**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 June 30, 2006**





**OR**





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





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





**Commission
      file number 333-75899**


**______________________**





**TRANSOCEAN
      INC**.


(Exact
      name of registrant as specified in its charter)


**______________________**





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





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





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


**______________________**




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





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.




Large
                Accelerated Filer**x**
            Accelerated
                Filer**o**
            Non-accelerated
                Filer**o**





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





As
      of
      July 31, 2006, 315,069,668 ordinary shares, par value $0.01 per share, were
      outstanding.
















**TRANSOCEAN
      INC.**





**INDEX
      TO FORM 10-Q**





**QUARTER
      ENDED** **JUNE
      30, 2006**





Page





**PART
                I - FINANCIAL INFORMATION****Item
                1.**
            Financial
                Statements (Unaudited)Condensed
                Consolidated Statements of
                OperationsThree
                and Six Months Ended June 30, 2006 and 2005
            1Condensed
                Consolidated Statements of Comprehensive
                IncomeThree
                and Six Months Ended June 30, 2006 and 2005
            2Condensed
                Consolidated Balance SheetsJune
                30, 2006 and December 31, 2005
            3Condensed
                Consolidated Statements of Cash
                FlowsThree
                and Six Months Ended June 30, 2006 and 2005
            4Notes
                to Condensed Consolidated Financial
                Statements
            5Item
              2.
            Management's
                Discussion and Analysis of Financial Condition and
                Results of Operations
            23**Item
                3.**
            Quantitative
                and Qualitative Disclosures about Market
                Risk
            39**Item
                4.**
            Controls
                and Procedures
            39**PART
                II - OTHER INFORMATION****Item
                1.**
            Legal
                Proceedings
            41**Item
                1A.**
            Risk
                Factors
            41**Item
                2.**
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            42**Item
                4.**
            Submission
                of Matters to a Vote of Security
                Holders
            43**Item
                6.**
            Exhibits
            44





*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 June 30,
            
            Six
                Months Ended June 30,2006
            
            2005
            
            2006
            
            2005Operating
                RevenuesContract
                drilling revenues
            
            $
            828.1
            
            $
            682.1
            
            $
            1,607.0
            
            $
            1,282.7Other
                revenues
            
            
            25.2
            
            
            45.3
            
            
            63.6
            
            
            75.2853.3
            
            
            727.4
            
            
            1,670.6
            
            
            1,357.9Costs
                and ExpensesOperating
                and maintenance
            
            
            549.3
            
            
            437.0
            
            
            1,024.3
            
            
            825.3Depreciation
            
            
            102.0
            
            
            101.2
            
            
            203.6
            
            
            201.9General
                and administrative
            
            
            24.6
            
            
            18.0
            
            
            44.8
            
            
            36.1675.9
            
            
            556.2
            
            
            1,272.7
            
            
            1,063.3Gain
                from disposal of assets, net
            
            
            110.6
            
            
            13.6
            
            
            174.7
            
            
            33.5Operating
                Income
            
            
            288.0
            
            
            184.8
            
            
            572.6
            
            
            328.1Other
                Income (Expense), netEquity
                in earnings of unconsolidated affiliates
            
            
            3.4
            
            
            3.4
            
            
            2.9
            
            
            6.5Interest
                income
            
            
            5.3
            
            
            4.8
            
            
            10.5
            
            
            8.8Interest
                expense, net of amounts capitalized
            
            
            (20.4
            )
            
            (29.8
            )
            
            (44.3
            )
            
            (62.9
            )Gain
                from TODCO stock sales
            
            
            -
            
            
            165.0
            
            
            -
            
            
            165.0Loss
                on retirement of debt
            
            
            -
            
            
            -
            
            
            -
            
            
            (6.7
            )Other,
                net
            
            
            (0.9
            )
            
            (3.0
            )
            
            (0.2
            )
            
            (4.1
            )(12.6
            )
            
            140.4
            
            
            (31.1
            )
            
            106.6Income
                Before Income Taxes and Minority Interest
            
            
            275.4
            
            
            325.2
            
            
            541.5
            
            
            434.7Income
                Tax Expense
            
            
            25.9
            
            
            23.6
            
            
            86.3
            
            
            41.1Minority
                Interest
            
            
            -
            
            
            (0.2
            )
            
            -
            
            
            -Net
                Income
            
            $
            249.5
            
            $
            301.8
            
            $
            455.2
            
            $
            393.6Earnings
                Per ShareBasic
            
            $
            0.77
            
            $
            0.93
            
            $
            1.40
            
            $
            1.21Diluted
            
            $
            0.75
            
            $
            0.90
            
            $
            1.36
            
            $
            1.18Weighted
                Average Shares OutstandingBasic
            
            
            323.6
            
            
            326.1
            
            
            324.5
            
            
            324.8Diluted
            
            
            335.8
            
            
            338.0
            
            
            337.0
            
            
            336.9






See
      accompanying notes


1
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**


(In
      millions)


(Unaudited)





Three
                Months Ended June 30,
            
            Six
                Months Ended June 30,2006
            
            2005
            
            2006
            
            2005Net
                Income
            
            $
            249.5
            
            $
            301.8
            
            $
            455.2
            
            $
            393.6Other
              Comprehensive Income (Loss), net of taxAmortization
                of gain on terminated interest rate swaps
            
            
            (0.1
            )
            
            (0.1
            )
            
            (0.1
            )
            
            (0.2
            )Change
                in unrealized loss on securities available for sale
            
            
            −
            
            
            −
            
            
            −
            
            
            0.3Minimum
                pension liability adjustments (net of tax expense of $0.7 for the
                six
                months ended June 30, 2005)
            
            
            −
            
            
            −
            
            
            −
            
            
            1.4Other
                Comprehensive Income (Loss)
            
            
            (0.1
            )
            
            (0.1
            )
            
            (0.1
            )
            
            1.5Total
                Comprehensive Income
            
            $
            249.4
            
            $
            301.7
            
            $
            455.1
            
            $
            395.1






See
      accompanying notes


2
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


(In
      millions)





June
                30,
              2006
            
            December 31,
                2005(Unaudited)**ASSETS**Cash
                and Cash Equivalents
            
            $
            282.2
            
            $
            445.4Accounts
                Receivable, net of allowance for doubtful accounts of $19.1 and $15.3
                at
                June 30, 2006 and December 31, 2005, respectively
            
            
            703.6
            
            
            599.7Materials
                and Supplies, net of allowance for obsolescence of $16.1 and $19.1
                at June
                30, 2006 and December 31, 2005, respectively
            
            
            164.2
            
            
            156.2Deferred
                Income Taxes, net
            
            
            24.7
            
            
            23.4Other
                Current Assets
            
            
            74.6
            
            
            54.4Total
                Current Assets
            
            
            1,249.3
            
            
            1,279.1Property
                and Equipment
            
            
            10,018.5
            
            
            9,791.0Less
                Accumulated Depreciation
            
            
            3,199.6
            
            
            3,042.8Property
                and Equipment, net
            
            
            6,818.9
            
            
            6,748.2Goodwill
            
            
            2,208.9
            
            
            2,208.9Investments
                in and Advances to Unconsolidated Affiliates
            
            
            11.0
            
            
            8.1Other
                Assets
            
            
            266.9
            
            
            212.9Total
                Assets
            
            $
            10,555.0
            
            $
            10,457.2**LIABILITIES
                AND SHAREHOLDERS’ EQUITY**Accounts
                Payable
            
            $
            337.4
            
            $
            254.0Accrued
                Income Taxes
            
            
            18.9
            
            
            27.5Debt
                Due Within One Year
            
            
            95.4
            
            
            400.0Other
                Current Liabilities
            
            
            259.7
            
            
            242.1Total
                Current Liabilities
            
            
            711.4
            
            
            923.6Long-Term
                Debt
            
            
            1,500.6
            
            
            1,197.1Deferred
                Income Taxes, net
            
            
            112.1
            
            
            65.0Other
                Long-Term Liabilities
            
            
            323.5
            
            
            286.2Total
                Long-Term Liabilities
            
            
            1,936.2
            
            
            1,548.3Commitments
                and ContingenciesMinority
                Interest
            
            
            3.8
            
            
            3.6Preference
                Shares, $0.10 par value; 50,000,000 shares authorized, none issued
                and
                outstanding
            
            
            −
            
            
            −Ordinary
                Shares, $0.01 par value; 800,000,000 shares authorized, 319,904,208
                and
                324,750,166 shares issued and outstanding at June 30, 2006 and December
                31, 2005, respectively
            
            
            3.2
            
            
            3.2Additional
                Paid-in Capital
            
            
            10,032.1
            
            
            10,565.3Accumulated
                Other Comprehensive Loss
            
            
            (20.5
            )
            
            (20.4
            )Retained
                Deficit
            
            
            (2,111.2
            )
            
            (2,566.4
            )Total
                Shareholders’ Equity
            
            
            7,903.6
            
            
            7,981.7Total
                Liabilities and Shareholders’ Equity
            
            $
            10,555.0
            
            $
            10,457.2






See
      accompanying notes


3
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


(In
      millions)


(Unaudited)


Three
                  Months Ended June 30,
              
              Six
                  Months Ended June 30,2006
              
              2005
              
              2006
              
              2005**Cash
                  Flows from Operating Activities**Net
                  income
              
              $
              249.5
              
              $
              301.8
              
              $
              455.2
              
              $
              393.6Adjustments
                  to reconcile net income to net cash provided by operating
                  activitiesDepreciation
              
              
              102.0
              
              
              101.2
              
              
              203.6
              
              
              201.9Stock-based
                  compensation expense
              
              
              5.2
              
              
              3.1
              
              
              8.0
              
              
              6.2Deferred
                  income taxes
              
              
              (8.6
              )
              
              (2.4
              )
              
              25.4
              
              
              2.2Equity
                  in earnings of unconsolidated affiliates
              
              
              (3.4
              )
              
              (3.4
              )
              
              (2.9
              )
              
              (6.5
              )Net
                  gain from disposal of assets
              
              
              (110.6
              )
              
              (13.6
              )
              
              (174.7
              )
              
              (33.5
              )Gain
                  from TODCO stock sales
              
              
              -
              
              
              (165.0
              )
              
              -
              
              
              (165.0
              )Loss
                  on retirement of debt
              
              
              -
              
              
              -
              
              
              -
              
              
              6.7Amortization
                  of debt-related discounts/premiums, fair value adjustments and
                  issue
                  costs, net
              
              
              (0.3
              )
              
              (2.3
              )
              
              (0.6
              )
              
              (5.5
              )Deferred
                  income, net
              
              
              10.8
              
              
              2.1
              
              
              20.0
              
              
              12.1Deferred
                  expenses, net
              
              
              (46.9
              )
              
              10.3
              
              
              (54.5
              )
              
              9.1Tax
                  benefit from exercise of stock options to purchase and vesting
                  of ordinary
                  shares under stock-based compensation plans
              
              
              (7.9
              )
              
              5.7
              
              
              (7.9
              )
              
              4.9Other,
                  net
              
              
              16.7
              
              
              4.9
              
              
              25.0
              
              
              13.7Changes
                  in operating assets and liabilitiesAccounts
                  receivable
              
              
              (32.7
              )
              
              (79.6
              )
              
              (103.9
              )
              
              (119.6
              )Accounts
                  payable and other current liabilities
              
              
              46.1
              
              
              55.4
              
              
              90.5
              
              
              70.8Income
                  taxes receivable/payable, net
              
              
              5.9
              
              
              12.2
              
              
              11.6
              
              
              7.1Other
                  current assets
              
              
              (49.9
              )
              
              (24.2
              )
              
              (51.0
              )
              
              (20.1
              )Net
                  Cash Provided by Operating Activities
              
              
              175.9
              
              
              206.2
              
              
              443.8
              
              
              378.1**Cash
                  Flows from Investing Activities**Capital
                  expenditures
              
              
              (98.0
              )
              
              (78.4
              )
              
              (275.6
              )
              
              (109.6
              )Proceeds
                  from disposal of assets, net
              
              
              121.3
              
              
              25.0
              
              
              203.0
              
              
              58.0Proceeds
                  from TODCO stock sales, net
              
              
              -
              
              
              271.9
              
              
              -
              
              
              271.9Joint
                  ventures and other investments, net
              
              
              -
              
              
              1.4
              
              
              -
              
              
              4.5Net
                  Cash Provided by (Used in) Investing Activities
              
              
              23.3
              
              
              219.9
              
              
              (72.6
              )
              
              224.8**Cash
                  Flows from Financing Activities**Repayments
                  of debt
              
              
              -
              
              
              (7.9
              )
              
              -
              
              
              (287.8
              )Net
                  proceeds from issuance of ordinary shares under stock-based compensation
                  plans
              
              
              21.6
              
              
              87.0
              
              
              66.1
              
              
              159.4Proceeds
                  from issuance of ordinary shares upon exercise of warrants
              
              
              -
              
              
              4.6
              
              
              -
              
              
              4.6Repurchase
                  of ordinary shares
              
              
              (400.1
              )
              
              -
              
              
              (600.1
              )
              
              -Decrease
                  in cash dedicated to debt service
              
              
              -
              
              
              12.0
              
              
              -
              
              
              12.0Other,
                  net
              
              
              (0.4
              )
              
              -
              
              
              (0.4
              )
              
              0.1Net
                  Cash Provided by (Used in) Financing Activities
              
              
              (378.9
              )
              
              95.7
              
              
              (534.4
              )
              
              (111.7
              )Net
                  Increase (Decrease) in Cash and Cash Equivalents
              
              
              (179.7
              )
              
              521.8
              
              
              (163.2
              )
              
              491.2Cash
                  and Cash Equivalents at Beginning of Period
              
              
              461.9
              
              
              420.7
              
              
              445.4
              
              
              451.3Cash
                  and Cash Equivalents at End of Period
              
              $
              282.2
              
              $
              942.5
              
              $
              282.2
              
              $
              942.5
   See
        accompanying notes


4
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





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





Transocean
      Inc. (together with its subsidiaries and predecessors, unless the context
      requires otherwise, “Transocean,” “we,” “us” or “our”) is a leading
      international provider of offshore contract drilling services for oil and gas
      wells. We contract our drilling rigs, related equipment and work crews primarily
      on a dayrate basis to drill oil and gas wells. We also provide additional
      services, including integrated services. At June 30, 2006, we owned, had partial
      ownership interests in or operated 88 mobile offshore and barge drilling units.
      As of this date, our fleet consisted of 33 High-Specification semisubmersibles
      and drillships (“floaters”), 21 Other Floaters, 25 Jackup Rigs and nine Other
      Rigs.





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





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





*Basis
      of Presentation* —Our
      accompanying condensed consolidated financial statements have been prepared
      without audit in accordance with accounting principles generally accepted in
      the
      United States for interim financial information and with the instructions to
      Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange
      Commission (“SEC”). Accordingly, pursuant to such rules and regulations, these
      financial statements do not include all disclosures required by accounting
      principles generally accepted in the U.S. for complete financial statements.
      The
      condensed consolidated financial statements reflect all adjustments, which
      are,
      in the opinion of management, necessary for a fair presentation of financial
      position, results of operations and cash flows for the interim periods. Such
      adjustments are considered to be of a normal recurring nature unless otherwise
      identified. Operating results for the three and six months ended June 30, 2006
      are not necessarily indicative of the results that may be expected for the
      year
      ending December 31, 2006 or for any future period. The accompanying condensed
      consolidated financial statements and notes thereto should be read in
      conjunction with the audited consolidated financial statements and notes thereto
      included in our Annual Report on Form 10-K for the year ended December 31,
      2005.





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





*Capitalized
      Interest* —We
      capitalize interest costs for qualifying construction and upgrade projects.
      We
      capitalized interest costs on construction work in progress of $2.0 million
      and
      $2.3 million for the three and six months ended June 30, 2006, respectively.
      There was no capitalized interest for the three and six months ended June 30,
      2005.





5
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





*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.





*Stock-Based
      Compensation* — On
      January 1, 2006, we adopted the Financial Accounting Standards Board (“FASB”)
      Statement of Financial Accounting Standards (“SFAS”) 123 (revised 2004) (“SFAS
      123(R)”), *Share-Based
      Payment* ,
      which
      is a revision of SFAS 123, *Accounting
      for Stock-Based Compensation* .
      SFAS
      123(R) supersedes Accounting Principles Board Opinion (“APB”) 25, *Accounting
      for Stock Issued to Employees* ,
      and
      amends SFAS 95, *Statement
      of Cash Flows* .
      While
      the approach in SFAS 123(R) is similar to the approach described in SFAS 123,
      SFAS 123(R) requires recognition in the income statement of all share-based
      payments to employees, including grants of employee stock options based on
      their
      fair values and pro forma disclosure is no longer an alternative. In March
      2005,
      the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”), *Stock-Based
      Payment* ,
      relating to SFAS 123(R). We have applied the provisions of SAB 107 in our
      adoption of SFAS 123(R).





We
      adopted SFAS 123(R) using the modified prospective method (“Prospective
      Method”), which requires the application of SFAS 123(R) as of January 1, 2006.
      Our consolidated financial statements as of and for the three and six months
      ended June
      30 ,
      2006
      reflect the application of SFAS 123(R). In accordance with the Prospective
      Method, our consolidated financial statements for prior periods have not been
      restated to reflect, and do not include, the application of SFAS 123(R).
      Share-based compensation expense for the three and six months ended June 30,
      2006 was $5.2 million ($4.8 million, net of tax) and $8.0 million ($7.3 million,
      net of tax), respectively, while the expense for the three and six months ended
      June 30, 2005 was $3.1 million ($2.5 million, net of tax) and $6.2 million
      ($5.3
      million, net of tax), respectively.





SFAS
      123(R) requires forfeitures to be estimated at the time of grant and revised,
      if
      necessary, in subsequent periods if actual forfeitures differ from those
      estimates. Additionally, SFAS 123(R) requires the estimated forfeiture rate
      be
      applied and the cumulative effect determined for all prior periods in which
      stock-based compensation costs have been recorded. Prior to our adoption of
      SFAS
      123(R), we accounted for forfeitures as they occurred. Upon adopting SFAS
      123(R), we estimated expected forfeitures over the life of each individual
      award
      and have included the impact of these expected forfeitures in our stock-based
      compensation expense for the three and six months ended June 30, 2006 in
      addition to all prior periods on a cumulative basis. The effect of this change
      is to reverse compensation cost recognized in prior period financial statements
      for awards that are not expected to vest based upon the expected forfeiture
      rate. The cumulative effect of applying the expected forfeiture rate has been
      included in operating and maintenance expense and general and administrative
      expense, the impact of which had no material effect on our consolidated
      financial position, results of operations or cash flows.





We
      adopted SFAS 123 effective January 1, 2003 and have accounted for stock-based
      compensation prospectively for all stock-based awards granted or modified on
      or
      subsequent to that date. As such, adoption of SFAS 123(R) using the Prospective
      Method had no material impact on our consolidated financial position, results
      of
      operations or cash flows. In addition to the compensation cost recognition
      requirements, SFAS 123(R) also requires the tax deduction benefits for an award
      in excess of recognized compensation cost to be reported as a financing cash
      flow rather than as an operating cash flow, which was required under SFAS 95.
      We
      reported operating cash flows related to tax deduction benefits of $5.7 million
      and $4.9 million for the three and six months ended June 30, 2005,
      respectively.





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





6
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





Prior
      to
      January 1, 2003, we accounted for share-based awards to employees under the
      provisions of SFAS 123 using the intrinsic value method prescribed by APB 25
      and
      related interpretations. If compensation expense for grants to employees under
      our long-term incentive plan prior to January 1, 2003 had been recognized using
      the fair value method of accounting under SFAS 123, net income and earnings
      per
      share for the three and six months ended June 30, 2005 would have been reduced
      to the pro forma amounts indicated below (in millions, except per share
      data):


Three
                    Months
                  Ended
                  June
                    30, 2005
                
                Six
                    Months
                  Ended
                  June
                    30, 2005Net
                    Income as Reported
                
                $
                301.8
                
                $
                393.6Add
                    back: Stock-based compensation expense included in reported net
                    income,
                    net of related tax effects
                
                
                2.5
                
                
                5.3Deduct:
                    Total stock-based compensation expense determined under the fair
                    value
                    method for all awards, net of related tax effectsLong-Term
                    Incentive Plan
                
                
                (3.3
                )
                
                (7.9
                )Employee
                    Stock Purchase Plan
                
                
                (0.8
                )
                
                (1.6
                )Pro
                    Forma Net Income
                
                $
                300.2
                
                $
                389.4Basic
                    Earnings Per ShareAs
                    Reported
                
                $
                0.93
                
                $
                1.21Pro
                    Forma
                
                
                0.92
                
                
                1.20Diluted
                    Earnings Per ShareAs
                    Reported
                
                $
                0.90
                
                $
                1.18Pro
                    Forma
                
                
                0.89
                
                
                1.17


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





Three
                Months
              Ended
              June
                30, 2005
            
            Six
                Months
              Ended
              June
                30, 2005Dividend
                yield
            
            
            -
            
            
            -Expected
                price volatility range
            
            
            26%-51
            %
            
            26%-51
            %Risk-free
                interest rate range
            
            
            2.86%-4.07
            %
            
            2.86%-4.07
            %Expected
                life of options (in years)
            
            
            3.90
            
            
            4.04Weighted-average
                fair value of options granted
            
            $
            27.14
            
            $
            23.60





*New
      Accounting Pronouncements* —In
      July
      2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes—an interpretation of FASB Statement No.
      109* (FIN
      48). ** This
      interpretation clarifies the accounting for income taxes recognized in an
      entity’s financial statements in accordance with SFAS 109, *Accounting
      for Income Taxes* . 
      It prescribes a minimum recognition threshold for recognizing, and a measurement
      attribute for disclosing, tax positions taken or expected to be taken on a
      tax
      return.  This interpretation is effective for fiscal years beginning after
      December 15, 2006.  We will be required to adopt this interpretation in the
      first quarter of fiscal year 2007.  Management is currently evaluating the
      requirements of FIN 48 and has not yet determined the impact on the consolidated
      financial statements.





7
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





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





**Note
      3―Drilling Fleet Expansion, Upgrades and Acquisition**





*Expansion
      and Upgrades* —Capital
      expenditures, including capitalized interest, totaled $275.6 million during
      the
      six months ended June 30, 2006 and include $95.6 million spent on the
      construction of an enhanced Enterprise-class drillship, the *Discoverer
      Clear Leader,* and
      $58.9
      million spent on the two *Sedco
      700* -series
      rig upgrades.





In
      June
      2006, we were awarded a contract for the construction of a second enhanced
      Enterprise-class drillship with an estimated total capital expenditure of
      approximately $615 million, excluding capitalized interest. Construction is
      expected to begin in 2007 and continue into 2009.





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





**Note
      4** ― **Asset
      Dispositions**





In
      June
      2006, we completed the sale of the semisubmersible rig *Transocean
      Explorer* for net
      proceeds of $101.0 million and recognized a gain on the sale of $97.1 million
      ($0.29 per diluted share), which had no tax effect.





In
      May
      2006, we sold the drilling barge *Searex
      XII* for
      net
      proceeds of $19.1 million and recognized a gain on the sale of $13.7 million
      ($0.04 per diluted share), which had no tax effect.





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





In
      February 2006, we completed the sale of the drillship *Peregrine
      III* for
      net
      proceeds of $78.7 million and recognized a gain on the sale of $61.8 million
      ($40.2 million, or $0.12 per diluted share, net of tax).





In
      January 2005, we completed the sale of the semisubmersible rig *Sedco
      600* for net
      proceeds of $24.9 million and recognized a gain on the sale of $18.8 million
      ($0.06 per diluted share), which had no tax effect.





In
      June
      2005, we sold the jackup rig *Transocean
      Jupiter* and a
      land rig for net proceeds of $23.5 million and recognized a gain on the sale
      of
      $14.0 million ($9.1 million, or $0.03 per diluted share, net of tax). During
      the
      six months ended June 30, 2005, we sold and disposed of certain other assets
      for
      net proceeds of approximately $9.6 million. We recognized a gain on such sales
      of $0.7 million ($0.3 million, net of tax).





**Note
      5** ― **TODCO
      Stock Sales**





In
      May
      2005, we sold 12.0 million shares of TODCO’s class A common stock, representing
      20 percent of TODCO’s total outstanding shares, at $20.50 per share. In June
      2005, we sold our remaining 1.3 million shares of TODCO’s class A common stock,
      representing two percent of TODCO’s total outstanding shares, at $23.57 per
      share. We received net proceeds of $271.9 million from the two sales and
      recognized a gain in the second quarter of 2005 of $165.0 million ($0.49 per
      diluted share), which had no tax effect. As a result of the sale in June 2005,
      we no longer own any shares of TODCO’s common stock.





8
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





**Note
      6** ― **Repurchase
      of Ordinary Shares**





In
      March
      2006, and in conjunction with our share repurchase program authorized by our
      board of directors in 2005, we repurchased and retired $200 million of our
      ordinary shares, which amounted to approximately 2.6 million ordinary shares
      at
      an average purchase price of $77.54 per share.





In
      June
      2006, 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 $76.23 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.





In
      May
      2006, our board of directors authorized an increase in the overall amount of
      ordinary shares which may be repurchased from $2.0 billion to $4.0 billion.
      At
      June 30, 2006, we had authority to repurchase $3.0 billion of our ordinary
      shares under the program. See Note 15—Subsequent Events.





**Note
      7** ― **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 six months ended June 30, 2006
      was
      based on estimated 2006 annual income before income taxes and minority interest,
      after adjusting for certain items such as gains on rig sales. The estimated
      annual effective tax rate for the six months ended June 30, 2005 was based
      on
      estimated 2005 annual income before income taxes and minority interest, after
      adjusting for certain items such as a gain related to the disposition of TODCO
      and loss on retirement of debt.





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





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





In
      April
      2006, we received notice from the Norwegian tax authorities regarding their
      intent to propose adjustments to taxable income for the tax years 1999, 2001
      and
      2002. These proposed assessments would result in an increase in tax of
      approximately $260 million, plus interest and the authorities further indicated
      they intend to impose penalties, which could range from 15 to 60 percent of
      the
      assessments. The anticipated assessments relate to restructuring transactions
      undertaken in 2001 and 2002. The Norwegian tax authorities initiated inquiries
      in September 2004 related to the restructuring transactions and a separate
      dividend payment made during 2001. In February 2005, we filed a response to
      these inquiries. In March 2005, pursuant to court orders, the Norwegian tax
      authorities took action to obtain additional information regarding these
      transactions. We have continued to respond to information requests from the
      Norwegian authorities 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 $103 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 it to have a material adverse effect
      on
      our consolidated financial position, results of operations or cash
      flows.





9
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





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





**Note
      8** ― **Debt**





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





June
                30,
            
            December
                31,2006
            
            20056.625%
                Notes, due April 2011
            
            $
            181.6
            
            $
            183.07.375%
                Senior Notes, due April 2018
            
            
            246.8
            
            
            246.9Zero
                Coupon Convertible Debentures, due May 2020 (put options exercisable
                May 2008 and May 2013)
            
            
            17.8
            
            
            17.51.5%
                Convertible Debentures, due May 2021 (put options exercisable May
                2011 and
                May 2016) (a)
            
            
            399.9
            
            
            400.08%
                Debentures, due April 2027
            
            
            56.8
            
            
            56.87.45%
                Notes, due April 2027 (put options exercisable April 2007)
                (b)
            
            
            95.4
            
            
            95.37.5%
                Notes, due April 2031
            
            
            597.7
            
            
            597.6Total
                Debt
            
            
            1,596.0
            
            
            1,597.1Less
                Debt Due Within One Year (a) (b)
            
            
            95.4
            
            
            400.0Total
                Long-Term Debt
            
            $
            1,500.6
            
            $
            1,197.1


_________________


(a)
            The
                1.5% Convertible Debentures were classified as debt due within one
                year at
                December 31, 2005 since the holders had the option to require us
                to
                repurchase the debentures in May
                2006.


(b)
            The
                7.45% Notes are classified as debt due within one year at June 30,
                2006
                since the holders can exercise their right to require us to repurchase
                the
                notes in April 2007.





10
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





The
      scheduled maturity of our debt assumes the bondholders exercise their options
      to
      require us to repurchase the 7.45% Notes, Zero Coupon Convertible Debentures
      and
      1.5% Convertible Debentures in April 2007, May 2008 and May 2011, respectively.
      All amounts are at face value except for the Zero Coupon Convertible Debentures,
      which are included at the price we would be required to pay should the
      bondholders exercise their right to require us to repurchase the debentures
      in
      May 2008. The scheduled maturities are as follows (in millions):





Twelve
                Months
              Ending
              June
                30,2007
            
            $
            100.02008
            
            
            19.02009
            
            
            -2010
            
            
            -2011
            
            
            565.5Thereafter
            
            
            903.8Total
            
            $
            1,588.3





*Revolving
      Credit Agreement* —In
      May
      2006, we increased the credit limit on our existing revolving credit agreement
      dated July 8, 2005 from $500.0 million to $1.0 billion and extended the maturity
      date by one year from July 2010 to July 2011.





*Debt
      Redemptions and Repayments* —Holders
      of our 1.5% Convertible Debentures, due May 15, 2021 had the option to require
      us to repurchase their debentures in May 2006, however no holders exercised
      such
      right. In May 2006, holders of $101,000 aggregate principal amount converted
      their debentures into ordinary shares at a conversion rate of 13.8627 ordinary
      shares per $1,000 debenture, resulting in the issuance of 1,399 ordinary shares.





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





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





**Note
      9** — **Interest
      Rate Swaps**





In
      January 2003, we terminated all our outstanding interest rate swaps, which
      were
      designated as fair value hedges, and recognized $173.5 million as a fair value
      adjustment to the underlying long-term debt in our consolidated balance sheet.
      We amortize this amount as a reduction to interest expense over the remaining
      life of the underlying debt. During the three and six months ended June 30,
      2006, such reduction amounted to $0.8 million and $1.5 million, respectively.
      During the three and six months ended June 30, 2005, such reduction amounted
      to
      $3.1 million ($0.01 per diluted share) and $7.0 million ($0.02 per diluted
      share), respectively. As a result of the redemption of our 6.95% Senior Notes
      in
      March 2005, we recognized $13.2 million ($0.08 per diluted share) of the
      unamortized fair value adjustment, which had no tax effect, as a reduction
      to
      our loss on redemption of debt (see Note 8—Debt). At June 30, 2006 and December
      31, 2005, the remaining balance to be amortized was $16.4 million and $17.9
      million, respectively, and related to the 6.625% Notes, due April 2011.





11
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





At
      June
      30, 2006, we had no outstanding interest rate swaps.





**Note
      10** ― **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 June 30,
              
              Six
                  Months Ended June 30,2006
              
              2005
              
              2006
              
              2005**Numerator
                  for Basic Earnings per Share**Net
                  Income for basic earnings per share
              
              $
              249.5
              
              $
              301.8
              
              $
              455.2
              
              $
              393.6**Numerator
                  for Diluted Earnings per Share**Net
                  Income
              
              $
              249.5
              
              $
              301.8
              
              $
              455.2
              
              $
              393.6Add
                  back interest expense on the 1.5% convertible debentures
              
              
              1.5
              
              
              1.6
              
              
              3.1
              
              
              3.2Net
                  Income for diluted earnings per share
              
              $
              251.0
              
              $
              303.4
              
              $
              458.3
              
              $
              396.8**Denominator
                  for Diluted Earnings per Share**Weighted-average
                  shares outstanding for basic earnings per share
              
              
              323.6
              
              
              326.1
              
              
              324.5
              
              
              324.8Effect
                  of dilutive securities:Employee
                  stock options and unvested stock grants
              
              
              3.9
              
              
              3.6
              
              
              4.2
              
              
              3.8Warrants
                  to purchase ordinary shares
              
              
              2.8
              
              
              2.8
              
              
              2.8
              
              
              2.81.5%
                  convertible debentures
              
              
              5.5
              
              
              5.5
              
              
              5.5
              
              
              5.5Adjusted
                  weighted-average shares and assumed conversions for diluted earnings
                  per
                  share
              
              
              335.8
              
              
              338.0
              
              
              337.0
              
              
              336.9**Basic
                  Earnings Per Share**Net
                  Income
              
              $
              0.77
              
              $
              0.93
              
              $
              1.40
              
              $
              1.21**Diluted
                  Earnings Per Share**Net
                  Income
              
              $
              0.75
              
              $
              0.90
              
              $
              1.36
              
              $
              1.18





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





**Note
      11** ― **Contingencies**





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





12
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





In
      1990
      and 1991, two of our subsidiaries were served with various assessments
      collectively valued at approximately $10 million from the municipality of Rio
      de
      Janeiro, Brazil to collect a municipal tax on services. We believe that neither
      subsidiary is liable for the taxes and have contested the assessments in the
      Brazilian administrative and court systems. We have received several adverse
      rulings by various courts with respect to a June 1991 assessment, which is
      valued at approximately $9 million. We are continuing to challenge the
      assessment and filed a writ of mandamus to stay execution of a related tax
      foreclosure proceeding. We expect that the government will attempt to enforce
      the judgment on this assessment and that the amount claimed may exceed the
      amounts we believe are at issue. We received a favorable ruling in connection
      with a disputed August 1990 assessment, and the government has lost what is
      expected to be its final appeal with respect to that ruling. We also are
      awaiting a ruling from the Taxpayer's Council in connection with an October
      1990
      assessment. If our defenses are ultimately unsuccessful, we believe that the
      Brazilian government-controlled oil company, Petrobras, has a contractual
      obligation to reimburse us for municipal tax payments. We do not expect the
      liability, if any, resulting from these assessments to have a material adverse
      effect on our consolidated financial position, results of operations or cash
      flows.





The
      Indian Customs Department, Mumbai, filed a “show cause notice” against one of
      our subsidiaries and various third parties in July 1999. The show cause notice
      alleged that the initial entry into India in 1988 and other subsequent movements
      of the *Trident
      II* jackup
      rig operated by the subsidiary constituted imports and exports for which proper
      customs procedures were not followed and sought payment of customs duties of
      approximately $31 million based on an alleged 1998 rig value of $49 million,
      plus interest and penalties, and confiscation of the rig. In January 2000,
      the
      Customs Department issued its order, which found that we had imported the rig
      improperly and intentionally concealed the import from the authorities, and
      directed us to pay a redemption fee of approximately $3 million for the rig
      in
      lieu of confiscation and to pay penalties of approximately $1 million in
      addition to the amount of customs duties owed. In February 2000, we filed an
      appeal with the Customs, Excise and Service Tax Appellate Tribunal (“CESTAT”)
      together with an application to have the confiscation of the rig stayed pending
      the outcome of the appeal. In March 2000, the CESTAT ruled on the stay
      application, directing that the confiscation be stayed pending the appeal.
      The
      CESTAT issued its order on our appeal on February 2, 2001, and while it found
      that the rig was imported in 1988 without proper documentation or payment of
      duties, the redemption fee and penalties were reduced to less than $0.1 million
      in view of the ambiguity surrounding the import practice at the time and the
      lack of intentional concealment by us. The CESTAT further sustained our position
      regarding the value of the rig at the time of import as $13 million and ruled
      that subsequent movements of the rig were not liable to import documentation
      or
      duties in view of the prevailing practice of the Customs Department, thus
      limiting our exposure as to custom duties to approximately $6 million. Although
      CESTAT did not grant us the benefit of a customs duty exemption due to the
      absence of the required documentation, CESTAT left it open for our subsidiary
      to
      seek such documentation from the Ministry of Petroleum. Following the CESTAT
      order, we tendered payment of redemption, penalty and duty in the amount
      specified by the order by offset against a $0.6 million deposit and $10.7
      million guarantee previously made by us. The Customs Department attempted to
      draw the entire guarantee, alleging the actual duty payable is approximately
      $22
      million based on an interpretation of the CESTAT order that we believe is
      incorrect. This action was stopped by an interim ruling of the High Court,
      Mumbai on writ petition filed by us. We and the Customs Department both filed
      appeals with the Supreme Court of India against the order of the CESTAT, and
      both appeals were admitted. The Supreme Court has dismissed the Customs
      Department appeal and affirmed the CESTAT order but the Customs Department
      has
      not agreed with our interpretation of that order. We are contesting their
      interpretation. We and our customer agreed to pursue and obtained the issuance
      of the required documentation from the Ministry of Petroleum that, if accepted
      by the Customs Department, would reduce the duty to nil. The Customs Department
      did not accept the documentation or agree to refund the duties already paid.
      We
      are pursuing our remedies against the Customs Department and our customer.
      We do
      not expect the liability, if any, resulting from this matter to have a material
      adverse effect on our consolidated financial position, results of operations
      or
      cash flows.





13
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





In
      October 2001, TODCO was notified by the U.S. Environmental Protection Agency
      (“EPA”) that the EPA had identified a subsidiary as a potentially responsible
      party in connection with the Palmer Barge Line superfund site located in Port
      Arthur, Texas.  Based upon the information provided by the EPA and a review
      of TODCO’s internal records to date, TODCO disputes its designation as a
      potentially responsible party.  Based on further review of the master
      separation agreement with TODCO, we believe that TODCO is responsible for any
      losses TODCO incurs in connection with this action and we are not required
      to
      indemnify TODCO for any such losses.




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





One
      of
      our subsidiaries is involved in an action with respect to customs penalties
      relating to the *Sedco
      710* semisubmersible drilling rig. Prior to our merger with Sedco Forex, this
      drilling rig, which was working for Petrobras in Brazil at the time, had been
      admitted into the country on a temporary basis under authority granted to a
      Schlumberger entity. Prior to the Sedco Forex merger, the drilling contract
      was
      moved to an entity that would become one of our subsidiaries. In early 2000,
      the
      drilling contract was extended for another year. On January 10, 2000, the
      temporary import permit granted to the Schlumberger entity expired, and renewal
      filings were not made until later that January. In April 2000, the Brazilian
      customs authorities cancelled the import permit. The Schlumberger entity filed
      an action in the Brazilian federal court of Campos for the purpose of extending
      the temporary admission. Other proceedings were also initiated in order to
      secure the transfer of the temporary admission to our subsidiary. Ultimately,
      the court permitted the transfer to our entity but has not ruled that the
      temporary admission could be extended without the payment of a financial
      penalty. During the first quarter of 2004, the customs office renewed its
      efforts to collect a penalty and issued a second assessment for this penalty
      but
      has now done so against our subsidiary. The assessment is for approximately
      $71
      million. We believe that the amount of the assessment, even if it were
      appropriate, should only be approximately $7 million and should in any event
      be
      assessed against the Schlumberger entity. We and Schlumberger are contesting
      our
      respective assessments. We have put Schlumberger on notice that we consider
      any
      assessment to be the responsibility of Schlumberger. We do not expect the
      liability, if any, resulting from this matter to have a material adverse effect
      on our consolidated financial position, results of operations or cash
      flows.





We
      have a
      dispute with TODCO concerning payment to us under our tax sharing agreement
      with
      TODCO for the tax benefit that TODCO derives from exercises of options to
      purchase our ordinary shares held by employees of TODCO. An arbitration
      proceeding that was initiated in January 2006 continues and is expected to
      be
      concluded during 2006. We are seeking payment of the amount of tax benefits
      derived from exercises of options to purchase our ordinary shares by employees
      of TODCO who were not on the payroll of TODCO at the time of exercise and a
      declaration that TODCO pay us for the benefit derived from such exercises in
      the
      future. TODCO is seeking to avoid such payment and is asking that the entire
      tax
      sharing agreement be voided. TODCO filed suit in January 2006 in state district
      court in Houston seeking to set aside the arbitration provision and to void
      the
      entire tax sharing agreement. The state district court denied TODCO’s claim that
      the arbitration clause is unenforceable, compelled arbitration of the remaining
      claims asserted in the lawsuit, and stayed the lawsuit until the arbitration
      proceeding is concluded. We believe TODCO owes us approximately $22.2 million,
      exclusive of interest, based on options exercised through June 30, 2006, and
      we
      do not believe TODCO’s attempts to void the tax sharing agreement have merit. We
      do not expect the outcome of this matter to have a material adverse effect
      on
      our consolidated financial position, results of operations or cash
      flows.





14
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





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 7—Income Taxes).





*Self
      Insurance* —We
      are
      self-insured 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
      annually, except in the case of a total loss where the annual limit is
      approximately $300 million. In the opinion of management, adequate accruals
      have
      been made based on known and estimated exposures up to the deductible portion
      of
      our insurance coverages. Management believes that claims and liabilities in
      excess of the amounts accrued are adequately insured.





*Letters
      of Credit and Surety Bonds* —We
      had
      letters of credit outstanding totaling $378.3 million and $313.8 million at
      June
      30, 2006 and December 31, 2005, respectively. These letters of credit guarantee
      various contract bidding and performance activities under various uncommitted
      lines provided by several banks.





As
      is
      customary in the contract drilling business, we also have various surety bonds
      in place that secure customs obligations relating to the importation of our
      rigs
      and certain performance and other obligations. Surety bonds outstanding totaled
      $6.4 million and $8.0 million at June 30, 2006 and December 31, 2005,
      respectively.





**Note
      12** ― **Stock-Based
      Compensation**





We
      have a
      long-term incentive plan for executives, key employees and outside directors
      (the “Incentive Plan”). Under the Incentive Plan, awards can be granted in the
      form of stock options, restricted shares, deferred units, stock appreciation
      rights (“SARs”) and cash performance awards. Such awards include traditional
      time-vesting awards (“time-based vesting awards”) and awards that are earned
      based on the achievement of certain performance criteria (“performance-based
      awards”). Our executive compensation committee of our board of directors
      determines the terms and conditions of the awards under the Incentive Plan.
      Options issued to date under the Incentive Plan have a 10-year term. Time-based
      vesting awards typically vest in three equal annual installments beginning
      on
      the first anniversary date of the grant. Performance-based awards issued to
      date
      under the Incentive Plan have a two-year performance period with the number
      of
      options, shares or deferred units earned being determined following the
      completion of the performance period (the “determination date”) at which time
      one-third of the options, shares or deferred units vest. Additional vesting
      occurs on January 1 of the two subsequent years following the determination
      date. As of June 30, 2006, we were authorized under the Incentive Plan to grant
      up to (i) 22.9 million ordinary shares to employees; (ii) 0.6 million
      ordinary shares to outside directors and (iii) **** 6.0 **** million
      restricted shares to employees.





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





15
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





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




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





As
      of
      June 30, 2006, total unrecognized compensation costs related to all unvested
      share-based awards totaled $18.5 million, which is expected to be recognized
      over a weighted average period of 2.0 years.





*Time-Based
      Vesting Awards*





*Stock
      Options* **—** The
      following table summarizes vested and unvested time-based vesting stock option
      (“time-based options”) activity under the Incentive Plan during the period ended
      June 30, 2006:





Number
                of
              Shares
                Under
              Option
            
            Weighted-Average
                Exercise Price per
              Share
            
            Weighted-Average
                Remaining
              Contractual
                Term
              (years)
            
            Aggregate
              Intrinsic
                Value
              (in
                millions)Outstanding
                at January 1, 2006
            
            
            6,312,707
            
            $
            29.43Exercised
            
            
            (1,248,079
            )
            
            29.85Forfeited
                or expired
            
            
            (480
            )
            
            55.98Outstanding
                at March 31, 2006
            
            
            5,064,148
            
            
            29.32
            
            
            4.23
            
            $
            259.7Granted
            
            
            2,270
            
            
            81.45Exercised
            
            
            (683,863
            )
            
            34.97Forfeited
                or expired
            
            
            (12
            )
            
            29.61Outstanding
                at June 30, 2006
            
            
            4,382,543
            
            $
            28.46
            
            
            4.06
            
            $
            224.9Vested
                or expected to vest as of June 30, 2006
            
            
            4,375,346
            
            $
            28.46
            
            
            4.06
            
            $
            224.6Exercisable
                at June 30, 2006
            
            
            4,288,425
            
            $
            28.55
            
            
            4.04
            
            $
            219.7





Time-based
      options expected to vest in the table above include options that have not time
      vested, where the amount is net of a discount for our estimated termination
      related forfeitures. No time-based options were granted during the three and
      six
      months ended June 30, 2005. The total pretax intrinsic value of time-based
      options exercised during the three and six months ended June 30, 2006 was $34.8
      million and $94.4 million, respectively. The total pretax intrinsic value of
      time-based options exercised during the three and six months ended June 30,
      2005
      was $66.0 million and $132.1 million, respectively.





16
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





The
      following table summarizes unvested time-based option activity under the
      Incentive Plan during the period ended June 30, 2006:





Number
                of Shares
              Under
                Option
            
            Weighted-Average
              Grant-Date
                Fair Value
              per
                ShareUnvested
                at January 1, 2006
            
            
            184,998
            
            $
            8.16Vested
            
            
            (79,143
            )
            
            8.55Unvested
                at March 31, 2006
            
            
            105,855
            
            
            7.87Granted
            
            
            2,270
            
            
            32.01Vested
            
            
            (14,000
            )
            
            7.32Forfeited
                or expired
            
            
            (7
            )
            
            14.12Unvested
                at June 30, 2006
            
            
            94,118
            
            $
            9.62





The
      total
      fair value of time-based options vested during the three and six months ended
      June 30, 2006 was $0.1 million and $0.8 million, respectively. During the three
      and six months ended June 30, 2005, 14,000 and 106,919 time-based options
      vested, respectively. The total fair value of time-based options vested during
      the three and six months ended June 30, 2005 was $0.1 million and $0.9 million,
      respectively.





*Restricted
      Ordinary Shares* **—** The
      following table summarizes unvested share activity for time-based vesting
      restricted ordinary shares (“time-based shares”) granted under the Incentive
      Plan during the period ended June 30, 2006:





Number
                of Shares
            
            Weighted-Average
              Grant-Date
                Fair Value
              per
                ShareUnvested
                at January 1, 2006
            
            
            46,940
            
            $
            42.36Granted
            
            
            8,400
            
            
            69.39Vested
                and distributed
            
            
            (6,719
            )
            
            43.51Unvested
                at March 31, 2006
            
            
            48,621
            
            
            47.13Granted
            
            
            1,575
            
            
            82.36Forfeited
            
            
            (433
            )
            
            28.12Unvested
                at June 30, 2006
            
            
            49,763
            
            $
            48.42





There
      were 20,150 time-based shares granted during the six months ended June 30,
      2005,
      with a weighted-average grant-date fair value of $43.51 per share. There were
      no
      time-based shares granted during the three months ended June 30, 2005. The
      total
      fair value of time-based shares that vested during the six months ended June
      30,
      2006 was $0.3 million. No time-based shares vested during the three months
      ended
      June 30, 2006. No time-based shares vested during the three and six months
      ended
      June 30, 2005.





17
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





*Deferred
      Units* **—** A
      deferred unit is a unit that is equal to one ordinary share but has no voting
      rights until the underlying ordinary shares are issued. The following table
      summarizes unvested activity for time-based vesting deferred units (“time-based
      units”) granted under the Incentive Plan during the period ended June 30,
      2006:





Number
                of Units
            
            Weighted-Average
              Grant-Date
                Fair
              Value
                per ShareUnvested
                at January 1 and March 31, 2006
            
            
            30,776
            
            $
            37.48Granted
            
            
            13,527
            
            
            88.83Vested
                and distributed
            
            
            (12,288
            )
            
            35.57Unvested
                at June 30, 2006
            
            
            32,015
            
            $
            59.90





There
      were 18,600 time-based units granted during the three and six months ended
      June
      30, 2005, with a weighted-average grant-date fair value of $45.02 per share.
      The
      total fair value of the time-based units vested during the three and six months
      ended June 30, 2006 was $0.4 million. During the three and six months ended
      June
      30, 2005, 6,080 time-based deferred units vested. The total fair value of the
      time-based units vested during the three and six months ended June 30, 2005
      was
      $0.2 million.





*SARs* **—** The
      following table summarizes time-based vesting SARs activity under the Incentive
      Plan during the period ended June 30, 2006:





Number
                of SARs
            
            Weighted-Average
              Exercise
                Price per
              Share
            
            Weighted-Average
              Remaining
              Contractual
                Term
              (years)
            
            Aggregate
              Intrinsic
                Value
              (in
                millions)Outstanding
                at January 1, 2006
            
            
            50,976
            
            $
            35.43Exercised
            
            
            (12,690
            )
            
            33.18Outstanding
                at March 31, 2006
            
            
            38,286
            
            
            36.18
            
            
            2.79
            
            $
            1.7Exercised
            
            
            (3,700
            )
            
            38.46Outstanding
                at June 30, 2006
            
            
            34,586
            
            $
            35.94
            
            
            2.50
            
            $
            1.5Exercisable
                at June 30, 2006
            
            
            34,586
            
            $
            35.94
            
            
            2.50
            
            $
            1.5





The
      total
      pretax intrinsic value of SARs exercised during the three and six months ended
      June 30, 2006 was $0.2 million and $0.8 million, respectively. The total pretax
      intrinsic value of SARs exercised during the three and six months ended June
      30,
      2005 was $0.2 million and $0.7 million, respectively. No SARs were granted
      during the three and six months ended June 30, 2006 and 2005. During the three
      and six months ended June 30, 2005, 417 SARs vested. The total fair value of
      SARs vested during the three and six months ended June 30, 2005 was less than
      $0.1 million. As of June 30, 2006, all SARs granted under the Incentive Plan
      are
      fully vested.





18
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





*Performance-Based
      Awards*





*Stock
      Options* **—** We
      granted performance-based stock options (“performance-based options”) that are
      earnable based on the achievement of certain performance targets. The number
      of
      options earned is quantified upon completion of the performance period at the
      determination date. The following table summarizes vested and unvested
      performance-based option activity under the Incentive Plan during the period
      ended June 30, 2006:





Number
                of
              Shares
                Under
              Option
            
            Weighted-Average
              Exercise
                Price per
              Share
            
            Weighted-Average
              Remaining
              Contractual
                Term
              (years)
            
            Aggregate
              Intrinsic
                Value
              (in-millions)Outstanding
                at January 1, 2006
            
            
            1,253,125
            
            $
            33.19Exercised
            
            
            (84,704
            )
            
            21.20Outstanding
                at March 31, 2006
            
            
            1,168,421
            
            
            34.06
            
            
            8.28
            
            $
            54.4Exercised
            
            
            (81,950
            )
            
            24.41Forfeited
                or cancelled
            
            
            (151,314
            )
            
            28.12Outstanding
                at June 30, 2006
            
            
            935,157
            
            $
            35.86
            
            
            8.08
            
            $
            41.1Vested
                or expected to vest at June 30, 2006
            
            
            765,744
            
            $
            32.50
            
            
            7.92
            
            $
            36.2Exercisable
                at June 30, 2006
            
            
            197,437
            
            $
            24.19
            
            
            7.46
            
            $
            11.0





The
      number of performance-based options expected to vest in the table above includes
      both (i) options that have reached their determination date but have not time
      vested, in which case the amount is net of a discount for our estimated
      termination related forfeitures, and (ii) option grants that have not reached
      their determination date, in which case the amount is net of a discount for
      expected forfeitures based upon our current estimate of the number of options
      expected to be earned using the performance criteria at the determination date.
      No performance-based options were granted during the three and six months ended
      June 30, 2006 and 2005. The total pretax intrinsic value of performance-based
      options exercised during the three and six months ended June 30, 2006 was $5.1
      million and $9.5 million, respectively. During the three and six months ended
      June 30, 2005, 85,195 performance-based options were exercised. The total pretax
      intrinsic value of performance-based options exercised during the three and
      six
      months ended June 30, 2005 was $2.6 million.





The
      following table summarizes unvested performance-based option activity under
      the
      Incentive Plan during the period ended June 30, 2006:





Number
                of Shares
              Under
                Option
            
            Weighted-Average
              Grant-Date
                Fair
              Value
                per ShareUnvested
                at January 1, 2006
            
            
            1,178,535
            
            $
            13.12Vested
            
            
            (166,016
            )
            
            8.55Unvested
                at March 31, 2006
            
            
            1,012,519
            
            
            13.87Vested
            
            
            (123,485
            )
            
            11.26Forfeited
                or cancelled
            
            
            (151,314
            )
            
            11.26Unvested
                at June 30, 2006
            
            
            737,720
            
            $
            14.84





Unvested
      options include options that have not reached their determination date and
      thus
      the number of such options could be reduced due to the performance criteria
      applied at the determination date. Options forfeited or cancelled include the
      adjustment of options at the determination date due to the application of the
      performance criteria. The total fair value of performance-based options vested
      during the three and six months ended June 30, 2006 was $1.4 million and $2.8
      million, respectively. During the three and six months ended June 30, 2005,
      166,013 performance-based options vested. The total fair value of
      performance-based options vested during the three and six months ended June
      30,
      2005 was $1.4 million.





19
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





*Restricted
      Ordinary Shares* **—** We
      grant
      performance-based restricted ordinary shares (“performance-based shares”) that
      are earnable based on the achievement of certain performance targets. The number
      of shares earned is quantified upon completion of the performance period at
      the
      determination date. The following table summarizes unvested share activity
      for
      performance-based shares granted under the Incentive Plan during the period
      ended June 30, 2006:





Number
                of Shares
            
            Weighted-Average
              Grant-Date
                Fair
              Value
                per ShareUnvested
                at January 1, 2006
            
            
            1,242,829
            
            $
            35.562004
                Performance-based shares converted to deferred units
            
            
            (133,932
            )
            
            28.122005
                Performance-based shares converted to deferred units
            
            
            (103,152
            )
            
            56.34Vested
                and distributed
            
            
            (130,030
            )
            
            21.20Forfeited
            
            
            (2,364
            )
            
            21.20Unvested
                at March 31, 2006
            
            
            873,351
            
            
            36.42Vested
                and distributed
            
            
            (118,139
            )
            
            28.12Forfeited
                or cancelled
            
            
            (149,851
            )
            
            28.74Unvested
                at June 30, 2006
            
            
            605,361
            
            $
            39.79





Unvested
      shares include shares that have not reached their determination date and thus
      the number of such shares could be reduced due to the performance criteria
      applied at the determination date. Shares forfeited or cancelled include the
      adjustment of shares at the determination date due to the application of the
      performance criteria. No performance-based shares were granted during the three
      and six months ended June 30, 2006 and 2005. The total fair value of
      performance-based shares that vested during the three and six months ended
      June
      30, 2006 was $3.3 million and $6.1 million, respectively. During the three
      and
      six months ended June 30, 2005, 195,670 performance-based shares vested. The
      total fair value of performance-based shares vested during the three and six
      months ended June 30, 2005 was $4.1 million.





*Deferred
      Units* **—** We
      grant
      performance-based deferred units (“performance-based units”) that are earnable
      based on the achievement of certain performance targets. The number of units
      earned is quantified upon completion of the performance period at the
      determination date. The following table summarizes unvested unit activity for
      performance-based units granted under the Incentive Plan during the period
      ended
      June 30, 2006:





Number
                of Units
            
            Weighted-Average
              Grant-Date
                Fair
              Value
                per ShareUnvested
                at January 1, 2006
            
            
            91,338
            
            $
            29.152004
                Performance-based shares converted to deferred units
            
            
            133,932
            
            
            28.122005
                Performance-based shares converted to deferred units
            
            
            103,152
            
            
            56.34Vested
                and distributed
            
            
            (13,790
            )
            
            21.20Forfeited
            
            
            (593
            )
            
            21.20Unvested
                at March 31, 2006
            
            
            314,039
            
            
            38.01Vested
                and distributed
            
            
            (45,152
            )
            
            28.12Forfeited
                or cancelled
            
            
            (64,282
            )
            
            28.90Unvested
                at June 30, 2006
            
            
            204,605
            
            $
            42.46




20
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





Unvested
      units include units that have not reached their determination date and thus
      the
      number of such units could be reduced due to the performance criteria applied
      at
      the determination date. Units forfeited or cancelled include the adjustment
      of
      units at the determination date due to the application of the performance
      criteria. No performance-based units were granted during the three and six
      months ended June 30, 2006 and 2005. The total fair value of performance-based
      units that vested during the three and six months ended June 30, 2006 was $1.3
      million and $1.6 million, respectively. During the three and six months ended
      June 30, 2005, 15,054 performance-based units vested. The total fair value
      of
      performance-based units vested during the three and six months ended June 30,
      2005 was $0.3 million.





**Note
      13** ― **Stock
      Warrants**





At June
      30 ,
      2006,
      there were 203,900 warrants outstanding to purchase 3,568,250 ordinary shares
      at
      an exercise price of $19.00 per share. The warrants expire on May 1, 2009.
      On March
      1 ,
      2006,
      we issued 333,039 ordinary shares related to a cashless exercise of 25,100
      warrants.





**Note
      14** ― **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 related to 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 included the following components (in
      millions):





Three
                Months Ended
              June
                30,
            
            Six
                Months Ended
              June
                30,2006
            
            2005
            
            2006
            
            2005**Components
                of Net Periodic Benefit Cost (a)**Service
                cost
            
            $
            5.2
            
            $
            4.5
            
            $
            10.2
            
            $
            9.1Interest
                cost
            
            
            4.8
            
            
            4.5
            
            
            9.6
            
            
            8.9Expected
                return on plan assets
            
            
            (5.1
            )
            
            (5.2
            )
            
            (10.1
            )
            
            (10.3
            )Amortization
                of transition obligation
            
            
            0.2
            
            
            -
            
            
            0.3
            
            
            0.1Amortization
                of prior service cost
            
            
            0.6
            
            
            0.6
            
            
            0.4
            
            
            0.4Recognized
                net actuarial losses
            
            
            1.4
            
            
            0.5
            
            
            2.8
            
            
            1.9SFAS
                88 settlements/curtailments
            
            
            -
            
            
            -
            
            
            -
            
            
            2.1Benefit
                cost
            
            $
            7.1
            
            $
            4.9
            
            $
            13.2
            
            $
            12.2


______________


(a)
            Amounts
                are before income tax effect.





We
      expect
      to contribute approximately $9.7 million to our defined benefit pension plans
      in
      2006, which will be funded from cash flow from operations. During the six months
      ended June 30, 2006, we contributed $2.1 million to the defined benefit pension
      plans.




21
 *Index*





**TRANSOCEAN
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(Unaudited)





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





Three
                Months Ended
              June
                30,
            
            Six
                Months Ended
              June
                30,2006
            
            2005
            
            2006
            
            2005**Components
                of Net Periodic Benefit Cost (a)**Service
                cost
            
            $
            0.2
            
            $
            0.3
            
            $
            0.5
            
            $
            0.6Interest
                cost
            
            
            0.6
            
            
            0.6
            
            
            1.1
            
            
            1.1Amortization
                of prior service cost
            
            
            (0.5
            )
            
            (0.6
            )
            
            (1.1
            )
            
            (1.1
            )Recognized
                net actuarial losses
            
            
            0.3
            
            
            0.4
            
            
            0.7
            
            
            0.8Benefit
                cost
            
            $
            0.6
            
            $
            0.7
            
            $
            1.2
            
            $
            1.4


______________


(a)
            Amounts
                are before income tax effect.





We
      expect
      to contribute approximately $2.0 million to the other postretirement benefit
      plans in 2006, which will be funded from cash flow from operations. During
      the
      six months ended June 30, 2006, we contributed $1.2 million to the other
      postretirement benefit plans.





**Note
      15** **―Subsequent
      Events**




*Repurchase
      of Ordinary Shares* —In
      July
      2006, 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 $77.00 per share. Total consideration was funded with existing cash
      balances and borrowings under our revolving credit facility.





*Asset
      Dispositions* —
In
      July
      2006, we entered into an agreement to sell the Other Floater *Transocean
      Wildcat* for
      net
      proceeds of approximately $185 million. We expect to recognize a pre-tax gain
      on
      the sale of approximately $175 million in the third quarter of
      2006.






22
 *Index*





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





**Forward-Looking
      Information**





The
      statements included in this quarterly report regarding future financial
      performance and results of operations and other statements that are not
      historical facts are forward-looking statements within the meaning of Section
      27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
      Act
      of 1934. Statements to the effect that we or management “anticipates,”
“believes,” “budgets,” “estimates,” “expects,” “forecasts,” “intends,” “plans,”
“predicts” or “projects” a particular result or course of events, or that such
      result or course of events “could,” “might,” “may,” “scheduled” or “should”
occur, and similar expressions, are also intended to identify forward-looking
      statements. Forward-looking statements in this quarterly report include, but
      are
      not limited to, statements involving contract commencements, contract option
      exercises, revenues, expenses, results of operations, commodity prices, customer
      drilling programs, supply and demand, utilization rates, dayrates, contract
      backlog, planned shipyard projects and rig mobilizations and their effects,
      newbuild projects and opportunities, the upgrade projects for the *Sedco
      700* -series
      semisubmersible rigs, other major upgrades, rig reactivations, expected downtime
      (including downtime with respect to the *Deepwater
      Nautilus* and *Transocean
      Marianas)* ,
      capital
      expenditures and insurance proceeds, future activity in the deepwater, mid-water
      and the shallow and inland water market sectors, market outlook for our various
      geographical operating sectors, capacity constraints for fifth-generation rigs,
      rig classes and business segments, effects of new rigs on the market, income
      related to the TODCO tax sharing agreement, the TODCO tax sharing agreement
      dispute, uses of excess cash, including ordinary share repurchases, the timing
      and funding of share repurchases, debt reduction, planned asset sales, including
      the disposition of the *Transocean
      Wildcat,* timing
      of asset sales, proceeds from asset sales, our effective tax rate, changes
      in
      tax laws, treaties and regulations, Norwegian tax assessments, our other
      expectations with regard to market outlook, operations in international markets,
      expected capital expenditures, results and effects of legal proceedings and
      governmental audits and assessments, adequacy of insurance, liabilities for
      tax
      issues, liquidity, cash flow from operations, adequacy of cash flow for our
      obligations, effects of accounting changes, adoption of accounting policies,
      pension plan and other postretirement benefit plan contributions and benefit
      payments and the timing and cost of completion of capital projects. Such
      statements are subject to numerous risks, uncertainties and assumptions,
      including, but not limited to, those described in “Item 1A. Risk Factors”
included herein and in our Annual Report on Form 10-K for the year ended
      December 31, 2005, the adequacy of sources of liquidity, the effect and results
      of litigation, audits, contingencies and the *Discoverer 534* operational
      incident and other factors discussed in this quarterly report and in our other
      filings with the Securities and Exchange Commission (“SEC”), which are available
      free of charge on the SEC's website at www.sec.gov. Should one or more of these
      risks or uncertainties materialize, or should underlying assumptions prove
      incorrect, actual results may vary materially from those indicated. All
      subsequent written and oral forward-looking statements attributable to the
      Company or to persons acting on our behalf are expressly qualified in their
      entirety by reference to these risks and uncertainties. You should not place
      undue reliance on forward-looking statements. Each forward-looking statement
      speaks only as of the date of the particular statement, and we undertake no
      obligation to publicly update or revise any forward-looking
      statements.





The
      following information should be read in conjunction with the unaudited condensed
      consolidated financial statements included under “Item 1. Financial Statements”
herein and the audited consolidated financial statements and the notes thereto
      and “Item 7. Management’s Discussion and Analysis of Financial Condition and
      Results of Operations” included in our Annual Report on Form 10-K for the year
      ended December 31, 2005.





**Overview**





Transocean
      Inc. (together with its subsidiaries and predecessors, unless the context
      requires otherwise, “Transocean,” “we,” “us” or “our”) is a leading
      international provider of offshore contract drilling services for oil and gas
      wells. As of August 1, 2006, we owned, had partial ownership interests in or
      operated 87 mobile offshore and barge drilling units. As of this date, our
      fleet
      included 33 High-Specification semisubmersibles and drillships (“floaters”), 20
      Other Floaters, 25 Jackup Rigs and nine Other Rigs.





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





23
 *Index*





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





Three
                Months Ended
              June
                30,
            
            Three
              Months
            
            Six
                Months Ended
              June
                30,
            
            Six
              Months2006
            
            2005
            
            Change
            
            2006
            
            2005
            
            Change(In
                millions, except average daily revenue and percentages)**Average
                daily revenue (a)(c)**
            
            $
            129,000
            
            $
            103,100
            
            $
            25,900
            
            $
            124,300
            
            $
            99,900
            
            $
            24,400**Utilization
                (b)(c)**
            
            
            81
            %
            
            79
            %
            
            N/A
            
            
            81
            %
            
            77
            %
            
            N/A**Statement
                of Operations**Operating
                revenues
            
            $
            853.3
            
            $
            727.4
            
            $
            125.9
            
            $
            1,670.6
            
            $
            1,357.9
            
            $
            312.7Operating
                and maintenance expense
            
            
            549.3
            
            
            437.0
            
            
            112.3
            
            
            1,024.3
            
            
            825.3
            
            
            199.0Operating
                income
            
            
            288.0
            
            
            184.8
            
            
            103.2
            
            
            572.6
            
            
            328.1
            
            
            244.5Net
                income
            
            
            249.5
            
            
            301.8
            
            
            (52.3
            )
            
            455.2
            
            
            393.6
            
            
            61.6





June
                30,
            
            December
                31,2006
            
            2005
            
            Change(In
                millions)**Balance
                Sheet Data (at end of period)**Cash
                and Cash Equivalents
            
            $
            282.2
            
            $
            445.4
            
            $
            (163.2
            )Total
                Assets
            
            
            10,555.0
            
            
            10,457.2
            
            
            97.8Total
                Debt
            
            
            1,596.0
            
            
            1,597.1
            
            
            (1.1
            )


_____________________


“N/A”
      means not applicable.





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


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


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





Strong
      demand for all of our asset classes continues, resulting 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 2006 and beyond.





Our
      revenues for the six months ended June 30, 2006 increased from the prior year
      period 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 financial results for the
      six months ended June 30, 2006 included the recognition of gains from the sale
      of four rigs (see “—Liquidity and Capital Resources-Capital Expenditures and
      Dispositions”). Our financial results for the six months ended June 30, 2005
      included the gain from the disposition of our then remaining investment in
      TODCO
      as well as gains from the sale of three rigs, partially offset by a non-cash
      charge pertaining to a loss on retirement of debt (see “—Operating Results”).
      Cash decreased during the six months ended June 30, 2006 primarily as a result
      of repurchases of our ordinary shares.





24
 *Index*





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




**Significant
      Events**




*Recent
        Developments−Discoverer 534 Operational Incident* —On
        August 2, 2006, an operational incident occurred on our deepwater drillship *Discoverer
        534* during a
        tropical storm in the South China Sea, which resulted in the loss of
        approximately 3,900 feet of marine riser and the blowout preventer (BOP).
        The
        rig had successfully completed a well and was in the process of retrieving
        its
        marine riser and BOP when operations were suspended due to deteriorating
        weather
        conditions. No personnel were injured in the incident. We have begun an
        investigation into the incident to determine its cause and its effect on
        future
        operations. While we believe the incident will have an impact on future
        operating results, we cannot predict with accuracy the amount or the timing
        of
        such impact.




*Hurricane
      Damage* —In
      the
      third quarter of 2005, two of our semisubmersible rigs, the *Deepwater
      Nautilus* and the *Transocean
      Marianas* ,
      sustained damage during hurricanes Katrina and Rita. During hurricane Katrina,
      the *Deepwater
      Nautilus* sustained damage to its mooring system and lost approximately 3,200 feet of
      marine riser and a portion of its subsea well control system. The rig was
      undergoing repairs during hurricane Rita and was set adrift following the
      failure of a tow line utilized by a towing vessel. Also during hurricane Rita,
      the *Transocean
      Marianas* sustained damage to its mooring system, was forced off its drilling location
      and
      was grounded in shallow water.  The *Deepwater
      Nautilus* was out
      of service for 24 days in 2005 and 29 days in the first six months of 2006.
      It
      is expected to be out of service approximately 30 days in the remainder of
      2006.
      The *Transocean
      Marianas* was out
      of service for 95 days in 2005 and 72 days in the first six months of 2006.
      It
      is expected to be out of service approximately 30 days in the remainder of
      2006.
      Operating income for the first six months of 2006 was negatively impacted by
      approximately $32 million due to lost revenue and higher operating and
      maintenance costs on the *Deepwater
      Nautilus* and the *Transocean
      Marianas* .
      Depending on the timing of the repairs, we currently estimate the total lost
      revenue plus repair, crew and other costs for the two rigs to have a negative
      impact on operating income of approximately $55 million to $60 million in 2006.
      In addition, we also expect to spend approximately $35 million on capital
      expenditures during 2006 to replace damaged equipment.





*Asset
      Dispositions* —
In
      February 2006, we completed the sale of the drillship *Peregrine
      III* for
      net
      proceeds of $78.7 million and recognized a gain on the sale of $61.8 million. See
      “—Liquidity and Capital Resources-Capital Expenditures and
      Dispositions.”





In
      May
      2006, we completed the sale of the drilling barge *Searex
      XII* for net
      proceeds of $19.1 million and recognized a gain on the sale of $13.7 million.
      See “—Liquidity and Capital Resources-Capital Expenditures and
      Dispositions.”





In
      June
      2006, we completed the sale of the semisubmersible rig *Transocean
      Explorer* for net
      proceeds of $101.0 million and recognized a gain on the sale of $97.1 million.
      See “ —Liquidity
      and Capital Resources-Capital Expenditures and Dispositions.”





25
 *Index*





*Repurchase
      of Ordinary Shares* — In
      March
      2006, we repurchased and retired $200 million of our ordinary shares. In June
      2006, we repurchased and retired $400 million of our ordinary shares. In July
      2006, we repurchased and retired $400 million of our ordinary shares. See
“—Liquidity and Capital Resources−Sources and Uses of Liquidity.”





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





**Outlook**




*Drilling
        Market* —We
        continue to experience strong demand for our fleet. Historically high dayrates
        and generally longer contract durations remain evident among all categories
        of
        our fleet as a result of this favorable business environment, resulting in
        a
        contract backlog at July 31, 2006 of approximately $19.4 billion, up from
        approximately $17 billion at May 1, 2006. We expect oil prices to remain
        high
        for the near future relative to historical price levels. Future price
        expectations have historically been a key driver for offshore drilling demand.
        However, the availability of quality drilling prospects, exploration success,
        relative production costs, the stage of reservoir development and political
        and
        regulatory environments also affect our customers’ drilling campaigns.
 
 Floating
        rigs with deepwater drilling capability remain in tight supply worldwide,
        which
        has driven the sustained strong demand for our
        33 High-Specification Floaters fleet. We have been awarded a four-year contract
        for the construction of an enhanced Enterprise-class drillship, with an
        estimated total capital expenditure of approximately $615 million, excluding
        capitalized interest. We currently expect this rig to begin operations in
        the
        U.S. Gulf of Mexico in approximately mid-2009, after construction in South
        Korea
        followed by sea trials, mobilization to the U.S. Gulf of Mexico and customer
        acceptance. We were also awarded a five-year contract for the construction
        of
        another enhanced Enterprise-class drillship, to be named the *Discoverer
        Clear Leader* ,
        with an
        estimated total capital expenditure of approximately $600 million, excluding
        capitalized interest. We currently expect this rig to begin operations in
        the
        U.S. Gulf of Mexico in approximately the second quarter of 2009, after
        construction in South Korea followed by sea trials, mobilization to the U.S.
        Gulf of Mexico and customer acceptance. We also continue to pursue other
        potential drilling contracts for newbuild deepwater rigs.
 
 We have
        been successful in building contract backlog within our High-Specification
        Floaters fleet with 1 8
        of our
        36 current and future High-Specification Floaters, including the two newbuilds
        and the two *Sedco
        700* -series
        rig upgrades, contracted into or beyond 2010 as of July 31, 2006. These 18
        units
        also include 10 of our 15 current and future Fifth-Generation Deepwater
        Floaters. Our
        total
        contract backlog of approximately $19.4 billion as of July 31, 2006 includes
        an
        estimated $13.8 billion of backlog represented by our High-Specification
        Floaters. We have signed a number of new contracts or extensions in 2006
        for our
        High-Specification Floaters including the *M.G.
        Hulme, Transocean Rather,* *Transocean
        Marianas, Jack Bates, Sedco 709, Deepwater Discovery, Sovereign Explorer,
        Henry
        Goodrich* and
        the
        two *Sedco
        700* -series
        semisubmersible upgrades. We also entered into contract extensions for
        multi-year contracts for the *Deepwater
        Nautilus, Deepwater Frontier, Cajun Express* and *Discoverer
        Enterprise* .
        We
        continue to believe that the long-term outlook for deepwater capable rigs
        is
        favorable and expect to see strong demand in the Gulf of Mexico, West Africa
        and
        India. Successful drilling efforts in the lower tertiary trend of the U.S.
        Gulf
        of Mexico and emerging locations like the South China Sea and southern Gulf
        of
        Mexico support the prospects for an expanded deepwater drilling cycle. However,
        as of July 31, 2006, there are approximately 37 newbuild deepwater rigs on
        order
        in addition to seven deepwater upgrades and options for 13 additional newbuilds.
        The announced delivery dates for most of these rigs are in 2008 and 2009.
        While
        demand for deepwater drilling services remains strong, this additional deepwater
        rig capacity could have an adverse impact on our utilization and/or dayrates,
        particularly in 2010 and beyond. As of July 31, 2006, an estimated three
        percent
        of our High-Specification Floater fleet contract days are uncommitted for
        the
        remainder of 2006, while approximately five percent, nine percent and 38
        percent
        are uncommitted in 2007, 2008 and 2009, respectively.
  Our
        Other
        Floaters fleet, comprised of 20 semisubmersible rigs, is largely committed
        to
        contracts that extend into 2007, and we are seeing some customer demand for
        these units for 2008. This fleet continues to benefit from improving activity
        levels in all regions. We are seeing dayrates that are higher than those
        seen at
        the beginning of the year. This is evidenced by new contracts with dayrates
        for
        the *Sedco
        712* at
        $340,000 and *Sedco
        703* at
        $400,000. In the U.K. sector of the North Sea, we expect to complete the
        reactivations of the previously idle *Transocean
        Winner* and *Transocean Prospect* by the
        end of August 2006, both of which are supported by multi-year contracts.
        The *Transocean
        Prospect* sustained damage while exiting a shipyard in Rotterdam following the completion
        of its reactivation program, preventing the rig from beginning the contract
        in
        July 2006, as previously expected.  We
        have
        also commenced the reactivation of the *C.
        Kirk Rhein, Jr.* ,
        which
        has been awarded a two-year contract in India at a $340,000 dayrate and is
        now
        expected to commence operations in the first quarter of 2007. The sale of
        the *Transocean
        Explorer* was
        completed in the second quarter of 2006. The sale of the *Transocean
        Wildcat* is expected
        to close in the third quarter of 2006 for net
        proceeds of approximately $185 million . The
        industry could experience a potential shortage of other floater rigs in the
        U.S.
        Gulf of Mexico as some of the units in this region could leave for international
        regions in a response to the perceived hurricane risk and difficult insurance
        market. The potential impact of such a relocation of assets in the worldwide
        other floater market remains unclear. As of July 31, 2006, an estimated two
        percent of our Other Floater fleet contract days are uncommitted for the
        remainder of 2006, while approximately 26 percent, 56 percent and 83 percent
        are
        uncommitted in 2007, 2008 and 2009, respectively.
  26
 *Index*
  The
        outlook for activity for the Jackup market sector remains strong. We were
        recently awarded a three-year contract for the *D.R.
        Stewart* at a
        dayrate of $168,000. We expect to remain at or near full utilization for
        our
        Jackup fleet in the near term. We believe
        that Asia, the Middle East and West Africa will remain sources of strong
        demand
        for jackup rigs in the near-to-intermediate-term. However,
        we continue to be concerned about the potential effect of competition from
        newbuild jackups. As of July 31, 2006, there are approximately 60 newbuild
        jackups on order, which have scheduled delivery dates ranging from 2006 through
        approximately 2010. While we have not seen an appreciable effect to date
        from
        these newbuild jackups, the addition of rig capacity could have an adverse
        impact on utilization and/or dayrates. As
        of
        July 31, 2006, none of our Jackup fleet contract days are uncommitted for
        the
        remainder of 2006, while approximately 14 percent, 54 percent and 68 percent
        are
        uncommitted in 2007, 2008 and 2009, respectively.
 
 We
        anticipate continued revenue growth during the second half of 2006, supported
        by
        higher average dayrates and improving fleet activity. Quarterly operating
        and
        maintenance expenses for the remainder of 2006 are expected to approximate
        the
        level of expenses reported for the second quarter of 2006 with third quarter
        2006 expenses expected to be somewhat higher while fourth quarter 2006 expenses
        are expected to be somewhat lower. However, these quarterly expenses are
        subject
        to variability depending on the timing of shipyard programs and major
        maintenance projects, performance of the U.S. dollar, inflationary costs
        and
        other factors, including the impact of the operating incident on the *Discoverer
        534* .
  Our
        results of operations for the remainder of 2006 will be significantly influenced
        by the timing and duration of the various shipyard projects and the actual
        start
        of higher dayrate contracts. We expect to incur out of service time in the
        third
        quarter of 2006 in connection with planned shipyard projects or mobilizations
        of
        the *Sedco
        709* , *Sedco
        707* , *Deepwater
        Expedition* , *Deepwater
        Discovery* , *Deepwater
        Frontier* and *Deepwater
        Nautilus* .
  We
        also
        expect to incur significant costs in the third quarter of 2006 due to the
        continuing reactivations of the *C.
        Kirk Rhein, Jr* .
        and *Transocean
        Prospect* and
        shipyard activities on the *Sedco
        709* , *Sedco
        707* and *Deepwater Expedition.* In
        addition, vendor price increases and rising labor costs due to increased
        drilling activity, as well as the effects of foreign exchange fluctuations,
        are
        expected to continue to adversely affect operating and maintenance costs
        in
        2006.
 
 Our
        shipyard projects, including the construction of the two deepwater
        drillships, ** the
        two *Sedco
        700-* series
        rig upgrades, our two remaining rig reactivations and any other potential
        newbuild projects, are subject to risks of delay and cost overruns for a
        variety
        of reasons, including some outside of our control. A delay could adversely
        affect any drilling contract for the rig following the shipyard work, depending
        upon the drilling contract terms.
 
 We
        expect
        that a number of fixed-price contract options will be exercised by our
        customers, which will preclude us from taking full advantage of increased
        market
        rates for rigs subject to these contract options. We have six existing contracts
        with fixed-priced or capped options for dayrates that we believe are less
        than
        current market dayrates. Well-in-progress or similar provisions in our existing
        contracts may delay the start of higher dayrates in subsequent
        contracts.
 
 The
        offshore contract drilling market remains highly competitive and cyclical,
        and
        it has been historically difficult to forecast future market conditions.
        Declines in oil and/or gas prices and other risks may reduce rig demand and
        adversely affect utilization and dayrates. Major operator and national oil
        company capital budgets are key drivers of the overall business climate,
        and
        these may change within a fiscal year depending on exploration results and
        other
        factors. Additionally, increased competition for our customers’ drilling budgets
        could come from, among other areas, land-based energy markets in Africa,
        Russia,
        other former Soviet Union States, the Middle East and Alaska.
 
 Our
        operations are geographically dispersed in oil and gas exploration and
        development areas throughout the world. Rigs can be moved from one region
        to
        another, but the cost of moving a rig and the availability of rig-moving
        vessels
        may cause the supply and demand balance to vary somewhat between regions.
        However, significant variations between regions do not tend to persist long-term
        because of rig mobility. Consequently, we operate in a single, global offshore
        drilling market.
 
 *Insurance* —We
        have
        renewed our insurance coverages for 12 months effective May 1, 2006. We
        currently maintain a $10 million per occurrence insurance deductible on hull
        and
        machinery, a $10 million per occurrence deductible on personal injury liability
        and a $5 million per occurrence deductible on third party property damage.
        In
        addition to the per occurrence deductibles described above, we also have
        aggregate deductibles that are applied to any occurrence in excess of the
        per
        occurrence deductible until the aggregate deductible is exhausted. After
        the
        aggregate deductible is fully exhausted, the per occurrence deductible continues
        to apply. Such aggregate deductibles are $20 million in the case of our hull
        and
        machinery coverage and $25 million in the case of our personal injury liability
        and third party property damage coverage. We do not carry insurance for loss
        of
        revenue.
  27
 *Index*
 Our
          coverage includes an annual limit on losses due to hurricanes in the U.S
          Gulf of
          Mexico of $250 million, except in the case of a total loss, where the annual
          limit is approximately $300 million. As a result of these limits, we are
          self-insured for losses due to hurricanes in excess of these amounts.
 
 *Tax
          Matters* —We
          are a
          Cayman Islands company. We operate through our various subsidiaries in
          a number
          of countries throughout the world. Consequently, we are subject to changes
          in
          tax laws, treaties and regulations in and between the countries in which
          we
          operate. A material change in these tax laws, treaties or regulations in
          any of
          the countries in which we operate could result in a higher or lower effective
          tax rate on our worldwide earnings. We currently expect the effective tax
          rate
          for the remainder of 2006 to be approximately 18 percent, excluding the
          effects
          on income before tax related to gains from rig sales and excluding various
          discrete tax items.
  Our
        income tax returns are subject to review and examination in the various
        jurisdictions in which we operate. We are currently contesting various tax
        assessments. We accrue for income tax contingencies that we believe are probable
        exposures.





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





In
      April
      2006, we received notice from the Norwegian tax authorities regarding their
      intent to propose adjustments to taxable income for the tax years 1999, 2001
      and
      2002. These proposed assessments would result in an increase in tax of
      approximately $260 million plus interest, and the authorities further indicated
      they intend to impose penalties, which could range from 15 to 60 percent of
      the
      assessments. The anticipated assessments relate to restructuring transactions
      undertaken in 2001 and 2002. The Norwegian tax authorities initiated inquiries
      in September 2004 related to the restructuring transactions and a separate
      dividend payment made during 2001. In February 2005, we filed a response to
      these inquiries. In March 2005, pursuant to court orders, the Norwegian tax
      authorities took action to obtain additional information regarding these
      transactions. We have continued to respond to information requests from the
      Norwegian authorities 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 $103 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 it to have a material adverse effect
      on
      our consolidated financial position, results of operations or cash
      flows.





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





**Performance
      and Other Key Indicators**





*Contract
      Backlog* —The
      following table reflects our contract backlog as of June 30, 2006, March 31,
      2006 and June 30, 2005 and reflects firm commitments only, typically represented
      by signed contracts.  Backlog
      is indicative of the full contractual dayrate. The amount of actual revenue
      earned will be different than the amounts shown in the table below due to
      various factors including shipyard and maintenance projects, other downtime
      and
      other factors that result in lower applicable dayrates than the full contractual
      operating dayrate. Our contract backlog is calculated by multiplying the
      contracted operating dayrate by the firm contract period, excluding revenues
      for
      mobilization, demobilization, contract preparation and customer reimbursables
      and such amounts are not expected to be significant to our contract drilling
      revenues.





28
 *Index*





June
                30,
              2006
            
            March
                31,
              2006
            
            June
                30,
              2005(In
                millions)**Contract
                Backlog**High-Specification
                Floaters
            
            $
            13,516.5
            
            $
            12,917.3
            
            $
            3,093.9Other
                Floaters
            
            
            2,606.8
            
            
            1,647.3
            
            
            751.6Jackups
            
            
            2,237.0
            
            
            2,128.4
            
            
            584.3Other
                Rigs
            
            
            101.0
            
            
            121.2
            
            
            166.7Total
            
            $
            18,461.3
            
            $
            16,814.2
            
            $
            4,596.5





*Fleet
      Utilization and Dayrates* —The
      following table shows our average daily revenue and utilization for each of
      the
      three months ended June 30, 2006, March 31, 2006 and June 30, 2005. See
“—Overview” for a definition of average daily revenue, revenue earning day and
      utilization.





Three
                Months EndedJune
                30,
              2006
            
            March
                31,
              2006
            
            June
                30,
              2005**Average
                Daily Revenue**High-Specification
                FloatersFifth-Generation
                Deepwater Floaters
            
            $
            216,500
            
            $
            209,000
            
            $
            197,100Other
                Deepwater Floaters
            
            $
            190,200
            
            $
            154,000
            
            $
            132,700Other
                High-Specification Floaters
            
            $
            174,700
            
            $
            158,800
            
            $
            170,500Total
                High-Specification Floaters
            
            $
            199,300
            
            $
            178,200
            
            $
            165,500Other
                Floaters
            
            $
            118,200
            
            $
            110,000
            
            $
            82,400Jackups
            
            $
            73,000
            
            $
            70,300
            
            $
            58,200Other
                Rigs
            
            $
            47,500
            
            $
            47,300
            
            $
            47,000Total
                Drilling Fleet
            
            $
            129,000
            
            $
            119,600
            
            $
            103,100**Utilization**High-Specification
                FloatersFifth-Generation
                Deepwater Floaters
            
            
            89
            %
            
            92
            %
            
            92
            %Other
                Deepwater Floaters
            
            
            70
            %
            
            83
            %
            
            80
            %Other
                High-Specification Floaters
            
            
            98
            %
            
            89
            %
            
            90
            %Total
                High-Specification Floaters
            
            
            81
            %
            
            87
            %
            
            86
            %Other
                Floaters
            
            
            74
            %
            
            73
            %
            
            63
            %Jackups
            
            
            93
            %
            
            91
            %
            
            94
            %Other
                Rigs
            
            
            62
            %
            
            58
            %
            
            57
            %Total
                Drilling Fleet
            
            
            81
            %
            
            82
            %
            
            79
            %




29
 *Index*





**Liquidity
      and Capital Resources**





**Sources
      and Uses of Cash**





Our
      primary sources of cash during the first six months of 2006 were our cash flows
      from operations, proceeds from asset sales and proceeds from issuance of
      ordinary shares upon the exercise of stock options. Our primary uses of cash
      were repurchases of our ordinary shares and capital expenditures. At June 30,
      2006, we had $282.2 million in cash and cash equivalents.





Six
                Months Ended
              June
                30,2006
            
            2005
            
            Change(In
                millions)**Net
                Cash Provided by Operating Activities**Net
                income
            
            $
            455.2
            
            $
            393.6
            
            $
            61.6Depreciation
            
            
            203.6
            
            
            201.9
            
            
            1.7Other
                non-cash items
            
            
            (162.2
            )
            
            (155.6
            )
            
            (6.6
            )Working
                capital
            
            
            (52.8
            )
            
            (61.8
            )
            
            9.0$
            443.8
            
            $
            378.1
            
            $
            65.7





Net
      cash
      provided by operating activities increased by $65.7 million due to more cash
      generated from net income ($56.7 million) and less cash used for working capital
      items ($9.0 million).





Six
                Months Ended
              June
                30,2006
            
            2005
            
            Change(In
                millions)**Net
                Cash Provided by (Used In) Investing Activities**Capital
                expenditures
            
            $
            (275.6
            )
            $
            (109.6
            )
            $
            (166.0
            )Proceeds
                from disposal of assets, net
            
            
            203.0
            
            
            58.0
            
            
            145.0Proceeds
                from TODCO stock sales, net
            
            
            -
            
            
            271.9
            
            
            (271.9
            )Other,
                net
            
            
            -
            
            
            4.5
            
            
            (4.5
            )$
            (72.6
            )
            $
            224.8
            
            $
            (297.4
            )





During
      the six months ended June 30, 2006, capital expenditures increased $166.0
      million over the corresponding prior year period, primarily due to the
      construction in progress of a deepwater drillship, the two *Sedco
      700* -series
      deepwater upgrades and other equipment replaced and upgraded on our existing
      rigs. The increase in capital expenditures is partially offset by an
      increase in proceeds from asset sales of $145.0 million. In addition, net
      cash provided by investing activities decreased as a result of proceeds from
      TODCO stock sales of $271.9 million for the six months ended June 30, 2005,
      with
      no comparable activity for the corresponding period in 2006.





30
 *Index*




Six
                  Months Ended
                June
                  30,2006
              
              2005
              
              Change(In
                  millions)**Net
                  Cash Used in Financing Activities**Repayments
                  of debt
              
              $
              -
              
              $
              (287.8
              )
              $
              287.8Net
                  proceeds from issuance of ordinary shares under stock-based compensation
                  plans
              
              
              66.1
              
              
              159.4
              
              
              (93.3
              )Proceeds
                  from issuance of ordinary shares uponexercise
                  of warrants
              
              
              -
              
              
              4.6
              
              
              (4.6
              )Repurchase
                  of ordinary shares
              
              
              (600.1
              )
              
              -
              
              
              (600.1
              )Decrease
                  in cash dedicated to debt service
              
              
              -
              
              
              12.0
              
              
              (12.0
              )Other,
                  net
              
              
              (0.4
              )
              
              0.1
              
              
              (0.5
              )$
              (534.4
              )
              $
              (111.7
              )
              $
              (422.7
              )





Net
      cash
      used in financing activities increased as we repurchased and retired $600
      million of our ordinary shares during the six months ended June 30, 2006. See
      “—Sources and Uses of Liquidity.” In addition, we received lower proceeds from
      stock option and warrant exercises compared to the same period in 2005. In
      2005,
      we repaid the 7.31% Nautilus Class A1 Notes and the 6.95% Senior Notes, due
      April 2008. The
      payment of the 7.31% Nautilus Class A1 Notes in 2005 resulted in the release
      of
      the restrictions on approximately $12.0 million of cash dedicated to debt
      service, with no
      comparable activity for the corresponding period in 2006.





**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. We have been awarded drilling contracts for the construction of
      two
      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 $2.3 million, totaled $275.6
      million during the six months ended June 30, 2006. During 2006, we expect
      capital expenditures to be between $850 million and $900 million, including
      approximately $250 million on the construction of the drillship *Discoverer
      Clear Leader* ,
      approximately $115 million on the construction of the second deepwater
      drillship, approximately $250 million for the upgrade of two of our *Sedco
      700* -series
      rigs, approximately $35 million to replace and upgrade equipment damaged during
      hurricanes Katrina and Rita on the *Deepwater
      Nautilus* and
      the *Transocean
      Marianas* and
      approximately $40 million to reactivate three of our Other Floaters. During
      2007, we expect capital expenditures to be between $950 million and $1 billion,
      including approximately $500 million on the construction of the two deepwater
      drillships and approximately $200 million to complete the upgrade of two of
      our *Sedco
      700* -series
      rigs. The level of our capital expenditures is dependent upon the actual level
      of operational and contracting activity. These expected capital expenditures
      do
      not include amounts that would be incurred as a result of any of the other
      newbuild opportunities which may be obtained (see “—Outlook”).





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





We
      intend
      to fund the cash requirements relating to our capital expenditures through
      available cash balances, cash generated from operations and asset sales. We
      also
      have available credit under our revolving credit agreement (see “—Sources and
      Uses of Liquidity”) and may utilize other commercial bank or capital market
      financings.





31
 *Index*





*Dispositions* —In
      February 2006, we completed the sale of the drillship *Peregrine
      III* for
      net
      proceeds of $78.7 million and recognized a gain on the sale of $61.8
      million.





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





In
      May
      2006, we sold the drilling barge *Searex
      XII* for
      net
      proceeds of $19.1 million and recognized a gain on the sale of $13.7
      million.





In
      June
      2006, we completed the sale of the semisubmersible rig *Transocean
      Explorer* for net
      proceeds of $101.0 million and recognized a gain on the sale of $97.1
      million.





**Sources
      and Uses of Liquidity**





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





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





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





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 will be based upon our ongoing
      capital requirements, the price
      of
      our shares, regulatory considerations, cash flow generation, general market
      conditions and other factors. We plan to fund the program from current and
      future cash balances, but we could use debt to fund share repurchases. The
      repurchase program does not have an
      established expiration date and may
      be suspended or discontinued at any time. There can be no assurance regarding
      the number of shares that will be repurchased under the program. Under the
      program, repurchased shares are retired and returned to unissued status.





In
      March
      2006, we repurchased and retired $200 million of our ordinary shares, which
      amounted to approximately 2.6 million ordinary shares at an average purchase
      price of $77.54 per share. In June 2006, 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 $76.23 per share. In July 2006, 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 $77.00
      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 bank line of credit. At July 31, 2006, after prior
      purchases, we still had authority to repurchase $2.6 billion of our ordinary
      shares under the program.




Holders
        of our 1.5% Convertible Debentures, due May 15, 2021 had the option to require
        us to repurchase their debentures in May 2006, however no holders exercised
        such
        right. In May 2006, holders of $101,000 aggregate principal amount converted
        their debentures into ordinary shares at a conversion rate of 13.8627 ordinary
        shares per $1,000 debenture, resulting in the issuance of 1,399 ordinary
        shares.




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





32
 *Index*





We
      have
      access to a bank line of credit under a $1.0 billion five-year revolving credit
      agreement. At July 31, 2006, we had $360 million drawn and $640 million remained
      available under this credit line.





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





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 July 31, 2006, $1.6 billion in gross proceeds
      of
      securities remained unissued under the shelf registration
      statement.





Our
      access to debt and equity markets may be reduced or closed to us due to a
      variety of events, including, among others, 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.





**Derivative
      Instruments**





In
      2003,
      we terminated all our outstanding interest rate swaps, which were designated
      as
      fair value hedges, and we recorded $173.5 million as a fair value adjustment
      to
      long-term debt in our consolidated balance sheet. We amortize this amount as
      a
      reduction to interest expense over the life of the underlying debt. The
      remaining balance as of June 30, 2006 of $16.4 million relates to the 6.625%
      Notes, due April 2011.





33
 *Index*





**Operating
      Results**




***Quarter
      ended June 30, 2006 compared to quarter ended June 30,
      2005***





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





*Operating
      Revenue and Expenses*





Three
                Months EndedJune
                30,2006
            
            2005
            
            Change
            
            %
                Change(In
                millions, except day amounts and percentages)Revenue
                earning days
            
            
            6,420
            
            
            6,617
            
            
            (197
            )
            
            (3
            )%Utilization
            
            
            81
            %
            
            79
            %
            
            N/A
            
            
            2
            %Average
                daily revenue
            
            $
            129,000
            
            $
            103,100
            
            $
            25,900
            
            
            25
            %Contract
                drilling revenues
            
            $
            828.1
            
            $
            682.1
            
            $
            146.0
            
            
            21
            %Other
                revenues
            
            
            25.2
            
            
            45.3
            
            
            (20.1
            )
            
            (44
            )%853.3
            
            
            727.4
            
            
            125.9
            
            
            17
            %Operating
                and maintenance expense
            
            
            549.3
            
            
            437.0
            
            
            112.3
            
            
            26
            %Depreciation
            
            
            102.0
            
            
            101.2
            
            
            0.8
            
            
            1
            %Gain
                from disposal of assets, net
            
            
            (110.6
            )
            
            (13.6
            )
            
            (97.0
            )
            
            N/MOperating
                income before general and administrative expense
            
            $
            312.6
            
            $
            202.8
            
            $
            109.8
            
            
            54
            %


_________________


“N/A”
      means not applicable


“N/M”
      means not meaningful





Contract
      drilling revenues increased by $146.0 million primarily due to generally higher
      average daily revenue and utilization in all asset classes, partially offset
      by
      lower revenues for rigs undergoing shipyard projects in 2006.





Other
      revenues for the three months ended June 30, 2006 decreased by $20.1 million
      primarily due to a $16.8 million decrease in integrated services revenue and
      a
      decrease of $3.2 million in client reimbursable revenue.





Operating
      and maintenance expenses increased by $112.3 million primarily from shipyard
      projects, rig reactivations, pay
      increases to employees and vendor price increases resulting in higher labor and rig maintenance costs. The higher cost of our
      rig
      insurance coverage and the weakening of the U.S. dollar against the currencies
      of certain countries where we have a significant presence also contributed
      to
      the increase in costs. Operating and maintenance expenses in the three months
      ended June 30, 2006 included $38.1 million for reactivation costs associated
      with the *Transocean
      Prospect, Transocean Winner* and *C.
      Kirk Rhein, Jr.* and $5.4
      million of costs incurred as a result of damages sustained during hurricanes
      Katrina and Rita on the *Transocean
      Marianas* and the *Deepwater
      Nautilus.*





During
      the three months ended June 30, 2006, we recognized net gains of $110.6 million
      primarily related to the sales of the drilling barge *Searex
      XII* and the
      semisubmersible *Transocean
      Explorer.* During
      the three months ended June 30, 2005, we recognized net gains of $13.6 million
      primarily related to the sales of the jackup rig *Transocean
      Jupiter* and the
      sale of a land rig.





34
 *Index*





*Other
      Income and Expenses*





Three
                Months EndedJune
                30,2006
            
            2005
            
            Change
            
            %
                Change(In
                millions, except percentages)General
                and Administrative Expense
            
            $
            24.6
            
            $
            18.0
            
            $
            6.6
            
            
            37
            %Other
                (Income) Expense, netEquity
                in earnings of unconsolidated affiliates
            
            
            (3.4
            )
            
            (3.4
            )
            
            -
            
            
            N/MInterest
                income
            
            
            (5.3
            )
            
            (4.8
            )
            
            (0.5
            )
            
            10
            %Interest
                expense, net of capitalized interest
            
            
            20.4
            
            
            29.8
            
            
            (9.4
            )
            
            (32
            )%Gain
                from TODCO stock sales
            
            
            -
            
            
            (165.0
            )
            
            165.0
            
            
            (100
            )%Other,
                net
            
            
            0.9
            
            
            3.0
            
            
            (2.1
            )
            
            (70
            )%Income
                Tax Expense
            
            
            25.9
            
            
            23.6
            
            
            2.3
            
            
            10
            %Minority
                Interest
            
            
            -
            
            
            (0.2
            )
            
            0.2
            
            
            (100
            )%


_________________________


“N/M”
      means not meaningful





The
      increase in general and administrative expense was due primarily to $4.2 million
      higher personnel related expenses, as well as $1.5 million higher legal fees,
      including costs related to the TODCO dispute and patent
      litigation.





The
      decrease in interest expense included $7.3 million that was primarily
      attributable to reductions associated with debt that was redeemed, retired
      or
      repurchased during or subsequent to the second quarter of 2005 and $2.0 million
      related to capitalized interest during the second quarter of 2006.





During
      the second quarter of 2005, we recognized gains of $165.0 million from the
      disposition of our then remaining investment in TODCO.





We
      operate internationally and provide for income taxes based on the tax laws
      and
      rates in the countries in which we operate and earn income. There is no expected
      relationship between the provision for income taxes and income before income
      taxes. The estimated annual effective tax rates for 2006 and 2005 were 17.7
      percent and 17.2 percent, respectively, based on estimated 2006 and 2005 annual
      income before income taxes and minority interest after adjusting for certain
      items such as a portion of net gains on sales of assets, gain of TODCO stock
      sales and losses on retirements of debt. The tax effect, if any, of the excluded
      items as well as settlements of prior year tax liabilities and changes in prior
      year tax estimates are all treated as discrete period tax expenses or benefits.
      For the three months ended June 30, 2006, the impact of the various discrete
      period tax items was a net benefit of $3.5 million, related to the net gains
      on
      rig sales and changes in prior year estimates, resulting in a tax rate of 9.4
      percent on earnings before income taxes and minority interest. For the three
      months ended June 30, 2005, the impact of the various discrete items was a
      net
      benefit of $3.0 million, related to changes in estimates related to deferred
      tax
      assets retained by us after the disposition of TODCO and gain on sale of assets,
      resulting in a tax rate of 7.3 percent on earnings before income taxes and
      minority interest.





35
 *Index*





***Six
      months ended June 30, 2006 compared to six months ended June 30,
      2005***





Following
      is an analysis of our operating results:





*Operating
      Revenues and Expenses*





Six
                Months EndedJune
                30,2006
            
            2005
            
            Change
            
            %
                Change(In
                millions, except day amounts and percentages)Revenue
                earning days
            
            
            12,931
            
            
            12,835
            
            
            96
            
            
            1
            %Utilization
            
            
            81
            %
            
            77
            %
            
            N/A
            
            
            4
            %Average
                daily revenue
            
            $
            124,300
            
            $
            99,900
            
            $
            24,400
            
            
            24
            %Contract
                drilling revenues
            
            $
            1,607.0
            
            $
            1,282.7
            
            $
            324.3
            
            
            25
            %Other
                revenues
            
            
            63.6
            
            
            75.2
            
            
            (11.6
            )
            
            (15
            )%1,670.6
            
            
            1,357.9
            
            
            312.7
            
            
            23
            %Operating
                and maintenance expense
            
            
            1,024.4
            
            
            825.3
            
            
            199.1
            
            
            24
            %Depreciation
            
            
            203.5
            
            
            201.9
            
            
            1.6
            
            
            1
            %Gain
                from disposal of assets, net
            
            
            (174.7
            )
            
            (33.5
            )
            
            (141.2
            )
            
            N/MOperating
                income before general and administrative expense
            
            $
            617.4
            
            $
            364.2
            
            $
            253.2
            
            
            70
            %


_________________


“N/A”
      means not applicable


“N/M”
      means not meaningful





Contract
      drilling revenues increased primarily due to generally higher average daily
      revenue and utilization in all asset classes. Partially offsetting this increase
      were lower revenues in 2006 for the *Transocean
      Marianas* and *Deepwater
      Nautilus.* These
      rigs were idle for a portion of 2006 undergoing repairs for hurricane
      damage.





Other
      revenues for the six months ended June 30, 2006 decreased by $11.6 million
      primarily due to decreased integrated services revenue of $14.1 million.





Operating
      and maintenance expenses increased by $199.1 million primarily from shipyard
      projects, rig reactivations, pay increases to employees and vendor price
      increases resulting in higher labor and rig maintenance costs. Operating and
      maintenance expenses in the six months ended June 30, 2006 included $57.4
      million for reactivation costs associated with the *Transocean
      Prospect, Transocean Winner* and *C.
      Kirk Rhein, Jr.* and
      $12.4 million of
      costs
      incurred to repair damages sustained during hurricanes Katrina and Rita on
      the *Transocean
      Marianas* and the *Deepwater
      Nautilus* .





During
      the six months ended June 30, 2006, we recognized net gains of $174.7 million
      primarily related to the sales of the drillship *Peregrine
      III,* a
      platform drilling rig, the drilling barge *Searex
      XII* and
      the
      semisubmersible *Transocean
      Explorer* .
      During
      the six months ended June 30, 2005, we recognized net gains of $33.5 million
      primarily related to the sale of the semisubmersible rig *Sedco
      600* ,
      the
      jackup rig *Transocean
      Jupiter* and a
      land rig.





36
 *Index*





*Other
      Income and Expenses*





Six
                Months EndedJune
                30,2006
            
            2005
            
            Change
            
            %
                Change(In
                millions, except percentages)General
                and Administrative Expense
            
            $
            44.8
            
            $
            36.1
            
            $
            8.7
            
            
            24
            %Other
                (Income) Expense, netEquity
                in earnings of unconsolidated affiliates
            
            
            (2.9
            )
            
            (6.5
            )
            
            3.6
            
            
            (55)
            %Interest
                income
            
            
            (10.5
            )
            
            (8.8
            )
            
            (1.7
            )
            
            19
            %Interest
                expense, net of capitalized interest
            
            
            44.3
            
            
            62.9
            
            
            (18.6
            )
            
            30
            %Gain
                from TODCO stock sales
            
            
            -
            
            
            (165.0
            )
            
            165.0
            
            
            (100
            )%Loss
                on retirement of debt
            
            
            -
            
            
            6.7
            
            
            (6.7
            )
            
            (100
            )%Other,
                net
            
            
            0.2
            
            
            4.1
            
            
            (3.9
            )
            
            (95
            )%Income
                Tax Expense
            
            
            86.3
            
            
            41.1
            
            
            45.2
            
            
            N/M


_________________________


“N/M”
      means not meaningful





The
      increase in general and administrative expenses was due primarily to $7.2
      million higher personnel related expenses as well as $2.5 million higher legal
      fees, including costs related to the TODCO dispute and patent
      litigation.





Equity
      in
      earnings from unconsolidated affiliates decreased approximately $3.6 million
      primarily related to the disposition of our remaining interest in TODCO during
      the first half of 2005.





The
      decrease in interest expense was primarily attributable to reductions of $16.2
      million associated with debt that was redeemed, retired or repurchased during
      or
      subsequent to the six months ended June 30, 2005 and $2.3 million related to
      capitalized interest during the six months ended June 30, 2006.





During
      the six months ended June 30, 2005, we recognized gains of $165.0 million from
      the disposition of our investment in TODCO.





During
      the six months ended June 30, 2005, we recognized a $6.7 million loss related
      to
      the early redemption of $247.8 million aggregate principal amount of our
      debt.





The
      $3.9
      million change in other, net primarily relates to the effect of foreign currency
      exchange rate changes on our monetary assets and liabilities denominated in
      non-U.S. currencies.





We
      operate internationally and provide for income taxes based on the tax laws
      and
      rates in the countries in which we operate and earn income. There is no expected
      relationship between the provision for income taxes and income before income
      taxes. The estimated annual effective tax rates for 2006 and 2005 were 17.7
      percent and 17.2 percent, increased from approximately 17.6 percent and 15.7
      percent estimated at March 31, 2006 and 2005, respectively, based on estimated
      2006 and 2005 annual income before income taxes and minority interest after
      adjusting for certain items such as a portion of net gains on sales of assets,
      gain from TODCO stock sales and losses on retirements of debt. The tax effect,
      if any, of the excluded items as well as settlements of prior year tax
      liabilities and changes in prior year tax estimates are all treated as discrete
      period tax expenses or benefits. For the six months ended June 30, 2006, the
      impact of the various discrete period tax items was a net expense of $21.4
      million, related to the net gains on rig sales and changes in prior year
      estimates. For the six months ended June 30, 2005, the impact of the various
      discrete items was a net benefit of $0.8 million, related to changes in
      estimates related to deferred tax assets retained by us after the disposition
      of
      TODCO.





37
 *Index*





**Critical
      Accounting Policies and Estimates**





Our
      discussion and analysis of our financial condition and results of operations
      are
      based upon our condensed consolidated financial statements. This discussion
      should be read in conjunction with disclosures included in the notes to our
      condensed consolidated financial statements related to estimates, contingencies
      and new accounting pronouncements. Significant accounting policies are discussed
      in Note 2 to our condensed consolidated financial statements included elsewhere
      and in Note 2 to our consolidated financial statements in our Annual Report
      on
      Form 10-K for the year ended December 31, 2005.





The
      preparation of our financial statements requires us to make estimates and
      judgments that affect the reported amounts of assets, liabilities, revenues,
      expenses and related disclosures of contingent assets and liabilities. On an
      on-going basis, we evaluate our estimates, including those related to bad debts,
      materials and supplies obsolescence, investments, property and equipment,
      intangible assets and goodwill, income taxes, workers’ insurance, pensions and
      other post-retirement and employment benefits and contingent liabilities. We
      base our estimates on historical experience and on various other assumptions
      that we believe are reasonable under the circumstances, the results of which
      form the basis for making judgments about the carrying values of assets and
      liabilities that are not readily apparent from other sources. Actual results
      may
      differ from these estimates under different assumptions or
      conditions.





For
      a
      discussion of the critical accounting estimates that we use in the preparation
      of our consolidated financial statements, see "Item 7. Management's Discussion
      and Analysis of Financial Condition and Results of Operations" in our Annual
      Report on Form 10-K for the year ended December 31, 2005. There have been no
      material changes to these estimates during the six months ended June 30, 2006.
      These estimates require significant judgments and estimates used in the
      preparation of our consolidated financial statements. Management has discussed
      each of these critical accounting estimates with the audit committee of the
      board of directors.





**Stock-Based
      Compensation**





On
      January 1, 2006, we adopted the Financial Accounting Standards Board (“FASB”)
      Statement of Financial Accounting Standards (“SFAS”) 123 (revised 2004) (“SFAS
      123(R)”), *Share-Based
      Payment* ,
      which
      is a revision of SFAS 123, *Accounting
      for Stock-Based Compensation* .
      SFAS
      123(R) supersedes Accounting Principles Board Opinion (“APB”) 25, *Accounting
      for Stock Issued to Employees* ,
      and
      amends SFAS 95, *Statement
      of Cash Flows* .
      While
      the approach in SFAS 123(R) is similar to the approach described in SFAS 123,
      SFAS 123(R) requires recognition in the income statement of all share-based
      payments to employees, including grants of employee stock options based on
      their
      fair values and pro forma disclosure is no longer an alternative. In March
      2005,
      the SEC issued Staff Accounting Bulletin No. 107 (“SAB
      107”), *Stock-Based
      Payment* ,
      relating to SFAS 123(R). We have applied the provisions of SAB 107 in our
      adoption of SFAS 123(R).





We
      adopted SFAS 123(R) using the modified prospective method (“Prospective
      Method”), which requires the application of SFAS 123(R) as of January 1, 2006,
      the first day of our fiscal year 2006. Our consolidated financial statements
      as
      of and for the three and six months ended June 30, 2006 reflect the application
      of SFAS 123(R). In accordance with the Prospective Method, our consolidated
      financial statements for prior periods have not been restated to reflect, and
      do
      not include, the application of SFAS 123(R). Share-based compensation expense
      for the three and six months ended June 30, 2006 was $5.2 million and $8.0
      million, respectively. Share-based compensation expense for the three and six
      months ended June 30, 2005 was $3.1 million and $6.2 million, respectively.





SFAS
      123(R) requires forfeitures to be estimated at the time of grant and revised,
      if
      necessary, in subsequent periods if actual forfeitures differ from those
      estimates. Additionally, SFAS 123(R) requires the estimated forfeiture rate
      be
      applied and the cumulative effect determined for all prior periods in which
      stock-based compensation costs have been recorded. Prior to our adoption of
      SFAS
      123(R), we accounted for forfeitures as they occurred. Upon adopting SFAS
      123(R), we estimated expected forfeitures over the life of each individual
      award
      and have included the impact of these expected forfeitures in our stock-based
      compensation expense for the three and six months ended June 30, 2006 in
      addition to all prior periods on a cumulative basis. The effect of this change
      is to reverse compensation cost recognized in prior period financial statements
      for awards that are not expected to vest based upon the expected forfeiture
      rate. The cumulative effect of applying the expected forfeiture rate has been
      included in operating and maintenance expense and general and administrative
      expense, the impact of which had no material effect on our consolidated
      financial position, results of operations or cash flows.





38
 *Index*





We
      adopted SFAS 123 effective January 1, 2003 and have accounted for stock-based
      compensation prospectively for all stock based awards granted or modified on
      or
      subsequent to that date. As such, adoption of SFAS 123(R) using the Prospective
      Method had no material impact on our consolidated financial position, results
      of
      operations or cash flows. In addition to the compensation cost recognition
      requirements, SFAS 123(R) also requires the tax deduction benefits for an award
      in excess of recognized compensation cost to be reported as a financing cash
      flow rather than as an operating cash flow, which was required under SFAS 95.
      We
      reported operating cash flows related to tax deduction benefits of $5.7 million
      and $4.9 million for the three and six months ended June 30, 2005,
      respectively.





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





**New
      Accounting Pronouncements**





In
      July
      2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes—an interpretation of FASB Statement No.
      109* (FIN
      48). ** This
      interpretation clarifies the accounting for income taxes recognized in an
      entity’s financial statements in accordance with SFAS 109, *Accounting
      for Income Taxes* .
      It
      prescribes a minimum recognition threshold for recognizing and a measurement
      attribute for disclosing tax positions taken or expected to be taken on a tax
      return. This interpretation is effective for fiscal years beginning after
      December 15, 2006. We will be required to adopt this interpretation in the
      first
      quarter of fiscal year 2007. Management is currently evaluating the requirements
      of FIN 48 and has not yet determined the impact on the consolidated financial
      statements.




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





**Interest
      Rate Risk**





Our
      exposure to market risk for changes in interest rates relates primarily to
      our
      long-term and short-term debt as well as invested cash balances. These matters
      have been previously discussed and reported in our Annual Report on Form 10-K
      for the year ended December 31, 2005. There have been no material changes to
      these previously reported matters during the six months ended June 30, 2006.





**Foreign
      Exchange Risk**





Our
      international operations expose us to foreign exchange risk. These matters
      have
      been previously discussed and reported in our Annual Report on Form 10-K for
      the
      year ended December 31, 2005. There have been no material changes to these
      previously reported matters during the six months ended June 30, 2006.




**ITEM
      4. Controls and Procedures**





In
      accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an
      evaluation, under the supervision and with the participation of management,
      including our Chief Executive Officer and Chief Financial Officer, of the
      effectiveness of our disclosure controls and procedures as of the end of the
      period covered by this report. Based on that evaluation, our Chief Executive
      Officer and Chief Financial Officer concluded that our disclosure controls
      and
      procedures were effective as of June 30, 2006 to provide reasonable assurance
      that information required to be disclosed in our reports filed or submitted
      under the Exchange Act was (i) accumulated and communicated to our management,
      including our Chief Executive Officer and our Chief Financial Officer, to allow
      timely decisions regarding required disclosure and (ii) recorded, processed,
      summarized and reported within the time periods specified in the Securities
      and
      Exchange Commission’s rules and forms.





39
 *Index*





There
      were no changes to our internal controls over financial reporting during the
      quarter ended June 30, 2006 that have materially affected, or are reasonably
      likely to materially affect, our internal controls over financial
      reporting.









40
 *Index*





**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings** ****





*Legal
      Proceedings* —We
      have
      a dispute with TODCO concerning payment to us under our tax sharing agreement
      with TODCO for the tax benefit that TODCO derives from exercises of options
      to
      purchase our ordinary shares held by employees of TODCO. An arbitration
      proceeding that was initiated in January 2006 continues and is expected to
      be
      concluded during 2006. We are seeking payment of the amount of tax benefits
      derived from exercises of options to purchase our ordinary shares by employees
      of TODCO who were not on the payroll of TODCO at the time of exercise and a
      declaration that TODCO pay us for the benefit derived from such exercises in
      the
      future. TODCO is seeking to avoid such payment and is asking that the entire
      tax
      sharing agreement be voided. TODCO filed suit in January 2006 in state district
      court in Houston seeking to set aside the arbitration provision and to void
      the
      entire tax sharing agreement. The state district court denied TODCO’s claim that
      the arbitration clause is unenforceable, compelled arbitration of the remaining
      claims asserted in the lawsuit, and stayed the lawsuit until the arbitration
      proceeding is concluded. We believe TODCO owes us approximately $22.2 million,
      exclusive of interest, based on options exercised through June 30, 2006, and
      we
      do not believe TODCO’s attempts to void the tax sharing agreement have merit. We
      do not expect the outcome of this matter to have a material adverse effect
      on
      our consolidated financial position, results of operations or cash
      flows.





In
      October 2001, TODCO was notified by the U.S. Environmental Protection Agency
      (“EPA”) that the EPA had identified a subsidiary as a potentially responsible
      party in connection with the Palmer Barge Line superfund site located in Port
      Arthur, Texas.  Based upon the information provided by the EPA and a review
      of TODCO’s internal records to date, TODCO disputes its designation as a
      potentially responsible party.  Based on further review of the master
      separation agreement with TODCO, we believe that TODCO is responsible for any
      losses TODCO incurs in connection with this action and we are not required
      to
      indemnify TODCO for any such losses.




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 adver se
      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 ―Outlo ok-Tax
      Matters.” We cannot predict with certainty the outcome or effect of any of the
      matters specifically described above or of any such other pending or threatened
      litigation or legal proceedings. There can be no assurance that our beliefs
      or
      expectations as to the outcome or effect of any lawsuit or other matters will
      prove correct and the eventual outcome of these matters could materially differ
      from management’s current estimates.





**Item
      1A. Risk Factors**





Other
      than with respect to the risk factor 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, 2005.
      The risk factor set forth below was disclosed in the Form 10-K and has been
      revised to provide updated rig construction statistics as of July 31,
      2006.





***Our
      industry is highly competitive and cyclical, with intense price
      competition.***





The
      offshore contract drilling industry is highly competitive with numerous industry
      participants, none of which has a dominant market share. Drilling contracts
      are
      traditionally awarded on a competitive bid basis. Intense price competition
      is
      often the primary factor in determining which qualified contractor is awarded
      a
      job, although rig availability and the quality and technical capability of
      service and equipment may also be considered. Mergers among oil and natural
      gas
      exploration and production companies have reduced the number of available
      customers.





41
 *Index*





Our
      industry has historically been cyclical and is impacted by oil and gas price
      levels and volatility. There have been periods of high demand, short rig supply
      and high dayrates, followed by periods of low demand, excess rig supply and
      low
      dayrates. Changes in commodity prices can have a dramatic effect on rig demand,
      and periods of excess rig supply intensify the competition in the industry
      and
      often result in rigs being idle for long periods of time. We may be required
      to
      idle rigs or enter into lower rate contracts in response to market conditions
      in
      the future.





During
      prior periods of high utilization and dayrates, industry participants have
      increased the supply of rigs by ordering the construction of new units. This
      has
      typically resulted in an oversupply of drilling units and has caused a
      subsequent decline in utilization and dayrates, sometimes for extended periods
      of time. As of July 31, 2006, there are approximately 37 high-specification
      rigs
      and 60 jackup rigs with announced contracts for construction with delivery
      dates
      ranging from 2006 to approximately 2010. There are also a number of mid-water
      semisubmersibles that are being upgraded to enhance their operating capability.
      The entry into service of these new and upgraded units will increase supply
      and
      could curtail a further strengthening of dayrates, or reduce them, in the
      affected markets or result in a softening of the affected markets as rigs are
      absorbed into the active fleet. Any further increase in construction of new
      drilling units would likely exacerbate the negative impact on utilization and
      dayrates. Lower utilization and dayrates in one or more of the regions in which
      we operate could adversely affect our revenues and profitability. Prolonged
      periods of low utilization and dayrates could also result in the recognition
      of
      impairment charges on certain classes of our drilling rigs or our goodwill
      balance if future cash flow estimates, based upon information available to
      management at the time, indicate that the carrying value of these rigs, or
      the
      goodwill balance, may not be recoverable.





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





**Issuer
      Purchases of Equity Securities**




**Period**
            
            **(a)
                Total Number**
              **of
                Shares**
              **Purchased
                (1)**
            
            **(b)
                Average Price**
              **Paid
                Per Share**
            
            **(c)
                Total Number of**
              **Shares
                Purchased as**
              **Part
                of Publicly**
              **Announced
                Plans or**
              **Programs
                (2)**
            
            **(d)
                Maximum Number**
              **(or
                Approximate Dollar**
              **Value)
                of Shares that May**
              **Yet
                Be Purchased Under**
              **the
                Plans or Programs (2)**
              **(in
                millions)**April
                2006
            
            
            45,400
            
            $
            83.75
            
            
            N/A
            
            $
            1,400.0May
                2006
            
            
            166
            
            
            79.86
            
            
            N/A
            
            
            3,400.0June
                2006
            
            
            5,247,673
            
            
            76.23
            
            
            5,247,462
            
            
            3,000.0Total
            
            
            5,293,239
            
            $
            76.29
            
            
            5,247,462
            
            $
            3,000.0


__________


(1)
            Total
                number of shares purchased in the second quarter of 2006 includes
                45,777
                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 June
                30,
                2006, we have repurchased a total of13,840,713of
                our ordinary shares at a total cost of $1.0 billion.





42
 *Index*





**Item
      4. Submission of Matters to a Vote of Security Holders**





At
      the
      Annual General Meeting of Transocean Inc. held on May 11, 2006, 276,515,081
      shares were represented in person or by proxy out of 326,411,524 shares
      outstanding and entitled to vote as of the record date, constituting a quorum.
      The matters submitted to a vote of shareholders, as set forth in our proxy
      statement relating to the meeting, and the corresponding voting results were
      as
      follows:





(i)
            With
                respect to the election of Class I Director nominees as set forth
                in our
                proxy statement relating to the meeting, the following number of
                votes
                were cast:





**Name
                of Nominee for**
              **Class
                I Director**
            
            **For**
            
            **Withheld/**
              **Abstain**Victor
                E. Grijalva
            
            
            273,021,186
            
            
            3,493,895Arthur
                Lindenauer
            
            
            273,114,431
            
            
            3,400,650Kristian
                Siem
            
            
            270,228,795
            
            
            6,286,286








(ii)
            With
                respect to the approval of our appointment of Ernst & Young LLP as
                independent registered public accounting firm for 2006, the following
                number of votes were cast:





**For**
            **Against/**
              **Authority
                Withheld**
            **Exceptions/**
              **Abstain**
            **Broker**
              **Non-Votes**272,890,398
            967,154
            2,657,529
            −






43
 *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)





*10.1
            Amendment
                No.1 to Revolving Credit Agreement, dated as of May 12, 2006, among
                Transocean Inc., the lenders from time to time parties thereto, Citibank,
                N.A., Bank of America, N.A., JP Morgan Chase Bank, N.A., the Royal
                Bank of
                Scotland plc and SunTrust Bank (incorporated by reference to Exhibit
                4.1
                to our current report on Form 8-K filed on May 12,
                2006)





†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.





44
 *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 August 3, 2006.





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)