**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, 2007**
 
 **OR**
 
 ** ̈**
              **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 ** ̈**
 
 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** ̈**
              Non-accelerated
                  Filer** ̈**
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes ** ̈** **** No **x**
 
 As
        of
        April 27, 2007, 288,147,782 ordinary shares, par value $0.01 per share, were
        outstanding.
 
 
  
  **TRANSOCEAN
        INC.**
 
 **INDEX
        TO FORM 10-Q**
 
 **QUARTER
        ENDED** **MARCH
        31, 2007**
 Page**PART
                    I - FINANCIAL INFORMATION****Item
                    1.**
                Financial
                    Statements (Unaudited)Condensed
                    Consolidated Statements of OperationsThree
                    Months Ended March 31, 2007 and
                    2006
                1Condensed
                    Consolidated Balance SheetsMarch
                    31, 2007 and December 31, 2006
                2Condensed
                    Consolidated Statements of Cash FlowsThree
                    Months Ended March 31, 2007 and
                    2006
                3Notes
                    to Condensed Consolidated Financial
                    Statements
                4**Item
                    2.**
                Management’s
                    Discussion and Analysis of
                    Financial Condition and Results of Operations
                14**Item
                    3.**
                Quantitative
                    and Qualitative Disclosures About Market
                    Risk
                28**Item
                    4.**
                Controls
                    and Procedures
                29**PART
                    II - OTHER INFORMATION****Item
                    1.**
                Legal
                    Proceedings
                29**Item
                    1A.**
                Risk
                    Factors
                30**Item
                    2.**
                Unregistered
                    Sales of Equity Securities and Use of
                    Proceeds
                32**Item
                    6.**
                Exhibits
                33
  ***Index***
  PART
        I- FINANCIAL INFORMATION
 
 **Item
        1. Financial Statements**
 
 **TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 (In
        millions, except per share data)
 (Unaudited)
 
 Three
                  months ended March 31,2007
              
              2006Operating
                  RevenuesContract
                  drilling revenues
              
              $
              1,273
              
              $
              779Other
                  revenues
              
              
              55
              
              
              381,328
              
              
              817Costs
                  and ExpensesOperating
                  and maintenance
              
              
              568
              
              
              475Depreciation
              
              
              100
              
              
              102General
                  and administrative
              
              
              26
              
              
              20694
              
              
              597Gain
                  from disposal of assets, net
              
              
              23
              
              
              64Operating
                  Income
              
              
              657
              
              
              284Other
                  Income (Expense), netInterest
                  income
              
              
              5
              
              
              5Interest
                  expense, net of amounts capitalized
              
              
              (37
              )
              
              (24
              )Other,
                  net
              
              
              13
              
              
              1(19
              )
              
              (18
              )Income
                  Before Income Taxes
              
              
              638
              
              
              266Income
                  Tax Expense
              
              
              85
              
              
              60Net
                  Income
              
              $
              553
              
              $
              206Earnings
                  Per ShareBasic
              
              $
              1.90
              
              $
              0.63Diluted
              
              $
              1.84
              
              $
              0.61Weighted
                  Average Shares OutstandingBasic
              
              
              290
              
              
              325Diluted
              
              
              302
              
              
              337
 
 See
        accompanying notes.
  1
 ***Index***
  **TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 (In
        millions, except share data)
 
 March
                  31,
              
              December
                  31,2007
              
              2006(Unaudited)**ASSETS**Cash
                  and Cash Equivalents
              
              $
              502
              
              $
              467Accounts
                  Receivable, net of allowance for doubtful accounts of $24 and $26
                  at March
                  31, 2007 and December 31, 2006, respectively
              
              
              1,085
              
              
              946Materials
                  and Supplies, net of allowance for obsolescence of $21 and $19at
                  March 31, 2007 and December 31, 2006, respectively
              
              
              168
              
              
              160Deferred
                  Income Taxes, net
              
              
              16
              
              
              16Other
                  Current Assets
              
              
              48
              
              
              67Total
                  Current Assets
              
              
              1,819
              
              
              1,656Property
                  and Equipment
              
              
              10,866
              
              
              10,539Less
                  Accumulated Depreciation
              
              
              3,298
              
              
              3,213Property
                  and Equipment, net
              
              
              7,568
              
              
              7,326Goodwill
              
              
              2,195
              
              
              2,195Other
                  Assets
              
              
              301
              
              
              299Total
                  Assets
              
              $
              11,883
              
              $
              11,476**LIABILITIES
                  AND SHAREHOLDERS’ EQUITY**Accounts
                  Payable
              
              $
              354
              
              $
              477Accrued
                  Income Taxes
              
              
              136
              
              
              98Debt
                  Due Within One Year
              
              
              −
              
              
              95Other
                  Current Liabilities
              
              
              469
              
              
              369Total
                  Current Liabilities
              
              
              959
              
              
              1,039Long-Term
                  Debt
              
              
              3,484
              
              
              3,200Deferred
                  Income Taxes, net
              
              
              52
              
              
              54Other
                  Long-Term Liabilities
              
              
              508
              
              
              343Total
                  Long-Term Liabilities
              
              
              4,044
              
              
              3,597Commitments
                  and ContingenciesMinority
                  Interest
              
              
              2
              
              
              4Preference
                  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, 288,053,348
                  and
                  292,454,457 shares issued and outstanding at March 31, 2007 and
                  December
                  31, 2006, respectively
              
              
              3
              
              
              3Additional
                  Paid-in Capital
              
              
              7,675
              
              
              8,044Accumulated
                  Other Comprehensive Loss
              
              
              (30
              )
              
              (30
              )Accumulated
                  Deficit
              
              
              (770
              )
              
              (1,181
              )Total
                  Shareholders’ Equity
              
              
              6,878
              
              
              6,836Total
                  Liabilities and Shareholders’ Equity
              
              $
              11,883
              
              $
              11,476
 
 See
        accompanying notes.
  2
 ***Index***
 **TRANSOCEAN
          INC. AND SUBSIDIARIES**
 **CONDENSED
          CONSOLIDATED STATEMENTS OF CASH FLOWS**
 (In
          millions)
 (Unaudited)
 Three
                  months ended March 31,2007
              
              2006**Cash
                  Flows from Operating Activities**Net
                  income
              
              $
              553
              
              $
              206Adjustments
                  to reconcile net income to net cash provided by operating
                  activitiesDepreciation
              
              
              100
              
              
              102Share-based
                  compensation expense
              
              
              10
              
              
              3Deferred
                  income taxes
              
              
              (2
              )
              
              34Net
                  gain from disposal of assets
              
              
              (23
              )
              
              (64
              )Deferred
                  income, net
              
              
              34
              
              
              9Deferred
                  expenses, net
              
              
              (7
              )
              
              (8
              )Other
                  long-term liabilities
              
              
              7
              
              
              7Other,
                  net
              
              
              (1
              )
              
              1Changes
                  in operating assets and liabilitiesAccounts
                  receivable
              
              
              (139
              )
              
              (71
              )Accounts
                  payable and other current liabilities
              
              
              83
              
              
              44Income
                  taxes receivable/payable, net
              
              
              43
              
              
              6Other
                  current assets
              
              
              (4
              )
              
              (1
              )Net
                  Cash Provided by Operating Activities
              
              
              654
              
              
              268**Cash
                  Flows from Investing Activities**Capital
                  expenditures
              
              
              (465
              )
              
              (178
              )Proceeds
                  from disposal of assets, net
              
              
              39
              
              
              82Joint
                  ventures and other investments, net
              
              
              (3
              )
              
              -Net
                  Cash Used in Investing Activities
              
              
              (429
              )
              
              (96
              )**Cash
                  Flows from Financing Activities**Borrowings
                  under the Revolving Credit Facility, net
              
              
              190
              
              
              -Net
                  proceeds from issuance of ordinary shares under share-based compensation
                  plans
              
              
              15
              
              
              45Repurchase
                  of ordinary shares
              
              
              (400
              )
              
              (200
              )Other,
                  net
              
              
              5
              
              
              -Net
                  Cash Used in Financing Activities
              
              
              (190
              )
              
              (155
              )Net
                  Increase in Cash and Cash Equivalents
              
              
              35
              
              
              17Cash
                  and Cash Equivalents at Beginning of Period
              
              
              467
              
              
              445Cash
                  and Cash Equivalents at End of Period
              
              $
              502
              
              $
              462
 
 See
        accompanying notes.
  3
 ***Index***
  **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, 2007, we owned, had
        partial ownership interests in or operated 82 mobile offshore drilling units.
        As
        of this date, our fleet consisted of 33 High-Specification semisubmersibles
        and
        drillships (“High-Specification Floaters”), 20 Other Floaters, 25 Jackups and
        four Other Rigs. We also have three High-Specification Floaters under
        construction. See Note 3—Drilling Fleet Expansion and Upgrades.
 
 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, 2007 are
        not
        necessarily indicative of the results that may be expected for the year ending
        December 31, 2007 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,
        2006.
 
 *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, share-based compensation, 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.
 
 *Total
        Comprehensive Income* —Total
        comprehensive income for the three months ended March 31, 2007 and March
        31,
        2006 was $553 million and $206 million, respectively. There were no other
        comprehensive income items greater than $1 million for either of the periods
        presented.
  4
 ***Index***
  **TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**
 (Unaudited)
 
 *Capitalized
        Interest* — We
        capitalize interest costs for qualifying construction and upgrade projects.
        We
        capitalized interest costs on construction work in progress of $13 million
        for
        the three months ended March 31, 2007. Capitalized interest for the three
        months
        ended March 31, 2006 was less than $1 million.
 
 *Segments* —We
        operate in one business 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.
 
 *Share-Based
        Compensation* — On
        January 1, 2006, we adopted the Financial Accounting Standards Board (“FASB”)
        Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), *Share-Based
        Payment* (“SFAS
        123R”), and have accounted for share-based compensation prospectively for all
        share-based awards granted or modified on or subsequent to that date.
        Share-based compensation expense was $10 million ($9 million, net of tax)
        and $3
        million, which had an immaterial tax effect, for the three months ended March
        31, 2007 and 2006, respectively. In addition to the compensation cost
        recognition requirements, SFAS 123R 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
        No. 95, *Statement
        of Cash Flows* .
        We
        reported financing cash flows related to tax deduction benefits of $4 million
        for the three months ended March 31, 2007, with no comparable cash flows
        for the
        three months ended March 31, 2006.
 
 *Income
        Taxes—* In
        June
        2006, the FASB issued FASB Interpretation No. 48, *Accounting
        for Uncertainty in Income Taxes—an interpretation of FASB Statement No.
        109* (“FIN
        48”). FIN 48 clarifies the accounting for income taxes recognized in an entity’s
        financial statements in accordance with SFAS No. 109, *Accounting
        for Income Taxes* .
        It
        prescribes a minimum recognition threshold and measurement attribute for
        recognizing and measuring the benefit of tax positions taken or expected
        to be
        taken in a tax return. FIN 48 also provides guidance on derecognition,
        classification, interest and penalties, accounting in interim periods,
        disclosure and transition. FIN 48 is effective for fiscal years beginning
        after
        December 15, 2006. We adopted this interpretation on January 1, 2007. The
        cumulative effect adjustment upon adoption of FIN 48 resulted in a $146 million
        increase in our other long-term liabilities and a corresponding increase
        in the
        beginning balance of our accumulated deficit, primarily related to the ongoing
        dispute with Norway regarding certain restructuring transactions undertaken
        in
        2001 and 2002. See Note 6 ―Income
        Taxes.
 
 In
        June 2006, the FASB reached consensus on Emerging Issues Task Force
        (“EITF”) Issue No. 06-3, “How Taxes Collected From Customers and Remitted to
        Governmental Authorities Should Be Presented in the Income Statement” (“EITF
        06-3”). The scope of EITF 06-3 includes any tax assessed by a governmental
        authority that is directly imposed on a revenue-producing transaction between
        a
        seller and a customer, including sales, use, value added and excise taxes.
        EITF
        06-3 provides that a company may adopt a policy of presenting taxes in the
        consolidated statement of operations on either a gross or net basis. If such
        taxes are significant, and are presented on a gross basis, the amounts of
        those
        taxes should be disclosed. The consensus on EITF 06-3 is effective for the
        interim and annual reporting periods beginning after December 15, 2006. We
        adopted EITF 06-3 on January 1, 2007. We record taxes collected from our
        customers and remitted to governmental authorities on a net basis in our
        consolidated statement of operations and our adoption had no effect on our
        consolidated balance sheet, statement of operations or cash flows.
 
 *New
        Accounting Pronouncements—* In
        September 2006, the FASB issued SFAS No. 157, *Fair
        Value Measurements* (“SFAS
        157”). SFAS 157 defines fair value, establishes a framework for measuring fair
        value in generally accepted accounting principles, and expands disclosures
        about
        fair value measurements. SFAS 157 applies under other accounting pronouncements
        that require or permit fair value measurements because the FASB previously
        concluded in those accounting pronouncements that fair value is the relevant
        measurement attribute. Accordingly, SFAS 157 does not require any new fair
        value
        measurements. SFAS 157 is effective for fiscal years beginning after November
        15, 2007. We will be required to adopt SFAS 157 in the first quarter of fiscal
        year 2008. Management is currently evaluating the requirements of SFAS 157
        and
        has not yet determined the impact on the consolidated financial
        statements.
  5
 ***Index***
  **TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**
 (Unaudited)
 
 In
        February 2007, the FASB issued SFAS No. 159, *The
        Fair Value Option for Financial Assets and Financial Liabilities* (“SFAS
        159”). SFAS 159 provides companies with an option to report selected financial
        assets and liabilities at fair value. It also establishes presentation and
        disclosure requirements designed to facilitate comparisons between companies
        that choose different measurement attributes for similar types of assets
        and
        liabilities. SFAS 159 is effective as of the beginning of the first fiscal
        year
        beginning after November 15, 2007. We will be required to adopt SFAS 159
        in the
        first quarter of fiscal year 2008. Management is currently evaluating the
        requirements of SFAS 159 and has not yet determined the impact on the
        consolidated financial statements.
 
 *Reclassifications* —Certain
        reclassifications have been made to prior period amounts to conform with
        the
        current period’s presentation.
 
 **Note
        3―Drilli** **ng
        Fleet Expansion and Upgrades**
 
 Capital
        expenditures, including capitalized interest, totaled $465 million during
        the
        three months ended March 31, 2007 and included $302 million spent on the
        construction of three enhanced Enterprise-class drillships and $58 million
        on
        two *Sedco
        700* -series
        rig upgrades.
 
 Capital
        expenditures, including capitalized interest, totaled $178 million during
        the
        three months ended March 31, 2006 and included $94 million spent on the
        construction of an enhanced Enterprise-class drillship and $20 million on
        two *Sedco
        700* -series
        rig upgrades.
 
 **Note
        4** ― **Asset
        Dispositions**
 
 During
        the three months ended March 31, 2007, we completed the sale of our membership
        interest in Transocean CGR LLC (owner of the tender rig *Charley
        Graves* )
        for net
        proceeds of $33 million and recognized a gain on the sale of $23 million
        ($20
        million, or $0.07 per diluted share, net of tax).
 
 During
        the three months ended March 31, 2006, we sold one of our Other Floaters
        ( *Peregrine
        III)* and a
        platform rig. We received net proceeds from these sales of $89 million and
        recognized gains on the sales of $65 million ($43 million, or $0.12 per diluted
        share, net of tax).
 
 **Note
        5** ― **Repurchase
        of Ordinary Shares**
 
 In
        October 2005, our board of directors authorized the repurchase of up to $2.0
        billion of our ordinary shares. 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 constructively retired and returned
        to
        unissued status.
 
 In
        May
        2006, our board of directors authorized an increase in the overall amount
        of
        ordinary shares which may be repurchased under our share repurchase program
        from
        $2.0 billion to $4.0 billion.
  6
 ***Index***
  **TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**
 (Unaudited)
 
 A
        summary
        of the aggregate ordinary shares repurchased and retired for the three months
        ended March 31, 2007 and 2006 is as follows (in millions, except per share
        data):
 
 Three
                  months ended
                March
                  31,2007
              
              2006Value
                  of shares
              
              $
              400
              
              $
              200Number
                  of shares
              
              
              5.2
              
              
              2.6Average
                  purchase price per share
              
              $
              77.39
              
              $
              77.54
 
 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 and borrowings under
        our
        Revolving Credit Facility. At March 31, 2007, we still had authority to
        repurchase $600 million of our ordinary shares under our share repurchase
        program.
 
 **Note
        6** ― **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,
        2007
        and March 31, 2006 was based on estimated annual income before income taxes
        for
        each period after adjusting for certain items such as net gains on rig sales.
        The company will continue to recognize interest and penalties related to
        unrecognized tax benefits as income tax expense.
 
 At
        January 1, 2007, the total unrecognized tax benefit related to uncertain
        tax
        positions was $303 million, of which $294 million would affect the effective
        tax
        rate if recognized. These amounts included $84 million and $83 million of
        interest and penalties, respectively. During the quarter, the total unrecognized
        tax benefits increased by $9 million, including $3 million of interest and
        penalties.
 
 Our
        income tax returns are subject to review and examination in the many various
        jurisdictions in which we operate. It is reasonably possible that the
        unrecognized tax benefits related to uncertain tax positions will materially
        change within the next 12 months although it is not possible to estimate
        the
        impact of such a change.
 
 Our
        2004
        and 2005 U.S. federal income tax returns are currently under examination
        by the
        U.S. Internal Revenue Service (“IRS”). Our 2006 income tax return and certain
        net operating losses generated in 2000 through 2003 are subject to examination.
        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 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 and filed a formal protest to the proposed assessment
        in
        June 2006. We also believe the Norwegian authorities are contemplating a
        tax
        assessment of approximately $104 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 continue to investigate 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 the ultimate resolution of these matters
        to have a material adverse effect on our consolidated financial position
        or
        results of operations although it may have a material adverse effect on our
        consolidated cash flows.
  7
 ***Index***
  **TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**
 (Unaudited)
 
 Our
        tax
        returns in the other major jurisdictions in which we operate are generally
        subject to examination for periods ranging from three to six years. We have
        agreed to extensions beyond the statute of limitations in two jurisdictions
        for
        up to 12 years. Tax authorities in certain jurisdictions are examining our
        tax
        returns and in some cases have issued assessments. We are defending our tax
        positions in those jurisdictions. While we cannot predict or provide assurance
        as to the final outcome of these proceedings, we do not expect the
        ultimate liability to have a material adverse effect on our consolidated
        financial position, results of operations or cash flows.
 
 **Note
        7** ― **Debt**
 
 Debt,
        net
        of unamortized discounts, premiums and fair value adjustments, is comprised
        of
        the following (in millions):
 
 March
                  31,
              
              December
                  31,2007
              
              2006Term
                  Credit Facility, due August 2008
              
              $
              700
              
              $
              700Floating
                  Rate Notes, due September 2008
              
              
              1,000
              
              
              1,0006.625%
                  Notes, due April 2011
              
              
              179
              
              
              180Revolving
                  Credit Facility, due July 2011
              
              
              190
              
              
              -7.375%
                  Senior Notes, due April 2018
              
              
              247
              
              
              247Zero
                  Coupon Convertible Debentures, due May 2020 (put options exercisable
                  May 2008 and May 2013)
              
              
              18
              
              
              181.5%
                  Convertible Debentures, due May 2021 (put options exercisable May
                  2011 and
                  May 2016)
              
              
              400
              
              
              4008%
                  Debentures, due April 2027
              
              
              57
              
              
              577.45%
                  Notes, due April 2027 (a)
              
              
              96
              
              
              957.5%
                  Notes, due April 2031
              
              
              597
              
              
              598Total
                  Debt
              
              
              3,484
              
              
              3,295Less
                  Debt Due Within One Year (a)
              
              
              -
              
              
              95Total
                  Long-Term Debt
              
              $
              3,484
              
              $
              3,200
 ______________
 
 (a)
              The
                  7.45% Notes were classified as debt due within one year at December
                  31,
                  2006 since holders had the option to require us to repurchase the
                  notes in
                  April 2007. As of March 31, 2007, we reclassified this debt as
                  long-term
                  debt, as no holders had notified us of their intent to exercise
                  their
                  option by the required notification date of March 15,
                  2007.
  8
 ***Index***
  **TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**
 (Unaudited)
 
 The
        scheduled maturity of our debt assumes the bondholders exercise their options
        to
        require us to repurchase the Zero Coupon Convertible Debentures and 1.5%
        Convertible Debentures in May 2008 and May 2011, respectively. All amounts
        are
        stated 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 31,2008
              
              $
              -2009
              
              
              1,7192010
              
              
              -2011
              
              
              -2012
              
              
              755Thereafter
              
              
              1,004Total
              
              $
              3,478
 
 *Revolving
        Credit Facility* —In
        July
        2005, we entered into a $500 million, five-year revolving credit agreement
        (“Revolving Credit Facility”). In May 2006, we increased the credit limit on the
        facility from $500 million to $1.0 billion and extended the maturity date
        by one
        year from July 2010 to July 2011. The Revolving Credit Facility bears interest,
        at our option, at a base rate or at the London Interbank Offered Rate (“LIBOR”)
        plus a margin that can vary from 0.19 percent to 0.58 percent depending on
        our
        non-credit enhanced senior unsecured public debt rating. A facility fee,
        varying
        from 0.06 percent to 0.17 percent depending on our non-credit enhanced senior
        unsecured public debt rating, is incurred on the daily amount of the underlying
        commitment, whether used or unused, throughout the term of the facility.
        A
        utilization fee, varying from 0.05 percent to 0.10 percent depending on our
        non-credit enhanced senior unsecured public debt rating, is payable if amounts
        outstanding under the Revolving Credit Facility are greater than or equal
        to 50
        percent of the total underlying commitment. At March 31, 2007, the applicable
        margin, facility fee and utilization fee were 0.225 percent, 0.075 percent
        and
        0.100 percent, respectively. The Revolving Credit Facility requires compliance
        with various covenants and provisions customary for agreements of this nature,
        including a debt to total tangible capitalization ratio, as defined by the
        Revolving Credit Facility, of not greater than 60 percent. At March 31, 2007,
        we
        had $190 million of borrowings outstanding at a weighted-average interest
        rate
        of 5.545 percent and $810 million remained available under this
        facility.
  9
 ***Index***
  **TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**
 (Unaudited)
 
 **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 31,2007
              
              2006**Numerator
                  for Basic Earnings per Share**Net
                  Income for basic earnings per share
              
              $
              553
              
              $
              206**Numerator
                  for Diluted Earnings per Share**Net
                  Income
              
              $
              553
              
              $
              206Add
                  back interest expense on the 1.5% convertible debentures
              
              
              1
              
              
              1Net
                  Income for diluted earnings per share
              
              $
              554
              
              $
              207**Denominator
                  for Diluted Earnings per Share**Weighted-average
                  shares outstanding for basic earnings per share
              
              
              290
              
              
              325Effect
                  of dilutive securities:Employee
                  stock options and unvested stock grants
              
              
              3
              
              
              3Warrants
                  to purchase ordinary shares
              
              
              3
              
              
              31.5%
                  convertible debentures
              
              
              6
              
              
              6Adjusted
                  weighted-average shares and assumed conversions for diluted earnings
                  per
                  share
              
              
              302
              
              
              337**Basic
                  Earnings Per Share**Net
                  Income
              
              $
              1.90
              
              $
              0.63**Diluted
                  Earnings Per Share**Net
                  Income
              
              $
              1.84
              
              $
              0.61
 
 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
        for the three months ended March 31, 2006 because the effect of including
        those
        shares is anti-dilutive. The Zero Coupon Convertible Debentures are included
        in
        the calculation of adjusted weighted-average shares for the three months
        ended
        March 31, 2007; however, they did not have a material effect on the
        calculation.
 
 **Note
        9** ― **Contingencies**
 
 *Legal
        Proceedings* —Several
        of our subsidiaries have been named, along with numerous unaffiliated
        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
        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. We have not
        yet
        been able to conduct extensive discovery nor 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.
  10
 ***Index***
  **TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**
 (Unaudited)
 
 In
        1990
        and 1991, two of our subsidiaries were served with various assessments
        collectively valued at approximately $11 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 $10 million. We are continuing to challenge the
        assessment by means of a writ of mandamus.  However, we did
        not receive an injunction in the mentioned writ and the government is
        attempting to enforce the judgment on this assessment (the amount claimed
        is
        approximately $24 million, which exceeds the amount we believe is at
        issue).  In response, we have presented a specific motion to stay the
        execution based on a $24 million guarantee in the form
        of oil barrels provided on our behalf by the Brazilian
        government-controlled oil company, Petrobras.  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 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 alleged in July 1999 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 found that we had imported the rig improperly and
        intentionally concealed the import from the authorities, and directed us
        to pay
        certain other fees and penalties in addition to the amount of customs duties
        owed. We appealed the Customs Department ruling and an appellate tribunal
        granted our request that the confiscation be stayed pending the appeal. The
        appellate tribunal also found that the rig was imported without proper
        documentation or payment of duties and 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, thus
        limiting our exposure as to custom duties to approximately $6 million. The
        Mumbai High Court's decision in 2006, together with the Supreme Court of
        India's decision in February 2007 to dismiss the leave to appeal petition
        filed by the Customs Department, have effectively affirmed the appellate
        ruling. 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.
 
 One
        of
        our subsidiaries is involved in an action with respect to a customs matter
        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
        with
        Petrobras was transferred
        from the Schlumberger entity to
        an
        entity that would become one of our subsidiaries ,
        but
        Schlumberger did not transfer the temporary import permit to any 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 temporary 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 of
        the
        temporary admission from Schlumberger to
        our
        subsidiary but did not rule
        on
        whether the
        temporary admission could be extended without the payment of a financial
        penalty. During the first quarter of 2004, the Brazilian customs authorities issued
        an assessment totaling
        approximately $71 million at that
        time against our subsidiary. The first
        level Brazilian court ruled in April 2007 that the temporary admission granted
        to our subsidiary had expired which allowed the Brazilian customs authorities
        to
        execute on their assessment. Following this ruling, the Brazilian customs
        authorities issued a revised assessment against our subsidiary for
        approximately $172 million in aggregate .
        We are
        not certain as to the basis for the increase in the amount of the assessment.
        We
        intend to continue to aggressively contest this matter and we have appealed
        the
        first level Brazilian court’s ruling to a higher level court in Brazil. There
        may be further judicial or administrative proceedings that result from this
        matter and, while it is not expected, it is possible that we may be required
        to
        post a bond for up to the full amount of the assessment in connection with
        these
        proceedings. We have
        also put Schlumberger on notice that we consider any assessment to be solely the
        responsibility of Schlumberger ,
        not our
        subsidiary. Nevertheless, we expect that the Brazilian customs authorities
        will
        continue to seek to recover the assessment solely from our subsidiary, not
        Schlumberger. Schlumberger
        has denied any responsibility for this matter, but remains a party to the
        proceedings. 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.
  11
 ***Index***
  **TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**
 (Unaudited)
 
 In
        the
        third quarter of 2006, we received tax assessments of approximately $100
        million
        from the state tax authorities of Rio de Janeiro in Brazil against one of
        our
        Brazilian subsidiaries for customs taxes on equipment imported into the state
        in
        connection with our operations. The assessments resulted from a preliminary
        finding by these authorities that our subsidiary’s record keeping practices were
        deficient. We continue to review documents related to the assessments, and
        while
        our review is not complete, we currently believe that the substantial majority
        of these assessments are without merit. We filed an initial response with
        the
        Rio de Janeiro tax authorities on September 9, 2006 refuting these
        additional tax assessments. 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.
 
 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 6 ―Income Taxes).
 
 *Retained
        Risk* —During
        the first quarter of 2007, we retained the risk, through self-insurance,
        for the
        deductible portion of our insurance coverage as well as losses due to hurricanes
        in the U.S. Gulf of Mexico in excess of $250 million in aggregate annually,
        except in the case of a total loss of a rig where the annual limit is
        approximately $300 million in aggregate. We also retained any risk of losses
        in
        excess of the insured value of our drilling rig fleet ($13.0 billion in
        aggregate as of March 31, 2007), losses in excess of the $905 million limit
        on
        personal injury and third-party liability claims and losses related to loss
        of
        revenue. We maintained 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
        had aggregate deductibles that were applied to any occurrence in excess of
        the
        per occurrence deductible until the aggregate deductible is exhausted. Such
        aggregate deductibles were $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. Additionally, for our personal injury and
        third-party damage liabilities, we retained $20 million of the risk that
        exceeds
        our deductible amount. In the opinion of management, adequate accruals have
        been
        made based on known and estimated losses related to such exposures. See Note
        12―Subsequent Events.
 
 *Letters
        of Credit and Surety Bonds* —We
        had
        letters of credit outstanding totaling $408 million and $405 million at March
        31, 2007 and December 31, 2006, respectively. These letters of credit guarantee
        various contract bidding and performance activities under various uncommitted
        lines provided by several banks.
 
 As
        is
        customary in the contract drilling business, we also have various surety
        bonds
        in place that secure customs obligations relating to the importation of our
        rigs
        and certain performance and other obligations. Surety bonds outstanding totaled
        $8 million and $6 million at March 31, 2007 and December 31, 2006, respectively.
  12
 ***Index***
  **TRANSOCEAN
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONDENSED CONSOLIDATED STATEMENTS (Continued)**
 (Unaudited)
 
 **Note
        10** ― **Stock
        Warrants**
 
 At
        March
        31, 2007, 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.
 
 **Note
        1** **1** ― **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
        certain frozen plans acquired in connection with the R&B Falcon merger that
        cover certain current and former employees. Net periodic benefit cost for
        these
        defined benefit pension plans includes the following components (in
        millions):
 
 Three
                  months ended
                March
                  31,2007
              
              2006**Components
                  of Net Periodic Benefit Cost (a)**Service
                  cost
              
              $
              5
              
              $
              5Interest
                  cost
              
              
              5
              
              
              5Expected
                  return on plan assets
              
              
              (5
              )
              
              (5
              )Recognized
                  net actuarial losses
              
              
              1
              
              
              1Benefit
                  cost
              
              $
              6
              
              $
              6
 ______________
 (a)
              Amounts
                  are before income tax effect.
 
 We
        expect
        to contribute approximately $14 million to our defined benefit pension plans
        in
        2007, which we expect will be funded from cash flow from operations. We
        contributed approximately $2 million to the defined benefit pension plans
        in the
        first quarter of 2007.
 
 *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 costs for these
        other postretirement plans and their components, including service cost,
        interest cost, amortization of prior service cost and recognized net actuarial
        losses, were less than $1 million for the three months ended March 31, 2007
        and
        2006.
 
 We
        expect
        to contribute approximately $2 million to the other postretirement benefit
        plans
        in 2007, which we expect will be funded from cash flow from operations. We
        contributed approximately $1 million to the other postretirement benefit
        plans
        in the first quarter of 2007.
 
 **Note
        12** ― **Subsequent
        Events**
  *Insurance
          Matters* —We
          have
          renewed our insurance coverages for 12 months effective May 1, 2007. In
          the new
          program, we generally maintain a $125 million per occurrence insurance
          deductible on hull and machinery (subject to an aggregate deductible of
          $250
          million), 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
          an
          aggregate deductible of $50 million in the case of our personal injury
          liability
          and third party property damage coverage that is applied to any occurrence
          in
          excess of the per occurrence deductible until the aggregate deductible
          is
          exhausted. We
          do not
          generally have coverage for losses due to hurricanes in the U.S Gulf of
          Mexico
          and war perils worldwide. At present, the insured value of our drilling
          rig
          fleet is approximately $22 billion in aggregate. We also carry $950 million
          of
          third-party liability coverage exclusive of the personal injury liability
          and
          third party property liability deductibles and retention amounts described
          above. We
          do not
          carry insurance for loss of revenue. As
          a
          result of these limits, we retain the risk through self-insurance for any
          losses
          in excess of these amounts.
  13
 ***Index***
  **Item
        2. Management’sDiscussion 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. Forward-looking statements in this quarterly report include, but
        are
        not limited to, statements about the following subjects:
 
 ·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,
                  ·the
                    potential purchase of an interest in a joint venture with Pacific
                    Drilling
                    and joint venture terms,
                  ·contract
                    awards,
                  ·drillship
                    delivery dates,
                  ·expected
                    downtime,
                  ·insurance
                    proceeds,
                  ·cash
                    investments of our wholly-owned captive insurance company,
                  ·future
                    activity in the deepwater, mid-water and the jackup market sectors,
                  ·market
                    outlook for our various geographical operating sectors,
                  ·capacity
                    constraints for ultra-deepwater rigs and other rig classes,
                  ·effects
                    of new rigs
                    on the market,
                  ·income
                    related to and any payments to be received under the TODCO tax
                    sharing agreement,
                  ·uses
                    of excess cash, including ordinary share repurchases,
                
                ·the
                    timing and funding of share repurchases,
                  ·issuance
                    of new debt,
                  ·debt
                    reduction,
                  ·planned
                    asset sales,
                  ·timing
                    of asset sales,
                  ·proceeds
                    from asset sales,
                  ·our
                    effective tax rate,
                  ·changes
                    in tax laws, treaties and regulations,
                  ·tax
                    assessments,
                  ·our
                    other expectations with regard to market outlook,
                  ·operations
                    in international markets,
                  ·the
                    level of expected capital expenditures,
                  ·results
                    and effects of legal proceedings and governmental audits and
                    assessments,
                  ·adequacy
                    of insurance,
                  ·liabilities
                    for tax issues, including those associated with our activities
                    in Brazil,
                    Norway and the United States,
                  ·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,
                  ·benefit
                    payments, and
                  ·the
                    timing and cost of completion of capital projects.
                  ·the
                    timing and funding of share repurchases,
                  ·issuance
                    of new
                    debt,
 14
 ***Index***
  Forward-looking
        statements in this quarterly report are identifiable by use of the following
        words and other similar expressions among others:
 
 ·
              “anticipates”
              
              ·
              “may”·
              “believes”
              
              ·
              “might”·
              “budgets”
              
              ·
              “plans”·
              “could”
              
              ·
              “predicts”·
              “estimates”
              
              ·
              “projects”·
              “expects”
              
              ·
              “scheduled”·
              “forecasts”
              
              ·
              “should”·
              “intends”
 
 Such
        statements are subject to numerous risks, uncertainties and assumptions,
        including, but not limited to:
  ·
              those
                  described under “Item 1A. Risk Factors” included herein and in our Annual
                  Report on Form 10-K for the year ended December 31, 2006,
 ·
              the
                  adequacy of sources of liquidity,
 ·
              our
                  inability to obtain contracts for the drillships we are marketing
                  under
                  our marketing and purchase option agreement with Pacific Drilling,
                  negotiate definitive agreements and satisfy closing
                  conditions,
 ·
              the
                  effect and results of litigation, audits and contingencies,
                  and
 ·
              other
                  factors discussed in this quarterly report and in our other filings
                  with
                  the SEC, which are available free of charge on the SEC’s website at*www.sec.gov*.
 
 Should
        one or more of these risks or uncertainties materialize, or should underlying
        assumptions prove incorrect, actual results may vary materially from those
        indicated.
 
 All
        subsequent written and oral forward-looking statements attributable to us
        or to
        persons acting on our behalf are expressly qualified in their entirety by
        reference to these risks and uncertainties. You should not place undue reliance
        on forward-looking statements. Each forward-looking statement speaks only
        as of
        the date of the particular statement, and we undertake no obligation to publicly
        update or revise any forward-looking statements.
 
 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, 2006.
 
 **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 April 30, 2007, we owned, had partial ownership interests in
        or
        operated 82 mobile offshore drilling units. As of this date, our fleet included
        33 High-Specification semisubmersibles and drillships (“High-Specification
        Floaters”), 20 Other Floaters, 25 Jackups and four Other Rigs. We also have
        three High-Specification Floaters under construction.
 
 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.
  15
 ***Index***
  Key
        measures of our total company results of operations and financial condition
        are
        as follows (in
        millions, except average daily revenue and percentages) :
 
 Three
                  months ended March 31,2007
              
              2006
              
              Change**Average
                  daily revenue (a)(b)**
              
              $
              198,000
              
              $
              119,600
              
              $
              78,400**Utilization
                  (b)(c)**
              
              
              88
              %
              
              82
              %
              
              N/A**Statement
                  of Operations**Operating
                  revenues
              
              $
              1,328
              
              $
              817
              
              $
              511Operating
                  and maintenance expense
              
              
              568
              
              
              475
              
              
              93Operating
                  income
              
              
              657
              
              
              284
              
              
              373Net
                  income
              
              
              553
              
              
              206
              
              
              347
  **Balance
                  Sheet Data (at end of period)**
              
              March
                  31, 2007
              
              December
                  31, 2006
              
              ChangeCash
                  and Cash Equivalents
              
              $
              502
              
              $
              467
              
              $
              35Total
                  Assets
              
              
              11,883
              
              
              11,476
              
              
              407Total
                  Debt
              
              
              3,484
              
              
              3,295
              
              
              189
 _____________________
 “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)
              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.
 (c)
              Utilization
                  is the total actual number of revenue earning days as a percentage
                  of the
                  total number of calendar days in the
                  period.
 
 We
        continue to experience strong demand for all of our asset classes, which
        has
        resulted in high utilization and historically high dayrates. We are seeing
        leading dayrates at or near record levels for most rig classes and customer
        interest for multi-year contracts. Interest in High-Specification Floaters
        remains particularly strong.
 
 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 expected to be significant
        in
        comparison with our expected increase in revenue for 2007 and beyond.
 
 Our
        revenues for the three months ended March 31, 2007 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
        2007 financial results included the recognition of gains on the sale of our
        interest in a tender rig (see “—Significant Events”). Cash increased during the
        three months ended March 31, 2007 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, which consists of floaters, jackups and
        other
        rigs used in support of offshore drilling activities and offshore support
        services on a worldwide basis. 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.
 
 We
        categorize our fleet as follows: (1) “High-Specification Floaters,” consisting
        of our “Ultra-Deepwater Floaters,” “Other Deepwater Floaters” and “Other
        High-Specification Floaters,” (2) “Other Floaters,” (3) “Jackups” and (4) “Other
        Rigs.” Within our High-Specification Floaters category, we consider our
        Ultra-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 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 1980s, 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 .
  16
 ***Index***
  **Significant
        Events**
 
 *Asset
        Disposition* —During
        the three months ended March 31, 2007, we completed the sale of our membership
        interest in Transocean CGR LLC (owner of the tender rig *Charley
        Graves* )
        for net
        proceeds of $33 million and recognized a gain on the sale of $23 million.
        See
“—Liquidity and Capital Resources−Capital Expenditures and
        Dispositions−Dispositions.”
 
 *Repurchase
        of Ordinary Shares* — During
        the three months ended March 31, 2007, we repurchased and retired 5.2 million
        of
        our ordinary shares at a total cost of $400 million. See “—Liquidity and Capital
        Resources−Sources and Uses of Liquidity.”
 
 **Outlook**
 
 *Drilling
        Market* —Demand
        for offshore drilling capacity continues to be strong, particularly for rigs
        capable of drilling in deepwater. Our High-Specification Floater fleet is
        fully
        committed in 2007 and 2008. We have only two rigs remaining in our Other
        Floater
        fleet that have any available uncommitted time in 2007 and seven rigs remaining
        in this fleet that have any available uncommitted time in 2008. We
        have five jackup rigs that have uncommitted time in 2007, and 15
        jackup rigs that have uncommitted time in 2008.
 
 We
        have
        been successful in building contract backlog within our High-Specification
        Floater fleet with 25 of our 37 current and future High-Specification Floaters,
        including the three newbuilds and the two *Sedco
        700* -series
        deepwater upgrades, contracted into or beyond 2010 as of April 30, 2007.
        These
        25 units include nine of our 13 current Ultra-Deepwater Floaters and our
        three
        new rigs currently under construction with long term contracts upon delivery.
        Our total contract backlog of approximately $21 billion as of April 30, 2007
        includes approximately $15 billion of backlog represented by our
        High-Specification Floaters. We believe the long-term outlook for deepwater
        capable rigs continues to be favorable.
 
 In
        April
        2007, we entered into a marketing and purchase option agreement with Pacific
        Drilling Limited that provides us with the exclusive marketing right for
        two
        newbuild Ultra-Deepwater Floaters with expected delivery dates in 2009 as
        well
        as an option to purchase a 50 percent interest in a joint venture company
        through which we and Pacific Drilling would own the drillships. We anticipate
        providing construction advisory services during the period of the option,
        construction management services upon exercise of the option and operating
        management services once the drillships begin operations. The exclusive
        marketing right and purchase option granted to us by Pacific Drilling will
        terminate on November 30, 2007 but can be extended by four months. We may
        elect
        to exercise the option in our sole discretion and anticipate exercising the
        option once we have secured a drilling contract or contracts of sufficient
        value. The purchase price for the 50 percent joint venture interest is 50
        percent of the documented costs at the time of exercise. The closing of the
        transaction is conditioned on the satisfaction of customary closing conditions
        and the negotiation of definitive joint venture documents. The agreement
        with
        Pacific Drilling contemplates that, beginning three years after the closing,
        Pacific Drilling will have the right to exchange its interest in the joint
        venture for our ordinary shares or cash.
  17
 ***Index***
  Future
        demand for deepwater capable rigs should benefit from successful drilling
        efforts in the lower tertiary trend of the U.S. Gulf of Mexico; the discovery
        of
        light oil and non-associated gas in the deepwaters of Brazil; continued
        exploration success in the deepwaters offshore India; the recent discovery
        in
        the deepwaters of the South China Sea; and the exploration activity in the
        Orphan Basin offshore Eastern Canada. Additionally, the continued exploration
        success in the deepwaters of West Africa, the opening of additional deepwater
        acreage in the U.S. Gulf of Mexico and the announced plans by Pemex for ultra
        deepwater drilling in Mexican waters of the Gulf of Mexico support our
        optimistic outlook for long term contracts and favorable dayrates in the
        deepwater drilling market sector. As of April 30, 2007, none of our
        High-Specification Floater fleet contract days are uncommitted for the remainder
        of 2007 and 2008, while approximately 10 percent and 48 percent are uncommitted
        in 2009 and 2010, respectively.
 
 Our
        Other
        Floater fleet, comprised of 20 semisubmersible rigs, is largely committed
        to
        contracts that extend through 2007, and we continue to see customer demand
        for
        both short term and multi-year contracts for these units. We completed the
        reactivation of the *C.
        Kirk Rhein* , *Jr.* ,
        which
        has been awarded a two-year contract in India at a $340,000 dayrate and
        commenced operations in February 2007. As of April 30, 2007, seven percent
        of our Other Floater fleet contract days are uncommitted for the remainder
        of
        2007, while approximately 24 percent, 63 percent and 84 percent are uncommitted
        in 2008, 2009 and 2010, respectively.
 
 Our
        outlook for the Jackup market sector also remains strong. In January 2007,
        we
        were awarded a three year contract for the *Trident
        17* at a
        dayrate of $185,000. We expect to remain at or near full utilization for
        our
        Jackup fleet in 2007. We believe that Asia, India and the Middle East will
        remain sources of strong demand for jackup rigs in the near to intermediate
        term. We expect dayrates for jackup rigs to remain at current levels for
        the
        remainder of 2007. As of April 30, 2007, seven percent of our Jackup fleet
        contract days are uncommitted for the remainder of 2007, while
        approximately 40 percent, 63 percent and 84 percent are uncommitted in
        2008, 2009 and 2010, respectively.
 
 The
        aggregate amount of out-of-service time we incur in 2007 is expected to decrease
        by approximately 12 percent compared to the amount we incurred in 2006,
        primarily because we completed the reactivations of the *Transocean
        Winner* and *Transocean
        Prospect* in 2006
        and the *C.
        Kirk Rhein, Jr* .
        in
        February 2007. However, the reduction in out-of-service time resulting from
        the
        completed reactivations is expected to be at least partially offset by an
        increase in out-of-service time that we expect to incur in connection with
        the
        continued upgrades of the *Sedco
        702* and *Sedco
        706* to
        deepwater capabilities.
 
 We
        expect
        our revenues to continue to increase in 2007 due primarily to commencement
        of
        new contracts with higher dayrates. The scheduled commencement of the *Sedco
        702* contract
        at the end of the rig’s deepwater upgrade shipyard project is also expected to
        increase our revenues in 2007. In addition, we expect the five integrated
        services contracts in India, which commenced in the early part of 2007, to
        increase our other revenue for 2007.
 
 We
        expect
        industry inflation in 2007 to continue to increase our operating and maintenance
        costs including our shipyard and major maintenance program expenditures.
        We
        expect our operating and maintenance costs in 2007 to further increase as
        a
        result of the five integrated services contracts discussed above. These
        increases are expected to be at least partially offset by lower shipyard
        and
        mobilization expenses in 2007 due to the completed reactivations noted
        above *.* Finally,
        we are investing in a number of recruitment, retention and personnel development
        initiatives in connection with the manning of the crews of the two deepwater
        upgrades, the three newbuild rigs we currently have under construction and
        the
        two newbuild drillships that we have an option to acquire interests in through
        a
        joint venture with Pacific Drilling and our efforts to mitigate expected
        personnel attrition.
 
 We
        have
        seven existing contracts with fixed-priced or capped options for dayrates
        that
        we believe are less than current market dayrates. We expect that four of
        these
        fixed-price contract options will be exercised by our customers in 2007 and
        2008, which would preclude us from taking full advantage of any increased
        market
        rates for rigs subject to these contract options. Well-in-progress or similar
        provisions in our existing contracts may delay the start of higher dayrates
        in
        subsequent contracts, and some of the delays have been and could be
        significant.
  18
 ***Index***
  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.
 
 *Insurance
        Matters* —We
        have
        renewed our insurance coverages for 12 months effective May 1, 2007. In the
        new
        program, we generally maintain a $125 million per occurrence insurance
        deductible on hull and machinery (subject to an aggregate deductible of $250
        million), 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
        an
        aggregate deductible of $50 million in the case of our personal injury liability
        and third party property damage coverage that is applied to any occurrence
        in
        excess of the per occurrence deductible until the aggregate deductible is
        exhausted. We
        do not
        generally have coverage for losses due to hurricanes in the U.S Gulf of Mexico
        and war perils worldwide. At present, the insured value of our drilling rig
        fleet is approximately $22 billion in aggregate. We also carry $950 million
        of
        third-party liability coverage exclusive of the personal injury liability
        and
        third party property liability deductibles and retention amounts described
        above. We
        do not
        carry insurance for loss of revenue. As
        a
        result of these limits, we retain the risk through self-insurance for any
        losses
        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 many various
        jurisdictions in which we operate. It is reasonably possible that the
        unrecognized tax benefits related to uncertain tax positions will materially
        change within the next 12 months although it is not possible to estimate
        the
        impact of such a change.
 
 Our
        2004
        and 2005 U.S. federal income tax returns are currently under examination
        by the
        U.S. Internal Revenue Service (“IRS”).
        Our 2006 income
        tax return and certain net operating losses generated in 2000 through 2003
        are
        subject to examination. 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 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 could 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 and filed a formal protest to the proposed assessment
        in
        June 2006. We also believe the Norwegian authorities are contemplating a
        tax
        assessment of approximately $104 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 continue to investigate 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 the ultimate resolution of these matters
        to have a material adverse effect on our consolidated financial position
        or
        results of operations although it may have a material adverse effect on our
        consolidated cash flows.
  19
 ***Index***
  Our
        tax
        returns in the other major jurisdictions in which we operate are generally
        subject to examination for periods ranging from three to six years. We have
        agreed to extensions beyond the statute of limitations in two jurisdictions
        for up to 12 years. Tax authorities in certain jurisdictions are examining
        our
        tax returns and in some cases have issued assessments. We are defending our
        tax
        positions in those jurisdictions. While we cannot predict or provide assurance
        as to the final outcome of these proceedings, we do not expect the ultimate
        liability to have a material adverse effect on our consolidated financial
        position, results of operations or cash flows.
  *TODCO
          Tax Sharing Agreement*― Our
          wholly owned subsidiary, Transocean Holdings Inc. (“Transocean Holdings”),
          entered into a tax sharing agreement with TODCO dated February 4, 2004
          in
          connection with the initial public offering of TODCO’s ordinary shares on
          February 10, 2004 (the “TODCO IPO”). The tax sharing agreement was amended and
          restated on November 27, 2006 (the “TSA”) as part of a negotiated settlement of
          disputes between Transocean Holdings and TODCO over the terms of the original
          tax sharing agreement. The TSA governs Transocean Holdings’ and TODCO’s
          respective rights, responsibilities and obligations with respect to taxes
          and
          tax benefits, the filing of tax returns, the control of tax audits and
          other tax
          matters. Under the TSA, most U.S. federal, state, local and foreign income
          taxes
          and income tax benefits that accrued on or before the closing of the TODCO
          IPO
          (including income taxes and income tax benefits attributable to the TODCO
          business) are for the account of Transocean Holdings. Accordingly, Transocean
          Holdings generally is liable for any income taxes that accrued on or before
          the
          closing of the TODCO IPO, but TODCO generally must pay Transocean Holdings
          for
          the amount of any income tax benefits created on or before the closing
          of the
          TODCO IPO (“pre-IPO tax benefits”) that it uses or absorbs on a return with
          respect to a period after the closing of the TODCO IPO. As of April 30,
          2007,
          Transocean Holdings had received $118 million in payments with respect
          to
          estimated pre-IPO tax benefits (including tax benefits from the exercise
          of
          certain compensatory stock options to acquire Transocean ordinary shares
          by
          TODCO’s current and former employees and directors) that TODCO estimated that
          it
          had used for the 2006 tax year. We expect to recognize these payments,
          subject
          to any adjustment for amounts actually used, when TODCO files its 2006
          tax
          return.
 
 Pursuant
          to the terms of the TSA, if there is a change of control of TODCO, as described
          in the TSA, all remaining unused pre-IPO tax benefits are deemed to have
          been
          utilized immediately before the change of control. As a result, an accelerated
          payment for the value of such tax benefits, less a specified discount,
          would
          become due from TODCO or the surviving company to Transocean Holdings 30
          days
          after the change of control. However, payments relating to the tax benefit
          from
          exercises by current and former TODCO employees and directors of options
          to
          acquire Transocean shares are excluded from the change of control provisions
          and
          continue to be due under the terms of the TSA without regard to the change
          of
          control.
 
 On
          March
          19, 2007, TODCO and Hercules Offshore, Inc. (“Hercules”) announced that they had
          entered into a merger agreement that contemplates the acquisition of TODCO
          by
          Hercules (the “TODCO Acquisition”). The closing of the TODCO Acquisition is
          contingent upon, among other things, the affirmative vote of the shareholders
          of
          both Hercules and TODCO. If the TODCO Acquisition occurs, the TSA will
          require
          Hercules to make an accelerated payment to Transocean Holdings within 30
          days
          after completion of the TODCO Acquisition as a result of the deemed utilization
          of TODCO’s pre-IPO tax benefits. The amount of the accelerated payment owing to
          Transocean Holdings is calculated by multiplying 80 percent by the then
          remaining pre-IPO tax benefits at the effective date of the TODCO Acquisition.
          If the effective date of the TODCO Acquisition is July 1, 2007, we estimate
          that
          Transocean Holdings will receive approximately $50 million to $60 million
          in
          payments for pre-IPO tax benefits used by TODCO between January 1, 2007
          and June
          30, 2007 and an accelerated payment of approximately $120 million to $130
          million, or 80 percent of the estimated remaining unused pre-IPO tax benefits
          as
          of June 30, 2007. Additionally, the TSA will require Hercules to make additional
          payments to Transocean Holdings after the TODCO Acquisition is closed based
          on a
          portion of the tax benefit from the exercise of certain compensatory stock
          options to acquire our ordinary shares by TODCO’s current and former employees
          and directors, when and if those options are exercised. We estimate that
          the
          amount of payments to Transocean Holdings related to compensatory options
          that
          remain outstanding at April 30, 2007, assuming a Transocean share price of
          $86.20 per share at the time of exercise of the compensatory options (the
          actual
          price of our ordinary shares at April 30, 2007), will be approximately $19
          million. However, there can be no assurance that the TODCO Acquisition
          will
          occur or as to the amount and timing of any payment which Transocean Holdings
          may receive. In addition, any future reduction of the pre-IPO tax benefits
          by
          the US taxing authorities upon examination of the TODCO tax returns may
          require
          Transocean Holdings to reimburse TODCO for some of the amounts previously
          paid.
 20
 ***Index***
 **Performance
        and Other Key Indicators**
 
 *Contract
        Backlog* —The
        following table reflects our contract backlog as of March 31, 2007, December
        31,
        2006 and March 31, 2006 and reflects firm commitments only, typically
        represented by signed drilling 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, as well as the ability of our customers to terminate contracts under
        certain circumstances. Our contract backlog is calculated by multiplying
        the
        contracted operating dayrate by the number of days remaining in the firm
        contract period, excluding revenues for mobilization, demobilization and
        contract preparation and such amounts are not expected to be significant
        to our
        contract drilling revenues.
 
 March
                  31,
                2007
              
              December
                  31, 2006
              
              March
                  31,
                2006(In
                  millions)**Contract
                  Backlog**High-Specification
                  Floaters
              
              $
              14,911
              
              $
              14,354
              
              $
              12,917Other
                  Floaters
              
              
              4,335
              
              
              3,770
              
              
              1,647Jackups
              
              
              2,049
              
              
              2,037
              
              
              2,129Other
                  Rigs
              
              
              72
              
              
              65
              
              
              121Total
              
              $
              21,367
              
              $
              20,226
              
              $
              16,814
 
 *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, 2007, December 31, 2006 and March 31, 2006.
        See
“—Overview” for a definition of average daily revenue, revenue earning day and
        utilization.
 
 Three
                  months endedMarch
                  31,
                2007
              
              December
                  31, 2006
              
              March
                  31,
                2006**Average
                  Daily Revenue**High-Specification
                  FloatersUltra-Deepwater
                  Floaters
              
              $
              301,400
              
              $
              275,300
              
              $
              209,000Other
                  Deepwater Floaters
              
              $
              235,800
              
              $
              230,400
              
              $
              154,000Other
                  High-Specification Floaters
              
              $
              238,800
              
              $
              187,400
              
              $
              158,800Total
                  High-Specification Floaters
              
              $
              264,800
              
              $
              243,600
              
              $
              178,200Other
                  Floaters
              
              $
              223,700
              
              $
              178,400
              
              $
              110,000Jackups
              
              $
              104,600
              
              $
              97,000
              
              $
              70,300Other
                  Rigs
              
              $
              50,300
              
              $
              48,200
              
              $
              47,300Total
                  Drilling Fleet
              
              $
              198,000
              
              $
              171,700
              
              $
              119,600**Utilization**High-Specification
                  FloatersUltra-Deepwater
                  Floaters
              
              
              97
              %
              
              92
              %
              
              92
              %Other
                  Deepwater Floaters
              
              
              77
              %
              
              78
              %
              
              83
              %Other
                  High-Specification Floaters
              
              
              99
              %
              
              97
              %
              
              89
              %Total
                  High-Specification Floaters
              
              
              87
              %
              
              86
              %
              
              87
              %Other
                  Floaters
              
              
              94
              %
              
              90
              %
              
              73
              %Jackups
              
              
              83
              %
              
              89
              %
              
              91
              %Other
                  Rigs
              
              
              100
              %
              
              99
              %
              
              58
              %Total
                  Drilling Fleet
              
              
              88
              %
              
              89
              %
              
              82
              %
  21
 ***Index***
  **Liquidity
        and Capital Resources**
 
 **Sources
        and Uses of Cash**
 
 Our
        primary sources of cash during the first three months of 2007 were our cash
        flows from operations, borrowings under our Revolving Credit Facility and
        proceeds from asset sales. Our primary uses of cash were repurchases of our
        ordinary shares and capital expenditures. At March 31, 2007, we had $502
        million
        in cash and cash equivalents.
 
 Three
                  months ended
                March
                  31,2007
              
              2006
              
              Change(In
                  millions)**Net
                  Cash from Operating Activities**Net
                  income
              
              $
              553
              
              $
              206
              
              $
              347Depreciation
              
              
              100
              
              
              102
              
              
              (2
              )Other
                  non-cash items
              
              
              18
              
              
              (18
              )
              
              36Working
                  capital
              
              
              (17
              )
              
              (22
              )
              
              5$
              654
              
              $
              268
              
              $
              386
 
 Net
        cash
        provided by operating activities increased by $386 million due to more cash
        generated from net income.
 
 Three
                  months ended
                March
                  31,2007
              
              2006
              
              Change(In
                  millions)**Net
                  Cash from Investing Activities**Capital
                  expenditures
              
              $
              (465
              )
              $
              (178
              )
              $
              (287
              )Proceeds
                  from disposal of assets, net
              
              
              39
              
              
              82
              
              
              (43
              )Joint
                  ventures and other investments, net
              
              
              (3
              )
              
              -
              
              
              (3
              )$
              (429
              )
              $
              (96
              )
              $
              (333
              )
 
 Capital
        expenditures increased by $287 million over the corresponding prior year
        period,
        primarily due to the construction of three enhanced Enterprise-class drillships,
        the two *Sedco
        700* -series
        deepwater upgrades and other equipment replaced and upgraded on our existing
        rigs.
 
 Three
                  months ended
                March
                  31,2007
              
              2006
              
              Change(In
                  millions)**Net
                  Cash from Financing Activities**Borrowings
                  under the Revolving Credit Facility, net
              
              $
              190
              
              $
              -
              
              $
              190Repurchase
                  of ordinary shares
              
              
              (400
              )
              
              (200
              )
              
              (200
              )Net
                  proceeds from issuance of ordinary shares under share-based compensation
                  plans
              
              
              15
              
              
              45
              
              
              (30
              )Other,
                  net
              
              
              5
              
              
              -
              
              
              5$
              (190
              )
              $
              (155
              )
              $
              (35
              )
  22
 ***Index***
  Net
        cash
        used in financing activities increased due to increased repurchases of ordinary
        shares in the first quarter of 2007, partially offset by net borrowings under
        the Revolving Credit Facility and lower proceeds from stock option exercises
        received in the first quarter of 2007 compared to the same period in 2006. See
        “―Sources and Uses of Liquidity.”
 
 **Capital
        Expenditures 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. During 2006, we  were
        awarded drilling contracts for three newbuild deepwater drilling rigs and
        are
        currently in discussions with various clients for potential other deepwater
        drilling contracts related to new deepwater drilling rigs. In addition, from
        time to time, we review possible dispositions of drilling units.
 
 *Capital
        expenditures* —Capital
        expenditures, including capitalized interest of $13 million, totaled $465
        million during the three months ended March 31, 2007, including $302 million
        on
        the construction of three enhanced Enterprise-class drillships and $58 million
        for the upgrade of two of our *Sedco
        700* -series
        rigs.
 
 During
        2007, we expect capital expenditures to be approximately $1.4 billion, including
        approximately $700 million for the construction of the three deepwater
        drillships and approximately $300 million for the deepwater upgrade of two
        of
        our *Sedco
        700* -series
        rigs. The level of our capital expenditures is partly 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 possible newbuild opportunities.
 
 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 Facility (see “—Sources and
        Uses of Liquidity”) and may utilize other commercial bank or capital market
        financings.
 
 *Dispositions* — During
        the three months ended March 31, 2007, we completed the sale of our membership
        interest in Transocean CGR LLC (owner of the tender rig *Charley
        Graves* )
        for net
        proceeds of $33 million and recognized a gain on the sale of $23 million.
 
 **Sources
        and Uses of Liquidity**
 
 We
        expect
        to use existing cash balances, internally generated cash flows, proceeds
        from
        the issuance of debt 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 use additional borrowings under our Revolving
        Credit Facility or proceeds from the issuance of new debt to repurchase our
        ordinary shares. We may also continue to consider allowing cash balances
        to
        increase and the reduction of debt prior to scheduled maturities.
  23
 ***Index***
 
 In
        May
        2006, our board of directors authorized an increase in the amount of ordinary
        shares which may be repurchased pursuant to our share repurchase program
        from
        $2.0 billion, which was previously authorized and announced in October 2005,
        to
        $4.0 billion. The ordinary shares may be repurchased from time to time in
        open
        market or private transactions. Decisions to repurchase shares are 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 any future share repurchases under the program from
        current and future cash balances and we could also use debt to fund those
        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.
 
 During
        the three months ended March 31, 2007, we repurchased and retired $400 million
        of our ordinary shares, which amounted to approximately 5.2 million ordinary
        shares at an average purchase price of $77.39 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 and borrowings under our Revolving
        Credit
        Facility. At April 30, 2007, after prior repurchases, we had authority to
        repurchase an additional $600 million of our ordinary shares under the
        program.
 
 We
        have
        access to a bank line of credit under a $1.0 billion, five-year revolving
        credit
        agreement expiring July 2011 (“Revolving Credit Facility”). At April 30, 2007,
        $190 million was outstanding under this facility.
 
 The
        Revolving Credit Facility and Term Credit Facility require 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 agreements, not greater than 60 percent. Other provisions of the credit
        agreements 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 these facilities. 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 certain merger, consolidation or reorganization
        transactions. A default under our public debt could trigger a default under
        our
        credit agreements and, if not waived by the lenders, could cause us to lose
        access to these facilities.
  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 30, 2007, $600 million 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, credit rating agency 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.
 
 We
        have
        established a wholly-owned captive insurance company which insures various
        risks
        of our operating subsidiaries. Access to the cash investments of the captive
        insurance company may be limited due to local regulatory restrictions. These
        cash investments are expected to rise to approximately $45 million by the
        end of
        2007 as the level of premiums paid to the captive insurance company continues
        to
        increase.
  24
 ***Index***
  **Contractual
        Obligations**
 
 Other
        than with respect to the contractual obligations set forth below, there have
        been no material changes from the contractual obligations as previously
        disclosed in “Item 7. Management’s Discussion and Analysis of Financial
        Condition and Results of Operations” of our Annual Report on Form 10-K for the
        year ended December 31, 2006.
 
 As
        of
        March 31, 2007, the total unrecognized tax benefit related to uncertain tax
        positions, net of prepayments of $37 million, was $270 million. Due to the
        high
        degree of uncertainty regarding the timing of future cash outflows associated
        with the FIN 48 liabilities recognized in this balance, we are unable to
        make
        reasonably reliable estimates of the period of cash settlement with the
        respective taxing authorities.
  25
 ***Index***
  **Operating
        Results**
 
 ***Three
        months ended March 31, 2007 compared to three months ended March 31,
        2006***
 
 Following
        is an analysis of our operating results. See “—Overview” for a definition of
        revenue earning days, utilization and average daily revenue.
 
 Three
                  months endedMarch
                  31,2007
              
              2006
              
              Change
              
              %
                  Change(In
                  millions, except day amounts and percentages)Revenue
                  earning days
              
              
              6,430
              
              
              6,511
              
              
              (81
              )
              
              (1
              )%Utilization
              
              
              88
              %
              
              82
              %
              
              N/A
              
              
              6
              %Average
                  daily revenue
              
              $
              198,000
              
              $
              119,600
              
              $
              78,400
              
              
              66
              %Contract
                  drilling revenues
              
              $
              1,273
              
              $
              779
              
              $
              494
              
              
              63
              %Other
                  revenues
              
              
              55
              
              
              38
              
              
              17
              
              
              45
              %1,328
              
              
              817
              
              
              511
              
              
              63
              %Operating
                  and maintenance expense
              
              
              (568
              )
              
              (475
              )
              
              (93
              )
              
              20
              %Depreciation
              
              
              (100
              )
              
              (102
              )
              
              2
              
              
              (2
              )%General
                  and administrative expense
              
              
              (26
              )
              
              (20
              )
              
              (6
              )
              
              30
              %Gain
                  from disposal of assets, net
              
              
              23
              
              
              64
              
              
              (41
              )
              
              (64
              )%Operating
                  income
              
              
              657
              
              
              284
              
              
              373
              
              
              N/MOther
                  (Income) Expense, netInterest
                  income
              
              
              5
              
              
              5
              
              
              -
              
              
              N/MInterest
                  expense, net of amounts capitalized
              
              
              (37
              )
              
              (24
              )
              
              (13
              )
              
              54
              %Other,
                  net
              
              
              13
              
              
              1
              
              
              12
              
              
              N/MIncome
                  Tax Expense
              
              
              (85
              )
              
              (60
              )
              
              (25
              )
              
              42
              %Net
                  Income
              
              $
              553
              
              $
              206
              
              $
              347
              
              
              N/M
 _________________
 “N/A”
        means not applicable
 “N/M”
        means not meaningful
 
 Contract
        drilling revenues increased primarily due to higher average daily revenue
        across
        the fleet. Reactivation of one Other Deepwater Floater and three Other Floaters
        contributed to higher utilization in those asset classes and increased revenue
        by $74 million. Partially offsetting these increases were lower revenues
        on four
        rigs that were out of service in 2007 for shipyard, mobilization or maintenance
        projects and lower revenues from two rigs sold in 2006 and 2007.
 
 Other
        revenues for the three months ended March 31, 2007 increased $17 million
        primarily due to a $13 million increase in client reimbursable revenue and
        a $4
        million increase in integrated services revenue.
 
 Operating
        and maintenance expenses increased by $93 million primarily
        from reactivated rigs, higher labor costs, vendor price increases, increased
        integrated service activity and higher client reimbursable costs *.*
 
 The
        increase in general and administrative expense was primarily attributable
        to
        increased personnel-related expenses of $5 million.
 
 During
        the three months ended March 31, 2007, we recognized a net gain of $23 million
        related to rig sales and disposal of other assets. During the three months
        ended
        March 31, 2006, we recognized net gains of $64 million related to rig sales
        and
        disposal of other assets.
  26
 ***Index***
  The
        increase in interest expense included $26 million that was primarily
        attributable to higher debt levels arising from the issuance of debt and
        borrowings under credit facilities since the first quarter of 2006. Partially
        offsetting this increase were reductions of $13 million related to capitalized
        interest in the first quarter of 2007.
 
 The
        increase in other, net was primarily due to $15 million of income recognized
        as
        a result of the settlement of the patent litigation with GlobalSantaFe
        Corporation.
 
 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, 2007 and 2006
        were
        13.7 percent and 17.6 percent, respectively, based on estimated 2007 and
        2006
        annual income before income taxes after adjusting for certain items such
        as a
        portion of net gains on sales of assets. 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, 2007, the impact of the various discrete
        period tax items was a net expense of $1 million, related to the net gains
        on
        rig sales and changes in prior year estimates, resulting in a tax rate of
        13.3
        percent on earnings before income taxes. For the three months ended March
        31,
        2006, the impact of the various discrete items was a net expense of $25 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.
 
 **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, 2006.
 
 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, share-based
        compensation, 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 condensed consolidated financial statements, see "Item 7. Management's
        Discussion and Analysis of Financial Condition and Results of Operations"
        in our
        Annual Report on Form 10-K for the year ended December 31, 2006. There have
        been
        no material changes to these estimates during the three months ended March
        31,
        2007. 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.
 
 **Share-Based
        Compensation**
 
 On
        January 1, 2006, we adopted FASB Statement of Financial Accounting Standards
        (“SFAS”) 123 (revised 2004), *Share-Based
        Payment* (“SFAS
        123R”), and have accounted for share-based compensation prospectively for all
        share-based awards granted or modified on or subsequent to that date in
        accordance with SFAS 123R. Adoption of the new standards did not have
        a material
        effect on our consolidated financial position, results of operations or cash
        flows.
  27
 ***Index***
  **New
        Accounting Pronouncements**
 
 In
        September 2006, the FASB issued SFAS No. 157, *Fair
        Value Measurements* (“SFAS
        157”). SFAS 157 defines fair value, establishes a framework for measuring fair
        value in generally accepted accounting principles, and expands disclosures
        about
        fair value measurements. SFAS 157 applies under other accounting pronouncements
        that require or permit fair value measurements because the FASB previously
        concluded in those accounting pronouncements that fair value is the relevant
        measurement attribute. Accordingly, SFAS 157 does not require any new fair
        value
        measurements. SFAS 157 is effective for fiscal years beginning after November
        15, 2007. We will be required to adopt SFAS 157 in the first quarter of fiscal
        year 2008. Management is currently evaluating the requirements of SFAS 157
        and
        has not yet determined the impact on the consolidated financial
        statements.
 
 In
        February 2007, the FASB issued SFAS No. 159, *The
        Fair Value Option for Financial Assets and Financial Liabilities* (“SFAS
        159”). SFAS 159 provides companies with an option to report selected financial
        assets and liabilities at fair value. It also establishes presentation and
        disclosure requirements designed to facilitate comparisons between companies
        that choose different measurement attributes for similar types of assets
        and
        liabilities. SFAS 159 is effective as of the beginning of the first fiscal
        year
        beginning after November 15, 2007. We will be required to adopt SFAS 159
        in the
        first quarter of fiscal year 2008. Management is currently evaluating the
        requirements of SFAS 159 and has not yet determined the impact on the
        consolidated financial statements.
 
 **ITEM
        3. Quantitativeand Qualitative Disclosures About Market
        Risk**
 
 **Interest
        Rate Risk**
 
 Our
        exposure to market risk for changes in interest rates relates primarily to
        our
        long-term and short-term debt. The table below presents scheduled debt
        maturities in U.S. dollars and related weighted-average interest rates for
        each
        of the 12-months ending March 31 relating to debt obligations as of
        March 31, 2007. Weighted-average variable rates are based on London Interbank
        Offered Rate (“LIBOR”) rates at March 31, 2007, plus applicable margins.
 
 At
        March
        31, 2007 (in millions, except interest rate percentages):
 
 **Scheduled
                  Maturity Date (a) (b)**
              
              **Fair
                  Value****2008**
              
              **2009**
              
              **2010**
              
              **2011**
              
              **2012**
              
              **Thereafter**
              
              **Total**
              
              **3/31/07**Total
                  debtFixed
                  rate
              
              $
              −
              
              $
              19
              
              $
              −
              
              $
              −
              
              $
              565
              
              $
              1,004
              
              $
              1,588
              
              $
              1,796Average
                  interest rate
              
              
              −
              %
              
              2.8
              %
              
              −
              %
              
              −
              %
              
              3.0
              %
              
              7.5
              %
              
              5.8
              %Variable
                  rate
              
              $
              −
              
              $
              1,700
              
              $
              −
              
              $
              −
              
              $
              190
              
              $
              −
              
              $
              1,890
              
              $
              1,890Average
                  interest rate
              
              
              −
              %
              
              5.6
              %
              
              −
              %
              
              −
              %
              
              5.5
              %
              
              −
              %
              
              5.6
              %
 __________________________
 (a)
              Maturity
                  dates of the face value of our debt assume the put options on the
                  Zero
                  Coupon Convertible Debentures and the 1.5% Convertible Debentures
                  will be
                  exercised in May 2008 and May 2011,
                  respectively.
 (b)
              Expected
                  maturity amounts are based on the face value of debt.
 
 At
        March
        31, 2007, we had approximately $1.9 billion of variable rate debt at face
        value
        (54 percent of total debt at face value). This variable rate debt represented
        the Term Credit Facility and the Floating Rate Notes issued during 2006,
        as well
        as outstanding borrowings under the Revolving Credit Facility. At December
        31,
        2006, we had approximately $1.7 billion of variable rate debt outstanding.
        Based
        upon the March 31, 2007 and December 31, 2006 variable rate debt outstanding
        amounts, a one percentage point change in interest rates would result in
        a
        corresponding change in interest expense of approximately $19 million and
        $17
        million per year, respectively. In addition, a large part of our cash
        investments would earn commensurately higher rates of return if interest
        rates
        increase. Using March 31, 2007 and December 31, 2006 cash investment levels,
        a
        one percentage point change in interest rates would result in a corresponding
        change in interest income of approximately $3 million per year.
  28
 ***Index***
  **Foreign
        Exchange Risk**
 
 Our
        international operations expose us to foreign exchange risk. These matters
        have
        been previously discussed and reported in our Annual Report on Form 10-K
        for the
        year ended December 31, 2006. There have been no material changes to these
        previously reported matters during the three months ended March 31,
        2007.
 
 **ITEM
        4. Controls andProcedures**
 
 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, 2007 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 during the quarter ended March 31,
        2007
        that have materially affected, or are reasonably likely to materially affect,
        our internal control over financial reporting.
 
 **PART
        II - OTHER INFORMATION**
 
 **Item
        1.Legal Proceedings**
 
 One
        of
        our subsidiaries is involved in an action with respect to a customs matter
        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
        with
        Petrobras was transferred
        from the Schlumberger entity to
        an
        entity that would become one of our subsidiaries ,
        but
        Schlumberger did not transfer the temporary import permit to any 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 temporary 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 of
        the
        temporary admission from Schlumberger to
        our
        subsidiary but did not rule
        on
        whether the
        temporary admission could be extended without the payment of a financial
        penalty. During the first quarter of 2004, the Brazilian customs authorities issued
        an assessment totaling
        approximately $71 million at that
        time against our subsidiary. The first
        level Brazilian court ruled in April 2007 that the temporary admission granted
        to our subsidiary had expired which allowed the Brazilian customs authorities
        to
        execute on their assessment. Following this ruling, the Brazilian customs
        authorities issued a revised assessment against our subsidiary for
        approximately $172 million in aggregate .
        We are
        not certain as to the basis for the increase in the amount of the assessment.
        We
        intend to continue to aggressively contest this matter and we have appealed
        the
        first level Brazilian court’s ruling to a higher level court in Brazil. There
        may be further judicial or administrative proceedings that result from this
        matter and, while it is not expected, it is possible that we may be required
        to
        post a bond for up to the full amount of the assessment in connection with
        these
        proceedings. We have
        also put Schlumberger on notice that we consider any assessment to be solely the
        responsibility of Schlumberger ,
        not our
        subsidiary. Nevertheless, we expect that the Brazilian customs authorities
        will
        continue to seek to recover the assessment solely from our subsidiary, not
        Schlumberger. Schlumberger
        has denied any responsibility for this matter, but remains a party to the
        proceedings. 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.
 
 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,
        2006
        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.”
W e
        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.
  29
 ***Index***
  **Item
        1A. Risk Factors**
 
 Other
        than with respect to the risk factors set forth below, there have been no
        material changes from the risk factors as previously disclosed in “Item 1A. Risk
        Factors” of our Annual Report on Form 10-K for the year ended December 31, 2006.
        The risk factors set forth below were disclosed in the Form 10-K and have
        been
        updated as of May 2, 2007.
 
 ***Our
        business involves numerous operating hazards.***
 
 Our
        operations are subject to the usual hazards inherent in the drilling of oil
        and
        gas wells, such as blowouts, reservoir damage, loss of production, loss of
        well
        control, punch-throughs, craterings, fires and natural disasters such as
        hurricanes and tropical storms. The occurrence of these events could result
        in
        the suspension of drilling operations, damage to or destruction of the equipment
        involved and injury or death to rig personnel. We may also be subject to
        personal injury and other claims of rig personnel as a result of our drilling
        operations. Operations also may be suspended because of machinery breakdowns,
        abnormal drilling conditions, and failure of subcontractors to perform or
        supply
        goods or services or personnel shortages. In addition, offshore drilling
        operations are subject to perils peculiar to marine operations, including
        capsizing, grounding, collision and loss or damage from severe weather. Damage
        to the environment could also result from our operations, particularly through
        oil spillage or extensive uncontrolled fires. We may also be subject to
        property, environmental and other damage claims by oil and gas companies.
        Our
        insurance policies and contractual rights to indemnity may not adequately
        cover
        losses, and we do not have insurance coverage or rights to indemnity for
        all
        risks.
 
 Consistent
        with standard industry practice, our clients generally assume, and indemnify
        us
        against, well control and subsurface risks under dayrate contracts. These
        risks
        are those associated with the loss of control of a well, such as blowout
        or
        cratering, the cost to regain control or redrill the well and associated
        pollution. However, there can be no assurance that these clients will
        necessarily be financially able to indemnify us against all these risks.
        Also,
        we may be effectively prevented from enforcing these indemnities because
        of the
        nature of our relationship with some of our larger clients.
 
 We
        have
        historically maintained broad insurance coverages, including coverages for
        property damage, occupational injury and illness, and general and marine
        third-party liabilities. Property damage insurance covers against marine
        and
        other perils, including losses due to capsizing, grounding, collision, fire,
        lightning, hurricanes, wind, storms, action of waves, punch-throughs, cratering,
        blowouts, explosion and war risks. However, we maintain large self-insured
        deductibles for damage to our offshore drilling equipment and third party
        liabilities. Effective May 1, 2007, we renewed our insurance coverages for
        12
        months. In the new program we generally maintain a $125 million per occurrence
        insurance deductible on hull and machinery (subject to an aggregate annual
        deductible of $250 million), 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 an aggregate deductible of $50 million in the case of our personal
        injury liability and third party property damage coverage that is applied
        to any
        occurrence in excess of the per occurrence deductible until the aggregate
        deductible is exhausted. We do not generally have coverage for losses due
        to
        hurricanes in the U.S Gulf of Mexico and war perils worldwide. We generally
        insure all of our offshore drilling rigs against property damage, except
        for U.S
        Gulf of Mexico windstorm risk and war perils worldwide and subject to
        self-insured deductibles as described above; however, the amount of such
        insurance may be less than the fair market value, replacement cost and net
        carrying value for financial reporting purposes.
  30
 ***Index***
  Our
        insurance coverage would not in all situations provide sufficient funds to
        protect us from all liabilities that could result from our drilling operations.
        Our coverage includes annual aggregate policy limits. As a result, we retain
        the
        risk through self-insurance for any losses in excess of these limits. We
        do not
        carry insurance for loss of revenue and certain other claims may not be
        reimbursed by insurance carriers. Such lack of reimbursement may cause us
        to
        incur substantial costs. In addition, we could decide to retain substantially
        more risk through self-insurance.
 
 ***Our
        non-U.S. operations involve additional risks not associated with our U.S.
        operations.***
 
 We
        operate in various regions throughout the world that may expose us to political
        and other uncertainties, including risks of:
 
 ·
              terrorist
                  acts, war and civil disturbances;
 ·
              expropriation
                  or nationalization of equipment;
࿠and
 ·
              the
                  inability to repatriate income or
                  capital.
 
 We
        are
        protected to a substantial extent against loss of capital assets, but generally
        not loss of revenue, from most of these risks through indemnity provisions
        in
        our drilling contracts. Effective May 1, 2007 our assets are generally not
        insured against risk of loss due to war perils such as terrorist acts, civil
        unrest, expropriation, nationalization and acts of war. Pollution and
        environmental risks generally are not totally insurable. If a significant
        accident or other event occurs and is not fully covered by insurance or an
        enforceable or recoverable indemnity from a client, it could adversely affect
        our consolidated financial position, results of operations or cash flows.
 
 Many
        governments favor or effectively require the awarding of drilling contracts
        to
        local contractors or require foreign contractors to employ citizens of, or
        purchase supplies from, a particular jurisdiction. These practices may adversely
        affect our ability to compete.
 
 Our
        non-U.S. contract drilling operations are subject to various laws and
        regulations in countries in which we operate, including laws and regulations
        relating to the equipment and operation of drilling units, currency conversions
        and repatriation, oil and gas exploration and development and taxation of
        offshore earnings and earnings of expatriate personnel. Governments in some
        foreign countries have become increasingly active in regulating and controlling
        the ownership of concessions and companies holding concessions, the exploration
        for oil and gas and other aspects of the oil and gas industries in their
        countries. In addition, government action, including initiatives by OPEC,
        may
        continue to cause oil or gas price volatility. In some areas of the world,
        this
        governmental activity has adversely affected the amount of exploration and
        development work done by major oil companies and may continue to do
        so.
 
 Another
        risk inherent in our operations is the possibility of currency exchange losses
        where revenues are received and expenses are paid in nonconvertible currencies.
        We may also incur losses as a result of an inability to collect revenues
        because
        of a shortage of convertible currency available in the country of operation.
  31
 ***Index***
  **Item
        2. UnregisteredSales 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 2007
              
              
              76,836
              
              $
              79.37
              
              
              -
              
              $
              1,000February 2007
              
              
              3,699,736
              
              $
              76.90
              
              
              3,699,000
              
              $
              715March 2007
              
              
              1,490,304
              
              $
              78.63
              
              
              1,469,324
              
              $
              600Total
              
              
              5,266,876
              
              $
              77.43
              
              
              5,168,324
              
              $
              600
 _________________
 (1)
              Total
                  number of shares purchased in the first three months of 2007 includes
                  98,552 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
                  May 2006, our board of directors authorized an increase in the
                  amount of
                  ordinary shares which may be repurchased pursuant to our share
                  repurchase
                  program from $2.0 billion, which was previously authorized and
                  announced
                  in October 2005, to $4.0 billion. 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,
                  2007, we have repurchased a total of 46.9 million of our ordinary
                  shares
                  at an aggregate cost of $3.4 billion.
  32
 ***Index***
  **Item
        6. Exhibits** ****
 
 (a)
              Exhibits
 
 The
        following exhibits are filed in connection with this Report:
 **Number**
                **Description**
 
 *3.1
              Memorandum
                  of Association of Transocean Inc., as amended (incorporated by
                  reference
                  to Annex E to the Joint Proxy Statement/Prospectus dated October
                  30, 2000
                  included in a 424(b)(3) prospectus filed by us on November 1,
                  2000)
 
 *3.2
              Articles
                  of Association of Transocean Inc., as amended (incorporated by
                  reference
                  to Annex F to the Joint Proxy Statement/Prospectus dated October
                  30, 2000
                  included in a 424(b)(3) prospectus filed by us on November 1,
                  2000)
 
 *3.3
              Certificate
                  of Incorporation on Change of Name to Transocean Inc. (incorporated
                  by
                  reference to Exhibit 3.3 to our Form 10-Q for the quarter ended
                  June 30,
                  2002)
 
 †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.
  33
 ***Index***
  **SIGNATURES**
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the registrant has duly caused this report to be signed on its behalf
        by
        the undersigned, thereunto duly authorized, on May 2, 2007.
 
 TRANSOCEAN
        INC.
 
 
 By:
              /s/
                  Gregory L. CauthenGregory
                  L. CauthenSenior
                  Vice President and Chief Financial Officer(Principal
                  Financial Officer)By:
              /s/
                  David A. TonnelDavid
                  A. TonnelVice
                  President and Controller(Principal
                  Accounting Officer)






34