31, 2004, the adequacy of sources
      of
      liquidity, the effect and results of litigation, audits and contingencies,
      our
      ongoing capital requirements, the price of our shares, regulatory
      considerations, cash flow generation, general market conditions and other
      factors discussed in this quarterly report and in our other filings with the
      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. All subsequent written and oral forward-looking statements
      attributable to us or to persons acting on our behalf are expressly qualified
      in
      their entirety by reference to these risks and uncertainties. You should not
      place undue reliance on forward-looking statements. Each forward-looking
      statement speaks only as of the date of the particular statement, and we
      undertake no obligation to publicly update or revise any forward-looking
      statements.


39
 *Index*




**ITEM
      3. Quantitative and Qualitative Disclosures About Market
      Risk**





**Interest
      Rate Risk**





Our
      exposure to market risk for changes in interest rates relates primarily to
      our
      long-term and short-term debt. The table below presents scheduled debt
      maturities and related weighted-average interest rates for each of the 12-month
      periods ending September 30 relating to debt obligations as of September 30,
      2005.





At
      September 30, 2005 (in millions, except interest rate percentages):





Scheduled
                Maturity Date (a) (b)
            
            Fair
                Value2006
            
            2007
            
            2008
            
            2009
            
            2010
            
            Thereafter
            
            Total
            
            09/30/05Total
                debtFixed
                Rate
            
            $
            400.0
            
            $
            100.0
            
            $
            19.0
            
            $
            -
            
            $
            -
            
            $
            1,069.4
            
            $
            1,588.4
            
            $
            1,849.7Average
                interest rate
            
            
            1.5
            %
            
            7.5
            %
            
            2.8
            %
            
            -
            %
            
            -
            %
            
            7.4
            %
            
            5.8
            %


__________________________


(a)
            Maturity
                dates of the face value of our debt assume the put options on the
                1.5%
                Convertible Debentures, the 7.45% Notes and the Zero Coupon Convertible
                Debentures will be exercised in May 2006, April 2007 and May 2008,
                respectively.


(b)
            Expected
                maturity amounts are based on the face value of
                debt.





At
      September 30, 2005, we had no variable rate debt and as such interest expense
      had no exposure to changes in interest rates. However, a large part of our
      cash
      investments would earn commensurately higher rates of return if interest rates
      increase. Using September 30, 2005 cash investment levels, a one percentage
      point change in interest rates would result in a corresponding change in
      interest income of approximately $5.1 million per year.





**Foreign
      Exchange Risk**





Our
      international operations expose us to foreign exchange risk. We use a variety
      of
      techniques to minimize the exposure to foreign exchange risk, including customer
      contract payment terms and the possible use of foreign exchange derivative
      instruments. Our primary foreign exchange risk management strategy involves
      structuring customer contracts to provide for payment in both U.S. dollars,
      which is our functional currency, and local currency. The payment portion
      denominated in local currency is based on anticipated local currency
      requirements over the contract term. Due to various factors, including customer
      acceptance, local banking laws, other statutory requirements, local currency
      convertibility and the impact of inflation on local costs, actual foreign
      exchange needs may vary from those anticipated in the customer contracts,
      resulting in partial exposure to foreign exchange risk. Fluctuations in foreign
      currencies typically have not had a material impact on overall results. In
      situations where payments of local currency do not equal local currency
      requirements, foreign exchange derivative instruments, specifically foreign
      exchange forward contracts or spot purchases, may be used to mitigate foreign
      currency risk. A foreign exchange forward contract obligates us to exchange
      predetermined amounts of specified foreign currencies at specified exchange
      rates on specified dates or to make an equivalent U.S. dollar payment equal
      to
      the value of such exchange. We do not enter into derivative transactions for
      speculative purposes. At September 30, 2005, we had no open foreign exchange
      derivative contracts.


40
 *Index*




**ITEM
      4. Controls and Procedures**





In
      accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an
      evaluation, under the supervision and with the participation of management,
      including our Chief Executive Officer and Chief Financial Officer, of the
      effectiveness of our disclosure controls and procedures as of the end of the
      period covered by this report. Based on that evaluation, our Chief Executive
      Officer and Chief Financial Officer concluded that our disclosure controls
      and
      procedures were effective as of September 30, 2005 and provide reasonable
      assurance that information required to be disclosed in our reports filed or
      submitted under the Exchange Act is (i) accumulated and communicated to our
      management, including our Chief Executive Officer and our Chief Financial
      Officer, to allow timely decisions regarding required disclosure and (ii)
      recorded, processed, summarized and reported within the time periods specified
      in the Securities and Exchange Commission’s rules and forms.





Pursuant
      to our efforts relating to Section 404 of the Sarbanes-Oxley Act, we continued
      to make certain changes to our internal controls over financial reporting during
      the quarter ended September 30, 2005 that we believe better align these controls
      with the Section 404 requirements. However, there were no changes in these
      internal controls during that quarter that have materially affected, or are
      reasonably likely to materially affect, our internal controls over
      financial reporting.





**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings**


Several
        of our subsidiaries have been named, along with other defendants, in several
        complaints that have been filed in the Circuit Courts of the State of
        Mississippi involving over 700 persons that allege personal injury arising
        out
        of asbestos exposure in the course of their employment by some of these
        defendants between 1965 and 1986. The complaints also name as defendants
        certain
        of TODCO's subsidiaries to whom we may owe indemnity and other unaffiliated
        defendant companies, including companies that allegedly manufactured drilling
        related products containing asbestos that are the subject of the complaints.
        The
        number of unaffiliated defendant companies involved in each complaint ranges
        from approximately 20 to 70. The complaints allege that the defendant drilling
        contractors used those asbestos-containing products in offshore drilling
        operations, land based drilling operations and in drilling structures, drilling
        rigs, vessels and other equipment and assert claims based on, among other
        things, negligence and strict liability, and claims authorized under the
        Jones
        Act. The plaintiffs seek, among other things, awards of unspecified compensatory
        and punitive damages. The trial court has ordered that the plaintiffs
        provide additional information regarding their employment histories. We
        have not yet had an opportunity to conduct any discovery nor have we been
        able
        to definitively determine the number of plaintiffs that were employed by
        our
        subsidiaries or otherwise have any connection with our drilling operations.
        We
        intend to defend ourselves vigorously and, based on the limited information
        available to us at this time, we do not expect the liability, if any, resulting
        from these matters to have a material adverse effect on our consolidated
        financial position, results of operations and cash flows.
 
 In
        1990
        and 1991, two of our subsidiaries were served with various assessments
        collectively valued at approximately $7 million from the municipality of
        Rio de
        Janeiro, Brazil to collect a municipal tax on services. We believe that neither
        subsidiary is liable for the taxes and have contested the assessments in
        the
        Brazilian administrative and court systems. We have received several adverse
        rulings by various courts with respect to a June 1991 assessment, which is
        valued at approximately $6 million. We are continuing to challenge the
        assessment, however, and have an action to stay execution of a related tax
        foreclosure proceeding. We expect that the government will attempt to enforce
        the judgment on this assessment and that the amount claimed may exceed the
        amounts we believe are at issue. We have received a favorable ruling in
        connection with a disputed August 1990 assessment but the government has
        appealed that ruling. We also are awaiting a ruling from the Taxpayer's Council
        in connection with an October 1990 assessment. If our defenses are ultimately
        unsuccessful, we believe that the Brazilian government-controlled oil company,
        Petrobras, has a contractual obligation to reimburse us for municipal tax
        payments required to be paid by them. We do not expect the liability, if
        any,
        resulting from these assessments to have a material adverse effect on our
        consolidated financial position, results of operations and cash
        flows.


We
      have
      certain other actions or claims pending that have been previously discussed
      and
      reported in our Annual Report on Form 10-K for the year ended December 31,
      2004
      and our other reports filed with the Securities and Exchange Commission. There
      have been no material developments in these previously reported matters. We
      are
      involved in a number of other lawsuits, all of which have arisen in the ordinary
      course of our business. We do not expect the liability, if any, resulting from
      these other lawsuits to have a material adverse effect on our current
      consolidated financial position, results of operations and cash flows. We cannot
      predict with certainty the outcome or effect of any of the litigation matters
      specifically described above or of any such other pending or threatened
      litigation. There can be no assurance that our beliefs or expectations as to
      the
      outcome or effect of any lawsuit or other litigation matter will prove correct
      and the eventual outcome of these matters could materially differ from
      management’s current estimates.





**Item
      2. Unregistered Sales of Equity Securities and Use of Proceeds**





**Issuer
      Purchases of Equity Securities**





**Period**
            
            **(a)
                Total Number**
              **of
                Shares**
              **Purchased
                (1)**
            
            **(b)
                Average Price****Paid
                Per Share**
            
            **(c)
                Total Number of****Shares
                Purchased as****Part
                of Publicly Announced Plans or Programs (2)**
            
            **(d)
                Maximum Number****(or
                Approximate Dollar Value) of Shares that May Yet Be Purchased Under
                the
                Plans or Programs (2)**July
                2005
            
            
            2,638
            
            $
            55.67
            
            
            N/A
            
            
            N/AAugust
                2005
            
            
            48
            
            $
            47.01
            
            
            N/A
            
            
            N/ASeptember
                2005
            
            
            -
            
            
            -
            
            
            N/A
            
            
            N/ATotal
            
            
            2,686
            
            $
            55.52
            
            
            N/A
            
            
            N/A


__________


(1)
            The
                issuer purchases during the period covered by this report represents
                shares withheld by us in satisfaction of withholding taxes due upon
                the
                vesting of restricted shares granted to our employees under our Long-Term
                Incentive Plan to pay withholding taxes due upon vesting of a restricted
                stock award.





(2)
            In
                connection with the vesting of restricted share awards under our
                Long-Term
                Incentive Plan, we generally withhold shares to satisfy withholding
                taxes
                upon vesting.




41
 *Index*




**Item
      6. Exhibits** ****




(a)
            Exhibits





The
      following exhibits are filed in connection with this Report:




**Number**
            **Description**





*3.1
            Memorandum
                of Association of Transocean Inc., as amended (incorporated by reference
                to Annex E to the Joint Proxy Statement/Prospectus dated October
                30, 2000
                included in a 424(b)(3) prospectus filed by us on November 1,
                2000)





*3.2
            Articles
                of Association of Transocean Inc., as amended (incorporated by reference
                to Annex F to the Joint Proxy Statement/Prospectus dated October
                30, 2000
                included in a 424(b)(3) prospectus filed by us on November 1,
                2000)





*3.3
            Certificate
                of Incorporation on Change of Name to Transocean Inc. (incorporated
                by
                reference to Exhibit 3.3 to our Form 10-Q for the quarter ended June
                30,
                2002)





*4.1
            Revolving
                Credit Agreement, dated as of July 8, 2005, among Transocean Inc.,
                the
                lenders from time to time party thereto, Citibank, N.A., Bank of
                America,
                N.A., JPMorgan Chase Bank, N.A., The Royal Bank of Scotland plc and
                SunTrust Bank (incorporated by reference to our Current Report on
                Form 8-K
                filed on July 13, 2005)





*10.1
            Executive
                Change of Control Severance Benefit (incorporated by reference to
                our
                Current Report on Form 8-K filed on July 19,
                2005)





†31.1
            CEO
                Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002





†31.2
            CFO
                Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002





†32.1
            CEO
                Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002





†32.2
            CFO
                Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002


_________________________


*
      Incorporated by reference as indicated.


†
Filed
      herewith.


42
 *Index*


**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, hereunto duly authorized, on November 8, 2005.





TRANSOCEAN
      INC.







By: /s/
      Gregory L. Cauthen


Gregory
      L. Cauthen


Senior
      Vice President and Chief Financial Officer


(Principal
      Financial Officer)







By: /s/
      David A. Tonnel


David
      A.
      Tonnel


Vice
      President and Controller


(Principal
      Accounting Officer)