**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 March 31, 2006**





**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 a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.


Large
      Accelerated Filer    x Accelerated
      Filer     oNon-accelerated Filer    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
      April 28, 2006, 324,903,181 ordinary shares, par value $0.01 per share,
      were outstanding.









**TRANSOCEAN
      INC.**




**INDEX
      TO FORM 10-Q**





**QUARTER
      ENDED** **MARCH
      31, 2006**


Page**PART
                I - FINANCIAL INFORMATION****Item
                1.**Financial Statements (Unaudited)Condensed
                Consolidated Statements of
                OperationsThree
                Months Ended March 31, 2006 and 2005
            1Condensed
                Consolidated Statements of Comprehensive
                IncomeThree
                Months Ended March 31, 2006 and 2005
            2Condensed
                Consolidated Balance SheetsMarch
                31, 2006 and December 31, 2005
            3Condensed
                Consolidated Statements of Cash
                FlowsThree
                Months Ended March 31, 2006 and 2005
            4Notes
                to Condensed Consolidated Financial
                Statements
            5**Item
                2.**Management’s
                Discussion and Analysis of FinancialCondition and Results of
                Operations
            21**Item
                3.**Quantitative
                and Qualitative Disclosures About Market
                Risk
            34**Item
                4.**Controls
                and Procedures
            35**PART
                II - OTHER INFORMATION****Item
                1.**Legal
                Proceedings
            36**Item 1A.**Risk Factors
            36**Item
                2.**Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            37**Item
                6.**Exhibits
            38


*Table
          of Contents*


**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 March 31,2006
            
            2005Operating
                RevenuesContract
                drilling revenues
            
            $
            778.9
            
            $
            600.6Other
                revenues
            
            
            38.4
            
            
            29.9817.3
            
            
            630.5Costs
                and ExpensesOperating
                and maintenance
            
            
            475.0
            
            
            388.3Depreciation
            
            
            101.6
            
            
            100.7General
                and administrative
            
            
            20.2
            
            
            18.1596.8
            
            
            507.1Gain
                from disposal of assets, net
            
            
            64.1
            
            
            19.9Operating
                Income
            
            
            284.6
            
            
            143.3Other
                Income (Expense), netEquity
                in earnings (losses) of unconsolidated affiliates
            
            
            (0.5
            )
            
            3.1Interest
                income
            
            
            5.2
            
            
            4.0Interest
                expense, net of amounts capitalized
            
            
            (23.9
            )
            
            (33.1
            )Loss
                on retirement of debt
            
            
            −
            
            
            (6.7
            )Other,
                net
            
            
            0.7
            
            
            (1.1
            )(18.5
            )
            
            (33.8
            )Income
                Before Income Taxes and Minority Interest
            
            
            266.1
            
            
            109.5Income
                Tax Expense
            
            
            60.4
            
            
            17.5Minority
                Interest
            
            
            −
            
            
            0.2Net
                Income
            
            $
            205.7
            
            $
            91.8Earnings
                Per ShareBasic
            
            $
            0.63
            
            $
            0.28Diluted
            
            $
            0.61
            
            $
            0.28Weighted
                Average Shares OutstandingBasic
            
            
            325.4
            
            
            323.6Diluted
            
            
            337.3
            
            
            331.0


See
              accompanying notes.
 1
 *Table
            of Contents*


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




Three
                Months Ended March 31,2006
            
            2005Net
                Income
            
            $
            205.7
            
            $
            91.8Other
                Comprehensive Income (Loss), net of taxAmortization
                of gain on terminated interest rate swaps
            
            
            −
            
            
            (0.1
            )Change
                in unrealized loss on securities available for sale
            
            
            −
            
            
            0.3Minimum
                pension liability adjustments (net of tax expense of $0.7 for the
                three
                months ended March 31, 2005)
            
            
            −
            
            
            1.4Other
                Comprehensive Income
            
            
            −
            
            
            1.6Total
                Comprehensive Income
            
            $
            205.7
            
            $
            93.4




See
            accompanying notes.
 2
 *Table
          of Contents*


**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


(In
      millions, except share data)


March
                31,
            
            December
                31,2006
            
            2005(Unaudited)**ASSETS**Cash
                and Cash Equivalents
            
            $
            461.9
            
            $
            445.4Accounts
                Receivable, net of allowance for doubtful accounts of $18.0 and $15.3
                at
                March 31, 2006 and December 31, 2005, respectively
            
            
            670.9
            
            
            599.7Materials
                and Supplies, net of allowance for obsolescence of $16.6 and $19.1
                at
                March 31, 2006 and December 31, 2005, respectively
            
            
            160.3
            
            
            156.2Deferred
                Income Taxes, net
            
            
            23.4
            
            
            23.4Other
                Current Assets
            
            
            37.1
            
            
            54.4Total
                Current Assets
            
            
            1,353.6
            
            
            1,279.1Property
                and Equipment
            
            
            9,911.5
            
            
            9,791.0Less
                Accumulated Depreciation
            
            
            3,110.7
            
            
            3,042.8Property
                and Equipment, net
            
            
            6,800.8
            
            
            6,748.2Goodwill
            
            
            2,208.9
            
            
            2,208.9Investments
                in and Advances to Unconsolidated Affiliates
            
            
            7.6
            
            
            8.1Other
                Assets
            
            
            218.8
            
            
            212.9Total
                Assets
            
            $
            10,589.7
            
            $
            10,457.2**LIABILITIES
                AND SHAREHOLDERS’ EQUITY**Accounts
                Payable
            
            $
            264.9
            
            $
            254.0Accrued
                Income Taxes
            
            
            29.8
            
            
            27.5Debt
                Due Within One Year
            
            
            400.0
            
            
            400.0Other
                Current Liabilities
            
            
            251.3
            
            
            242.1Total
                Current Liabilities
            
            
            946.0
            
            
            923.6Long-Term
                Debt
            
            
            1,196.6
            
            
            1,197.1Deferred
                Income Taxes, net
            
            
            98.9
            
            
            65.0Other
                Long-Term Liabilities
            
            
            309.8
            
            
            286.2Total
                Long-Term Liabilities
            
            
            1,605.3
            
            
            1,548.3Commitments
                and ContingenciesMinority
                Interest
            
            
            3.8
            
            
            3.6Preference
                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, 324,067,074
                and
                324,750,166 shares issued and outstanding at March 31, 2006 and December
                31, 2005, respectively
            
            
            3.2
            
            
            3.2Additional
                Paid-in Capital
            
            
            10,412.5
            
            
            10,565.3Accumulated
                Other Comprehensive Loss
            
            
            (20.4
            )
            
            (20.4
            )Retained
                Deficit
            
            
            (2,360.7
            )
            
            (2,566.4
            )Total
                Shareholders’ Equity
            
            
            8,034.6
            
            
            7,981.7Total
                Liabilities and Shareholders’ Equity
            
            $
            10,589.7
            
            $
            10,457.2





See
            accompanying
            notes.
 3
 *Table
          of Contents*


**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


(In
      millions)


(Unaudited)


Three
                Months Ended March 31,2006
            
            2005**Cash
                Flows from Operating Activities**Net
                income
            
            $
            205.7
            
            $
            91.8Adjustments
                to reconcile net income to net cash provided by operating
                activitiesDepreciation
            
            
            101.6
            
            
            100.7Stock-based
                compensation expense
            
            
            2.8
            
            
            3.1Deferred
                income taxes
            
            
            34.0
            
            
            4.6Equity
                in (earnings) losses of unconsolidated affiliates
            
            
            0.5
            
            
            (3.1
            )Net
                gain from disposal of assets
            
            
            (64.1
            )
            
            (19.9
            )Loss
                on retirement of debt
            
            
            -
            
            
            6.7Amortization
                of debt-related discounts/premiums, fair value adjustments and issue
                costs, net
            
            
            (0.3
            )
            
            (3.2
            )Deferred
                income, net
            
            
            9.2
            
            
            10.0Deferred
                expenses, net
            
            
            (7.6
            )
            
            (1.2
            )Tax
                benefit from exercise of stock options to purchase and vesting of ordinary
                shares under stock-based compensation plans
            
            
            -
            
            
            (0.8
            )Other,
                net
            
            
            8.3
            
            
            8.8Changes
                in operating assets and liabilitiesAccounts
                receivable
            
            
            (71.2
            )
            
            (40.0
            )Accounts
                payable and other current liabilities
            
            
            44.4
            
            
            15.4Income
                taxes receivable/payable, net
            
            
            5.7
            
            
            (5.1
            )Other
                current assets
            
            
            (1.1
            )
            
            4.1Net
                Cash Provided by Operating Activities
            
            
            267.9
            
            
            171.9**Cash
                Flows from Investing Activities**Capital
                expenditures
            
            
            (177.6
            )
            
            (31.2
            )Proceeds
                from disposal of assets, net
            
            
            81.7
            
            
            33.0Joint
                ventures and other investments, net
            
            
            -
            
            
            3.1Net
                Cash Provided by (Used in) Investing Activities
            
            
            (95.9
            )
            
            4.9**Cash
                Flows from Financing Activities**Repayments
                on debt
            
            
            -
            
            
            (279.9
            )Net
                proceeds from issuance of ordinary shares understock-based
                compensation plans
            
            
            44.5
            
            
            72.4Repurchase
                of ordinary shares
            
            
            (200.0
            )
            
            -Other,
                net
            
            
            -
            
            
            0.1Net
                Cash Used in Financing Activities
            
            
            (155.5
            )
            
            (207.4
            )Net
                Increase (Decrease) in Cash and Cash Equivalents
            
            
            16.5
            
            
            (30.6
            )Cash
                and Cash Equivalents at Beginning of Period
            
            
            445.4
            
            
            451.3Cash
                and Cash Equivalents at End of Period
            
            $
            461.9
            
            $
            420.7


See
              accompanying notes.
 4
 *Table
            of Contents*
  **TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED 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 services. At March 31, 2006, we owned, had
      partial ownership interests in or operated 88 mobile offshore and barge drilling
      units. As of this date, our fleet consisted of 32 High-Specification
      semisubmersibles and drillships (“floaters”), 22 Other Floaters, 25 Jackup Rigs
      and nine Other Rigs.





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.





**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 months ended March 31, 2006 are
      not
      necessarily indicative of the results that may be expected for the year ending
      December 31, 2006 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,
      2005.





*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.





*Capitalized
      Interest* —We
      capitalize interest costs for qualifying construction and upgrade
      projects. We capitalized interest costs on construction work in progress of
      $0.3 million for the three months ended March 31, 2006. There was no capitalized
      interest for the three months ended March 31, 2005.


5
 *Table
          of Contents*


**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**


(Unaudited)


*Segments* —We
      operate in one business segment, the Transocean Drilling segment, which consists
      of floaters, jackups and other rigs used in support of offshore drilling
      activities and offshore support services. Our 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.





*Stock-Based
      Compensation* — On
      January 1, 2006, we adopted the Financial Accounting Standards Board (“FASB”)
      Statement of Financial Accounting Standards (“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 Accounting Principles Board Opinion (“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. In March
      2005,
      the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”), *Stock-Based
      Payment* ,
      relating to SFAS 123(R). We have applied the provisions of SAB 107 in our
      adoption of SFAS 123(R).





We
      adopted SFAS 123(R) using the modified prospective method (“Prospective
      Method”), which requires the application of SFAS 123(R) as of January 1, 2006,
      the first day of our fiscal year 2006. Our consolidated financial statements
      as
      of and for the three months ended March 31, 2006 reflect the application of
      SFAS
      123(R). In accordance with the Prospective Method, our consolidated financial
      statements for prior periods have not been restated to reflect, and do not
      include, the application of SFAS 123(R). Share-based compensation expense for
      the three months ended March 31, 2006 and 2005 was $2.8 million ($2.5 million,
      net of tax) and $3.1 million ($2.8 million, net of tax), respectively. The
      income tax benefit related to share-based compensation was $0.3 million for
      both
      the three months ended March 31, 2006 and 2005.





Prior
      to
      January 1, 2003, we accounted for share-based awards to employees under the
      provisions of SFAS 123 using the intrinsic value method prescribed by APB 25
      and
      related interpretations. If compensation expense for grants to employees under
      our long-term incentive plan prior to January 1, 2003 had been recognized using
      the fair value method of accounting under SFAS 123, net income and earnings
      per
      share for the three months ended March 31, 2005 would have been reduced to
      the
      pro forma amounts indicated below (in millions, except per share
      data):


Net
                Income as Reported
            
            $
            91.8Add
                back: Stock-based compensation expense included in reported net income,
                net of related tax effects
            
            
            2.8Deduct:
                Total stock-based compensation expense determined under the fair
                value
                method for all awards, net of related tax effectsLong-Term
                Incentive Plan
            
            
            (4.6
            )Employee
                Stock Purchase Plan
            
            
            (0.8
            )Pro
                Forma Net Income
            
            $
            89.2Basic
                Earnings Per ShareAs
                Reported
            
            $
            0.28Pro
                Forma
            
            
            0.28Diluted
                Earnings Per ShareAs
                Reported
            
            $
            0.28Pro
                Forma
            
            
            0.27




6
 *Table
          of Contents*


**TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**
 (Unaudited)


The
      above
      pro forma amounts are not indicative of future pro forma results. The fair
      value
      of each option grant under our long-term incentive plan was estimated on the
      date of grant using the Black-Scholes-Merton option pricing model with the
      following weighted-average assumptions used:





Three
                MonthsEnded
              March
                31,2005Dividend
                yield
            
            
            -Expected
                price volatility range
            
            
            27%-38
            %Risk-free
                interest rate range
            
            
            3.48%-3.95
            %Expected
                life of options (in years)
            
            
            4.23Weighted-average
                fair value of options granted
            
            $
            20.17





SFAS
      123(R) requires forfeitures to be estimated at the time of grant and revised,
      if
      necessary, in subsequent periods if actual forfeitures differ from those
      estimates. Additionally, SFAS 123(R) requires the estimated forfeiture rate
      be
      applied and the cumulative effect determined for all prior periods in which
      stock-based compensation costs have been recorded. Prior to our adoption of
      SFAS
      123(R), we accounted for forfeitures as they occurred. Upon adopting SFAS
      123(R), we estimated expected forfeitures over the life of each individual
      award
      and have included the impact of these expected forfeitures in our stock-based
      compensation expense for the three months ended March 31, 2006 in addition
      to
      all prior periods on a cumulative basis. The effect of this change is to reverse
      compensation cost recognized in prior period financial statements for awards
      that are not expected to vest based upon the expected forfeiture rate. The
      cumulative effect of applying the expected forfeiture rate has been included
      in
      operating and maintenance expense and general and administrative expense, the
      impact of which had no material effect on our consolidated financial position,
      results of operations or cash flows.





We
      adopted SFAS 123 effective January 1, 2003 and have accounted for stock-based
      compensation prospectively for all stock based awards granted or modified on
      or
      subsequent to that date. As such, adoption of SFAS 123(R) using the Prospective
      Method had no material impact on our consolidated financial position, results
      of
      operations or cash flows. 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 to be reported as a financing cash
      flow rather than as an operating cash flow, which was required under SFAS 95.
      We
      reported operating cash flows related to tax deduction benefits of $0.8 million
      for the period ended March 31, 2005.





Under
      SFAS 123, we recognized compensation cost over the vesting period up to the
      date
      of actual retirement. We will continue this practice for awards granted prior
      to
      adoption of SFAS 123(R). As a result of the adoption of SFAS 123(R), we now
      recognize compensation cost for awards granted or modified after January 1,
      2006
      through the date the employee is no longer required to provide service to earn
      the award (“service period”). If we had amortized compensation cost over the
      service period prior to adoption of SFAS 123(R), stock-based compensation
      expense would not have been materially different for any of the periods
      presented.





*New
      Accounting Pronouncement* —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
      adopted SFAS 154 effective January 1, 2006. The adoption of this statement
      had
      no impact on our consolidated financial position, results of operations or
      cash
      flows .





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





7
 *Table
          of Contents*


**TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**
 (Unaudited)
  **Note
      3―Asset
      Dispositions and Retirements**





In
      February 2006, we completed the sale of the drillship *Peregrine
      III* for
      net
      proceeds of $78.7 million, of which $7.8 million was received in December 2005
      and reflected as unearned income in other current liabilities in our
      consolidated balance sheet. We recognized a gain on the sale of $61.9 million
      ($40.2 million, or $0.12 per diluted share, net of tax) in the first quarter
      of
      2006. At December 31, 2005, this drillship was classified as held for sale
      in
      the amount of $12.3 million and was included in other current assets in our
      consolidated balance sheet.





In
      March
      2006, we completed the sale of a platform rig for net proceeds of $10.1 million
      and recognized a gain on the sale of $2.7 million ($0.01 per diluted share),
      which had no tax effect.






In
      March
      2006, we entered into an agreement to sell the semisubmersible rig *Transocean
      Explorer* in
      connection with our efforts to dispose of non-strategic assets. At March 31,
      2006, this rig was classified as held for sale in the amount of $2.9 million
      and
      included in other current assets in our condensed consolidated balance sheet.





In
      January 2005, we completed the sale of the semisubmersible rig *Sedco
      600* for net
      proceeds of $24.9 million, of which $2.5 million was received in 2004, and
      recognized a gain on the sale of $18.8 million ($0.06 per diluted share), which
      had no tax effect. During the three months ended March 31, 2005, we sold and
      disposed of certain other assets for net proceeds of approximately $10.6
      million, which resulted in net gains of $1.1 million ($0.7 million, net of
      tax).





**Note
      4** ― **Repurchase
      of Ordinary Shares**





In
      March
      2006 and in conjunction with our share repurchase program authorized by our
      board of directors in 2005, we repurchased and retired $200 million of our
      ordinary shares, which amounted to approximately 2.6 million ordinary shares
      at
      an average purchase price of $77.54 per share. Total consideration paid to
      repurchase the shares was recorded in shareholders’ equity as a reduction in
      ordinary shares and additional paid-in capital. Such consideration was funded
      with existing cash balances. At March 31, 2006, we still had authority to
      repurchase $1.4 billion of our ordinary shares under the program.





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





We
      are a
      Cayman Islands company and we are not subject to income tax in the Cayman
      Islands. We operate through our various subsidiaries in a number of countries
      throughout the world. 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 when income earned and taxed in a
      particular country or countries fluctuates from year to year.





The
      estimated annual effective tax rate for the three months ended March 31, 2006
      was based on estimated 2006 annual income before income taxes and minority
      interest, after adjusting for certain items such as net gains on rig sales.
      The
      estimated annual effective tax rate for the three months ended March 31, 2005
      was based on estimated 2005 annual income before income taxes and minority
      interest after adjusting for certain items such as a gain related to the
      disposition of TODCO (a former wholly-owned subsidiary) and loss on retirement
      of debt.





8
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          of Contents*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**


(Unaudited)




Our
      income tax returns are subject to review and examination in the various
      jurisdictions in which we operate. We are currently contesting various tax
      assessments. We accrue for income tax contingencies that we believe are probable
      exposures.





Our
      2002
      and 2003 U.S. federal income tax returns are currently under examination by
      the
      U.S. Internal Revenue Service (“IRS”) and our 2001 U.S. federal income tax
      return remains open for examination. In April 2006, we received from the IRS,
      examination reports setting forth proposed changes to the U.S. federal taxable
      income reported for the period 2001-2003. The proposed adjustments would reduce
      our net operating losses by approximately $99 million and result in a cash
      tax
      payment of approximately $0.3 million of alternative minimum tax, which would
      serve to reduce cash tax payments in other years. We believe our returns are
      materially correct as filed and we intend to vigorously defend against any
      proposed changes. While we cannot predict or provide assurance as to the final
      outcome, we do not expect the ultimate settlement of any liability resulting
      from any examination to have a material adverse effect on our consolidated
      financial position, results of operations or cash flows.





In
      April
      2006, we received notice from the Norwegian tax authorities regarding their
      intent to propose adjustments to taxable income for the tax years 1999, 2001
      and
      2002. These proposed assessments would result in an increase in tax of
      approximately $260 million, plus interest, and the authorities further indicated
      they intend to impose penalties, which could range from 15 to 60 percent of
      the
      assessments. The anticipated assessments relate to restructuring transactions
      undertaken in 2001 and 2002. The Norwegian tax authorities initiated inquiries
      in September 2004 related to the restructuring transactions and a separate
      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. We have continued to respond to information requests from the
      Norwegian authorities. We also believe the Norwegian authorities are
      contemplating a tax assessment of approximately $98 million on the dividend,
      plus interest and a penalty, which could range from 15 to 60 percent of the
      assessment. Norwegian civil tax and criminal authorities are currently
      investigating the restructuring transactions and dividend. We plan to vigorously
      contest any assertions by the Norwegian authorities in connection with the
      restructuring transactions or dividend. While we cannot predict or provide
      assurance as to the final outcome of these proceedings, we do not expect it
      to
      have a material adverse effect on our consolidated financial position, results
      of operations or cash flows.





In
      addition, other tax authorities are examining our tax returns in various
      jurisdictions. While we cannot predict or provide assurance as to the final
      outcome, we do not expect the ultimate settlement of any liability resulting
      from these existing or future assessments to have a material adverse effect
      on
      our consolidated financial position, results of operations or cash
      flows.


9
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          of Contents*


**TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**
 (Unaudited)
  **Note
      6―Debt**





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





March
                31,
            
            December
                31,2006
            
            20056.625%
                Notes, due April 2011
            
            $
            182.3
            
            $
            183.07.375%
                Senior Notes, due April 2018
            
            
            246.9
            
            
            246.9Zero
                Coupon Convertible Debentures, due May 2020 (put options exercisable
                May 2008 and May 2013)
            
            
            17.6
            
            
            17.51.5%
                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)
            
            
            95.3
            
            
            95.37.5%
                Notes, due April 2031
            
            
            597.7
            
            
            597.6Total
                Debt
            
            
            1,596.6
            
            
            1,597.1Less
                Debt Due Within One Year (a)
            
            
            400.0
            
            
            400.0Total
                Long-Term Debt
            
            $
            1,196.6
            
            $
            1,197.1


______________





(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.





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
                Months
              Ending
              March
                31,2007
            
            $
            400.02008
            
            
            100.02009
            
            
            19.02010
            
            
            -2011
            
            
            -Thereafter
            
            
            1,069.4Total
            
            $
            1,588.4





*Debt
      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 ($0.02 per
      diluted share), which had no tax effect and reflected adjustments for fair
      value
      of the debt at the date of the merger transaction (the “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.





10
 *Table
          of Contents*


**TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**
 (Unaudited)
  **Note
      7―Interest
      Rate Swaps**





In
      January 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 months ended March 31, 2006 and
      2005, such reduction amounted to $0.8 million and $3.9 million ($0.01 per
      diluted share), respectively. As a result of the redemption of our 6.95% Senior
      Notes in March 2005, we recognized $13.2 million ($0.08 per diluted share)
      of
      the unamortized fair value adjustment, which had no tax effect, as a reduction
      to our loss on redemption of debt (see Note 6). At March 31, 2006 and December
      31, 2005, the remaining balance to be amortized was $17.1 million and $17.9
      million, respectively, and related to the 6.625% Notes due April
      2011.





At
      March
      31, 2006 and December 31, 2005, we had no outstanding interest rate
      swaps.





**Note
      8** ― **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 March 31,2006
            
            2005**Numerator
                for Basic Earnings per Share**Net
                Income for basic earnings per share
            
            $
            205.7
            
            $
            91.8**Numerator
                for Diluted Earnings per Share**Net
                Income
            
            $
            205.7
            
            $
            91.8Add
                back interest expense on the 1.5% convertible debentures
            
            
            1.6
            
            
            -Net
                Income for diluted earnings per share
            
            $
            207.3
            
            $
            91.8**Denominator
                for Diluted Earnings per Share**Weighted-average
                shares outstanding for basic earnings per share
            
            
            325.4
            
            
            323.6Effect
                of dilutive securities:Employee
                stock options and unvested stock grants
            
            
            3.5
            
            
            4.7Warrants
                to purchase ordinary shares
            
            
            2.9
            
            
            2.71.5%
                convertible debentures
            
            
            5.5
            
            
            -Adjusted
                weighted-average shares and assumed conversions for diluted earnings
                per
                share
            
            
            337.3
            
            
            331.0**Basic
                Earnings Per Share**Net
                Income
            
            $
            0.63
            
            $
            0.28**Diluted
                Earnings Per Share**Net
                Income
            
            $
            0.61
            
            $
            0.28





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
      feature of the 1.5% Convertible Debentures are not included in the calculation
      of adjusted weighted-average shares and assumed conversions for diluted earnings
      per share for the three months ended March 31, 2005 because the effect of
      including those shares is anti-dilutive.





11
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          of Contents*


**TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**
 (Unaudited)
  **Note
      9―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. Further, the complaints
      name other unaffiliated defendant companies, including companies that allegedly
      manufactured drilling related products containing asbestos. 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 generally seek 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 extensive discovery nor have we been able to 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 or cash flows.





In
      1990
      and 1991, two of our subsidiaries were served with various assessments
      collectively valued at approximately $10 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 $9 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 received a favorable ruling in connection
      with a disputed August 1990 assessment and the government has lost what is
      expected to be its final appeal with respect to 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. 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 or 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”)
      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
      interpretation. 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 Department and 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
      or
      cash flows.





12
 *Table
          of Contents*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**


(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 or 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 or 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
      $71
      million. We believe that the amount of the assessment, even if it were
      appropriate, should only be approximately $7 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 or cash
      flows.





13
 *Table
          of Contents*


**TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**
 (Unaudited)


We
      have a
      dispute with TODCO concerning payment to us under our tax sharing agreement
      with
      TODCO for the tax benefit that TODCO derives from exercises of options to
      purchase our ordinary shares held by employees of TODCO. An arbitration
      proceeding that was initiated in January 2006 continues and is expected to
      be
      concluded during 2006. We are seeking payment of the amount of tax benefits
      derived from exercises of options to purchase our ordinary shares by employees
      of TODCO who were not on the payroll of TODCO at the time of exercise and a
      declaration that TODCO pay us for the benefit derived from such exercises in
      the
      future. TODCO is seeking to avoid such payment and is asking that the entire
      tax
      sharing agreement be voided. TODCO also filed suit in Houston in the district
      court of the State of Texas in January 2006 seeking to set aside the arbitration
      provision and to void the entire tax sharing agreement. We believe TODCO owes
      us
      approximately $18.0 million, exclusive of interest, based on options exercised
      through March 31, 2006, and we do not believe TODCO’s attempts to void the tax
      sharing agreement have merit. We do not expect the outcome of this matter to
      have a material adverse effect on our consolidated financial position, results
      of operations or 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 or cash flows. We are also involved in various
      tax matters (see Note 5).





*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.





*Letters
      of Credit and Surety Bonds* —We
      had
      letters of credit outstanding totaling $355.1 million and $313.8 million at
      March 31, 2006 and December 31, 2005, 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
      $6.4 million and $8.0 million at March 31, 2006 and December 31, 2005,
      respectively.





**Note
      10** ― **Stock-Based
      Compensation**





As
      of
      March 31, 2006, we have a long-term incentive plan for key employees and outside
      directors (the “Incentive Plan”). Under the Incentive Plan, awards can be
      granted in the form of stock options, nonvested restricted shares, deferred
      units, stock appreciation rights (“SARs”) and cash performance awards. Such
      awards include traditional time-vesting awards (“time-based vesting awards”) and
      awards that are earned based on the achievement of certain performance criteria
      (“performance-based awards”). Our executive compensation committee of our board
      of directors determines the terms and conditions of the awards under the
      Incentive Plan. Options issued to date under the Incentive Plan have a 10-year
      term. Time-based vesting awards vest in three equal annual installments from
      the
      date of grant. Performance-based awards issued to date under the Incentive
      Plan
      have a two-year performance cycle with the number of options, shares or deferred
      units earned being determined following the completion of the performance cycle
      (the “determination date”) at which time one-third of the options, shares or
      deferred units vest. Additional vesting occurs January 1 of the two subsequent
      years following the determination date. As of March 31, 2006, we were authorized
      under the Incentive Plan to grant up to (i) 22.9 million ordinary shares to
      employees; (ii) 0.6 million ordinary shares to outside directors and
      (iii) 6.0 million restricted shares to employees.





Prior
      to
      adoption of SFAS 123(R), we used the Black-Scholes-Merton model to value stock
      options granted or modified under SFAS 123 and have elected to continue using
      this model to value stock options granted or modified under SFAS 123(R). We
      determine the fair value of options granted or modified based on the expected
      term, risk-free interest rate, dividend yield and expected volatility. The
      expected term is based on historical information of past employee behavior
      regarding exercises and forfeiture of options. The
      risk-free interest assumption is based upon the published U.S. Treasury yield
      curve in effect at the time of grant for instruments with a similar life. The
      dividend yield assumption is based on our history and expectation of dividend
      payouts.





14
 *Table
          of Contents*


**TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**
 (Unaudited)


Under
      SFAS 123, we based expected volatility solely on historical data. Upon the
      adoption of SFAS 123R, we began using a blended volatility for the volatility
      assumption. We changed the calculation of our volatility to better reflect
      our
      expectation of how our stock will react to the future cyclicality of our
      industry. The blended volatility is calculated using two components. The first
      component is derived from volatility computed from historical data for a period
      of time approximately equal to the expected term of the stock option, starting
      from the date of grant. The second component is implied volatility derived
      from
      our ‘at-the-money’ long dated call options with a term of six months or longer.
      The two components are equally weighted creating a blended volatility. This
      change in estimate did not have a material effect on the financial
      statements.




The
      fair
      value for restricted ordinary shares and deferred units is based on the market
      price of our ordinary shares on the date of grant.





As
      of
      March 31, 2006, total unrecognized compensation costs related to all nonvested
      share-based awards totaled $16.6 million, which is expected to be recognized
      over a weighted average period of 2.1 years.





*Time-Based
      Vesting Awards*





*Stock
      Options* **—** The
      following table summarizes time-based vesting stock option (“time-based
      options”) activity under the Incentive Plan as of March 31, 2006, and changes
      during the period then ended:





Number
                of
              Shares
                Under
              Option
            
            Weighted-Average
                Exercise Price
            
            Weighted-Average
                Remaining
              Contractual
                Term
            
            Aggregate
              Intrinsic
                Value
              (in
                000’s)Outstanding
                at January 1, 2006
            
            
            6,312,707
            
            $
            29.43Exercised
            
            
            (1,248,079
            )
            
            29.85Forfeited
                or expired
            
            
            (480
            )
            
            55.98Outstanding
                at March 31, 2006
            
            
            5,064,148
            
            $
            29.32
            
            
            4.23
            
            $
            259,671Vested
                or expected to vest as of March 31, 2006
            
            
            5,057,110
            
            $
            29.31
            
            
            4.23
            
            $
            259,354Exercisable
                at March 31, 2006
            
            
            4,958,294
            
            $
            29.46
            
            
            4.21
            
            $
            253,521





No
      time-based options were granted during the three months ended March 31, 2006
      and
      2005. The total pretax intrinsic value of time-based options exercised during
      the three months ended March 31, 2006 and 2005 was $59.6 million and $66.1
      million, respectively.





The
      following table summarizes nonvested time-based option activity under the
      Incentive Plan as of March 31, 2006, and changes during the period then
      ended:





Number
                of Shares
              Under
                Option
            
            Weighted-Average
              Grant-Date
                Fair ValueNonvested
                at January 1, 2006
            
            
            184,998
            
            $
            8.16Vested
            
            
            (79,143
            )
            
            8.55Nonvested
                at March 31, 2006
            
            
            105,855
            
            $
            7.87





15
 *Table
          of Contents*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**


(Unaudited)


The
        total
        fair value of time-based options vested during the three months ended March
        31,
        2006 and 2005 was $0.7 million and $0.8 million, respectively.


*Restricted
      Ordinary Shares* **—** The
      following table summarizes nonvested share activity for time-based vesting
      restricted ordinary shares (“time-based shares”) granted under the Incentive
      Plan as of March 31, 2006, and changes during the period then
      ended:





Number
                of Shares
            
            Weighted-Average
              Grant-Date
                Fair ValueNonvested
                at January 1, 2006
            
            
            46,940
            
            $
            42.36Granted
            
            
            8,400
            
            
            69.39Vested
                and Distributed
            
            
            (6,719
            )
            
            43.51Nonvested
                at March 31, 2006
            
            
            48,621
            
            $
            47.13





The
      weighted-average grant-date fair value of time-based shares granted during
      the
      three months ended March 31, 2006 was $0.6 million. There were 20,150 time-based
      shares granted during the three months ended March 31, 2005, with a
      weighted-average grant-date fair value of $43.51. The total fair value of
      time-based shares that vested during the three months ended March 31, 2006
      was
      $0.3 million. No time-based shares vested during the three months ended March
      31, 2005.





*Deferred
      Units* **—** A
      deferred unit is a unit that is equal to one ordinary share but has no voting
      rights until the underlying ordinary shares are issued. As
      of
      March 31, 2006, our nonvested time-based deferred units outstanding totaled
      36,856 with a weighted averaged grant date fair value of $36.18. There was
      no
      activity related to grants, vesting or forfeitures during the first three months
      of 2006 or 2005.





*SARs* **—** The
      following table summarizes time-based vesting SARs activity under the Incentive
      Plan as of March 31, 2006, and changes during the period then
      ended:





Number
                of SARs
            
            Weighted-Average
                Exercise Price
            
            Weighted-Average
                Remaining Contractual Term
            
            Aggregate
                Intrinsic Value
              (in
                000’s)Outstanding
                at January 1, 2006
            
            
            50,976
            
            $
            35.43Exercised
            
            
            (12,690
            )
            
            33.18Outstanding
                at March 31, 2006
            
            
            38,286
            
            $
            36.18
            
            
            2.79
            
            $
            1,700Exercisable
                at March 31, 2006
            
            
            38,286
            
            $
            36.18
            
            
            2.79
            
            $
            1,700





The
      total
      pretax intrinsic value of SARs exercised during the three months ended March
      31,
      2006 and 2005 was $0.6 million and $0.5 million, respectively. No SARs were
      granted during the three months ended March 31, 2006 and 2005. No SARs vested
      during the three months ended March 31, 2005. As of March 31, 2006, all SARs
      granted under the Incentive Plan are fully vested and
      expensed.


16
 *Table
          of Contents*


**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**


(Unaudited)


*Performance-Based
      Vesting Awards*





*Stock
      Options* **—** The
      following table summarizes performance-based vesting stock option
      (“performance-based options”) activity under the Incentive Plan as of March 31,
      2006, and changes during the period then ended.





Number
                of
              SharesUnder
              Option
            
            Weighted-Average
                Exercise Price
            
            Weighted-Average
                Remaining
              Contractual
                Term
            
            Aggregate
              Intrinsic
                Value
              (000’s)Outstanding
                at January 1, 2006
            
            
            1,253,125
            
            $
            33.19Exercised
            
            
            (84,704
            )
            
            21.20Outstanding
                at March 31, 2006
            
            
            1,168,421
            
            $
            34.06
            
            
            8.28
            
            $
            54,377Vested
                or expected to vest at March 31, 2006
            
            
            671,335
            
            $
            28.62
            
            
            7.94
            
            $
            34,893Exercisable
                at March 31, 2006
            
            
            155,902
            
            $
            21.20
            
            
            7.28
            
            $
            9,260





No
      performance-based options were granted during the three months ended March
      31,
      2006 and 2005. The total pretax intrinsic value of performance-based options
      exercised during the three months ended March 31, 2006 was $4.4 million. No
      performance-based options were exercised during the three months ended March
      31,
      2005.





The
      following table summarizes nonvested performance-based option activity under
      the
      Incentive Plan as of March 31, 2006, and changes during the period then
      ended:





Number
                of Shares Under Option
            
            Weighted-Average
                Grant-Date Fair ValueNonvested
                at January 1, 2006
            
            
            1,178,535
            
            $
            33.95Vested
            
            
            (166,016
            )
            
            21.20Nonvested
                at March 31, 2006
            
            
            1,012,519
            
            $
            36.04





The
      total
      fair value of performance-based options vested during the period ended March
      31,
      2006 was $3.5 million. No performance-based options vested during the period
      ended March 31, 2005.





*Restricted
      Ordinary Shares* **—** We
      granted performance-based nonvested restricted ordinary shares
      (“performance-based shares”) that are earnable based on the achievement of
      certain performance targets. The number of shares to be issued is quantified
      upon completion of the performance period at the determination date. The
      following table summarizes nonvested share activity for performance-based shares
      granted under the Incentive Plan as of March 31, 2006, and changes during the
      period then ended:





Number
                of Shares
              Under
                Option
            
            Weighted-Average
              Grant-Date
              Fair
                ValueNonvested
                at January 1, 2006
            
            
            1,242,829
            
            $
            35.562004
                Performance-based shares converted to deferred units
            
            
            (133,932
            )
            
            28.122005
                Performance-based shares converted to deferred units
            
            
            (103,152
            )
            
            56.34Vested
                and distributed
            
            
            (130,030
            )
            
            21.20Forfeited
            
            
            (2,364
            )
            
            21.20Nonvested
                at March 31, 2006
            
            
            873,351
            
            $
            36.42





17
 *Table
          of Contents*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**


(Unaudited)




No
        performance-based shares were granted during the three months ended March
        31,
        2006 and 2005. The total fair value of performance-based shares that vested
        during the three months ended March 31, 2006 was $2.8 million. No
        performance-based shares vested during the period ended March 31,
        2005.
  Deferred
      Units **—** We
      granted performance-based nonvested deferred units (“performance-based units”)
      that are earnable based on the achievement of certain performance targets.
      The
      number of shares to be issued is quantified upon completion of the performance
      period at the determination date. The following table summarizes nonvested
      share
      activity for performance-based shares granted under the Incentive Plan as of
      March 31, 2006, and changes during the period then ended:





Number
                of Shares
              Under
                Option
            
            Weighted-Average
              Grant-Date
              Fair
                ValueNonvested
                at January 1, 2006
            
            
            91,338
            
            $
            29.152004
                Performance-based shares converted to deferred units
            
            
            133,932
            
            
            28.122005
                Performance-based shares converted to deferred units
            
            
            103,152
            
            
            56.34Vested
                and distributed
            
            
            (13,790
            )
            
            21.20Forfeited
            
            
            (593
            )
            
            21.20Nonvested
                at March 31, 2006
            
            
            314,039
            
            $
            38.01





No
      performance-based units were granted during the three months ended March 31,
      2006 and 2005. The total fair value of performance-based units that vested
      during the period ended March 31, 2006 was $0.3 million. No performance-based
      units vested during the period ended March 31, 2005.





*Employee
      Stock Purchase Plan* —We
      provide the ESPP for certain full-time employees. Under the terms of the ESPP,
      employees can choose each year to have between two and 20 percent of their
      annual base earnings withheld to purchase up to $25,000 of our ordinary shares.
      The purchase price of the stock is 85 percent of the lower of the
      beginning-of-year or end-of-year market price of our ordinary shares. At
      December 31, 2005, 1,139,089 ordinary shares were available for issuance
      pursuant to the ESPP after taking into account the shares issued for the 2005
      plan year.





**Note
      11** ― **Stock
      Warrants**





At
      March
      31, 2006, there were 203,900 warrants outstanding to purchase 3,568,250 ordinary
      shares at an exercise price of $19.00 per share. The warrants expire on May
      1,
      2009. On March 1, 2006, we issued 333,039 ordinary shares related to a cashless
      exercise of 25,100 warrants.


18
 *Table
          of Contents*


**TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**
 (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 of our U.S. employees. We also have various defined benefit
      plans in Norway, Nigeria, Egypt and Indonesia that cover our employees and
      various current and former employees covered under certain frozen plans acquired
      in connection with the R&B Falcon merger. Net periodic benefit cost for
      these defined benefit pension plans includes the following components (in
      millions):





Three
                Months Ended
              March
                31,2006
            
            2005**Components
                of Net Periodic Benefit Cost (a)**Service
                cost
            
            $
            5.0
            
            $
            4.6Interest
                cost
            
            
            4.8
            
            
            4.4Expected
                return on plan assets
            
            
            (5.0
            )
            
            (5.1
            )Amortization
                of transition obligation
            
            
            0.1
            
            
            0.1Amortization
                of prior service cost
            
            
            (0.2
            )
            
            (0.2
            )Recognized
                net actuarial losses
            
            
            1.4
            
            
            1.4SFAS
                88 settlements/curtailments
            
            
            -
            
            
            2.1Benefit
                cost
            
            $
            6.1
            
            $
            7.3


______________


(a)
            Amounts
                are before income tax effect.





We
      expect
      to contribute approximately $9.7 million to our defined benefit pension plans
      in
      2006, which will be funded from cash flow from operations. We contributed $0.5
      million to the defined benefit pension plans in the first quarter of
      2006.





*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 Ended
              March
                31,2006
            
            2005**Components
                of Net Periodic Benefit Cost (a)**Service
                cost
            
            $
            0.3
            
            $
            0.3Interest
                cost
            
            
            0.5
            
            
            0.6Amortization
                of prior service cost
            
            
            (0.6
            )
            
            (0.6
            )Recognized
                net actuarial losses
            
            
            0.4
            
            
            0.4Benefit
                cost
            
            $
            0.6
            
            $
            0.7


______________


(a)
            Amounts
                are before income tax effect.





We
      expect
      to contribute approximately $1.5 million to the other postretirement benefit
      plans, which will be funded from cash flow from operations. We contributed
      $0.6
      million to the other postretirement benefit plans in the first quarter of
      2006.


19
 *Table
          of Contents*


**TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**
 (Unaudited)
  **Note
      13―Subsequent
      Events**




*1.5%
      Convertible Debentures* — In
      April
      2006, we announced that holders of our 1.5% Convertible Debentures due May
      15,
      2021 have the option to require us to repurchase their debentures as of May
      15,
      2006. Each holder of the debentures has the right, pursuant to the terms of
      the
      indenture under which the debentures were issued, to require us to repurchase
      on
      May 15, 2006 all or any part of such holder’s debentures at a repurchase price
      of $1,000 per $1,000 principal amount plus accrued and unpaid interest through
      May 15, 2006. Under the terms of the debentures, we had the option to pay for
      the debentures with cash, ordinary shares, or a combination of cash and shares,
      and we elected to pay for the debentures solely with cash. If all outstanding
      debentures are surrendered for repurchase, the aggregate cash repurchase price
      will be approximately $400 million. We intend
      to
      pay the repurchase price from existing cash balances. The debentures
      are convertible, at the option of the holder, into 13.8627 of our ordinary
      shares per $1,000 principal amount, subject to adjustment under certain
      circumstances. If
      all of
      the debentures are converted by the holders, approximately 5.5 million shares
      would be issued to the debenture holders and the debentures would be retired
      in
      a non-cash transaction. Because of the level of our share price, we believe
      it
      is unlikely that the debentures will be surrendered for repurchase.


20
 *Table
            of Contents*
  **Item
      2. Management’s Discussion and Analysis of Financial Condition
      and Results of Operations**





**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, results of operations, commodity prices, customer
      drilling programs, supply and demand, utilization rates, dayrates, contract
      backlog, planned shipyard projects and rig mobilizations and their effects,
      newbuild projects and opportunities, the upgrade projects for the *Sedco
      700* -series
      semisubmersible rigs, other major upgrades, rig reactivations, expected downtime
      (including downtime with respect to the *Deepwater
      Nautilus* and *Transocean
      Marianas)* ,
      planned
      asset sales, including the disposition of *Transocean
      Explorer,* the
      option of holders of our 1.5% Convertible Debentures to require us to repurchase
      the debentures, 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, income related to the TODCO tax sharing agreement, the TODCO tax
      sharing agreement 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, Norwegian tax assessments, 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, liquidity,
      cash flow from operations, adequacy of cash flow for our obligations, effects
      of
      accounting changes, adoption of accounting policies, pension plan and other
      postretirement benefit plan contributions and benefit payments 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 1A. Risk Factors” included in our Annual Report on Form
      10-K for the year ended December 31, 2005, the adequacy of sources of liquidity,
      the effect and results of litigation, audits and contingencies and other factors
      discussed in this quarterly report and in our other filings with the Securities
      and Exchange Commission (“SEC”), which are available free of charge on the SEC's
      website at www.sec.gov. Should one or more of these risks or uncertainties
      materialize, or should underlying assumptions prove incorrect, actual results
      may vary materially from those indicated. All subsequent written and oral
      forward-looking statements attributable to the Company 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.





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, 2005.





**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 May 1, 2006, we owned, had partial ownership interests in or
      operated 88 mobile offshore and barge drilling units. As of this date, our
      fleet
      included 33 High-Specification semisubmersibles and drillships (“floaters”), 21
      Other Floaters, 25 Jackup Rigs and nine Other Rigs.





21
 *Table
          of Contents*




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 (in
      millions, except daily amounts and percentages) :





Three
                Months Ended March 31,2006
            
            2005
            
            Change**Average
                daily revenue (a)(c)**
            
            $
            119,600
            
            $
            96,600
            
            $
            23,000**Utilization
                (b)(c)**
            
            
            82
            %
            
            75
            %
            
            N/A**Statement
                of Operations**Operating
                revenues
            
            $
            817.3
            
            $
            630.5
            
            $
            186.8Operating
                and maintenance expense
            
            
            475.0
            
            
            388.3
            
            
            86.7Operating
                income
            
            
            284.6
            
            
            143.3
            
            
            141.3Net
                income
            
            
            205.7
            
            
            91.8
            
            
            113.9March
                31,
              2006
            
            
            December
                31,
              2005
            
            
            Change**Balance
                Sheet Data (at end of period)**Cash
            
            $
            461.9
            
            $
            445.4
            
            $
            16.5Total
                Assets
            
            
            10,589.7
            
            
            10,457.2
            
            
            132.5Total
                Debt
            
            
            1,596.6
            
            
            1,597.1
            
            
            (0.5
            )


_____________________


“N/A”
      means not applicable.





(a)
            Average
                daily revenue 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)
            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.





2006
      began with our industry continuing to experience strong demand for all asset
      classes resulting in high utilization and increasing dayrates. 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. There is
      also evidence of a broadening base of customers with deepwater drilling rig
      requirements for exploration and production drilling programs in various
      geographic locations. Some of these rig needs could potentially be addressed
      by
      new rig construction. We are presently aware of a number of operators that
      may
      have an interest in awarding drilling contracts for newly constructed
      ultra-deepwater floaters.





To
      address the increase in demand, we have underway a deepwater newbuild rig,
      two
      major upgrades and three reactivations of previously idle rigs. We also have
      a
      large number of repair and maintenance shipyard projects underway or planned
      to
      commence in the remainder of 2006. The actual timing and duration of these
      shipyard projects, along with the actual start of higher dayrate contracts,
      will
      have a significant impact on our results of operations in 2006.





We
      expect
      our industry to experience higher costs in 2006 relative to levels seen in
      the
      recent past, due in part to increased supplier costs and higher personnel costs
      required to support the increased level of offshore drilling activity, although
      we anticipate revenue increases to outpace these increased costs. A
      shortage of qualified personnel in our industry is driving up compensation
      costs
      and suppliers are increasing prices as their backlogs grow.  These labor
      and vendor cost increases, while meaningful, are not significant in comparison
      with our expected increase in revenue for 2006 and beyond.





22
 *Table
          of Contents*




Our
      revenues for the three months ended March 31, 2006 increased from the prior
      year
      period primarily as a result of increased activity and higher dayrates. Our
      operating and maintenance expenses for the same period increased primarily
      as a
      result of higher labor and rig maintenance costs in connection with such
      increased activity (see “—Operating Results”). In addition, our first quarter
      2006 financial results included the recognition of gains on the sales of a
      drillship and a platform rig (see “—Significant Events”). Our first quarter 2005
      financial results included a non-cash charge pertaining to a loss on retirement
      of debt, partially offset by the recognition of a gain on the sale of a
      semisubmersible rig (see “—Operating Results”). Cash increased during the three
      months ended March 31, 2006 primarily as a result of proceeds received from
      the
      sale of assets, exercises of stock options and cash provided by operating
      activities, partially offset by increased capital expenditures and repurchases
      of our ordinary shares.





We
      operate in one business segment, the Transocean Drilling segment, which consists
      of floaters, jackups and other rigs used in support of offshore drilling
      activities and offshore support services on a worldwide basis. The 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 .




**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* was out
      of service for 24 days in 2005 and while fully operational during the first
      quarter of 2006, it is expected to be out of service approximately 60 days
      for
      the remainder of 2006. The *Transocean
      Marianas* was out
      of service for 95 days in 2005 and 72 days for the first three months of 2006.
      It is expected to be out of service approximately 30 days for the remainder
      of
      2006. Operating income for the first quarter in 2006 was negatively impacted
      by
      approximately $22 million due to lost revenue and higher operating and
      maintenance costs on the *Transocean
      Marianas* .
      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 have a negative
      impact on operating income of approximately $45 million to $55 million
      in 2006. In addition, we also expect to spend approximately $35 million on
      capital expenditures during 2006 to replace damaged equipment.





23
 *Table
          of Contents*




*Asset
      Disposition* —In
      February 2006, we completed the sale of the drillship *Peregrine
      III* for
      net
      proceeds of $78.7 million and recognized a gain on the sale of $61.9 million. See
      “―Capital Expenditures, Acquisitions and Dispositi ons.”





*Repurchase
      of Ordinary Shares* — In
      March
      2006, we repurchased and retired $200 million of our ordinary shares. See
“—Liquidity and Capital Resources−Sources and Uses of Liquidity.”





*1.5%
      Convertible Debentures* — In
      April
      2006, we announced that holders of our 1.5% Convertible Debentures due May
      15,
      2021 have the option to require us to repurchase their debentures as of May
      15,
      2006. See “ — Liquidity
      and Capital Resources-Sources and Uses of Liquidity.”





*Tax
      Matters* —
In
      April 2006, we received notice from the Norwegian tax authorities regarding
      their intent to propose adjustments to taxable income for the tax years 1999,
      2001 and 2002. These proposed assessments would result in an increase in tax
      of
      approximately $260 million, plus interest, and the authorities further indicated
      they intend to impose penalties, which could range from 15 to 60 percent of
      the
      assessments. The anticipated assessments relate to restructuring transactions
      undertaken in 2001 and 2002. See “—Outlook−Tax Matters.”





**Outlook**





*Drilling
      Market* —Oil
      and
      natural gas commodity prices continue to be strong, with recent oil prices
      reaching all time highs. 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 33 High-Specification Floaters continue to be robust. We have been
      awarded a five-year contract for the construction of an enhanced
      Enterprise-class drillship, to be named the *Discoverer
      Clear Leader* ,
      with an
      estimated total capital expenditure of approximately $650 million, including
      approximately $65 million of capitalized interest. We currently expect this
      rig
      to begin operations in the U.S. Gulf of Mexico in approximately the second
      quarter of 2009, after construction in South Korea followed by sea trials,
      mobilization to the U.S. Gulf of Mexico and customer acceptance. We are also
      currently in discussions with several clients concerning other potential
      drilling contracts for newbuild deepwater rigs.





We
      have
      been successful in building contract backlog within our High-Specification
      Floaters fleet of 33 rigs with 22 units, in addition to the newbuild rig
*Discoverer Clear Leader* and the second *Sedco 700-*series
      rig upgrade, contracted into or beyond 2009 as of May 1, 2006.  Our
      total contract backlog of approximately $17 billion as of that date
      includes an estimated $12 billion of backlog represented by our
      High-Specification Floaters.  We have signed a number of new contracts or
      extensions in 2006 for our High-Specification Floaters including the *Transocean
      Marianas, Jack Bates, Sedco 709, Deepwater Discovery* and
      the
      two *Sedco
      700* -series
      semisubmersible upgrades.  We also entered into contract extensions for
      multi-year contracts for the *Deepwater
      Nautilus, Deepwater Frontier, Cajun Express* and *Discoverer
      Enterprise* . 
      We continue to believe that the long-term outlook for deepwater capable rigs
      is
      favorable and expect to see strong demand in Brazil, the Gulf of Mexico, West
      Africa and India.





Our
      Other
      Floaters fleet, comprised of 21 semisubmersible rigs, is largely committed
      to
      contracts that extend into 2007.  This fleet continues to benefit from
      improving activity levels in all regions. Customer demand is strongest in Asia,
      the Gulf of Mexico and the North Sea. We are seeing dayrates that are decidedly
      higher than those seen at the beginning of the year.  This is evidenced by
      new contracts with dayrates for the *Sedco
      703* at
      $400,000 and *Transocean
      Legend* at
      $435,000.  In the U.K. sector of the North Sea, we have begun the
      reactivation of two previously idle semisubmersibles, the *Transocean
      Prospect* and *Transocean
      Winner* ,
      both
      supported by multi-year contracts, which are expected to commence by June 2006
      and August 2006, respectively.  We have also commenced the reactivation of
      the *C.
      Kirk Rhein, Jr.* ,
      which
      has been awarded a two-year contract in India at a $340,000 dayrate, which
      is
      expected to commence by December 2006. We continue to evaluate contract
      opportunities for the *Transocean
      Wildcat* that
      would support the reactivation of the unit. The *Transocean
      Explorer* has been
      moved to held for sale status pending the expected closing of the sale in the
      second quarter of 2006.





24
 *Table
          of Contents*




The
      outlook for activity for the Jackup market sector remains strong. Customer
      demand is most pronounced in Asia and the Middle East, including multi-year
      opportunities in India, Saudi Arabia and Abu Dhabi. We were recently awarded
      three-year contracts for drilling programs in India involving five of our
      jackups. Dayrates for some standard units have approached or exceeded $200,000
      per day. This is evidenced by recent signings on the *Trident
      9* at ** $189,500
      per day and the *Shelf Explorer* at
      $212,200 per day. We expect to remain at or near full utilization for our Jackup
      fleet in the near term. However, we continue to be concerned about the potential
      effect of newbuild jackups, which have scheduled delivery dates ranging from
      2006 through approximately 2010. While we have not seen an appreciable effect
      to
      date, the addition of rig capacity could have an adverse impact on utilization
      and dayrates. On March 15, 2006, our
      exclusive marketing rights and options to purchase three PetroJack ASA jackup
      rigs under construction terminated.





While
      we
      anticipate near full utilization of available capacity during the remainder
      of
      2006 and into 2007, our results of operations for the remainder of 2006 will
      be
      significantly influenced by the actual timing and duration of the various
      shipyard projects and the actual start of higher dayrate contracts. We expect
      to
      incur downtime and increased operating and maintenance expenses in the second
      quarter of 2006 in connection with planned shipyard projects for and/or
      mobilizations of the *Sedco
      709, J. W. McLean* and *J.
      T. Angel* .





We
      also
      expect to incur significant costs in the second and third quarters of 2006
      due
      to the reactivation of the previously idled *Transocean
      Prospect,*  *Transocean
      Winner* and *C.
      Kirk Rhein, Jr* .,
      planned shipyard projects for and/or mobilizations of the *Discoverer
      534* and *Sedco
      707* and
      downtime to replace and upgrade equipment damaged on the *Transocean
      Marianas* and *Deepwater
      Nautilus* during
      hurricanes Katrina and Rita. In addition, vendor price increases and rising
      labor costs due to increased drilling activity, as well as increases in
      insurance costs, are expected to increase operating and maintenance costs in
      2006.





Our
      shipyard projects, including the construction of the deepwater drillship *Discoverer
      Clear Leader* , ** the *Sedco
      700-* series
      rig upgrades, our three rig reactivations and any other potential newbuild
      projects, 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.





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 rigs subject to these contract options. We have
      seven
      existing contracts with fixed-priced or capped options for dayrates that we
      believe are less than current market dayrates. Well-in-progress or similar
      provisions in our existing contracts may delay the start of higher dayrates
      in
      subsequent contracts.





There
      are
      currently approximately 26 newbuild deepwater rigs on order and options for
      17
      additional newbuilds. The announced delivery dates for most of these rigs are
      in
      2008 and 2009. 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.





25
 *Table
          of Contents*


*Insurance* —We
        have
        renewed our insurance coverages for 12 months effective May 1, 2006. We
        currently maintain a $10 million per occurrence insurance deductible on hull
        and
        machinery, a $10 million per occurrence deductible on personal injury liability
        and a $5 million per occurrence deductible on third party property damage.
        In
        addition to the per occurrence deductibles described above, we also have
        aggregate deductibles that are applied to any occurrence in excess of the
        per
        occurrence deductible until the aggregate deductible is exhausted. After
        the
        aggregate deductible is fully exhausted, the per occurrence deductible continues
        to apply. Such aggregate deductibles are $20 million in the case of our hull
        and
        machinery coverage and $25 million in the case of our personal injury liability
        and third party property damage coverage. We do not carry insurance for loss
        of
        revenue.





The
      annualized cost to maintain our current insurance and deductible level has
      increased by approximately $17 million effective May 1, 2006 and now includes
      an
      annual limit on losses due to hurricanes in the U.S Gulf of Mexico of $250
      million, except in the case of a total loss, where the limit is $300 million.
      As
      a result of these limits, we are self-insured for losses due to hurricanes
      in
      excess of these amounts.





*Tax
      Matters* —We
      are a
      Cayman Islands company. 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. A material change in these tax laws, treaties or regulations in any
      of
      the countries in which we operate could result in a higher or lower 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. We are currently contesting various tax
      assessments. We accrue for income tax contingencies that we believe are probable
      exposures.





Our
      2002
      and 2003 U.S. federal income tax returns are currently under examination by
      the
      U.S. Internal Revenue Service (“IRS”) and our 2001 U.S. federal income tax
      return remains open for examination. In April 2006, we received from the IRS,
      examination reports setting forth proposed changes to the U.S. federal taxable
      income reported for the period 2001-2003. The proposed adjustments would reduce
      our net operating losses by approximately $99 million and result in a cash
      tax
      payment of approximately $0.3 million of alternative minimum tax, which would
      serve to reduce cash tax payments in other years. We believe our returns are
      materially correct as filed. We intend to vigorously defend against any proposed
      changes. While we cannot predict or provide assurance as to the final outcome,
      we do not expect the ultimate settlement of any liability resulting from the
      examination to have a material adverse effect on our consolidated financial
      position, results of operations or cash flows.





In
      April
      2006, we received notice from the Norwegian tax authorities regarding their
      intent to propose adjustments to taxable income for the tax years 1999, 2001
      and
      2002. These proposed assessments would result in an increase in tax of
      approximately $260 million, plus interest, and the authorities further indicated
      they intend to impose penalties, which could range from 15 to 60 percent of
      the
      assessments. The anticipated assessments relate to restructuring transactions
      undertaken in 2001 and 2002. The Norwegian tax authorities initiated inquiries
      in September 2004 related to the restructuring transactions and a separate
      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. We have continued to respond to information requests from the
      Norwegian authorities. We also believe the Norwegian authorities are
      contemplating a tax assessment of approximately $98 million on the dividend,
      plus interest and a penalty, which could range from 15 to 60 percent of the
      assessment. Norwegian civil tax and criminal authorities are currently
      investigating the restructuring transactions and dividend. We plan to vigorously
      contest any assertions by the Norwegian authorities in connection with the
      restructuring transactions or dividend. While we cannot predict or provide
      assurance as to the final outcome of these proceedings, we do not expect it
      to
      have a material adverse effect on our consolidated financial position, results
      of operations or cash flows.





In
      addition, other tax authorities are examining our tax returns in various
      jurisdictions. While we cannot predict or provide assurance as to the final
      outcome of these other existing or future assessments, we do not expect the
      ultimate settlement of any liability resulting from these existing or future
      assessments to have a material adverse effect on our consolidated financial
      position, results of operations or cash flows.





26
 *Table
          of Contents*




**Performance
      and Other Key Indicators**





*Contract
      Backlog* —The
      following table reflects our contract backlog and associated average contractual
      dayrates for each of the three months ended on March 31, 2006, December 31,
      2005 and March 31, 2005 and reflects firm commitments only, typically
      represented by signed contracts.  Backlog
      is indicative of the full contractual dayrate. The amount of actual revenue
      earned and the actual periods during which revenues are earned will be different
      than the amounts and periods shown in the tables below due to various factors
      including shipyard and maintenance projects, other downtime and other factors
      that result in lower applicable dayrates than the full contractual operating
      dayrate. Our contract backlog is calculated by multiplying the contracted
      operating dayrate by the firm contract period, excluding revenues for
      mobilization, demobilization, contract preparation and customer reimbursables
      and such amounts are not expected to be significant to our contract drilling
      revenues. The contract backlog average dayrate is defined as the contracted
      operating dayrate to be earned per revenue earning day in the period. A revenue
      earning day is defined as a day for which a rig earns dayrate after commencement
      of operations and over the firm contract period.





March
                31,
              2006
            
            December
                31, 2005
            
            March
                31,
              2005(In
                millions)**Contract
                Backlog**High-Specification
                Floaters
            
            $
            12,917.3
            
            $
            8,329.5
            
            $
            2,054.5Other
                Floaters
            
            
            1,647.3
            
            
            1,643.2
            
            
            378.2Jackups
            
            
            2,128.4
            
            
            808.3
            
            
            542.3Other
                Rigs
            
            
            121.2
            
            
            132.3
            
            
            184.1Total
            
            $
            16,814.2
            
            $
            10,913.3
            
            $
            3,159.1





*Fleet
      Utilization and Average Daily Revenue* —The
      following table shows our average daily revenue and utilization for each of
      the
      three months ended on March 31, 2006, December 31, 2005 and March 31, 2005.
      See
“—Overview” for a definition of average daily revenue, revenue earning day and
      utilization.





Three
                Months EndedMarch
                31,
              2006
            
            December
                31, 2005
            
            March
                31,
              2005**Average
                Daily Revenue**High-Specification
                FloatersFifth-Generation
                Deepwater Floaters
            
            $
            209,000
            
            $
            215,800
            
            $
            182,300Other
                Deepwater Floaters
            
            $
            154,000
            
            $
            138,800
            
            $
            124,500Other
                High-Specification Floaters
            
            $
            158,800
            
            $
            161,700
            
            $
            153,000Total
                High-Specification Floaters
            
            $
            178,200
            
            $
            174,100
            
            $
            153,900Other
                Floaters
            
            $
            110,000
            
            $
            98,500
            
            $
            71,200Jackups
            
            $
            70,300
            
            $
            64,900
            
            $
            57,600Other
                Rigs
            
            $
            47,300
            
            $
            48,500
            
            $
            45,800Total
                Drilling Fleet
            
            $
            119,600
            
            $
            113,300
            
            $
            96,600**Utilization**High-Specification
                FloatersFifth-Generation
                Deepwater Floaters
            
            
            92
            %
            
            86
            %
            
            90
            %Other
                Deepwater Floaters
            
            
            83
            %
            
            79
            %
            
            75
            %Other
                High-Specification Floaters
            
            
            89
            %
            
            100
            %
            
            91
            %Total
                High-Specification Floaters
            
            
            87
            %
            
            84
            %
            
            83
            %Other
                Floaters
            
            
            73
            %
            
            71
            %
            
            57
            %Jackups
            
            
            91
            %
            
            89
            %
            
            94
            %Other
                Rigs
            
            
            58
            %
            
            49
            %
            
            44
            %Total
                Drilling Fleet
            
            
            82
            %
            
            78
            %
            
            75
            %





27
 *Table
          of Contents*




**Liquidity
      and Capital Resources**





**Sources
      and Uses of Cash**





Our
      primary sources of cash during the first three months of 2006 were our cash
      flows from operations, proceeds from asset sales and proceeds from issuance
      of
      ordinary shares upon the exercise of stock options. Our primary uses of cash
      were repurchases of our ordinary shares and capital expenditures. At March
      31,
      2006, we had $461.9 million in cash and cash equivalents.





Three
                Months Ended
              March
                31,2006
            
            2005
            
            Change(In
                millions)**Net
                Cash Provided by Operating Activities**Net
                income
            
            $
            205.7
            
            $
            91.8
            
            $
            113.9Depreciation
            
            
            101.6
            
            
            100.7
            
            
            0.9Other
                non-cash items
            
            
            (17.2
            )
            
            5.0
            
            
            (22.2
            )Working
                capital
            
            
            (22.2
            )
            
            (25.6
            )
            
            3.4$
            267.9
            
            $
            171.9
            
            $
            96.0





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.





Three
                Months Ended
              March
                31,2006
            
            2005
            
            Change(In
                millions)**Net
                Cash Provided by (Used in) Investing Activities**Capital
                expenditures
            
            $
            (177.6
            )
            $
            (31.2
            )
            $
            (146.4
            )Proceeds
                from disposal of assets, net
            
            
            81.7
            
            
            33.0
            
            
            48.7Joint
                ventures and other investments, net
            
            
            -
            
            
            3.1
            
            
            (3.1
            )$
            (95.9
            )
            $
            4.9
            
            $
            (100.8
            )





During
      the three months ended March 31, 2006, capital expenditures increased $146.4
      million over the corresponding prior year period, primarily due to the
      construction of a deepwater drillship and equipment replaced and upgraded.
      The
      increase in capital expenditures is partially offset by an increase in proceeds
      from asset sales of $48.7 million.


Three
                  Months Ended
                March
                  31,2006
              
              2005
              
              Change(In
                  millions)**Net
                  Cash Used in Financing Activities**Repayments
                  on debt
              
              $
              -
              
              $
              (279.9
              )
              $
              279.9Repurchases
                  of ordinary shares
              
              
              (200.0
              )
              
              -
              
              
              (200.0
              )Net
                  proceeds from issuance of ordinary shares under stock-based compensation
                  plans
              
              
              44.5
              
              
              72.4
              
              
              (27.9
              )Other,
                  net
              
              
              -
              
              
              0.1
              
              
              (0.1
              )$
              (155.5
              )
              $
              (207.4
              )
              $
              51.9


28
 *Table
            of Contents*




Net
      cash
      used in financing activities decreased due to lower debt repayments in the
      first
      quarter of 2006. The first quarter of 2005 included the early redemption of
      our
      6.95% Senior Notes with no comparable activity for the corresponding period
      in
      2006. In addition, we received lower proceeds from stock option exercises in
      the
      first quarter of 2006 compared to the same period in 2005.





In
      March
      2006, we repurchased and retired $200 million of our ordinary
      shares. See
“―Sources and Uses of Liquidity.”





**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 generally 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  have
      been
      awarded a drilling contract for the construction of a new deepwater drilling
      rig
      and are currently in discussions with various clients for potential other
      deepwater drilling contracts related to new deepwater rig construction. In
      addition, from time to time, we review possible dispositions of drilling
      units.


*Capital
      expenditures* —Capital
      expenditures, including capitalized interest, totaled $177.6 million during
      the
      three months ended March 31, 2006. During 2006, we expect to spend between
      $750
      million and $800 million on our existing fleet, including approximately $250
      million on the construction of the deepwater drillship *Discoverer
      Clear Leader* ,
      approximately $250 million for the upgrade of two of our *Sedco
      700* -series
      rigs, approximately $35 million to replace and upgrade equipment damaged during
      hurricanes Katrina and Rita on the *Deepwater
      Nautilus* and
      the *Transocean
      Marianas* and
      approximately $30 million to reactivate three of our Other Floaters. The level
      of our capital expenditures is dependent upon the actual level of operational
      and contracting activity. These expected capital expenditures do not include
      amounts that would be incurred as a result of any of the other newbuild or
      other
      reactivation opportunities being discussed with clients (see “—Outlook”).





As
      with
      any major shipyard project that takes place over an extended period of time,
      the
      actual costs, the timing of expenditures and the project completion date may
      vary from estimates based on numerous factors, including actual contract terms,
      weather, exchange rates, shipyard labor conditions and the market demand for
      components and resources required for drilling unit construction.





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 and
      Uses of Liquidity”) and may utilize other commercial bank or capital market
      financings.





*Dispositions* — In
      February 2006, we completed the sale of the drillship *Peregrine
      III* for net
      proceeds of $78.7 million and recognized a gain on the sale of $61.9 million.





In
      March
      2006, we completed the sale of a platform rig for net proceeds of $10.1 million
      and recognized a gain on the sale of $2.7 million.




**Sources
      and Uses of Liquidity**





Our
      primary sources of liquidity are cash flows from operations, proceeds from
      asset
      sales, proceeds from issuance of ordinary shares upon the exercise of stock
      options and existing cash balances. Our primary uses of cash are capital
      expenditures, repurchases of ordinary shares and debt repayments.





29
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          of Contents*




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 the repurchase of 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 shares 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, but we could 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 that will be repurchased under the program. Under the
      program, repurchased shares are retired and returned to unissued status. In
      March 2006, we repurchased and retired $200 million of our ordinary shares,
      which amounted to approximately 2.6 million ordinary shares at an average
      purchase price of $77.54 per share. Total consideration paid to repurchase
      the
      shares was recorded in shareholders’ equity as a reduction in ordinary shares
      and additional paid-in capital. Such consideration was funded with existing
      cash
      balances. At April 28, 2006, after prior purchases, we still had authority
      to
      repurchase $1.4 billion of our ordinary shares under the program.





In
      April
      2006, we announced that holders of our 1.5% Convertible Debentures due May
      15,
      2021 have the option to require us to repurchase their debentures as of May
      15,
      2006. Each holder of the debentures has the right, pursuant to the terms of
      the
      indenture under which the debentures were issued, to require us to repurchase
      on
      May 15, 2006 all or any part of such holder’s debentures at a repurchase price
      of $1,000 per $1,000 principal amount plus accrued and unpaid interest through
      May 15, 2006. Under the terms of the debentures, we had the option to pay for
      the debentures with cash, ordinary shares, or a combination of cash and shares,
      and we elected to pay for the debentures solely with cash. If all outstanding
      debentures are surrendered for repurchase, the aggregate cash repurchase price
      will be approximately $400 million. We intend
      to
      pay the repurchase price from existing cash balances. The debentures
      are convertible, at the option of the holder, into 13.8627 of our ordinary
      shares per $1,000 principal amount, subject to adjustment under certain
      circumstances. If
      all of
      the debentures are converted by the holders, approximately 5.5 million shares
      would be issued to the debenture holders and the debentures would be retired
      in
      a non-cash transaction. Because of the level of our share price, we believe
      it
      is unlikely that the debentures will be surrendered for repurchase.





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 several years.





We
      have
      access to a bank line of credit under a $500 million five-year revolving credit
      agreement. At April 28, 2006, $500 million remained available under this credit
      line.





The
      bank
      credit line 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.




30
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          of Contents*




In
      April
      2001, the 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 April 28, 2006, $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, industry
      conditions, general economic conditions, market conditions and market
      perceptions of us and our industry.




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.





**Derivative
      Instruments**





In
      2003,
      we terminated all our outstanding interest rate swaps, which were designated
      as
      fair value hedges, and we recorded $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. The
      remaining balance as of March 31, 2006 of $17.1 million relates to the 6.625%
      Notes due April 2011.





**Operating
      Results**





***Three
      months ended March 31, 2006 compared to three months ended March 31,
      2005***





Following
      is an analysis of our operating results, as well as an analysis of income and
      expense categories. See “—Overview” for a definition of average daily revenue,
      revenue earning days and utilization.





*Transocean
      Drilling*





Three
                Months EndedMarch
                31,2006
            
            2005
            
            Change
            
            %
                Change(In
                millions, except day amounts and percentages)Revenue
                earning days
            
            
            6,511
            
            
            6,218
            
            
            293
            
            
            5
            %Utilization
            
            
            82
            %
            
            75
            %
            
            N/A
            
            
            7
            %Average
                daily revenue
            
            $
            119,600
            
            $
            96,600
            
            $
            23,000
            
            
            24
            %Contract
                drilling revenues
            
            $
            778.9
            
            $
            600.6
            
            $
            178.3
            
            
            30
            %Other
                revenues
            
            
            38.4
            
            
            29.9
            
            
            8.5
            
            
            28
            %817.3
            
            
            630.5
            
            
            186.8
            
            
            30
            %Operating
                and maintenance expense
            
            
            475.0
            
            
            388.3
            
            
            86.7
            
            
            22
            %Depreciation
            
            
            101.6
            
            
            100.7
            
            
            0.9
            
            
            1
            %Gain
                from disposal of assets, net
            
            
            (64.1
            )
            
            (19.9
            )
            
            (44.2
            )
            
            N/MOperating
                income before general and administrative expense
            
            $
            304.8
            
            $
            161.4
            
            $
            143.4
            
            
            89
            %


_________________


“N/A”
      means not applicable


“N/M”
      means not meaningful





Contract
      drilling revenues increased by $178.3 million primarily due to increased
      activity resulting in higher average daily revenue and utilization. Partially
      offsetting this increase were lower revenues in 2006 for the *Transocean
      Marianas* which
      was idle undergoing repairs for hurricane damage.





31
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          of Contents*




Other
      revenues for the three months ended March 31, 2006 increased $8.5 million
      primarily due to a $5.5 million increase in integrated services revenue and
      a
      $5.8 million increase in client reimbursable revenue. These increases were
      partially offset by a Norway strike refund of $2.6 million during the three
      months ended March 31, 2005 with no comparable activity in 2006.





Operating
      and maintenance expenses increased by $86.7 million primarily
      from increased activity, pay increases to employees and vendor price increases
      resulting in higher labor and rig maintenance costs. Operating and maintenance
      expenses also increased by $15.3 million for reactivation costs associated
      with
      the *Transocean
      Prospect* , *Transocean
      Winner* and *C.
      Kirk Rhein, Jr.* and an
      additional $7.7 million as a result of costs incurred in the first quarter
      of
      2006 to repair damages sustained during hurricanes Katrina and Rita on the *Transocean
      Marianas* and the *Deepwater
      Nautilus* .
      Partially offsetting these increases were costs of $4.4 million related to
      the *Jim
      Cunningham* incident
      in 2005 with no comparable activity in 2006.





During
      the quarter ended March 31, 2006, we recognized net gains of $64.1 million
      related to the sale of the drillship *Peregrine
      III* ,
      a
      platform drilling rig and the sales and disposal of other assets. During the
      quarter ended March 31, 2005, we recognized net gains of $19.9 million related
      to the sale of the semisubmersible rig *Sedco
      600* and
      the
      sale and disposal of other assets.





*Unallocated* *Income and Expenses*





Three
                Months EndedMarch
                31,2006
            
            2005
            
            Change
            
            %
                Change(In
                millions, except % change)General
                and Administrative Expense
            
            $
            20.2
            
            $
            18.1
            
            $
            2.1
            
            
            12
            %Other
                (Income) Expense, netEquity
                in (earnings) losses of unconsolidated affiliates
            
            
            0.5
            
            
            (3.1
            )
            
            3.6
            
            
            N/MInterest
                income
            
            
            (5.2
            )
            
            (4.0
            )
            
            (1.2
            )
            
            30
            %Interest
                expense, net of amounts capitalized
            
            
            23.9
            
            
            33.1
            
            
            (9.2
            )
            
            (28
            )%Loss
                on retirement of debt
            
            
            -
            
            
            6.7
            
            
            (6.7
            )
            
            (100
            )%Other,
                net
            
            
            (0.7
            )
            
            1.1
            
            
            (1.8
            )
            
            N/MIncome
                Tax Expense
            
            
            60.4
            
            
            17.5
            
            
            42.9
            
            
            N/MMinority
                Interest
            
            
            -
            
            
            0.2
            
            
            (0.2
            )
            
            N/M


_________________________


“N/M”
      means not meaningful





The
      increase in general and administrative expense was primarily attributable to
      increased stock-based compensation expense of $1.7 million.





Equity
      in
      earnings from unconsolidated affiliates decreased approximately $3.6 million
      primarily related to our 50 percent share of earnings from Overseas Drilling
      Limited (“ODL”), owner of the drillship *Joides
      Resolution* ,
      which
      was not operating for two months during the first quarter of 2006 and the
      disposition of our remaining interest in TODCO (a formerly wholly-owned
      subsidiary) during the first half of 2005.





The
      decrease in interest expense included $8.8 million that was primarily
      attributable to reductions associated with debt that was redeemed, retired
      or
      repurchased during or subsequent to the first quarter of 2005.





During
      the three months ended March 31, 2005, we recognized a $6.7 million loss related
      to the early redemption of $247.8 million aggregate principal amount of our
      debt.





32
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          of Contents*




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 at March 31, 2006 and 2005
      were
      17.6 percent and 15.7 percent, respectively, based on estimated 2006 and 2005
      annual income before income taxes and minority interest after adjusting for
      certain items such as a portion of net gains on sales of assets 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. For
      the
      three months ended March 31, 2006, the impact of the various discrete period
      tax
      items was a net expense of $24.9 million, related to the net gains on rig sales
      and changes in prior year estimates, resulting in a tax rate of 22.7 percent
      on
      earnings before income taxes and minority interest. For the three months ended
      March 31, 2005, the impact of the various discrete items was a net benefit
      of
      $2.2 million, related to changes in estimates related to deferred tax assets
      retained by us after the disposition of TODCO, resulting in a tax rate of 16.0
      percent on earnings before income taxes and minority interest.





**Critical
      Accounting 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, 2005. The preparation of our 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 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 may differ from these
      estimates under different assumptions or conditions.





For
      a
      discussion of the critical accounting estimates that we use in the preparation
      of our 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, 2005. There have been no
      material changes to these estimates during the three months ended March 31,
      2006. These estimates require significant judgments and estimates used in the
      preparation of our consolidated financial statements. Management has discussed
      each of these critical accounting estimates with the audit committee of the
      board of directors.





**Stock-Based
      Compensation**





On
      January 1, 2006, we adopted the Financial Accounting Standards Board (“FASB”)
      Statement of Financial Accounting Standards (“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 Accounting Principles Board Opinion (“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. In March
      2005,
      the SEC issued Staff Accounting Bulletin No. 107 (“SAB
      107”), *Stock-Based
      Payment* ,
      relating to SFAS 123(R). We have applied the provisions of SAB 107 in our
      adoption of SFAS 123(R).





We
      adopted SFAS 123(R) using the modified prospective method (“Prospective
      Method”), which requires the application of SFAS 123(R) as of January 1, 2006,
      the first day of our fiscal year 2006. Our consolidated financial statements
      as
      of and for the three months ended March 31, 2006 reflect the application of
      SFAS
      123(R). In accordance with the Prospective Method, our consolidated financial
      statements for prior periods have not been restated to reflect, and do not
      include, the application of SFAS 123(R). Share-based compensation expense for
      the three months ended March 31, 2006 and 2005 was $2.8 million ($2.5 million,
      net of tax) and $3.1 million ($2.8 million, net of tax), respectively. The
      income tax benefit related to share-based compensation was $0.3 million for
      both
      the three months ended March 31, 2006 and 2005.





33
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          of Contents*




SFAS
      123(R) requires forfeitures to be estimated at the time of grant and revised,
      if
      necessary, in subsequent periods if actual forfeitures differ from those
      estimates. Additionally, SFAS 123(R) requires the estimated forfeiture rate
      be
      applied and the cumulative effect determined for all prior periods in which
      stock-based compensation costs have been recorded. Prior to our adoption of
      SFAS
      123(R), we accounted for forfeitures as they occurred. Upon adopting SFAS
      123(R), we estimated expected forfeitures over the life of each individual
      award
      and have included the impact of these expected forfeitures in our stock-based
      compensation expense for the three months ended March 31, 2006 in addition
      to
      all prior periods on a cumulative basis. The effect of this change is to reverse
      compensation cost recognized in prior period financial statements for awards
      that are not expected to vest based upon the expected forfeiture rate. The
      cumulative effect of applying the expected forfeiture rate has been included
      in
      operating and maintenance expense and general and administrative expense, the
      impact of which had no material effect on our consolidated financial position,
      results of operations or cash flows.





We
      adopted SFAS 123 effective January 1, 2003 and have accounted for stock-based
      compensation prospectively for all stock based awards granted or modified on
      or
      subsequent to that date. As such, adoption of SFAS 123(R) using the Prospective
      Method had no material impact on our consolidated financial position, results
      of
      operations or cash flows. 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 to be reported as a financing cash
      flow rather than as an operating cash flow, which was required under SFAS 95.
      We
      reported operating cash flows related to tax deduction benefits of $0.8 million
      for the period ended March 31, 2005.





Under
      SFAS 123, we recognized compensation cost over the vesting period up to the
      date
      of actual retirement. We will continue this practice for awards granted prior
      to
      adoption of SFAS 123(R). As a result of the adoption of SFAS 123(R), we now
      recognize compensation cost for awards granted or modified after January 1,
      2006
      through the date the employee is no longer required to provide service to earn
      the award (“service period”). If we had amortized compensation cost over the
      service period prior to adoption of SFAS 123(R), stock-based compensation
      expense would not have been materially different for any of the periods
      presented.





**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
      adopted SFAS 154 effective January 1, 2006. The adoption of this statement
      had
      no impact on our consolidated financial position, results of operations or
      cash
      flows.





**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 as well as invested cash balances. These matters
      have been previously discussed and reported in our Annual Report of Form 10-K
      for the year ended December 31, 2005. There have been no material changes to
      these previously reported matters during the three months ended March 31, 2006.





**Foreign
      Exchange Risk**





Our
      international operations expose us to foreign exchange risk. These matters
      have
      been previously discussed and reported in our Annual Report of Form 10-K for
      the
      year ended December 31, 2005. There have been no material changes to these
      previously reported matters during the three months ended March 31,
      2006.


34
 *Table
          of Contents*


**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 March 31, 2006 to provide reasonable assurance
      that information required to be disclosed in our reports filed or submitted
      under the Exchange Act was (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.





There
      were no changes to our internal controls over financial reporting during the
      quarter ended March 31, 2006 that have materially affected, or are reasonably
      likely to materially affect, our internal controls over financial
      reporting.


35
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          of Contents*


**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. Further, the complaints
      name other unaffiliated defendant companies, including companies that allegedly
      manufactured drilling related products containing asbestos. 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 generally seek 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 extensive discovery nor have we been able to 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 or cash flows.





We
      have a
      dispute with TODCO concerning payment to us under our tax sharing agreement
      with
      TODCO for the tax benefit that TODCO derives from exercises of options to
      purchase our ordinary shares held by employees of TODCO. An arbitration
      proceeding that was initiated in January 2006 continues and is expected to
      be
      concluded during 2006. We are seeking payment of the amount of tax benefits
      derived from exercises of options to purchase our ordinary shares by employees
      of TODCO who were not on the payroll of TODCO at the time of exercise and a
      declaration that TODCO pay us for the benefit derived from such exercises in
      the
      future. TODCO is seeking to avoid such payment and is asking that the entire
      tax
      sharing agreement be voided. TODCO also filed suit in Houston in the district
      court of the State of Texas in January 2006 seeking to set aside the arbitration
      provision and to void the entire tax sharing agreement. We believe TODCO owes
      us
      approximately $18.0 million, exclusive of interest, based on options exercised
      through March 31, 2006, and we do not believe TODCO’s attempts to void the tax
      sharing agreement have merit. We do not expect the outcome of this matter to
      have a material adverse effect on our consolidated financial position, results
      of operations or 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,
      2005
      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 or cash flows. We are
      also involved in various tax matters as described in "Item 2. Management's
      Discussion and Analysis of Financial Condition and Results of Operations—Outlook-Tax
      Matters." We cannot predict with certainty the outcome or effect of any of
      the matters specifically described above or of any such other pending or
      threatened litigation or legal proceedings. There can be no assurance that
      our
      beliefs or expectations as to the outcome or effect of any lawsuit or
      other matters will prove correct and the eventual outcome of these matters
      could materially differ from management’s current estimates.




**Item
      1A. Risk Factors**




For
      a
      discussion of risk factors, see "Item 1A. Risk Factors" in our Annual Report
      of
      Form 10-K for the year ended December 31, 2005.




36
 *Table
          of Contents*


**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)**
              **(in
                millions)**January 2006
            
            
            39,325
            
            $
            71.23
            
            
            N/A
            
            $
            1,600.0February 2006
            
            
            705
            
            
            77.87
            
            
            N/A
            
            
            1,600.0March 2006
            
            
            2,578,500
            
            
            77.54
            
            
            2,578,500
            
            
            1,400.0Total
            
            
            2,618,530
            
            $
            77.45
            
            
            2,578,500
            
            $
            1,400.0


_________________


(1)
            Total
                number of shares purchased in the first three months of 2006 includes
                40,030 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 share award.





(2)
            In
                October 2005, our board of directors authorized the repurchase of
                up to $2
                billion of our ordinary shares. The shares may be repurchased from
                time to
                time in open market or private transactions. The repurchase program
                does
                not have an established expiration date and may be suspended or
                discontinued at any time. Under the program, repurchased shares are
                retired and returned to unissued status. From inception through March
                31,
                2006, we have repurchased a total of 8,593,251 of our ordinary shares
                at a
                total cost of $600 million.


37
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          of Contents*


**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)





†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.


38
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          of Contents*


**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, thereunto duly authorized, on May 4, 2006.





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)




39