UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


______________________





FORM
10-Q


(Mark
One)


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





For
the quarterly period ended March 31, 2008





OR





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





For
the transition period from ______ to ______





Commission
file number 333-75899


______________________





TRANSOCEAN
INC.


(Exact
name of registrant as specified in its charter)


______________________





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





4
      Greenway Plaza, Houston, Texas
            77046(Address
      of principal executive offices)
            (Zip
      Code)70
      Harbour Drive, Grand Cayman, Cayman Islands
            KY1-1003(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  T No £





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


Large
      accelerated filer
            T
            
            Accelerated
      filer
            £Non-accelerated
      filer
            £
            (do
      not check if a smaller reporting company)
            Smaller
      reporting company
            £





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





As of
April 30, 2008, 318,871,957 ordinary shares, par value $0.01 per share, were
outstanding.













TRANSOCEAN INC.





INDEX
TO FORM 10-Q





QUARTER
ENDED MARCH 31, 2008





PagePART I - FINANCIAL
      INFORMATIONItem
      1.
            Financial
      Statements (Unaudited)Condensed Consolidated Statements of Operations Three Months
      Ended March 31, 2008 and 2007
            1Condensed Consolidated Balance Sheets March 31, 2008 and
      December 31, 2007
            2Condensed Consolidated Statements of Cash Flows Three Months
      Ended March 31, 2008 and 2007
            3Notes to Condensed Consolidated Financial
      Statements
            4Item
      2.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            21Item
      3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            39Item
      4.
            Controls and Procedures
            39PART II - OTHER
      INFORMATIONItem
      1.
            Legal Proceedings
            39Item
      1A.
            Risk Factors
            40Item
      2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            45Item
      6.
            Exhibits
            45





Index





PART
I - FINANCIAL INFORMATION





Item
1.  Financial Statements





TRANSOCEAN INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(In
millions, except per share data)


(Unaudited)





Three months ended
      March 31,2008
            
            
            2007Operating
      revenuesContract
      drilling revenues
            
            $
            2,640
            
            
            $
            1,273Contract
      intangible revenues
            
            
            224
            
            
            
            —Other revenues
            
            
            246
            
            
            
            553,110
            
            
            
            1,328Costs
      and expensesOperating
      and maintenance
            
            
            1,157
            
            
            
            568Depreciation,
      depletion and amortization
            
            
            367
            
            
            
            100General and administrative
            
            
            49
            
            
            
            261,573
            
            
            
            694Gain from disposal of assets,
      net
            
            
            3
            
            
            
            23Operating income
            
            
            1,540
            
            
            
            657Other
      income (expense), netInterest
      income
            
            
            13
            
            
            
            5Interest
      expense, net of amounts capitalized
            
            
            (137
            )
            
            
            (37
            )Other, net
            
            
            (8
            )
            
            
            13(132
            )
            
            
            (19
            )Income
      before income taxes and minority interest
            
            
            1,408
            
            
            
            638Income
      tax expense
            
            
            218
            
            
            
            85Minority interest
            
            
            1
            
            
            
            —Net income
            
            $
            1,189
            
            
            $
            553Earnings
      per shareBasic
            
            $
            3.75
            
            
            $
            2.72Diluted
            
            $
            3.71
            
            
            $
            2.62Weighted
      average shares outstandingBasic
            
            
            317
            
            
            
            203Diluted
            
            
            321
            
            
            
            212





See
accompanying notes.





- 1
-
 Index





TRANSOCEAN INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(In millions,
except share data)





March 31,
            
            
            December 31,2008
            
            
            2007(Unaudited)ASSETSCash
      and cash equivalents
            
            $
            1,567
            
            
            $
            1,241Accounts
      receivable, net of allowance for doubtful accounts of $61 and $50 at March
      31, 2008 and December 31, 2007, respectively
            
            
            2,357
            
            
            
            2,370Materials
      and supplies, net of allowance for obsolescence of $20 and $22 at March
      31, 2008 and December 31, 2007, respectively
            
            
            367
            
            
            
            333Deferred
      income taxes, net
            
            
            96
            
            
            
            119Assets
      held for sale
            
            
            666
            
            
            
            —Other current assets
            
            
            177
            
            
            
            233Total current assets
            
            
            5,230
            
            
            
            4,296Property
      and equipment
            
            
            24,237
            
            
            
            24,545Less accumulated
    depreciation
            
            
            3,949
            
            
            
            3,615Property and equipment, net
            
            
            20,288
            
            
            
            20,930Goodwill
            
            
            8,424
            
            
            
            8,219Other assets
            
            
            920
            
            
            
            919Total assets
            
            $
            34,862
            
            
            $
            34,364LIABILITIES
      AND SHAREHOLDERS’ EQUITYAccounts
      payable
            
            $
            722
            
            
            $
            805Accrued
      income taxes
            
            
            238
            
            
            
            99Debt
      due within one year
            
            
            3,356
            
            
            
            6,172Other current liabilities
            
            
            772
            
            
            
            826Total current liabilities
            
            
            5,088
            
            
            
            7,902Long-term debt
            
            
            13,239
            
            
            
            11,085Deferred
      income taxes, net
            
            
            814
            
            
            
            681Other long-term liabilities
            
            
            1,928
            
            
            
            2,125Total long-term liabilities
            
            
            15,981
            
            
            
            13,891Commitments
      and contingenciesMinority
      interest
            
            
            6
            
            
            
            5Preference
      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, 318,217,122
      and 317,222,909 shares issued and outstanding at March 31, 2008
      and December 31, 2007, respectively
            
            
            3
            
            
            
            3Additional
      paid-in capital
            
            
            10,853
            
            
            
            10,799Accumulated
      other comprehensive loss
            
            
            (64
            )
            
            
            (42
            )Retained earnings
            
            
            2,995
            
            
            
            1,806Total shareholders’equity
            
            
            13,787
            
            
            
            12,566Total liabilities and shareholders’equity
            
            $
            34,862
            
            
            $
            34,364





See
accompanying notes.





- 2
-
 Index





TRANSOCEAN INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(In millions)


(Unaudited)





Three months ended
      March 31,2008
            
            
            2007Cash
      flows from operating activitiesNet
      income
            
            $
            1,189
            
            
            $
            553Adjustments
      to reconcile net income to net cash provided by operating
      activitiesAmortization
      of drilling contract intangibles
            
            
            (224
            )
            
            
            —Depreciation,
      depletion and amortization
            
            
            367
            
            
            
            100Share-based
      compensation expense
            
            
            22
            
            
            
            10Gain
      from disposal of assets, net
            
            
            (3
            )
            
            
            (23
            )Deferred
      revenue, net
            
            
            18
            
            
            
            34Deferred
      expenses, net
            
            
            16
            
            
            
            (7
            )Deferred
      income taxes
            
            
            (25
            )
            
            
            (2
            )Other,
      net
            
            
            (12
            )
            
            
            (1
            )Changes in operating assets and
      liabilities
            
            
            134
            
            
            
            (10
            )Net cash provided by operating
      activities
            
            
            1,482
            
            
            
            654Cash
      flows from investing activitiesCapital
      expenditures
            
            
            (769
            )
            
            
            (465
            )Proceeds
      from disposal of assets, net
            
            
            254
            
            
            
            39Joint ventures and other investments,
      net
            
            
            (3
            )
            
            
            (3
            )Net cash used in investing
      activities
            
            
            (518
            )
            
            
            (429
            )Cash
      flows from financing activitiesBorrowings
      under commercial paper program, net
            
            
            1,316
            
            
            
            —Borrowings
      under Five-Year Revolving Credit Facility
            
            
            180
            
            
            
            —Repayments
      under 364-Day Revolving Credit Facility
            
            
            (1,500
            )
            
            
            —Proceeds
      from debt
            
            
            1,976
            
            
            
            190Repayments
      of debt
            
            
            (2,633
            )
            
            
            —Financing
      costs
            
            
            (3
            )
            
            
            —Payments
      made upon exercise of warrants, net
            
            
            (4
            )
            
            
            —Proceeds
      from issuance of ordinary shares under share-based compensation plans,
      net
            
            
            27
            
            
            
            15Repurchase
      of ordinary shares
            
            
            —
            
            
            
            (400
            )Other, net
            
            
            3
            
            
            
            5Net cash used in financing
      activities
            
            
            (638
            )
            
            
            (190
            )Net
      increase in cash and cash equivalents
            
            
            326
            
            
            
            35Cash and cash equivalents at beginning of
      period
            
            
            1,241
            
            
            
            467Cash and cash equivalents at end of
      period
            
            $
            1,567
            
            
            $
            502





See
accompanying notes.





- 3
-
 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,” the “Company,” “we,” “us” or “our”) is a
leading international provider of offshore contract drilling services for oil
and gas wells.  Our mobile offshore drilling fleet is considered one
of the most modern and versatile fleets in the world.  We specialize
in technically demanding sectors of the offshore drilling business with a
particular focus on deepwater and harsh environment drilling
services.  We contract our drilling rigs, related equipment and work
crews primarily on a dayrate basis to drill oil and gas wells.  We
also provide oil and gas drilling management services on either a dayrate basis
or a completed-project, fixed-price (or “turnkey”) basis, as well as drilling
engineering and drilling project management services, and we participate in oil
and gas exploration and production activities.  At March 31, 2008, we
owned, had partial ownership interests in or operated 138 mobile offshore
drilling units.  As of this date, our fleet consisted of 39
High-Specification Floaters (Ultra-Deepwater, Deepwater and Harsh Environment
semisubmersibles and drillships), 29 Midwater Floaters, 10 High-Specification
Jackups, 56 Standard Jackups and four Other Rigs.  In addition, as of
March 31, 2008, we had eight Ultra-Deepwater Floaters under construction or
contracted for construction (see Note 4—Drilling Fleet Expansion, Upgrades and
Acquisitions and Note 14—Subsequent Events).





In
November 2007, we completed our merger transaction (the “Merger”) with
GlobalSantaFe Corporation (“GlobalSantaFe”).  Immediately prior to the
effective time of the Merger, each of our outstanding ordinary shares was
reclassified by way of a scheme of arrangement under Cayman Islands law into (1)
0.6996 of our ordinary shares and (2) $33.03 in cash (the “Reclassification”
and, together with the Merger, the “Transactions”).  At the effective
time of the Merger, each outstanding ordinary share of GlobalSantaFe (the
“GlobalSantaFe Ordinary Shares”) was exchanged for (1) 0.4757 of our ordinary
shares (after giving effect to the Reclassification) and (2) $22.46 in
cash.  We have included the financial results of GlobalSantaFe in our
consolidated financial statements beginning November 27, 2007, the date
GlobalSantaFe Ordinary Shares were exchanged for our ordinary
shares.





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”).  Pursuant to such rules and regulations, these
financial statements do not include all disclosures required by accounting
principles generally accepted in the U.S. for complete financial statements. The
condensed consolidated financial statements reflect all adjustments, which are,
in the opinion of management, necessary for a fair presentation of financial
position, results of operations and cash flows for the interim periods. Such
adjustments are considered to be of a normal recurring nature unless otherwise
identified. Operating results for the three months ended March 31, 2008 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2008 or for any future period.





- 4
-
 Index





TRANSOCEAN
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(Unaudited)





We
accounted for the Reclassification as a reverse stock split and a dividend,
which required restatement of our historical weighted average shares
outstanding, historical earnings per share and other share-based calculations
for prior periods.  All references in our financial statements to
number of shares and per share amounts have been retroactively restated to
reflect the decreased number of our ordinary shares issued and outstanding as a
result of this accounting treatment.





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, 2007.





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





Total Comprehensive
Income—Total comprehensive income for the three months ended March 31,
2008 and March 31, 2007 was $1.2 billion and $553 million, respectively. Other
comprehensive income did not contain any material items for any of the periods
presented.





Capitalized Interest—We
capitalize interest costs for qualifying construction and upgrade
projects.  We capitalized interest costs on construction work in
progress of $30 million and $13 million for the three months ended March 31,
2008 and March 31, 2007, respectively.





Segments—Prior to the Merger,
we operated in one business segment.  As a result of the Merger, we
have established two reportable segments: (1) Contract Drilling and (2)
Other.  We have combined drilling management services and oil and gas
properties into the Other segment.  The drilling management services
and oil and gas properties separately do not meet the quantitative thresholds
for determining reportable segments and are combined for reporting purposes in
the Other segment.





Drilling
management services are provided through Applied Drilling Technology Inc., our
wholly owned subsidiary, and through ADT International, a division of one of our
U.K. subsidiaries (together, “ADTI”).  Drilling management services
are provided primarily on a turnkey basis at a fixed bid amount.  Oil
and gas properties consist of exploration, development and production activities
carried out through Challenger Minerals Inc. and Challenger Minerals (North Sea)
Limited (together, “CMI”), our oil and gas subsidiaries.





Share-Based Compensation—On
January 1, 2006, we adopted the Financial Accounting Standards Board (“FASB”)
Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004),
Share-Based Payment(“SFAS 123R”) using the modified prospective
method.  Share-based compensation expense was $22 million ($18
million, or $0.06 per diluted share, net of tax) and $10 million ($9 million, or
$0.04 per diluted share, net of tax) for the three months ended March 31, 2008
and March 31, 2007, respectively.





Income Taxes—On January 1,
2007, we adopted the FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48
clarifies the accounting for income taxes recognized in an entity’s financial
statements in accordance with SFAS No. 109, Accounting for Income
Taxes.  It prescribes a minimum recognition threshold and
measurement attribute for recognizing and measuring the benefit of tax positions
taken or expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition.  See Note 7―Income
Taxes.





- 5
-
 Index





TRANSOCEAN
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(Unaudited)





On
January 1, 2007, we adopted the Emerging Issues Task Force (“EITF”) Issue No.
06-3, “How Taxes Collected From Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement” (“EITF
06-3”).  The scope of EITF 06-3 includes any tax assessed by a
governmental authority that is directly imposed on a revenue-producing
transaction between a seller and a customer, including sales, use, value added
and excise taxes.  EITF 06-3 provides that a company may adopt a
policy of presenting taxes in the consolidated statement of operations on either
a gross or net basis. If such taxes are significant, and are presented on a
gross basis, the amounts of those taxes should be disclosed. We record taxes
collected from our customers and remitted to governmental authorities on a net
basis in our consolidated statement of operations and our adoption had no effect
on our consolidated balance sheet, statement of operations or cash
flows.





New Accounting
Pronouncements—In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(“SFAS 157”).  SFAS 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements.  SFAS 157 does
not require any new fair value measurements, but rather provides guidance for
the application of fair value measurements required in other accounting
pronouncements and seeks to eliminate inconsistencies in the application of such
guidance among those other standards.  SFAS 157 is effective for
fiscal years beginning after November 15, 2007.  In February 2008, the
FASB issued FASB Staff Position (“FSP”) No. FAS 157-2, Effective Date of FASB Statement No.
157, which delays the effective date of SFAS 157 to fiscal years
beginning after November 15, 2008, except for nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). We have adopted
those provisions of SFAS 157 that were unaffected by the delay in the first
quarter of 2008.  Such adoption did not have a material effect on our
consolidated statement of financial position, results of operations or cash
flows.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements (“SFAS 160”). SFAS 160
establishes accounting and reporting standards for noncontrolling interests,
also known as minority interests, in a subsidiary and for the deconsolidation of
a subsidiary.  It requires that a noncontrolling interest in a
subsidiary be reported as equity in the consolidated financial statements and
requires that consolidated net income attributable to the parent and to the
noncontrolling interests be shown separately on the face of the income
statement. SFAS 160 also requires, among other things, that noncontrolling
interests in formerly consolidated subsidiaries be measured at fair value.
SFAS 160 is effective for fiscal years beginning after December 15,
2008.  We will be required to adopt SFAS 160 in the first quarter
of 2009.  Management is currently evaluating the requirements of
SFAS 160 and has not yet determined what impact the adoption will have on
our consolidated statement of financial position, results of operations or cash
flows.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(“SFAS 141R”).  SFAS 141R replaces SFAS No. 141, Business Combinations and,
among other things, (1) provides more specific guidance with respect to
identifying the acquirer in a business combination, (2) broadens the scope
of business combinations to include all transactions in which one entity gains
control over one or more other businesses and (3) requires costs incurred
to effect the acquisition (acquisition-related costs) and anticipated
restructuring costs of the acquired company to be recognized separately from the
acquisition.  SFAS 141R applies prospectively to business
combinations for which the acquisition date occurs in fiscal years beginning
after December 15, 2008.  We will be required to adopt the
principles of SFAS 141R with respect to business combinations occurring on
or after January 1, 2009.  Due to the prospective application
requirement, we are unable to determine what effect, if any, the adoption of
SFAS 141R will have on our consolidated statement of financial position,
results of operations or cash flows.





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB StatementNo.133 (“SFAS 161”). 
SFAS 161 changes the disclosure requirements for derivative instruments and
hedging activities. Entities are required to provide enhanced disclosures about
(1) how and why an entity uses derivative instruments, (2) how
derivative instruments and related hedged items are accounted for under SFAS
No. 133, Accounting for
Derivative Instruments and Hedging Activities (“SFAS 133”), and its
related interpretations, and (3) how derivative instruments and related
hedged items affect an entity's financial position, financial performance, and
cash flows. SFAS 161 is effective for fiscal years beginning after
November 15, 2008.  We will be required to adopt SFAS 161 in
the first quarter of 2009.  We currently do not have any derivative
financial instruments subject to accounting or disclosure under SFAS 133;
therefore, we do not expect the adoption of SFAS 161 to have any
effect on our consolidated statement of financial position, results of
operations or cash flows.





- 6
-
 Index





TRANSOCEAN
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(Unaudited)





In April
2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of
Intangible Assets (“FSP 142-3”).  FSP 142-3 amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142,
Goodwill and Other Intangible
Assets.  FSP 142-3 is effective for fiscal years beginning
after December 15, 2008 and interim periods within those fiscal years, requiring
prospective application to intangible assets acquired after the effective
date.  We will be required to adopt the principles of FSP 142-3 with
respect to intangible assets acquired on or after January 1,
2009.  Due to the prospective application requirement, we are unable
to determine what effect, if any, the adoption of FSP 142-3 will have on our
consolidated statement of financial position, results of operations or cash
flows.





Reclassifications—Certain
reclassifications have been made to prior period amounts to conform with the
current period’s presentation.  These reclassifications did not have a
material effect on our consolidated statement of financial position, results of
operations or cash flows.





Note
3—Merger with GlobalSantaFe Corporation





Completed
in November 2007, we believe the Merger adds to and expands upon
relationships with significant customers, expands our existing floater and
jackup fleet and expands our presence in the major offshore drilling
areas.  In connection with the Merger, we established a severance
plan.  See Note 12―Retirement Plans and Other
Postemployment Benefits.





We issued
approximately 107,752,000 of our ordinary shares and paid $5 billion in
cash in connection with the Merger. We accounted for the Merger using the
purchase method of accounting with the Company treated as the accounting
acquirer. As a result, the assets and liabilities of Transocean remain at
historical amounts.  The assets and liabilities of GlobalSantaFe were
recorded at their estimated fair values as of November 27, 2007, the
date the Transactions were completed, with the excess of the purchase price over
the sum of these fair values recorded as goodwill.





The
purchase price included, at estimated fair value, current assets of
$2.1 billion, drilling and other property and equipment of
$12.3 billion, intangible assets of $432 million, other assets of
$110 million and the assumption of current liabilities of
$606 million, long-term debt of $575 million and other long-term
liabilities of $2.4 billion.  The excess of the purchase price
over the estimated fair value of net assets acquired was $6.2 billion,
which has been accounted for as goodwill.





During
the three months ended March 31, 2008, we made adjustments to the estimated
fair value of certain assets and liabilities with a corresponding net adjustment
to goodwill amounting to $204 million, which are reflected in the
amounts noted above.  Certain purchase price allocations have not
been finalized and the purchase price allocation is preliminary.  Due
to the number of assets acquired and the closing of the Merger close to our
year-end, we are continuing our review of the valuation of property and
equipment, intangible assets, liabilities, evaluation of tax positions and
contingencies.





In
connection with the Merger, we acquired drilling contracts for future contract
drilling services of GlobalSantaFe, some of which extend through
2016.  These contracts include fixed dayrates that may be above or
below dayrates available in the market as of the date of the Merger for similar
contracts.  After determining the fair values of these drilling
contracts as of the date of the Merger, we recorded the respective market
adjustments on our consolidated balance sheet as intangible assets and
liabilities that we will amortize into contract intangible revenues using the
straight-line method over the respective contract periods.  In the
three months ended March 31, 2008, we recognized $224 million in
contract intangible revenues.  The carrying values were
$146 million and $179 million, recorded in other assets, and
$1.1 billion and $1.4 billion, recorded in other long-term
liabilities, on our consolidated balance sheets at March 31, 2008 and
December 31, 2007, respectively.





- 7
-
 Index





TRANSOCEAN
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(Unaudited)





Additionally,
we identified intangible assets associated with the trade name, customer
relationships and contract backlog of our drilling management services
business.  We consider the ADTI trade name to be an indefinite life
intangible asset, which will not be amortized and will be subject to an annual
impairment test.  The customer relationships and contract backlog have
definite lifespans and will each be amortized over their estimated useful lives
of 15 years and three months, respectively. At December 31,
2007, the carrying values of these intangibles were $76 million,
$145 million and $11 million for the trade name, customer
relationships and contract backlog, respectively. At March 31, 2008, the
carrying values of these intangibles were $76 million and $145 million
for the trade name and customer relationships, the contract backlog having been
fully amortized during the three months then ended.





Note
4—Drilling Fleet Expansion, Upgrades and Acquisitions





Construction
work in progress, recorded in property and equipment, was $3.6 billion and
$3.1 billion at March 31, 2008 and December 31, 2007,
respectively (see Note 14—Subsequent Events).  The following
table summarizes actual capital expenditures, including capitalized interest,
for our major construction and conversion projects
(in millions):





Three months ended March 31,
      2008
            
            
            Total costs through December 31,
      2007
            
            
            Total costsDiscoverer
      Luanda
            
            $
            121
            
            
            $
            107
            
            
            $
            228HHI
      Newbuild Drillship (a)
            
            
            108
            
            
            
            109
            
            
            
            217Discoverer
      Inspiration
            
            
            96
            
            
            
            248
            
            
            
            344Dhirubhai
      Deepwater KG1 (b)
            
            
            86
            
            
            
            279
            
            
            
            365Discoverer
      Americas
            
            
            67
            
            
            
            301
            
            
            
            368Discoverer
      Clear Leader
            
            
            61
            
            
            
            409
            
            
            
            470Sedco
      700-series upgrades
            
            
            46
            
            
            
            396
            
            
            
            442GSF
      Development Driller III (a)
            
            
            —
            
            
            
            369
            
            
            
            369Dhirubhai
      Deepwater KG2 (b)
            
            
            —
            
            
            
            179
            
            
            
            179Capitalized
      interest
            
            
            30
            
            
            
            92
            
            
            
            122Total
            
            $
            615
            
            
            $
            2,489
            
            
            $
            3,104


______________________


(a)
            Total
      costs through December 31, 2007 include our initial investments in the HHI
      Newbuild Drillship and GSF Development Driller
      III of $109 million and $356 million, respectively, representing
      the estimated fair values of the rigs at the time of the
      Merger.


(b)
            The
      costs for Dhirubhai
      Deepwater KG1and Dhirubhai Deepwater
      KG2, formerly named Deepwater Pacific 1andDeepwater
      Pacific 2, respectively,represent 100
      percent of expenditures incurred ($277 million and $178 million,
      respectively) prior to our investment in Transocean Pacific Drilling Inc.,
      the joint venture that owns these rigs, which we consolidate under FASB
      Interpretation No. 46 (revised December 2003), Consolidation of Variable
      Interest Entities,and 100 percent of expenditures incurred since
      our investment in the joint venture.  However, our joint venture
      partner, Pacific Drilling Limited, is responsible for 50 percent of these
      costs.





- 8
-
 Index





TRANSOCEAN
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(Unaudited)





Note 5—Asset
Dispositions





During
the three months ended March 31, 2008, we completed the sale of two of our
Standard Jackups (GSF Adriatic
III and GSF High Island
I).We received cash proceeds of $220 million associated with
the sale, which had no effect on earnings.





In
February 2008, we entered into a definitive agreement to sell our Standard
Jackup GSF High Island
VIII.  At March 31, 2008, GSF High Island VIII was
classified as assets held for sale in the amount of $100 million on our
consolidated balance sheet.





In
February 2008, we announced our intent to proceed with divestitures of two
Midwater Floaters (GSF Arctic
II and GSF Arctic
IV) in connection with our previously announced undertakings to the
Office of Fair Trading in the U.K.  At March 31, 2008, GSF Arctic II and GSF Arctic IV were classified
as assets held for sale in the amounts of $280 million and $286 million,
respectively, on our consolidated balance sheet.





During
the three months ended March 31, 2007, we completed the sale of the tender rig
Charley Graves for net
proceeds of $33 million and recognized a gain on the sale of $23 million ($20
million, or $0.09 per diluted share, net of tax).





Note 6―Repurchase of Ordinary
Shares





A summary
of the aggregate ordinary shares repurchased and retired for the three months
ended March 31, 2008 and March 31, 2007 is as follows (in millions, except per
share data):





Three months ended March31,2008
            
            
            2007Value
      of shares
            
            $
            —
            
            
            $
            400Number
      of  shares
            
            
            —
            
            
            
            5.2Average
      purchase price per share
            
            $
            —
            
            
            $
            77.39





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 a pre-existing credit facility.  At March 31,
2008, we had authority to repurchase $600 million of our ordinary shares under
our share repurchase program.





Note 7―Income Taxes





We are a
Cayman Islands company.  Our earnings are not subject to income tax in
the Cayman Islands because the country does not levy tax on corporate
income.  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.  Due to the fact that the countries in which we
operate have taxation regimes with varying nominal rates, deductions, credits
and other tax attributes, there is no expected relationship between the
provision for or benefit from income taxes and income or loss before income
taxes.





The
estimated annual effective tax rate for the three months ended March 31, 2008,
and March 31, 2007, 13.5 percent and 13.7 percent, respectively.  This
rate was based on estimated annual income before income taxes for each period
after adjusting for certain items such as net gains on rig sales and various
other discrete items.





During
the quarter ended March 31, 2008, our liability for unrecognized tax benefits
increased by $44 million to a total of $468 million.  We accrue
interest and penalties related to our liabilities for unrecognized tax benefits
as a component of income tax expense.  For the three months ended
March 31, 2008, we increased the liability related to interest and penalties on
our unrecognized tax benefits by $15 million.





- 9
-
 Index





TRANSOCEAN
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(Unaudited)





We file
federal and local tax returns in several jurisdictions throughout the
world.  With few exceptions, we are no longer subject to examinations
of our U.S. and non-U.S. tax matters for years prior to 1999.  The
amount of current tax benefit recognized in the three months ended March 31,
2008 from the settlement of disputes with tax authorities and the expiration of
statute of limitations was insignificant.





The IRS
has proposed certain adjustments to our 2004 and 2005 U.S. federal income tax
returns.  The proposed adjustments would result in a cash tax payment
of approximately $413 million, exclusive of interest.  The IRS has
contended that one of our key subsidiaries maintains a permanent establishment
in the U.S. and is therefore subject to U.S. taxation on certain earnings
effectively connected to such U.S. business.  We filed a letter with
the IRS protesting the proposed changes and we believe our returns are
materially correct as filed.  We will continue to vigorously defend
against these proposed changes.  The IRS audits of GlobalSantaFe’s
2004 and 2005 U.S. federal income tax returns are still in the examination
phase.  We do not expect the conclusion of these audits to give rise
to a material tax liability.





Certain
of our Brazilian income tax returns for the years 2000 through 2004 are
currently under examination.  The Brazil tax authorities have issued
tax assessments totaling $112 million, plus a 75 percent penalty and $74 million
of interest through March 31, 2008.  We believe our returns are
materially correct as filed, and we are vigorously contesting these
assessments.  We filed a protest letter with the Brazilian tax
authorities on January 25, 2008.





A
valuation allowance for deferred tax assets is recorded when it is more likely
than not that some or all of the benefit from the deferred tax asset will not be
realized.  We provide a valuation allowance to offset deferred tax
assets for net operating losses incurred during the year in certain
jurisdictions and for other deferred tax assets where, in the opinion of
management, it is more likely than not that the financial statement benefit of
these losses will not be realized.  As of March 31, 2008, the
valuation allowance for non-current deferred tax assets was $29
million.





Norwegian
civil tax and criminal authorities are investigating various transactions
undertaken by our subsidiaries in 2001 and 2002.  The authorities have
issued notifications of their intent to issue tax assessments of approximately
$307 million, plus interest, related to certain restructuring transactions and
approximately $82 million, plus interest, related to a 2001 dividend
payment.  The authorities have indicated that they plan to seek
penalties of 60 percent on both matters.  In the course of its
investigations, the Norwegian authorities secured certain records located in the
United Kingdom related to a Norwegian subsidiary that was previously subject to
tax in Norway.  The authorities are evaluating whether to impose
additional taxes on this Norwegian subsidiary.  We have and will
continue to respond to all information requests from the Norwegian
authorities.  We plan to vigorously contest any assertions by the
Norwegian authorities in connection with the various transactions being
investigated.





During
the three months ended March 31, 2008, our long-term liability for unrecognized
tax benefits related to these Norwegian tax issues, increased to $187 million
due to the accrual of interest and exchange rate fluctuations.  While
we cannot predict or provide assurance as to the final outcome of these
proceedings, we do not expect the ultimate resolution of these matters to have a
material adverse effect on our consolidated statement of financial position or
results of operations, although it may have a material adverse effect on our
consolidated cash flows.





Our tax
returns in the other major jurisdictions in which we operate are generally
subject to examination for periods ranging from three to six
years.  We have agreed to extensions beyond the statute of limitations
in two jurisdictions for up to 12 years.  Tax authorities in certain
jurisdictions are examining our tax returns and in some cases have issued
assessments.  We are defending our tax positions in those
jurisdictions.  While we cannot predict or provide assurance as to the
final outcome of these proceedings, we do not expect the ultimate liability to
have a material adverse effect on our consolidated financial position, results
of operations or cash flows.





In 2004,
we entered into a tax sharing agreement (the “TSA”) with TODCO, formerly one of
our subsidiaries, in connection with the initial public offering of TODCO (the
“TODCO IPO”).  Under the TSA, most U.S. federal, state, local and
foreign income taxes and income tax benefits (including income taxes and income
tax benefits attributable to the TODCO business) that accrued on or before the
closing of the TODCO IPO will be for our account.  Accordingly, we are
generally liable for any income taxes that accrued on or before the closing of
the TODCO IPO, but TODCO generally must pay us for the amount of any income tax
benefits created on or before the closing of the TODCO IPO (“pre-closing tax
benefits”) that it uses or absorbs on a return with respect to a period after
the closing of the TODCO IPO.  Under this agreement, we are entitled
to receive from TODCO payment for most of the tax benefits TODCO generated prior
to the TODCO IPO that they utilize subsequent to the TODCO IPO.





- 10
-
 Index





TRANSOCEAN
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(Unaudited)





In July
2007, Hercules Offshore, Inc. (“Hercules”) completed the acquisition of TODCO
(the “TODCO Acquisition”).  The TSA required Hercules to make an
accelerated change of control payment to us due to a deemed utilization of
TODCO’s pre-IPO tax benefits.  The amount of the accelerated payment
owed to us was calculated by multiplying the remaining pre-IPO tax benefits as
of July 11, 2007 by 80 percent.  In August 2007, we received a $118
million change of control payment from Hercules.  We believe that
Hercules owes us an additional $11 million related to the change of control of
TODCO.





The TSA
also requires Hercules to make additional payments to us based on a portion of
the tax benefit from the exercise of certain options to acquire our ordinary
shares by TODCO’s current and former employees and directors, when and if those
options are exercised.  We estimate that the total amount of payments
related to options that remain outstanding at March 31, 2008 would be
approximately $23 million, assuming a price of $135.20 per ordinary share at the
time of exercise of the options (the actual price of our ordinary shares at the
close of trading on March 31, 2008).  However, there can be no
assurance as to the amount and timing of any payment which we may
receive.  In addition, any future reduction of the pre-IPO tax
benefits by the U.S. taxing authorities upon examination of the TODCO tax
returns may require us to reimburse TODCO for some of the amounts previously
paid.





Through
March 31, 2008, we received $15 million in estimated payments pertaining to
TODCO’s 2007 federal and state income tax returns that is deferred in other
current liabilities in our consolidated balance sheet.  We will
recognize these estimated payments as other income when TODCO finalizes and
files its 2007 federal and state income tax returns.





- 11
-
 Index





TRANSOCEAN
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(Unaudited)





Note 8―Debt





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





March 31,
            
            
            December 31,2008
            
            
            2007Commercial
      paper program (a)
            
            $
            1,316
            
            
            $
            —Floating
      Rate Notes due September 2008 (a)
            
            
            1,000
            
            
            
            1,000Bridge
      Loan Facility due November 2008 (a)
            
            
            1,040
            
            
            
            3,670364-Day
      Revolving Credit Facility due December 2008 (a)
            
            
            —
            
            
            
            1,500Term
      Loan A due March 2010
            
            
            1,925
            
            
            
            —6.625%
      Notes due April 2011
            
            
            176
            
            
            
            177Five-Year
      Revolving Credit Facility due November 2012
            
            
            180
            
            
            
            —5%
      Notes due February 2013
            
            
            246
            
            
            
            2465.25%
      Senior Notes due March 2013
            
            
            499
            
            
            
            4996.00%
      Senior Notes due March 2018
            
            
            997
            
            
            
            9977.375%
      Senior Notes due April 2018
            
            
            247
            
            
            
            247Capital
      lease obligation due July 2026 (b)
            
            
            16
            
            
            
            178%
      Debentures due April 2027
            
            
            57
            
            
            
            577.45%
      Notes due April 2027
            
            
            96
            
            
            
            957%
      Senior Notes due June 2028
            
            
            314
            
            
            
            3147.5%
      Notes due April 2031
            
            
            598
            
            
            
            5981.625%
      Series A Convertible Senior Notes due December 2037
            
            
            2,200
            
            
            
            2,2001.50%
      Series B Convertible Senior Notes due December 2037
            
            
            2,200
            
            
            
            2,2001.50%
      Series C Convertible Senior Notes due December 2037
            
            
            2,200
            
            
            
            2,2006.80%
      Senior Notes due March 2038
            
            
            999
            
            
            
            999Debt
      to affiliates
            
            
            289
            
            
            
            241Total
      debt
            
            
            16,595
            
            
            
            17,257Less
      debt due within one year (a)(b)
            
            
            3,356
            
            
            
            6,172Total
      long-term debt
            
            $
            13,239
            
            
            $
            11,085


______________


(a)
            The
      Floating Rate Notes, Bridge Loan Facility, 364-Day Revolving Credit
      Facility and commercial paper program are classified as debt due within
      one year.


(b)
            The
      capital lease obligation had less than $1 million and $2 million
      classified as debt due within one year at March 31, 2008 and December 31,
      2007, respectively.





The
scheduled maturity of our debt assumes the bondholders exercise their options to
require us to repurchase the 1.625% Series A, 1.50% Series B and
1.50% Series C Convertible Senior Notes in December 2010, 2011 and 2012,
respectively. The scheduled maturities, presented using the face value of our
debt, are as follows (in millions):





Twelve
      monthsendingMarch31,2009
            
            $
            3,3562010
            
            
            1,9252011
            
            
            2,2002012
            
            
            2,3662013
            
            
            3,131Thereafter
            
            
            3,607Total
            
            $
            16,585





Commercial Paper Program—In
December 2007, we entered into a commercial paper program (the “Program”) on a
private placement basis under which we may issue unsecured commercial paper
notes up to a maximum aggregate amount outstanding at any time of $1.5
billion.  Under the Program, we may issue commercial paper from time
to time, and amounts available under the Program may be
reborrowed.  The proceeds of the commercial paper issuance may be used
for general corporate purposes; however, under the Bridge Loan Facility, we are
required to use the proceeds of the commercial paper issuance to repay amounts
outstanding under the Bridge Loan Facility, except in the case of issuances
under the Program the proceeds of which are used to pay off existing commercial
paper or borrowings under the 364-Day Revolving Credit Facility, where such
existing commercial paper or borrowings under the 364-Day Revolving Credit
Facility were originally used to repay amounts outstanding under the Bridge Loan
Facility.  At March 31, 2008, $1.3 billion in commercial paper was
outstanding at a weighted-average interest rate of 3.27 percent.





- 12
-
 Index





TRANSOCEAN
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(Unaudited)





Bridge Loan Facility—In
September 2007, we entered into a $15.0 billion, one-year senior unsecured
bridge loan facility (“Bridge Loan Facility”).  In connection with the
Transactions, we borrowed $15.0 billion under the Bridge Loan Facility at the
reserve-adjusted London Interbank Offered Rate (“LIBOR”) plus the applicable
margin, which is based upon our non-credit enhanced senior unsecured long-term
debt rating (“Debt Rating”).  As of March 31, 2008, the applicable
margin was 0.4 percent.  We may prepay the Bridge Loan Facility in
whole or in part without premium or penalty.  In addition, this
facility requires mandatory prepayments of outstanding borrowings in an amount
equal to 100 percent of the net cash proceeds resulting from any of the
following (in each case subject to certain agreed exceptions): (1) the sale or
other disposition of any of our property or assets above a predetermined
threshold; (2) the receipt of certain net insurance or condemnation proceeds;
(3) certain issuances of our equity securities; and (4) the incurrence of
indebtedness for borrowed money by us.  The Bridge Loan Facility also
contains certain covenants that are applicable during the period in which any
borrowings are outstanding, including a maximum leverage
ratio.  Borrowings under the Bridge Loan Facility are subject to
acceleration upon the occurrence of events of default.  At March 31,
2008, we had $1.0 billion outstanding under this facility at a weighted-average
interest rate of 3.12 percent.





364-Day Revolving Credit
Facility—In December 2007, we entered into a credit agreement for a
364-day, $1.5 billion revolving credit facility (“364-Day Revolving Credit
Facility”).  The 364-Day Revolving Credit Facility bears interest, at
our option, at either (1) a base rate, determined as the greater of (a) the
prime loan rate or (b) the federal funds effective rate plus 0.50 percent, or
(2) the reserve-adjusted LIBOR plus the applicable margin, which is based upon
our Debt Rating.  A facility fee, varying from 0.05 percent to 0.15
percent depending on our Debt Rating, is incurred on the daily amount of the
underlying commitment, whether used or unused, throughout the term of the
facility.  A utilization fee, varying from 0.05 percent to 0.10
percent depending on our Debt Rating, is payable if amounts outstanding under
the 364-Day Revolving Credit Facility are greater than or equal to 50 percent of
the total underlying commitment. The 364-Day Revolving Credit Facility may be
prepaid in whole or in part without premium or penalty.  At March 31,
2008, no amounts were outstanding under this facility.





Term Loan A—In March 2008, we
entered into a $1.925 billion term credit facility (“Term Loan”) and borrowed
$1.925 billion under the facility.  Borrowings may be made under the
facility (1) at the base rate, determined as the greater of (A) the fluctuating
commercial loan rate announced by Citibank, N.A. in New York and (B) the sum of
the weighted average overnight federal funds rate published by the Federal
Reserve Bank of New York plus 50 basis points, and (2) at LIBOR plus 45 basis
points, based on current credit ratings.  The facility may be prepaid
in whole or in part without premium or penalty.  The facility contains
certain covenants, including a leverage ratio covenant that applies from June
30, 2008 through September 30, 2009 and a debt to total tangible capitalization
covenant that applies thereafter.  Borrowings under the facility are
subject to acceleration upon the occurrence of events of default.  The
credit facility terminates on March 13, 2010.  At March 31, 2008, we
had $1.9 billion outstanding under this credit facility at a weighted average
interest rate of 3.34 percent (see Note 14—Subsequent Events).





Five-Year Revolving Credit
Facility—In November 2007, we entered into a $2.0 billion, five-year
revolving credit facility under the Five-Year Revolving Credit Facility
Agreement dated November 27, 2007 (“Five-Year Revolving Credit
Facility”).  Under the terms of the Five-Year Revolving Credit
Facility, we may make borrowings at either (1) a base rate, determined as the
greater of (a) the prime loan rate or (b) the federal funds effective rate plus
0.5 percent, or (2) the reserve-adjusted LIBOR plus the applicable margin, which
is based upon our Debt Rating.  A facility fee, varying from 0.07
percent to 0.17 percent depending on our Debt Rating, is incurred on the daily
amount of the underlying commitment, whether used or unused, throughout the term
of the facility.  A utilization fee, varying from 0.05 percent to 0.10
percent depending on our Debt Rating, is payable if amounts outstanding under
the Five-Year Revolving Credit Facility are greater than or equal to 50 percent
of the total underlying commitment.  At March 31, 2008, the applicable
margin, facility fee and utilization fee were 0.26 percent, 0.09 percent and
0.10 percent, respectively.  The Five-Year Revolving Credit Facility
may be prepaid in whole or in part without premium or penalty.  The
facility contains certain covenants, including a leverage ratio covenant that
applies from June 30, 2008 through September 30, 2009 and a debt to total
tangible capitalization covenant that applies thereafter.  At March
31, 2008, we had $180 million outstanding under this facility at a
weighted-average interest rate of 3.21 percent.





- 13
-
 Index





TRANSOCEAN
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(Unaudited)





Note 9―Earnings per
Share





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





Three
      months ended March 31,2008
            
            
            2007Numerator
      for earnings per shareNet
      income for basic earnings per share
            
            $
            1,189
            
            
            $
            553Add
      back interest expense on Convertible Debentures
            
            
            —
            
            
            
            1Net
      income for diluted earnings per share
            
            $
            1,189
            
            
            $
            554Denominator
      for earnings per shareWeighted-average
      shares outstanding for basic earnings per share
            
            
            317
            
            
            
            203Effect
      of dilutive securities:Stock
      options and unvested stock grants
            
            
            3
            
            
            
            3Warrants
      to purchase ordinary shares
            
            
            1
            
            
            
            21.5%
      Convertible Debentures
            
            
            —
            
            
            
            4Adjusted
      weighted-average shares and assumed conversions for diluted earnings per
      share
            
            
            321
            
            
            
            212Earnings
      per shareBasic
            
            $
            3.75
            
            
            $
            2.72Diluted
            
            $
            3.71
            
            
            $
            2.62





Ordinary
shares subject to issuance pursuant to the conversion features of the
1.625% Series A, 1.50% Series B and 1.50% Series C Convertible
Senior Notes did not have an effect on the calculation for the three months
ended March 31, 2008.





Note 10―Contingencies





Legal Proceedings—Several of
our subsidiaries have been named, along with numerous unaffiliated defendants,
in several complaints that have been filed in the Circuit Courts of the State of
Mississippi involving approximately 750 plaintiffs that allege personal injury
arising out of asbestos exposure in the course of their employment by some of
these defendants between 1965 and 1986.  The complaints also name as
defendants certain of TODCO’s subsidiaries to whom we may owe
indemnity.  Further, the complaints name other unaffiliated defendant
companies, including companies that allegedly manufactured drilling related
products containing asbestos.  The complaints allege that the
defendant drilling contractors used those asbestos-containing products in
offshore drilling operations, land-based drilling operations and in drilling
structures, drilling rigs, vessels and other equipment and assert claims based
on, among other things, negligence and strict liability, and claims authorized
under the Jones Act.  The plaintiffs generally seek awards of
unspecified compensatory and punitive damages.  We have not been
provided with sufficient information to determine the number of plaintiffs who
claim to have been exposed to asbestos aboard our rigs, whether they were
employees, their period of employment, the period of their alleged exposure to
asbestos, or their medical condition, and we have not entered into any
settlements with any plaintiffs.  Accordingly, we are unable to
estimate our potential exposure in these lawsuits.  We historically
have maintained insurance which we believe will be available to address any
liability arising from these claims.  We intend to defend these
lawsuits vigorously, but there can be no assurance as to their ultimate
outcome.





- 14
-
 Index





TRANSOCEAN
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(Unaudited)





One of
our subsidiaries is involved in an action with respect to a customs matter
relating to the Sedco
710 semisubmersible drilling rig.  Prior to our merger with
Sedco Forex, this drilling rig, which was working for Petrobras in Brazil at the
time, had been admitted into the country on a temporary basis under authority
granted to a Schlumberger entity.  Prior to the Sedco Forex merger,
the drilling contract with Petrobras was transferred from the Schlumberger
entity to an entity that would become one of our subsidiaries, but Schlumberger
did not transfer the temporary import permit to any of our
subsidiaries.  In early 2000, the drilling contract was extended for
another year.  On January 10, 2000, the temporary import permit
granted to the Schlumberger entity expired, and renewal filings were not made
until later that January.  In April 2000, the Brazilian customs
authorities cancelled the temporary import permit.  The Schlumberger
entity filed an action in the Brazilian federal court of Campos for the purpose
of extending the temporary admission.  Other proceedings were also
initiated in order to secure the transfer of the temporary admission to our
subsidiary.  Ultimately, the court permitted the transfer of the
temporary admission from Schlumberger to our subsidiary but did not rule on
whether the temporary admission could be extended without the payment of a
financial penalty.  During the first quarter of 2004, the Brazilian
customs authorities issued an assessment totaling approximately $145 million
against our subsidiary.





The first
level Brazilian court ruled in April 2007 that the temporary admission granted
to our subsidiary had expired which allowed the Brazilian customs authorities to
execute on their assessment.  Following this ruling, the Brazilian
customs authorities issued a revised assessment against our
subsidiary.  As of April 30, 2008, the U.S. dollar equivalent of this
assessment was approximately $235 million in aggregate.  We are not
certain as to the basis for the increase in the amount of the assessment, and in
September 2007, we received a temporary ruling in our favor from a Brazilian
federal court that the valuation method used by the Brazilian customs
authorities was incorrect.  This temporary ruling was confirmed in
January 2008 by a local court, but it is still subject to review at the
appellate levels in Brazil.  We intend to continue to aggressively
contest this matter.  We have appealed the first level Brazilian
court’s ruling to a higher level court in Brazil where we have also filed for a
renewed stay, which, if granted, would prevent enforcement of the whole amount
in dispute.  There may be further judicial or administrative
proceedings that result from this matter.  While the court has granted
us the right to continue our appeal without the posting of a bond, it is
possible that we may be required to post a bond for up to the full amount of the
assessment in connection with these proceedings.  We have also put
Schlumberger on notice that we consider any assessment to be solely the
responsibility of Schlumberger, not our subsidiary, and we have initiated
proceedings in the State of New York against Schlumberger seeking a declaratory
judgment in this respect.  Nevertheless, we expect that the Brazilian
customs authorities will continue to seek to recover the assessment solely from
our subsidiary, not Schlumberger.  Schlumberger has denied any
responsibility for this matter, but remains a party to the
proceedings.  We do not expect the liability, if any, resulting from
this matter to have a material adverse effect on our consolidated statement of
financial position, results of operations or cash flows.





In the
third quarter of 2006, we received tax assessments of approximately $142 million
from the state tax authorities of Rio de Janeiro in Brazil against one of our
Brazilian subsidiaries for customs taxes on equipment imported into the state in
connection with our operations.  The assessments resulted from a
preliminary finding by these authorities that our subsidiary’s record keeping
practices were deficient.  We currently believe that the substantial
majority of these assessments are without merit.  We filed an initial
response with the Rio de Janeiro tax authorities on September 9, 2006 refuting
these additional tax assessments.  In September 2007, we received
confirmation from the state tax authorities that they believe the additional tax
assessments are valid, and as a result, we filed an appeal on September 27, 2007
to the state Taxpayer’s Council contesting these assessments.  While
we cannot predict or provide assurance as to the final outcome of these
proceedings, we do not expect it to have a material adverse effect on our
consolidated statement of financial position, results of operations or cash
flows.





One of
our subsidiaries is involved in lawsuits arising out of the subsidiary’s
involvement in the design, construction and refurbishment of major industrial
complexes.  The operating assets of the subsidiary were sold and its
operations discontinued in 1989, and the subsidiary has no remaining assets
other than the insurance policies involved in its litigation, fundings from
settlements with the primary insurers and funds received from the cancellation
of certain insurance policies.  The subsidiary has been named as a
defendant, along with numerous other companies, in lawsuits alleging personal
injury as a result of exposure to asbestos.  As of March 31, 2008, the
subsidiary was a defendant in approximately 1,006 lawsuits, of which 102 were
filed during 2007.  Some of these lawsuits include multiple plaintiffs
and we estimate that there are approximately 3,259 plaintiffs in these
lawsuits.  For many of these lawsuits, we have not been provided with
sufficient information from the plaintiffs to determine whether all or some of
the plaintiffs have claims against the subsidiary, the basis of any such claims,
or the nature of their alleged injuries.  The first of the
asbestos-related lawsuits was filed against this subsidiary in
1990.  Through March 31, 2008, the amounts expended to resolve claims
(including both attorneys’ fees and expenses, and settlement costs) have not
been material, and all deductibles with respect to the primary insurance have
been satisfied.  The subsidiary continues to be named as a defendant
in additional lawsuits and we cannot predict the number of additional cases in
which it may be named a defendant nor can we predict the potential costs to
resolve such additional cases or to resolve the pending
cases.  However, the subsidiary has in excess of $1 billion in
insurance limits.  Although not all of the policies may be fully
available due to the insolvency of certain insurers, we believe that the
subsidiary will have sufficient insurance and funds from the settlements of
litigation with insurance carriersavailable to respond to
these claims.  While we cannot predict or provide assurance as to the
final outcome of these matters, we do not believe that the current value of the
claims where we have been identified will have a material impact on our
consolidated statement of financial position, results of operations or cash
flows.





- 15
-
 Index





TRANSOCEAN
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(Unaudited)





We are
involved in various tax matters (see Note 7—Income Taxes).  We are
also involved in a number of lawsuits which have arisen in the ordinary course
of our business and for which we do not expect the liability, if any, resulting
from these lawsuits to have a material adverse effect on our consolidated
statement of financial position, results of operations or cash
flows.  We cannot predict with certainty the outcome or effect of any
of the litigation matters specifically described above or of any such other
pending or threatened litigation.  There can be no assurance that our
beliefs or expectations as to the outcome or effect of any lawsuit or other
litigation matter will prove correct and the eventual outcome of these matters
could materially differ from management’s current estimates.





Environmental Matters—We have
certain potential liabilities under the Comprehensive Environmental Response,
Compensation and Liability Act (“CERCLA”) and similar state acts regulating
cleanup of various hazardous waste disposal sites, including those described
below.  CERCLA is intended to expedite the remediation of hazardous
substances without regard to fault.  Potentially responsible parties
(“PRPs”) for each site include present and former owners and operators of,
transporters to and generators of the substances at the
site.  Liability is strict and can be joint and several.





We have
been named as a PRP in connection with a site located in Santa Fe Springs,
California, known as the Waste Disposal, Inc. site.  We and other PRPs
have agreed with the U.S. Environmental Protection Agency (“EPA”) and the U.S.
Department of Justice (“DOJ”) to settle our potential liabilities for this site
by agreeing to perform the remaining remediation required by the
EPA.  The form of the agreement is a consent decree, which has now
been entered by the court.  The parties to the settlement have entered
into a participation agreement, which makes us liable for approximately eight
percent of the remediation and related costs.  The remediation is
complete, and we believe our share of the future operation and maintenance costs
of the site is not material.  There are additional potential
liabilities related to the site, but these cannot be quantified, and we have no
reason at this time to believe that they will be material.





We have
also been named as a PRP in connection with a site in California known as the
Casmalia Resources Site.  We and other PRPs have entered into an
agreement with the EPA and the DOJ to resolve potential
liabilities.  Under the settlement, we are not likely to owe any
substantial additional amounts for this site beyond what we have already
paid.  There are additional potential liabilities related to this
site, but these cannot be quantified at this time, and we have no reason at this
time to believe that they will be material.





We have
been named as one of many PRPs in connection with a site located in Carson,
California, formerly maintained by Cal Compact Landfill.  On February
15, 2002, we were served with a required 90-day notification that eight
California cities, on behalf of themselves and other PRPs, intend to commence an
action against us under the Resource Conservation and Recovery Act
(“RCRA”).  On April 1, 2002, a complaint was filed by the cities
against us and others alleging that we have liabilities in connection with the
site.  However, the complaint has not been served.  The site
was closed in or around 1965, and we do not have sufficient information to
enable us to assess our potential liability, if any, for this site.





- 16
-
 Index





TRANSOCEAN
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(Unaudited)





One of
our subsidiaries has recently been ordered by the California Regional Water
Quality Control Board to develop a testing plan for a site known as Campus 1000
Fremont in Alhambra, California.  This site was formerly owned and
operated by certain of our subsidiaries.  It is presently owned by an
unrelated party, which has received an order to test the property, the cost of
which is expected to be in the range of $200,000.  We have also been
advised that one or more of our subsidiaries is likely to be named by the EPA as
a PRP for the San Gabriel Valley, Area 3, Superfund site, which includes this
property.  We have no knowledge at this time of the potential cost of
any remediation, who else will be named as PRPs, and whether in fact any of our
subsidiaries is a responsible party.  The subsidiaries in question do
not own any operating assets and have limited ability to respond to any
liabilities.





One of
our subsidiaries has been requested to contribute approximately $140,000 toward
remediation costs of the Environmental Protection Corporation (“EPC”) Eastside
Disposal Facility near Bakersfield, California, by a company that has taken
responsibility for site remediation from the California Department of Toxic
Substances Control.  Our subsidiary is alleged to have been a small
contributor of the waste that was improperly disposed by EPC at the
site.  We have undertaken an investigation as to whether our
subsidiary is a liable party, what the total remediation costs may be and the
amount of waste that may have been contributed by other
parties.  Until that investigation is complete we are unable to assess
our potential liability, if any, for this site.





Resolutions
of other claims by the EPA, the involved state agency or PRPs are at various
stages of investigation.  These investigations involve determinations
of:





§
            the
      actual responsibility attributed to us and the other PRPs at the
      site;


§
            appropriate
      investigatory and/or remedial actions;
and


§
            allocation
      of the costs of such activities among the PRPs and other site
      users.





Our
ultimate financial responsibility in connection with those sites may depend on
many factors, including:





§
            the
      volume and nature of material, if any, contributed to the site for which
      we are responsible;


§
            the
      numbers of other PRPs and their financial viability;
  and


§
            the
      remediation methods and technology to be
used.





It is
difficult to quantify with certainty the potential cost of these environmental
matters, particularly in respect of remediation
obligations.  Nevertheless, based upon the information currently
available, we believe that our ultimate liability arising from all environmental
matters, including the liability for all other related pending legal
proceedings, asserted legal claims and known potential legal claims which are
likely to be asserted, is adequately accrued and should not have a material
effect on our financial position or ongoing results of
operations.  Estimated costs of future expenditures for environmental
remediation obligations are not discounted to their present value.





Contamination Litigation―On July 11, 2005,
one of our subsidiaries was served with a lawsuit filed on behalf of three
landowners in Louisiana in the 12th Judicial District Court for the Parish of
Avoyelles, State of Louisiana.  The lawsuit named nineteen other
defendants, all of which were alleged to have contaminated the plaintiffs’
property with naturally occurring radioactive material, produced water, drilling
fluids, chlorides, hydrocarbons, heavy metals and other contaminants as a result
of oil and gas exploration activities.  Experts retained by the
plaintiffs issued a report suggesting significant contamination in the area
operated by the subsidiary and another codefendant, and claimed that over $300
million would be required to properly remediate the
contamination.  The experts retained by the defendants conducted their
own investigation and concluded that the remediation costs would amount to no
more than $2.5 million.





The
plaintiffs and the codefendant threatened to add GlobalSantaFe as a defendant in
the lawsuit under the “single business enterprise” doctrine contained in
Louisiana law.  The single business enterprise doctrine is similar to
corporate veil piercing doctrines.  On August 16, 2006, our subsidiary
and its immediate parent company, which is also an entity that no longer
conducts operations or holds assets, filed voluntary petitions for relief under
Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for
the District of Delaware.  Later that day, the plaintiffs dismissed
our subsidiary from the lawsuit.  Subsequently, the codefendant filed
various motions in the lawsuit and in the Delaware bankruptcies attempting to
assert alter ego and single business enterprise claims against GlobalSantaFe and
two other subsidiaries in the lawsuit.  We believe that these legal
theories should not be applied against GlobalSantaFe or these other two
subsidiaries, and that in any event the manner in which the parent and its
subsidiaries conducted their businesses does not meet the requirements of these
theories for imposition of liability.  The codefendant also seeks to
dismiss the bankruptcies.  The efforts to assert alter ego and single
business enterprise theory claims against GlobalSantaFe were rejected by the
Court in Avoyelles Parish and the lawsuit against the other defendant went to
trial on February 19, 2007.  The action was resolved at trial with a
settlement by the codefendant that included a $20 million payment and certain
cleanup activities to be conducted by the codefendant.  The settlement
also purported to assign the plaintiffs’ claims in the lawsuit against our
subsidiary and other parties, including GlobalSantaFe and the other two
subsidiaries, to the codefendant.





- 17
-
 Index





TRANSOCEAN
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(Unaudited)





In the
bankruptcy case, our subsidiary has filed suit to obtain declaratory and
injunctive relief against the codefendant concerning the matters described above
and GlobalSantaFe has intervened in the matter.  The codefendant is
seeking to dismiss the bankruptcy case and a modification of the automatic stay
afforded under the Bankruptcy Code to our subsidiary and its parent so that the
codefendant may pursue the entities and GlobalSantaFe for contribution and
indemnity and the purported assigned rights from the plaintiffs in the lawsuit
including the alter ego and single business enterprise claims and potential
insurance rights.  On February 15, 2008, the Bankruptcy Court denied
the codefendant’s request to dismiss the bankruptcy case but modified the
automatic stay to allow the codefendant to proceed on its claims against the
debtors, our subsidiary and its parent, and their insurance
companies.  Subsequently, the Bankruptcy Court ruled that these claims
should proceed in Louisiana, but that the subsidiary’s parent should be
excluded.  The Bankruptcy Court did not address the codefendant’s
pending claims against GlobalSantaFe and the other two subsidiaries, which will
also be the subject of a future hearing.  The Bankruptcy Court also
denied the debtors’ requests for preliminary declaratory and injunctive
relief.  The codefendant has filed a Notice of Appeal of the rulings
of the Bankruptcy Court.





In
addition, the codefendant has filed proofs of claim against both our subsidiary
and its parent with regard to its claims arising out of the settlement
agreement, including recovery of the settlement funds and remediation costs and
damages for the purported assigned claims.  A Motion for Partial
Summary Judgment seeking annulment and dismissal of the codefendant’s proofs of
claim has also been filed by the debtors and remains pending.  Our
subsidiary, its parent and GlobalSantaFe intend to continue to vigorously defend
against any action taken in an attempt to impose liability against them under
the theories discussed above or otherwise and believe they have good and valid
defenses thereto.  We are unable to determine the value of these
claims as of the date of the Merger.  We do not believe that these
claims will have a material impact on our consolidated statement of financial
position, results of operations or cash flows.





Retained Risk—Our insurance
program is a 12-month policy period beginning May 1, 2007.  Under the
program, we generally maintain a $125 million per occurrence deductible on our
hull and machinery, which is subject to an aggregate deductible of $250
million.  However, in the event of a total loss or a constructive
total loss of a drilling unit, such loss is fully covered by our insurance with
no deductible.  Additionally, we maintain a $10 million per occurrence
deductible on crew personal injury liability and $5 million per occurrence
deductible on third-party property claims, which together are subject to an
aggregate deductible of $50 million that is applied to any occurrence in excess
of the per occurrence deductible until the aggregate deductible is
exhausted.  We also carry $950 million of third-party liability
coverage exclusive of the personal injury liability deductibles, third-party
property liability deductibles and retention amounts described
above.  We retain the risk through self-insurance for any losses in
excess of the $950 million limit.  See Note 14—Subsequent
Events.





At
present, the insured value of our drilling rig fleet is approximately $34
billion in aggregate.  We do not generally have commercial market
insurance coverage for physical damage losses to our fleet due to hurricanes in
the U.S. Gulf of Mexico and war perils worldwide.  We do not carry
insurance for loss of revenue.  In the opinion of management, adequate
accruals have been made based on known and estimated losses related to such
exposures.





- 18
-
 Index





TRANSOCEAN
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(Unaudited)





Letters of Credit and Surety
Bonds—We had letters of credit outstanding totaling $647 million and $532
million at March 31, 2008 and December 31, 2007, 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 $21 million and $24 million at March 31, 2008 and December
31, 2007, respectively.





Note 11―Stock Warrants





In
connection with our merger with R&B Falcon, we assumed the R&B Falcon
stock warrants, which expire on May 1, 2009.  Under the amended
warrant agreement each holder of a warrant may elect to receive 12.243 ordinary
shares and $578.025 in cash at an exercise price of $332.50 upon
exercise.  The cash payment feature represents a liability of $38
million and $48 million at March 31, 2008 and December 31, 2007, respectively,
which is recorded in other current liabilities in our consolidated balance
sheets.





In
February 2008, we issued 217,801 ordinary shares upon the exercise of 17,790
warrants.  As a result, we paid $4 million, net of a $6 million
aggregate exercise price.  At March 31, 2008, 65,120 warrants remained
outstanding to purchase 797,264 of our ordinary shares.





Note 12―Retirement Plans and Other
Postemployment Benefits





Defined Benefit Pension
Plans—We have several defined benefit pension plans, both funded and
unfunded, covering substantially all of our U.S. employees.  We also
have various defined benefit plans in the U.K., Norway, Nigeria, Egypt and
Indonesia that cover our employees, certain frozen plans acquired in connection
with the Merger that cover former members of the board of directors of
GlobalSantaFe and certain frozen plans acquired in connection with the R&B
Falcon merger that cover certain current and former employees.  Net
periodic benefit cost for these defined benefit pension plans includes the
following components (in millions):





Three months endedMarch31,2008
            
            
            2007Components
      of Net Periodic Benefit Cost (a)Service
      cost
            
            $
            12
            
            
            $
            5Interest
      cost
            
            
            16
            
            
            
            5Expected
      return on plan assets
            
            
            (19
            )
            
            
            (5
            )Recognized
      net actuarial losses
            
            
            1
            
            
            
            1Benefit
      cost
            
            $
            10
            
            
            $
            6


______________


(a)
            Amounts
      are before income tax effect.





We expect
to contribute approximately $30 million to our defined benefit pension plans in
2008, which we expect will be funded from cash flow from operations. We
contributed approximately $4 million to the defined benefit pension plans in the
first quarter of 2008.





Postretirement Benefits Other than
Pensions (“OPEB”)—We have several unfunded contributory and
noncontributory OPEB plans covering substantially all of our U.S.
employees.  Net periodic benefit costs for these postretirement plans
and their components, including service cost, interest cost, amortization of
prior service cost and recognized net actuarial losses, were less than $1
million for each of the three months ended March 31, 2008 and 2007.





We expect
to contribute approximately $2 million to the other postretirement benefit plans
in 2008, which we expect will be funded from cash flow from
operations.  We contributed approximately $1 million to the other
postretirement benefit plans in the first quarter of 2008.





- 19
-
 Index





TRANSOCEAN
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(Unaudited)





Severance Plans—In connection
with the Merger, we established a plan to consolidate operations and
administrative functions post-Merger.  As of March 31, 2008, we have
identified 218 employees who have been or will be involuntarily terminated
pursuant to this plan.  The estimated severance-related costs for the
affected employees of the legacy GlobalSantaFe companies of $25 million was
recorded as a liability as part of the accounting for the Merger.  The
estimated severance-related costs for the affected employees of the legacy
Transocean companies of $8 million is being recognized as operating and
maintenance expense or general and administrative expense over the service
period of the affected employees.  We recognized $2 million of such
expense in the first quarter of 2008.  The termination benefits are
being paid as salary continuation over a period of between six and 24
months.  Through March 31, 2008 we have paid $4 million in termination
benefits under the plan, including $3 million in the first quarter of
2008.  We expect to accrue substantially all of the remaining amounts
by the end of the first quarter of 2009.





Note 13―Supplementary Cash Flow
Information





Non-cash
investing activities for the three months ended March 31, 2008 and 2007 included
$105 million and $64 million, respectively, related to accruals of capital
expenditures. The accruals have been reflected in the consolidated balance sheet
as an increase in property and equipment, net and a corresponding increase in
accounts payable.





Cash
payments for interest were $119 million and $22 million for the three months
ended March 31, 2008 and 2007, respectively. Cash payments for income taxes,
net, were $95 million and $40 million for the three months ended March 31, 2008
and 2007, respectively.





Note 14―Subsequent Events





Debt Borrowing—In April 2008,
we borrowed an additional $75 million under the Term Loan.  The
proceeds were used to repay borrowings under the Bridge Loan
Facility.





Debt Repayment—Subsequent to
March 31, 2008, we repaid $365 million of borrowings on the Bridge Loan Facility
using internally generated cash flow and proceeds from the Term
Loan.





Construction Program—In April
2008, we were awarded a drilling contract for a fifth enhanced Enterprise-class
drillship.  Total capital expenditures for the construction of this
rig are expected to be approximately $730 million, excluding capitalized
interest.  The rig is expected to commence operations under a
multi-year drilling contract during the fourth quarter of 2010.





Insurance Matters—We have
renewed our insurance coverages for 12 months effective May 1,
2008.  In the new program we elected to self-insure operators extra
expense coverage for our subsidiaries ADTI and CMI, which provides
protection against expenses related to well control and redrill liability
associated with blowouts.  Generally, the turnkey drilling contracts
limit ADTI’s liability associated with blowouts to $50 million.  All
other deductibles and self insured retentions generally remained the same as the
expired program.





- 20
-
 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. Forward-looking statements in this quarterly report include, but are
not limited to, statements about the following subjects:





§
            cost
      of repair, expected downtime
            
            §
            uses
      of excess cash,and
      lost revenue for the Discoverer
            
            §
            share
      repurchases under our shareDeep Seas,
            
            
            repurchase program,§
            contract
      commencements,
            
            §
            issuance
      of new debt,§
            contract
      option exercises,
            
            §
            debt
      reduction,§
            revenues,
            
            §
            debt
      credit ratings,§
            expenses,
            
            §
            planned
      asset sales,§
            results
      of operations,
            
            §
            timing
      of asset sales,§
            commodity
      prices,
            
            §
            proceeds
      from asset sales,§
            customer
      drilling programs,
            
            §
            our
      effective tax rate,§
            supply
      and demand,
            
            §
            changes
      in tax laws, treaties and§
            utilization
      rates,
            
            
            regulations,§
            dayrates,
            
            §
            tax
      assessments,§
            contract
      backlog,
            
            §
            operations
      in international markets,§
            effects
      and results of the GlobalSantaFe
            
            §
            investments
      in joint ventures,merger
      and related transactions,
            
            §
            investments
      in recruitment, retention§
            planned shipyard projects and
      rig
            
            
            and
      personnel development initiatives,§
            mobilizations
      and their effects,
            
            §
            the
      level of expected capitalnewbuild
      projects and opportunities,
            
            
            expenditures,§
            the
      upgrade project for the Sedco
            
            §
            results
      and effects of legal proceedings700-series
      semisubmersible rig,
            
            
            and
      governmental audits and§
            other
      major upgrades,
            
            
            assessments,§
            contract
      awards,
            
            §
            adequacy
      of insurance,§
            newbuild
      completion delivery and
            
            §
            liabilities
      for tax issues, including thosecommencement
      of operations dates,
            
            
            associated with our activities in Brazil,§
            expected
      downtime and lost revenue,
            
            
            Norway
      and the United States,§
            insurance
      proceeds,
            
            §
            liabilities
      for customs and§
            cash
      investments of our wholly-owned
            
            
            environmental
      matters,captive insurance company,
            
            §
            liquidity,§
            future
      activity in the deepwater, mid-
            
            §
            cash
      flow from operations,water
      and the jackup market sectors,
            
            §
            adequacy
      of cash flow for our§
            market
      outlook for our various
            
            
            obligations,geographical
      operating sectors and
            
            §
            effects
      of accounting changes,classes of rigs,
            
            §
            adoption
      of accounting policies,§
            capacity
      constraints for ultra-deepwater
            
            §
            pension
      plan and other postretirementrigs
      and other rig classes,
            
            
            benefit
      plan contributions,§
            effects
      of new rigs on the market,
            
            §
            the
      timing of severance payments,§
            income
      related to and any payments to
            
            §
            benefit
      payments, andbe
      received under the TODCO tax
            
            §
            the
      timing and cost of completion ofsharing
      agreement,
            
            
            capital
      projects.





- 21
-
 Index





Forward-looking
statements in this quarterly report are identifiable by use of the following
words and other similar expressions among others:





·
            “anticipates”
            ·
            “may”·
            “believes”
            ·
            “might”·
            “budgets”
            ·
            “plans”·
            “could”
            ·
            “predicts”·
            “estimates”
            ·
            “projects”·
            “expects”
            ·
            “scheduled”·
            “forecasts”
            ·
            “should”·
            “intends”





Such
statements are subject to numerous risks, uncertainties and assumptions,
including, but not limited to:




§
            those
      described under “Item 1A. Risk Factors” included herein and in our Annual
      Report on Form 10-K for the year ended December 31,
  2007,


§
            the
      adequacy of sources of liquidity,


§
            our
      inability to obtain contracts for our rigs that do not have
      contracts,


§
            the
      effect and results of litigation, tax audits and contingencies,
      and


§
            other
      factors discussed in this quarterly report and in our other filings with
      the SEC, which are available free of charge on the SEC’s website at www.sec.gov.





Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
indicated.





All
subsequent written and oral forward-looking statements attributable to us or to
persons acting on our behalf are expressly qualified in their entirety by
reference to these risks and uncertainties.  You should not place
undue reliance on forward-looking statements.  Each forward-looking
statement speaks only as of the date of the particular statement, and we
undertake no obligation to publicly update or revise any forward-looking
statements, except as required by law.





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, 2007.





Overview





Transocean
Inc. (together with its subsidiaries and predecessors, unless the context
requires otherwise, “Transocean,” the “Company,” “we,” “us” or “our”) is a
leading international provider of offshore contract drilling services for oil
and gas wells.  As of May 6, 2008, we owned, had partial ownership
interests in or operated 138 mobile offshore drilling units.  As of
this date, our fleet included 39 High-Specification Floaters (Ultra-Deepwater,
Deepwater and Harsh Environment semisubmersibles and drillships), 29 Midwater
Floaters, 10 High-Specification Jackups, 56 Standard Jackups and four Other
Rigs.  In addition, we had nine Ultra-Deepwater Floaters under
construction or contracted for construction.





We
believe our mobile offshore drilling fleet is 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
oil and gas drilling management services on either a dayrate basis or a
completed-project, fixed-price (or “turnkey”) basis, as well as drilling
engineering and drilling project management services, and we participate in oil
and gas exploration and production activities.





In
November 2007, we completed our merger transaction (the “Merger”) with
GlobalSantaFe Corporation (“GlobalSantaFe”).  Immediately prior to the
effective time of the Merger, each of our outstanding ordinary shares was
reclassified by way of a scheme of arrangement under Cayman Islands law into (1)
0.6996 of our ordinary shares and (2) $33.03 in cash (the “Reclassification”
and, together with the Merger, the “Transactions”).  The Merger was
accounted for as a purchase, with the Company as the acquirer for accounting
purposes.  We accounted for the Reclassification as a reverse stock
split and a dividend, which require the restatement of our historical weighted
average shares outstanding, historical earnings per share and other share-based
calculations for prior periods.  All references to number of shares,
per share amounts and market prices of our ordinary shares have been
retroactively restated to reflect the decreased number of our ordinary shares
issued and outstanding as a result of this accounting treatment.  At
the time of the Merger, GlobalSantaFe owned, had partial ownership interests in,
operated, had under construction or contracted for construction, 61 mobile
offshore drilling units and other units utilized in the support of offshore
drilling activities.  The balance sheet data as of December 31, 2007
represents the consolidated statement of financial position of the combined
company.





- 22
-
 Index





Key
measures of our total company results of operations and financial condition are
as follows (in millions, except average daily revenue and
percentages):





Three months ended March31,2008
            
            
            2007
            
            
            ChangeAverage
      daily revenue (a)(b)
            
            $
            229,000
            
            
            $
            198,000
            
            
            $
            31,000Utilization
      (b)(c)
            
            
            91
            %
            
            
            88
            %
            
            
            n/aStatement
      of operations dataOperating
      revenues
            
            $
            3,110
            
            
            $
            1,328
            
            
            $
            1,782Operating
      and maintenance expense
            
            
            1,157
            
            
            
            568
            
            
            
            589Operating
      income
            
            
            1,540
            
            
            
            657
            
            
            
            883Net
      income
            
            
            1,189
            
            
            
            553
            
            
            
            636Balance
      sheet data (at end of period)
            
            March31,
      2008
            
            
            December31,
      2007
            
            
            ChangeCash
      and cash equivalents
            
            $
            1,567
            
            
            $
            1,241
            
            
            $
            326Total
      assets
            
            
            34,862
            
            
            
            34,364
            
            
            
            498Total
      debt
            
            
            16,595
            
            
            
            17,257
            
            
            
            (662
            )


_____________________


“n/a”
means not applicable





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


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


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





We
continue to experience strong demand, which has resulted in high utilization and
historically high dayrates.  Leading dayrates are at or near record
levels for floaters, and customers continue to express interest in multi-year
contracts for these units.





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 in 2008 and
beyond.





Our
revenues for the three months ended March 31, 2008 increased from the prior year
period primarily as a result of increased activity, higher dayrates and the
addition of GlobalSantaFe’s operations for the quarter.  Our operating
and maintenance expenses for the same period increased from the prior year
period primarily as a result of higher labor and rig maintenance costs in
connection with such increased activity as well as inflationary cost increases
and the addition of GlobalSantaFe’s operations (see
“—Outlook”).  Total debt as of March 31, 2008 decreased compared to
December 31, 2007, as a result of payments made under the Bridge Loan Facility
during the first quarter of 2008.  See “—Liquidity and Capital
Resources–Sources and Uses of Liquidity.”





- 23
-
 Index





Prior to
the Merger, we operated in one business segment.  As a result of the
Merger, we have established two reportable segments: (1) Contract Drilling and
(2) Other.  The Contract Drilling segment 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.





The Other
segment includes drilling management services and oil and gas
properties.  Drilling management services are provided through Applied
Drilling Technology Inc., our wholly owned subsidiary, and through ADT
International, a division of one of our U.K. subsidiaries (together,
“ADTI”).  Drilling management services are provided primarily on a
turnkey basis at a fixed bid amount.  Oil and gas properties consist
of exploration, development and production activities carried out through
Challenger Minerals Inc. and Challenger Minerals (North Sea) Limited (together,
“CMI”), our oil and gas subsidiaries.





Significant
Events





Asset Dispositions—During the
three months ended March 31, 2008, we completed the sale of two of our Standard
Jackups (GSF Adriatic
III and GSF High Island
I).At March 31, 2008, GSF Arctic II, GSF Arctic IV
and GSF High Island
VIII were classified as assets held for sale.See “—Liquidity and
Capital Resources–Acquisitions, Dispositions and Capital
Expenditures.”





Bank Agreements—In March
2008, we entered into a $1.925 billion term credit facility (the “Term Loan”)
and borrowed $1.925 billion under the facility.  See “—Liquidity and
Capital Resources–Sources and Uses of Liquidity.”





Construction Program—In April
2008, we were awarded a drilling contract for a fifth enhanced Enterprise-class
drillship.  The rig is expected to commence operations under a
multi-year drilling contract during the fourth quarter of 2010.  See
“—Outlook–Drilling Market.”




Discoverer
Deep SeasIncident—On April 27, 2008, our
Ultra-Deepwater Floater Discoverer Deep Seas suffered
damage resulting from a fire which occurred in the rig’s engine room while the
vessel was operating in the U.S. Gulf of Mexico. There were no reported injuries
resulting from the incident. We have begun an investigation into the incident to
determine its cause and its effect on future operations. The rig, which is under
a three-year contract with Chevron, has suspended drilling operations and will
not earn any dayrate until operations resume. Based on our preliminary
investigation, we believe that the rig will be out of service for a minimum of
one month, for repairs. Although we expect this incident to be a covered claim
under our insurance policies, we do not expect to have any recovery as the
losses should not exceed our deductible and we do not carry loss of hire
insurance. While we currently believe the incident will have a negative impact
on future operating results, we cannot predict with accuracy the amount or the
timing of such impact.See
“—Outlook–Drilling Market.”


Outlook





Drilling Market—Demand for
offshore drilling units continues to be strong, particularly for
floaters.  Our High-Specification Floater fleet is fully committed in
2008 and only seven of our High-Specification Floaters have any available
uncommitted time in 2009.  We have only three rigs remaining in
our Midwater Floater fleet that have any available uncommitted time in 2008, and
only 15 rigs remaining in this fleet that have any available uncommitted time in
2009.  We have two High-Specification Jackups and 19 Standard
Jackups which have uncommitted time in 2008, and eight High-Specification
Jackups and 35 Standard Jackups which have uncommitted time in
2009.  Dayrates for new contracts for both floaters and jackups
continue to be strong.  Our contract backlog at May 6, 2008 was
approximately $34 billion, up from approximately $32 billion at February 20,
2008.





In April
2007, we entered into a marketing and purchase option agreement with Pacific
Drilling Limited (“Pacific Drilling”) that provided us with the exclusive
marketing rights for two newbuild Ultra-Deepwater Floaters to be named Dhirubhai Deepwater KG1and
Dhirubhai Deepwater
KG2, formerly named Deepwater Pacific 1 and Deepwater Pacific 2,respectively,as well as an option to
purchase a 50 percent interest in a joint venture company through which we and
Pacific Drilling would own the drillships.  In October 2007, we
obtained a firm commitment for Dhirubhai Deepwater KG1, and
we exercised our option and acquired a 50 percent interest in the joint venture,
Transocean Pacific Drilling Inc. (“TPDI”). Dhirubhai Deepwater KG1was
awarded a firm commitment for a four-year contract that was subsequently
extended to five years, and in April 2008 Dhirubhai Deepwater KG2was
awarded a five-year contract with the same operator.  These contracts
are expected to commence during the second quarter of 2009 and first quarter of
2010, respectively, following shipyard construction, sea trials, mobilization to
location and customer acceptance.  We estimate total capital
expenditures for the construction of these rigs to be approximately $690 million
for each rig, excluding capitalized interest.  See “—Liquidity and
Capital Resources–Acquisitions, Dispositions and Capital
Expenditures.”





- 24
-
 Index





As of
March 31, 2008, we and Pacific Drilling had each paid $290 million in documented
costs for the two rigs since the formation of the joint venture in October
2007.





Under a
management services agreement, we are providing construction management services
for the Pacific Drilling newbuilds and have agreed to provide operating
management services once the drillships begin operations.  Beginning
on October 18, 2010, Pacific Drilling will have the right to exchange its
interest in the joint venture for our ordinary shares or cash at a purchase
price based on an appraisal of the fair value of the drillships, subject to
various adjustments.





In April
2008, we were awarded a five-year drilling contract for a fifth enhanced
Enterprise-class drillship, the term of which may be extended to seven or
10 years at the client’s election up to one week after
mobilization.  The contract for this enhanced Enterprise-class
drillship is expected to commence during the fourth quarter of 2010 following
completion of construction in South Korea, sea trials, mobilization and customer
acceptance.  Total capital expenditures for the construction of this
rig are expected to be approximately $730 million, excluding capitalized
interest.





Prior to
the Merger, GlobalSantaFe had one Ultra-Deepwater Floater under construction,
GSF Development Driller
III, and one contracted for construction.  GSF Development Driller IIIhas been awarded a seven-year drilling contract. We estimate total
capital expenditures for the construction of GSF Development Driller III
to be approximately $625 million.  We estimate total capital
expenditures for the construction of the other newbuild to be approximately $745
million, excluding capitalized interest.  We currently expect GSF Development Driller III
to begin operations in mid-2009, following completion of construction in
Singapore followed by sea trials, mobilization to the U.S. Gulf of Mexico and
customer acceptance.  Construction on the other newbuild is expected
to be completed in the third quarter of 2010.





We have
been successful in building contract backlog within our High-Specification
Floaters fleet with 27 of our 48 current and future High-Specification Floaters,
including eight of the nine newbuilds, contracted into or beyond 2011 as of May
6, 2008.  These 27 units also include 19 of our 27 current
Ultra-Deepwater Floaters.  Our total contract backlog of approximately
$34 billion as of May 6, 2008 includes an estimated $23 billion of backlog
represented by our High-Specification Floaters.  We continue to
believe that the long-term outlook for deepwater capable rigs is
favorable.  In 2007 we saw successful drilling efforts in the lower
tertiary trend of the U.S. Gulf of Mexico; the discovery of light oil and
non-associated gas in the deepwaters of Brazil; continued exploration success in
the deepwaters offshore India; a discovery in the deepwaters of the South China
Sea; and exploration activity in the Orphan Basin in
Canada.  Additionally, the continued exploration success in the
deepwaters of West Africa and the opening of additional deepwater acreage in the
U.S. Gulf of Mexico supports our optimistic outlook for the deepwater drilling
market sector.  In November 2007, we sold Peregrine I as part of our
overall strategy to dispose of older rigs that are no longer technologically
advanced or otherwise not competitive in the international marketplace.  As
of May 6, 2008, none of our High-Specification Floater fleet contract days are
uncommitted for the remainder of 2008, while approximately six percent, 24
percent and 51 percent are uncommitted in 2009, 2010 and 2011,
respectively.





Our
Midwater Floaters fleet, comprising 29 semisubmersible rigs, is largely
committed to contracts that extend into 2009.  We continue to see
customer demand for multi-year contracts for these units.  We are
actively pursuing the sale of two Midwater Floaters (GSF Arctic II and GSF Arctic IV) in the North
Sea in connection with our previously announced undertakings to the Office of
Fair Trading in the U.K.  As of May 6, 2008, three percent of our
Midwater Floater fleet contract days are uncommitted for the remainder of 2008,
while approximately 26 percent, 59 percent and 87 percent are
uncommitted in 2009, 2010 and 2011, respectively.





- 25
-
 Index





We
continue to see steady demand for Jackups, and we believe that the increase in
supply due to the delivery of newbuild units can be absorbed over the short
term.  We believe that supply growth may be of concern in the fourth
quarter of 2008 and into the first and second quarters of 2009.  As of May
6, 2008, four percent of our High-Specification Jackup fleet contract days
are uncommitted for the remainder of 2008, while approximately 46 percent, 93
percent and 100 percent are uncommitted in 2009, 2010 and 2011,
respectively.  In addition, 16 percent of our Standard Jackup fleet
contract days are uncommitted for the remainder of 2008, while approximately 52
percent, 75 percent and 88 percent are uncommitted in 2009, 2010 and 2011,
respectively.





On
February 15, 2008, we entered into a definitive agreement with Hercules
Offshore, Inc. to sell three of our Standard Jackups (GSF Adriatic III, GSF High Island I and GSF High Island
VIII).  During the three months ended March 31, 2008, we
completed the sale of GSF
Adriatic III and GSF
High Island I. At April 30, 2008 GSF High Island VIIIwas
classified as held for sale with the sale expected to close before July 30,
2008.





We expect
our revenues to be higher in 2008 than in 2007 due to the inclusion of
GlobalSantaFe’s operations for the full year, together with the commencement of
new contracts with higher dayrates.  The commencement of the Sedco 702 contract in
the first quarter of 2008 and the scheduled commencement of the Sedco 706 contract at the end
of the rig’s deepwater upgrade shipyard project in the fourth quarter of 2008
are also expected to increase our revenues in 2008.  We expect these
increases will be partially offset by a decrease in revenue from the sale of
Peregrine I in November
2007.





The
aggregate amount of out-of-service time we incur in 2008 is expected to be
substantially higher than the amount incurred in 2007 due to the inclusion of
GlobalSantaFe’s operations, partially offset by a decrease in out-of-service
time primarily due to decreased shipyard time for the legacy Transocean
rigs.  However, the shipyard projects we intend to undertake in 2008
will involve rigs with higher dayrates than those that underwent shipyard
projects in 2007.  Consequently, we expect lost revenue from planned
shipyard projects in 2008 from legacy Transocean rigs to be generally in line
with lost revenue in 2007.  However, we expect to incur one to
two months of out-of-service time and lost revenues related to the incident
on Discoverer Deep
Seas.





We expect
the inclusion of GlobalSantaFe’s operations, as well as industry inflation in
2008, to continue to increase our operating and maintenance costs, including our
shipyard and major maintenance program expenditures, compared to
2007.  In addition, the types of shipyard projects we forecast for
2008 are generally more costly, so we expect shipyard project costs to increase
from 2007 to 2008 with respect to the legacy Transocean rigs despite the
expected decrease in out-of-service time.  We expect our operating and
maintenance costs in 2008 to further increase as a result of the commencement of
the Sedco 702 contract
in the first quarter and the scheduled commencement of the Sedco 706 contract in the
fourth quarter.  We expect these increases to be partially offset by
lower operating costs due to the sale of Peregrine I in November
2007.  Finally, we expect to continue to invest in a number of
recruitment, retention and personnel development initiatives in connection with
the manning of the crews of the newbuild rigs and deepwater upgrades and our
efforts to mitigate expected personnel attrition.





We expect
that a number of fixed-price contract options will be exercised by our customers
in 2008, which will preclude us from taking full advantage of any 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, and some of the delays have been and could be
significant.





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.





- 26
-
 Index





Insurance Matters—We
periodically evaluate our hull and machinery and third-party liability insurance
limits and self-insured retentions.  Effective May 1, 2008, we renewed
our hull and machinery and third-party liability insurance
coverages.  Subject to large self-insured retentions, we carry hull
and machinery insurance covering physical damage to the rigs for operational
risks worldwide, and we carry liability insurance covering damage to third
parties.  However, we do not generally have commercial market
insurance coverage for physical damage losses to our rigs due to hurricanes in
the U.S. Gulf of Mexico and war perils worldwide.  Additionally, we do
not carry insurance for loss of revenue.  Also, for our subsidiaries
ADTI and CMI, we generally self-insure operators’ extra expense coverage, which
provides protection against expenses related to well control and redrill
liability associated with blowouts.  Generally, the turnkey drilling
contracts limit ADTI’s liability associated with blowouts to $50
million.  In the opinion of management, adequate accruals have been
made based on known and estimated losses related to such exposures.





Tax Matters—We are a Cayman
Islands company and we operate through our various subsidiaries in a number of
countries throughout the world.  Consequently, our tax provision is
based upon the tax laws, regulations and treaties in effect in and between the
countries in which our operations are conducted and income is
earned.  Our effective tax rate for financial reporting purposes will
fluctuate from year to year as our operations are conducted in different taxing
jurisdictions.  We are subject to changes in tax laws, treaties and
regulations in and between the countries in which we operate and earn
income.  A change in the 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 and, as a result, could have a material
effect on our financial results.





Our
income tax return filings in the major jurisdictions in which we operate
worldwide are generally subject to examination for periods ranging from three to
six years.  We have agreed to extensions beyond the statute of
limitations in three jurisdictions for up to 12 years.  Tax
authorities in certain jurisdictions are examining our tax returns and in some
cases have issued assessments.  We are defending our tax positions in
those jurisdictions.  While we cannot predict or provide assurance as
to the final outcome of these proceedings, we do not expect the ultimate
liability to have a material adverse effect on our consolidated statement of
financial position, results of operations or cash flows.





The IRS
has proposed certain adjustments to our 2004 and 2005 U.S. federal income tax
returns. These proposed adjustments would result in a cash tax payment of
approximately $413 million, exclusive of interest.  The IRS has
contended that one of our key subsidiaries maintains a permanent
establishment in the U.S. and is therefore subject to U.S. taxation on
certain earnings effectively connected to such U.S. business.  We
filed a letter with the IRS protesting the proposed changes and believe our
returns are materially correct as filed.  We will continue to vigorously
defend against these proposed changes.  The IRS audits of GlobalSantaFe’s
2004 and 2005 U.S. federal income tax returns are still in the examination
phase.  We do not expect the conclusion of these audits to give rise to a
material tax liability.





Certain
of our Brazilian income tax returns for the years 2000 through 2004 are
currently under examination.  The Brazilian tax authorities have
issued tax assessments totaling $112 million, plus a 75 percent penalty and $74
million of interest through March 31, 2008.  We believe our returns
are materially correct as filed, and we intend to vigorously contest these
assessments.  We filed a protest letter with the Brazilian tax
authorities on January 25, 2008.





Norwegian
civil tax and criminal authorities are investigating various transactions
undertaken by our subsidiaries in 2001 and 2002.  The authorities have
issued notifications of their intent to issue tax assessments of approximately
$307 million, plus interest, related to certain restructuring transactions and
approximately $82 million, plus interest, related to a 2001 dividend
payment.  The authorities have indicated that they plan to seek
penalties of 60 percent on both matters.  In the course of their
investigations, the Norwegian authorities secured certain records located in the
United Kingdom related to a Norwegian subsidiary of ours that was previously
subject to tax in Norway.  The authorities are evaluating whether to
impose additional taxes on this Norwegian subsidiary.  We have and
will continue to respond to all information requests from the Norwegian
authorities.  We plan to vigorously contest any assertions by the
Norwegian authorities in connection with the various transactions being
investigated.





During
the three months ended March 31, 2008, our long-term liability for unrecognized
tax benefits related to these Norwegian tax issues, increased to $187 million
due to the accrual of interest and exchange rate fluctuations.  While
we cannot predict or provide assurance as to the final outcome of these
proceedings, we do not expect the ultimate resolution of these matters to have a
material adverse effect on our consolidated statement of financial position or
results of operations although it may have a material adverse effect on our
consolidated cash flows.  See Notes to Condensed Consolidated
Financial Statements—Note 7—Income Taxes.





- 27
-
 Index





Regulatory Matters—In June
2007, GlobalSantaFe's management retained outside counsel to conduct an internal
investigation of its Nigerian and West African operations, focusing on brokers
who handled customs matters with respect to its affiliates operating in those
jurisdictions and whether those brokers have fully complied with the U.S.
Foreign Corrupt Practices Act (“FCPA”) and local laws.  GlobalSantaFe
commenced its investigation following announcements by other oilfield service
companies that they were independently investigating the FCPA implications of
certain actions taken by third parties in respect of customs matters in
connection with their operations in Nigeria, as well as another company's
announced settlement implicating a third party handling customs matters in
Nigeria.  In each case, the customs broker was reported to be
Panalpina Inc., which GlobalSantaFe used to obtain temporary import permits for
its rigs operating offshore Nigeria.  GlobalSantaFe voluntarily
disclosed its internal investigation to the U.S. Department of Justice (the
“DOJ”) and the SEC and, at their request, expanded its investigation to include
the activities of its customs brokers in other West African countries and the
activities of Panalpina Inc. worldwide.  The investigation is focusing
on whether the brokers have fully complied with the requirements of their
contracts, local laws and the FCPA.  In late November 2007,
GlobalSantaFe received a subpoena from the SEC for documents related to its
investigation.  In this connection, the SEC advised GlobalSantaFe that
it had issued a formal order of investigation.  After the completion
of the Merger, outside counsel began formally reporting directly to the audit
committee of our board of directors.  Our legal representatives are
keeping the DOJ and SEC apprised of the scope and details of their investigation
and producing relevant information in response to their requests.





On
July 25, 2007, our legal representatives met with the DOJ in response to a
notice we received requesting such a meeting regarding our engagement of
Panalpina Inc. for freight forwarding and other services in the United
States and abroad.  The DOJ informed us that it is conducting an
investigation of alleged FCPA violations by oil service companies who used
Panalpina Inc. and other brokers in Nigeria and other parts of the
world.  We developed an investigative plan which has continued to be
amended and which would allow us to review and produce relevant and responsive
information requested by the DOJ and SEC. The investigation was expanded to
include one of our agents for Nigeria. This investigation and the legacy
GlobalSantaFe investigation are being conducted by outside counsel who reports
directly to the audit committee of our board of directors. The
investigation has focused on whether the agent and the customs brokers have
fully complied with the terms of their respective agreements, the FCPA and local
laws.  Our outside counsel has coordinated their efforts with the DOJ
and the SEC with respect to the implementation of our investigative
plan, including keeping the DOJ and SEC apprised of the scope and details
of the investigation and producing relevant information in response to their
requests.





Our
internal compliance program has detected a potential violation of U.S. sanctions
regulations in connection with the shipment of goods to our operations in
Turkmenistan.  Goods bound for our rig in Turkmenistan were shipped
through Iran by a freight forwarder.  Iran is subject to a number of
economic regulations, including sanctions administered by OFAC, and
comprehensive restrictions on the export and re-export of U.S.-origin items to
Iran.  Failure to comply with applicable laws and regulations relating
to sanctions and export restrictions may subject us to criminal sanctions
and civil remedies, including fines, denial of export privileges, injunctions or
seizures of our assets.  We have self-reported the potential violation
to OFAC and retained outside counsel who has begun conducting a thorough
investigation of the matter.





- 28
-
 Index





Performance
and Other Key Indicators





Contract Backlog—The
following table presents our contract backlog, including firm commitments only,
for our Contract Drilling segment as of March 31, 2008, December 31, 2007 and
March 31, 2007.  Firm commitments are typically represented by signed
drilling contracts.  Our contract backlog is calculated by multiplying
the full contractual operating dayrate by the number of days remaining in the
firm contract period, excluding revenues for mobilization, demobilization and
contract preparation, which are not expected to be significant to our contract
drilling revenues.





March 31, 2008
            
            
            December 31, 2007
            
            
            March 31, 2007(In
      millions)Contract
      backlogHigh-Specification
      Floaters
            
            $
            21,373
            
            
            $
            20,708
            
            
            $
            14,911Midwater
      Floaters
            
            
            6,037
            
            
            
            5,728
            
            
            
            4,335High-Specification
      Jackups
            
            
            679
            
            
            
            768
            
            
            
            125Standard
      Jackups
            
            
            4,314
            
            
            
            4,445
            
            
            
            1,924Other
      Rigs
            
            
            145
            
            
            
            158
            
            
            
            72Total
            
            $
            32,548
            
            
            $
            31,807
            
            
            $
            21,367





Fleet Average Daily Revenue and
Utilization—The following table shows our average daily revenue and
utilization for each of the quarters ended March 31, 2008, December 31, 2007 and
March 31, 2007 for our Contract Drilling segment.  See “—Overview” for
a definition of average daily revenue, revenue earning day and
utilization.





Three months endedMarch 31, 2008
            
            
            December 31, 2007
            
            
            March 31, 2007Average
      daily revenueHigh-Specification
      FloatersUltra-Deepwater
      Floaters
            
            $
            380,800
            
            
            $
            346,100
            
            
            $
            301,400Deepwater
      Floaters
            
            $
            284,100
            
            
            $
            265,300
            
            
            $
            235,800Harsh
      Environment Floaters
            
            $
            344,000
            
            
            $
            326,300
            
            
            $
            238,800Total
      High-Specification Floaters
            
            $
            340,900
            
            
            $
            311,600
            
            
            $
            264,800Midwater
      Floaters
            
            $
            292,300
            
            
            $
            274,600
            
            
            $
            223,700High-Specification
      Jackups
            
            $
            173,800
            
            
            $
            173,400
            
            
            $
            133,400Standard
      Jackups
            
            $
            146,200
            
            
            $
            130,800
            
            
            $
            103,200Other
      Rigs
            
            $
            49,700
            
            
            $
            48,600
            
            
            $
            50,300Total
      fleet average daily revenue
            
            $
            229,000
            
            
            $
            224,000
            
            
            $
            198,000UtilizationHigh-Specification
      FloatersUltra-Deepwater
      Floaters
            
            
            98
            %
            
            
            97
            %
            
            
            97
            %Deepwater
      Floaters
            
            
            79
            %
            
            
            75
            %
            
            
            77
            %Harsh
      Environment Floaters
            
            
            96
            %
            
            
            80
            %
            
            
            99
            %Total
      High-Specification Floaters
            
            
            90
            %
            
            
            85
            %
            
            
            87
            %Midwater
      Floaters
            
            
            88
            %
            
            
            95
            %
            
            
            94
            %High-Specification
      Jackups
            
            
            99
            %
            
            
            100
            %
            
            
            100
            %Standard
      Jackups
            
            
            93
            %
            
            
            91
            %
            
            
            82
            %Other
      Rigs
            
            
            100
            %
            
            
            97
            %
            
            
            100
            %Total
      fleet average utilization
            
            
            91
            %
            
            
            90
            %
            
            
            88
            %





- 29
-
 Index





Liquidity
and Capital Resources





Sources
and Uses of Cash





Our
primary sources of cash during the first three months of 2008 were our cash
flows from operations, proceeds from asset sales and proceeds from borrowings
under credit facilities.  Our primary uses of cash were capital
expenditures (including for newbuild construction) and repayments of borrowings
under our credit facilities.  At March 31, 2008, we had $1.6 billion
in cash and cash equivalents.





Three months ended
      March 31,2008
            
            
            2007
            
            
            Change(In
      millions)Net
      cash from operating activitiesNet
      income
            
            $
            1,189
            
            
            $
            553
            
            
            $
            636Amortization
      of drilling contract intangibles
            
            
            (224
            )
            
            
            —
            
            
            
            (224
            )Depreciation,
      depletion and amortization
            
            
            367
            
            
            
            100
            
            
            
            267Other
      non-cash items
            
            
            16
            
            
            
            11
            
            
            
            5Working
      capital changes
            
            
            134
            
            
            
            (10
            )
            
            
            144$
            1,482
            
            
            $
            654
            
            
            $
            828





Net cash
provided by operating activities increased primarily due to more cash generated
from net income.





Three months ended
      March 31,2008
            
            
            2007
            
            
            Change(In
      millions)Net
      cash from investing activitiesCapital
      expenditures
            
            $
            (769
            )
            
            $
            (465
            )
            
            $
            (304
            )Proceeds
      from disposal of assets, net
            
            
            254
            
            
            
            39
            
            
            
            215Joint
      ventures and other investments, net
            
            
            (3
            )
            
            
            (3
            )
            
            
            —$
            (518
            )
            
            $
            (429
            )
            
            $
            (89
            )





Net cash
used in investing activities increased due to capital expenditures, which
increased by $304 million over the corresponding prior year period primarily due
to the construction of eight Ultra-Deepwater Floaters, the two Sedco 700-series deepwater
upgrades and other equipment replaced and upgraded on our existing
rigs.  Partially offsetting the increase in capital expenditures was
increased proceeds from asset sales in the first quarter of 2008 during which
two units were sold compared to the prior year period during which one unit was
sold.





- 30
-
 Index




Three months ended
      March 31,2008
            
            
            2007
            
            
            Change(In
      millions)Net
      cash from financing activitiesBorrowings
      under commercial paper program, net
            
            $
            1,316
            
            
            $
            —
            
            
            $
            1,316Borrowings
      under Five-Year Revolving Credit Facility
            
            
            180
            
            
            
            —
            
            
            
            180Repayments
      under 364-Day Revolving Credit Facility
            
            
            (1,500
            )
            
            
            —
            
            
            
            (1,500
            )Proceeds
      from debt
            
            
            1,976
            
            
            
            190
            
            
            
            1,786Repayments
      of debt
            
            
            (2,633
            )
            
            
            —
            
            
            
            (2,633
            )Financing
      costs
            
            
            (3
            )
            
            
            —
            
            
            
            (3
            )Payments
      made upon exercise of warrants, net
            
            
            (4
            )
            
            
            —
            
            
            
            (4
            )Proceeds
      from issuance of ordinary shares under share-based compensation plans,
      net
            
            
            27
            
            
            
            15
            
            
            
            12Repurchase
      of ordinary shares
            
            
            —
            
            
            
            (400
            )
            
            
            400Other,
      net
            
            
            3
            
            
            
            5
            
            
            
            (2
            )$
            (638
            )
            
            $
            (190
            )
            
            $
            (448
            )





Net cash
used in financing activities increased primarily due to repayments of borrowings
under the Bridge Loan Facility and the 364-Day Revolving Credit
Facility.  Partially offsetting these increases were borrowings under
the Term Loan, the Five-Year Revolving Credit Facility and our commercial paper
program.  Additionally, we did not repurchase any of our ordinary
shares in the first quarter of 2008 compared to $400 million of repurchases in
the same period of 2007.





Acquisitions,
Dispositions and Capital Expenditures





Acquisitions—With the
completion of the Transactions, we intend to focus on the repayment of debt in
2008 and 2009.  Nevertheless, we could, from time to time, 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.  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.  In addition, from time to time, we review possible
dispositions of drilling units.





Dispositions—During the three
months ended March 31, 2008, we completed the sale of two of our Standard
Jackups (GSF Adriatic
III and GSF High Island
I).  We received cash proceeds of $220 million associated with
the sale, which had no effect on earnings.





- 31
-
 Index





Capital Expenditures—Capital
expenditures, including capitalized interest of $30 million, totaled $769
million during the three months ended March 31, 2008, substantially all of which
related to the Contract Drilling segment.  The following table
summarizes actual capital expenditures including capitalized interest, for our
major construction and conversion projects incurred through March 31, 2008 and
expected in future years (in millions):





Total costs through March 31,
      2008
            
            
            Expected costs for the remainder of
      2008
            
            
            Estimated costs thereafter
            
            
            Total estimated cost at
      completionDiscoverer
      Clear Leader
            
            $
            470
            
            
            $
            165
            
            
            $
            —
            
            
            $
            635Sedco
      700-series upgrades
            
            
            442
            
            
            
            160
            
            
            
            —
            
            
            
            602GSF
      Development Driller III (a)
            
            
            369
            
            
            
            210
            
            
            
            45
            
            
            
            624Discoverer
      Americas
            
            
            368
            
            
            
            120
            
            
            
            135
            
            
            
            623Dhirubhai
      Deepwater KG1 (b)
            
            
            365
            
            
            
            50
            
            
            
            280
            
            
            
            695Discoverer
      Inspiration
            
            
            344
            
            
            
            120
            
            
            
            215
            
            
            
            679Dhirubhai
      Deepwater KG2 (b)
            
            
            179
            
            
            
            200
            
            
            
            315
            
            
            
            694HHI
      Newbuild Drillship (a)
            
            
            217
            
            
            
            10
            
            
            
            515
            
            
            
            742Discoverer
      Luanda
            
            
            228
            
            
            
            130
            
            
            
            285
            
            
            
            643Enhanced
      Enterprise-class drillship no. 5
            
            
            —
            
            
            
            360
            
            
            
            370
            
            
            
            730Capitalized
      interest
            
            
            122
            
            
            
            110
            
            
            
            190
            
            
            
            422Total
            
            $
            3,104
            
            
            $
            1,635
            
            
            $
            2,350
            
            
            $
            7,089


_________________


(a)
            Total
      costs include our initial investments in GSF Development Driller
      III and the HHI Newbuild Drillship of $356 million and $109
      million, respectively, representing the estimated fair values of the rigs
      at the time of the Merger.


(b)
            The
      costs for Dhirubhai
      Deepwater KG1 and Dhirubhai Deepwater KG2
      represent 100 percent of expenditures incurred ($277 million and $178
      million, respectively) prior to our investment in TPDI, and 100 percent of
      expenditures incurred since our investment in the joint
      venture.  However, our joint venture partner, Pacific Drilling,
      is responsible for 50 percent of these
costs.





During
2008, we expect capital expenditures to be approximately $3.2 billion, including
approximately $2.2 billion for our major construction and conversion projects.
The level of our capital expenditures is partly dependent upon the actual level
of operational and contracting activity and the level of capital expenditures
for which our customers agree to reimburse us.  Our expected capital
expenditures during 2008 do not include amounts that would be incurred as a
result of other possible newbuild opportunities.





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





We intend
to fund the cash requirements relating to our capital expenditures through
available cash balances, cash generated from operations and asset
sales.  We also have available credit under the Five-Year Revolving
Credit Facility and the 364-Day Revolving Credit Facility (see “—Sources and
Uses of Liquidity”) and may utilize other commercial bank or capital market
financings.





- 32
-
 Index





Sources
and Uses of Liquidity





We expect
to use existing cash balances, internally generated cash flows, proceeds from
the issuance of new debt and proceeds from asset sales to fulfill anticipated
obligations such as scheduled debt maturities, capital expenditures and working
capital needs.  We do not currently expect to make any additional
share repurchases under our previously authorized share repurchase program. From
time to time, we may also use bank lines of credit and commercial paper
borrowing to maintain liquidity for short-term cash needs.





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.





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 that cash flow will continue to be positive over the next
year.





Bank Credit Agreements—In
March 2008, we entered into the Term Loan and borrowed $1.925 billion under the
term credit facility.  Borrowings may be made under the facility (1)
at the base rate, determined as the greater of (A) the fluctuating commercial
loan rate announced by Citibank, N.A. in New York and (B) the sum of the
weighted average overnight federal funds rate published by the Federal Reserve
Bank of New York plus 50 basis points, and (2) at the London Interbank Offered
Rate (“LIBOR”) plus 45 basis points, based on current credit
ratings.  The facility may be prepaid in whole or in part without
premium or penalty.  The facility contains certain covenants,
including a leverage ratio covenant that applies as of June 30, 2008 through
September 30, 2009 and a debt to total tangible capitalization covenant that
applies thereafter.  Borrowings under the facility are subject to
acceleration upon the occurrence of events of default.  The credit
facility terminates on March 13, 2010.  At April 30, 2008, we had $2.0
billion outstanding under this credit facility at a weighted-average interest
rate of 3.15 percent.





In
September 2007, we entered into a $15.0 billion, one-year senior unsecured
bridge loan facility (“Bridge Loan Facility”).  At April 30, 2008, we
had $675 million outstanding under this facility at a weighted-average interest
rate of 3.23 percent.





We have
access to a bank line of credit under a $2.0 billion, five-year revolving credit
facility (“Five-Year Revolving Credit Facility”). At April 30, 2008, we had $250
million outstanding under this facility at a weighted-average interest rate of
3.10 percent.





In
December 2007, we entered into a credit agreement for a 364-day, $1.5 billion
revolving credit facility (“364-Day Revolving Credit Facility”).  The
364-Day Revolving Credit Facility bears interest, at our option, at either (1) a
base rate, determined as the greater of (a) the prime loan rate or (b) the
federal funds effective rate plus 0.50 percent, or (2) the reserve-adjusted
LIBOR plus the applicable margin, which is based upon our non-credit enhanced
senior unsecured long-term debt rating (“Debt Rating”).  A facility
fee, varying from 0.05 percent to 0.15 percent depending on our Debt Rating, is
incurred on the daily amount of the underlying commitment, whether used or
unused, throughout the term of the facility.  A utilization fee,
varying from 0.05 percent to 0.10 percent depending on our Debt Rating, is
payable if amounts outstanding under the 364-Day Revolving Credit Facility are
greater than or equal to 50 percent of the total underlying
commitment.  The 364-Day Revolving Credit Facility may be prepaid in
whole or in part without premium or penalty.  At April 30, 2008, no
amounts were outstanding under this facility.





The
Five-Year Revolving Credit Facility and 364-Day Revolving Credit Facility
require compliance with various covenants and provisions customary for
agreements of this nature, including a debt to total tangible capitalization
ratio, as defined by the credit agreements, not greater than 60 percent at
December 31, 2009, and the end of each quarter thereafter and a maximum leverage
ratio of no greater than 350 percent as of June 30, 2008, and 300 percent as of
the end of each quarter thereafter through September 30, 2009.





- 33
-
 Index





Other
provisions of the Bridge Loan Facility, the Five-Year Revolving Credit Facility
and the 364-Day Revolving Credit Facility include limitations on creating liens,
incurring subsidiary debt, transactions with affiliates, sale/leaseback
transactions and mergers and sale of substantially all assets.  Should
we fail to comply with these covenants, we would be in default and may lose
access to these facilities.  We are also subject to various covenants
under the indentures pursuant to which our public debt was issued, including
restrictions on creating liens, engaging in sale/leaseback transactions and
engaging in certain merger, consolidation or reorganization
transactions.  A default under our public debt could trigger a default
under our credit agreements and, if not waived by the lenders, could cause us to
lose access to these facilities.





In
December 2007, we entered into a commercial paper program (the “Program”), the
proceeds of which we are required to use to repay outstanding borrowings under
the Bridge Loan Facility or the 364-Day Revolving Credit
Facility.  The Five-Year Revolving Credit Facility and the 364-Day
Revolving Credit Facility provide liquidity for the Program.  At April
30, 2008, $1.4 billion was outstanding under the Program at a weighted-average
interest rate of 3.15 percent.





Contractual Obligations—There
have been no material changes from the contractual obligations as previously
disclosed in “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations” of our Annual Report on Form 10-K for the
year ended December 31, 2007.





As of
March 31, 2008, the total unrecognized tax benefit related to uncertain tax
positions, net of prepayments, was $468 million.  Due to the high
degree of uncertainty regarding the timing of future cash outflows associated
with the liabilities recognized in this balance, we are unable to make
reasonably reliable estimates of the period of cash settlement with the
respective taxing authorities.





Commercial Commitments—As is
customary in the contract drilling business, we also have various surety bonds
in place that secure customs obligations relating to the importation of our rigs
and certain performance and other obligations.





We have
established a wholly-owned captive insurance company which insures various risks
of our operating subsidiaries.  Access to the cash investments of the
captive insurance company may be limited due to local regulatory
restrictions.  The cash investments are currently expected to rise to
approximately $135 million by the end of 2008.





- 34
-
 Index





Operating
Results





Three
months ended March 31, 2008 compared to three months ended March 31,
2007





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





Three
      months endedMarch 31,2008
            
            
            2007
            
            
            Change
            
            
            % Change(In
      millions, except day amounts and percentages)Revenue
      earning days
            
            
            11,525
            
            
            
            6,430
            
            
            
            5,095
            
            
            
            79
            %Utilization
            
            
            91
            %
            
            
            88
            %
            
            
            n/a
            
            
            
            3
            %Average
      daily revenue
            
            $
            229,000
            
            
            $
            198,000
            
            
            $
            31,000
            
            
            
            16
            %Contract
      drilling revenues
            
            $
            2,640
            
            
            $
            1,273
            
            
            $
            1,367
            
            
            
            n/mContract
      intangible revenues
            
            
            224
            
            
            
            —
            
            
            
            224
            
            
            
            100
            %Other
      revenues
            
            
            246
            
            
            
            55
            
            
            
            191
            
            
            
            n/m3,110
            
            
            
            1,328
            
            
            
            1,782
            
            
            
            n/mOperating
      and maintenance expense
            
            
            (1,157
            )
            
            
            (568
            )
            
            
            (589
            )
            
            
            n/mDepreciation,
      depletion and amortization
            
            
            (367
            )
            
            
            (100
            )
            
            
            (267
            )
            
            
            n/mGeneral
      and administrative expense
            
            
            (49
            )
            
            
            (26
            )
            
            
            (23
            )
            
            
            88
            %Gain
      from disposal of assets, net
            
            
            3
            
            
            
            23
            
            
            
            (20
            )
            
            
            (87
            )%Operating
      income
            
            
            1,540
            
            
            
            657
            
            
            
            883
            
            
            
            n/mOther
      (income) expense, netInterest
      income
            
            
            13
            
            
            
            5
            
            
            
            8
            
            
            
            n/mInterest
      expense, net of amounts capitalized
            
            
            (137
            )
            
            
            (37
            )
            
            
            (100
            )
            
            
            n/mLoss
      on retirement of debt
            
            
            (2
            )
            
            
            —
            
            
            
            (2
            )
            
            
            100
            %Other,
      net
            
            
            (6
            )
            
            
            13
            
            
            
            (19
            )
            
            
            n/mIncome
      tax expense
            
            
            (218
            )
            
            
            (85
            )
            
            
            (133
            )
            
            
            n/mMinority
      interest
            
            
            (1
            )
            
            
            —
            
            
            
            (1
            )
            
            
            100
            %Net
      income
            
            $
            1,189
            
            
            $
            553
            
            
            $
            636
            
            
            
            n/m


_________________


“n/a”
means not applicable


“n/m”
means not meaningful





Contract
drilling revenues increased primarily due to higher average daily revenue across
the fleet and as a result of the inclusion of GlobalSantaFe’s operations during
the first three months of 2008 which contributed $991 million of the increase in
revenues.  Revenues from nine rigs that were out of service for a
portion of 2007 contributed $130 million, and the reactivation of two rigs
during 2007 contributed to higher utilization and increased revenue of $25
million.  Partially offsetting these increases were lower revenues of
$10 million on eight rigs that were out of service in 2008 for shipyard,
mobilization or maintenance projects and lower revenues of $12 million from two
rigs sold in 2007.





Contract
intangible revenues of $224 million were recognized as a result of the fair
market valuation of GlobalSantaFe drilling contracts in effect at the time of
the Merger with no corresponding revenue in the prior year period.





Other
revenues for the three months ended March 31, 2008 increased $191 million
primarily due to a $164 million increase in non-drilling revenue as a result of
the inclusion of three months of GlobalSantaFe’s operations, a $26 million
increase in integrated services revenue and a $9 million increase in client
reimbursable revenue.





- 35
-
 Index





Operating
and maintenance expenses increased by $589 million primarily from the inclusion
of GlobalSantaFe’s operations during the first three months of
2008.  Other contributing factors included higher labor costs,
increased integrated service activity, vendor price increases and higher
reimbursable costs.





Depreciation,
depletion and amortization increased primarily due to $237 million of
depreciation of property and equipment acquired in the Merger and the inclusion
of GlobalSantaFe’s operations during the first three months of 2008, including
$9 million of amortization of intangible assets from our drilling management
services and $9 million of depletion on intangible costs from our oil and gas
properties.





The
increase in general and administrative expense during the first three months of
2008 was primarily due to $10 million related to the inclusion of
GlobalSantaFe’s operations, $8 million related to general operating costs,
including $4 million in legal expenses, and $4 million related to personnel
expenses.





During
the three months ended March 31, 2008, we recognized net gains of $3 million
related to rig sales and disposal of other assets.  During the three
months ended March 31, 2007, we recognized net gains of $23 million related to
rig sales and disposal of other assets.





The
increase in interest income was primarily due to investment income recognized on
legacy GlobalSantaFe investments during the first quarter of 2008 with no
comparable activity during the same period of 2007.





The
increase in interest expense was primarily attributable to $120 million
resulting from the issuance of new debt subsequent to the first quarter of
2007.  In addition, $9 million of the increase was from debt assumed
in the Merger, including $4 million from debt due to
affiliates.  Partially offsetting this increase were reductions of $17
million related to increased capitalized interest during the first quarter of
2008 and $15 million due to debt repaid subsequent to the first quarter of
2007.





The
decrease in other, net was primarily due to $15 million of income recognized
during the first quarter of 2007 as a result of a settlement of patent
litigation with GlobalSantaFe with no comparable income during the same period
of 2008.  In addition, we recognized foreign exchange loss of $8
million primarily related the U.K. pound during the first quarter of 2008 with
no comparable loss during the same period of 2007.





We
operate internationally and provide for income taxes based on the tax laws and
rates in the countries in which we operate and earn income.  There is
no expected relationship between the provision for income taxes and income
before income taxes.  The estimated annual effective tax rates at
March 31, 2008 and 2007 were 13.5 percent and 13.7 percent, respectively, based
on estimated 2008 and 2007 annual income before income taxes after adjusting for
certain items such as net gains on sales of assets and prior period
adjustments.  The tax effect, if any, of the excluded items as well as
settlements of prior year tax liabilities and changes in prior year tax
estimates are all treated as discrete period tax expenses or
benefits.  For the three months ended March 31, 2008, the impact of
the various discrete items was a net expense of $27 million resulting in a tax
rate of 15.5 percent on earnings before income taxes.  For the three
months ended March 31, 2007, the impact of the various discrete period tax items
was a net benefit of $1 million, resulting in a tax rate of 13.3 percent on
earnings before income taxes.





Severance
Plans





In
connection with the Merger, we established a plan to consolidate operations and
administrative functions post-Merger.  As of March 31, 2008, we have
identified 218 employees who have been or will be involuntarily terminated
pursuant to this plan.  The estimated severance-related costs for the
affected employees of the legacy GlobalSantaFe companies of $25 million was
recorded as a liability as part of the accounting for the Merger.  The
estimated severance-related costs for the affected employees of the legacy
Transocean companies of $8 million is being recognized as operating and
maintenance expense or general and administrative expense over the service
period of the affected employees.  We recognized $2 million of such
expense in the first quarter of 2008.  The termination benefits are
being paid as salary continuation over a period of between six and 24
months.  Through March 31, 2008 we have paid $4 million in termination
benefits under the plan, including $3 million in the first quarter of
2008.  We expect to accrue substantially all of the remaining amounts
by the end of the first quarter of 2009.





- 36
-
 Index





Critical
Accounting Estimates





Our
discussion and analysis of our financial condition and results of operations are
based upon our condensed consolidated financial statements.  This
discussion should be read in conjunction with disclosures included in the notes
to our condensed consolidated financial statements related to estimates,
contingencies and new accounting pronouncements.  Significant
accounting policies are discussed in Note 2 to our condensed consolidated
financial statements included elsewhere and in Note 2 to our consolidated
financial statements in our Annual Report on Form 10-K for the year ended
December 31, 2007.





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





For a
discussion of the critical accounting estimates that we use in the preparation
of our condensed consolidated financial statements, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" in our
Annual Report on Form 10-K for the year ended December 31,
2007.  There have been no material changes to these estimates during
the three months ended March 31, 2008.  These estimates require
significant judgments and estimates used in the preparation of our consolidated
financial statements.  Management has discussed each of these critical
accounting judgments and estimates with the audit committee of the board of
directors.





New
Accounting Pronouncements





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements(“SFAS 157”).  SFAS 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements.  SFAS 157 does
not require any new fair value measurements, but rather provides guidance for
the application of fair value measurements required in other accounting
pronouncements and seeks to eliminate inconsistencies in the application of such
guidance among those other standards.  SFAS 157 is effective for
fiscal years beginning after November 15, 2007.  In February 2008, the
FASB issued FASB Staff Position (“FSP”) No. FAS 157-2, Effective Date of FASB Statement No.
157, which delays the effective date of SFAS 157 to fiscal years
beginning after November 15, 2008, except for nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually).  We
have adopted those provisions of SFAS 157 that were unaffected by the delay in
the first quarter of 2008.  Such adoption did not have a material
effect on our consolidated statement of financial position, results of
operations or cash flows.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements
(“SFAS 160”).  SFAS 160 establishes accounting and reporting
standards for noncontrolling interests, also known as minority interests, in a
subsidiary and for the deconsolidation of a subsidiary.  It requires
that a noncontrolling interest in a subsidiary be reported as equity in the
consolidated financial statements and requires that consolidated net income
attributable to the parent and to the noncontrolling interests be shown
separately on the face of the income statement.  SFAS 160 also
requires, among other things, that noncontrolling interests in formerly
consolidated subsidiaries be measured at fair value.  SFAS 160 is
effective for fiscal years beginning after December 15, 2008.  We
will be required to adopt SFAS 160 in the first quarter of
2009.  Management is currently evaluating the requirements of
SFAS 160 and has not yet determined what impact the adoption will have on
our consolidated statement of financial position, results of operations or cash
flows.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(“SFAS 141R”).  SFAS 141R replaces SFAS No. 141, Business Combinations and,
among other things, (1) provides more specific guidance with respect to
identifying the acquirer in a business combination, (2) broadens the scope
of business combinations to include all transactions in which one entity gains
control over one or more other businesses and (3) requires costs incurred
to effect the acquisition (acquisition-related costs) and anticipated
restructuring costs of the acquired company to be recognized separately from the
acquisition.  SFAS 141R applies prospectively to business
combinations for which the acquisition date occurs in fiscal years beginning
after December 15, 2008.  We will be required to adopt the
principles of SFAS 141R with respect to business combinations occurring on
or after January 1, 2009.  Due to the prospective application
requirement, we are unable to determine what effect, if any, the adoption of
SFAS 141R will have on our consolidated statement of financial position,
results of operations or cash flows.





- 37
-
 Index





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB StatementNo.133(“SFAS 161”).  SFAS 161 changes the disclosure
requirements for derivative instruments and hedging
activities.  Entities are required to provide enhanced disclosures
about (1) how and why an entity uses derivative instruments, (2) how
derivative instruments and related hedged items are accounted for under SFAS No.
133, Accounting for Derivative
Instruments and Hedging Activities(“SFAS 133”), and its
related interpretations, and (3) how derivative instruments and related
hedged items affect an entity's financial position, financial performance, and
cash flows.  SFAS 161 is effective for fiscal years beginning
after November 15, 2008.  We will be required to adopt
SFAS 161 in the first quarter of 2009.  We currently do not have
any derivative financial instruments subject to accounting or disclosure under
SFAS 133; therefore, we do not expect the adoption of SFAS 161 to have
any effect on our consolidated statement of financial position, results of
operations or cash flows.





In April
2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of
Intangible Assets (“FSP 142-3”).  FSP 142-3 amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142,
Goodwill and Other Intangible
Assets.  FSP 142-3 is effective for fiscal years beginning
after December 15, 2008 and interim periods within those fiscal years, requiring
prospective application to intangible assets acquired after the effective
date.  We will be required to adopt the principles of FSP 142-3 with
respect to intangible assets acquired on or after January 1,
2009.  Due to the prospective application requirement, we are unable
to determine what effect, if any, the adoption of FSP 142-3 will have on our
consolidated statement of financial position, results of operations or cash
flows.





Recent
Accounting Developments





In August
2007, the FASB issued for comment Proposed FSP No. APB 14-a, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (the “Exposure Draft”), which would, among other things,
require the issuer of a convertible debt instrument to separately account for
the liability and equity components of the instrument and reflect interest
expense at the entity’s market rate of borrowing for non-convertible debt
instruments.  If adopted, the Exposure Draft would require
retrospective restatement of all periods presented with the cumulative effect of
the change in accounting principle on periods prior to those presented being
recognized as of the beginning of the first period presented.  In its
meeting on March 26, 2008, the FASB reaffirmed the scope of the Exposure
Draft and directed the staff to draft a final FSP for vote by written
ballot.  Additionally, the FASB agreed to postpone the effective date
that was originally proposed, recommending the Exposure Draft become effective
in the first reporting period beginning after December 15, 2008, including
the interim periods within the year of adoption.  We have not yet
determined the impact that the proposed accounting guidance set forth in the
Exposure Draft would have on our consolidated financial statements if it were to
be adopted in its current form.  However, the impact could be
significant, given the $6.6 billion principal amount of convertible senior notes
we currently have outstanding.





- 38
-
 Index





ITEM 3. Quantitative and Qualitative Disclosures About Market
Risk





Interest
Rate Risk





Our
exposure to market risk for changes in interest rates relates primarily to our
long-term and short-term debt 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,
2007.  There have been no material changes to these previously
reported matters during the three months ended March 31, 2008.





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, 2007.  There have been no
material changes to these previously reported matters during the three months
ended March 31, 2008.





ITEM 4. Controls and Procedures





In
accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an
evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report.  Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of March 31, 2008 to provide
reasonable assurance that information required to be disclosed in our reports
filed or submitted under the Exchange Act was (1) accumulated and communicated
to our management, including our Chief Executive Officer and our Chief Financial
Officer, to allow timely decisions regarding required disclosure and (2)
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission’s rules and forms.





There
were no changes to our internal controls during the quarter ended March 31,
2008 that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.





PART
II - OTHER INFORMATION





Item1. Legal Proceedings





We have
certain actions or claims pending as discussed and reported in Notes to
Condensed Consolidated Financial Statements Note 10—Contingencies.  We
are also involved in various tax matters as described in Notes to Condensed
Consolidated Financial Statements Note 7—Income Taxes.  We are also
involved in a number of lawsuits which have arisen in the ordinary course of our
business and for which we do not expect the liability, if any, resulting from
these lawsuits to have a material adverse effect on our current consolidated
financial position, results of operations or cash flows.  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.





- 39
-
 Index





Item 1A. Risk Factors





Our
Annual Report on Form 10-K for the year ended December 31, 2007 includes, under
“Item 1A. Risk Factors,” a discussion of many of the risks inherent in our
business and in the oil and gas industry as a whole, many of which are beyond
our control.  Additional information regarding certain of those risks
is set forth in this Item 1A.





Our
shipyard projects are subject to delays and cost overruns.





We have
committed to a total of nine deepwater newbuild rig projects and the Sedco706 rig upgrade. We are
also discussing other potential newbuild opportunities with several of our oil
and gas company and government-controlled clients. We also have a variety
of other more limited shipyard projects at any given time. These shipyard
projects are subject to the risks of delay or cost overruns inherent in any such
construction project resulting from numerous factors, including the
following:





§
            shipyard
      unavailability;


§
            shortages
      of equipment, materials or skilled
labor;


§
            unscheduled
      delays in the delivery of ordered materials and
  equipment;


§
            engineering
      problems, including those relating to the commissioning of newly designed
      equipment;


§
            work
      stoppages;


§
            client
      acceptance delays;


§
            weather
      interference or storm damage;


§
            unanticipated
      cost increases; and


§
            difficulty
      in obtaining necessary permits or
approvals.





These
factors may contribute to cost variations and delays in the delivery of our
upgraded and newbuild units and other rigs undergoing shipyard
projects. Delays in the delivery of these units would result in delay in
contract commencement, resulting in a loss of revenue to us, and may also cause
customers to terminate or shorten the term of the drilling contract for the rig
pursuant to applicable late delivery clauses. In the event of termination
of one of these contracts, we may not be able to secure a replacement contract
on as favorable terms.





Our
operations also rely on a significant supply of capital and consumable spare
parts and equipment to maintain and repair our fleet. We also rely on the
supply of ancillary services, including supply boats and helicopters. We
have experienced increased delivery times from vendors due to increased drilling
activity worldwide and the increase in construction and upgrade projects and
have also experienced a tightening in the availability of ancillary
services. Shortages in materials, delays in the delivery of necessary spare
parts, equipment or other materials, or the unavailability of ancillary services
could negatively impact our future operations and result in increases in rig
downtime, and delays in the repair and maintenance of our fleet.




- 40
-
 Index





Failure
to comply with the U.S. Foreign Corrupt Practices Act could result in fines,
criminal penalties, drilling contract terminations and an adverse effect on our
business.





In June
2007, GlobalSantaFe's management retained outside counsel to conduct an internal
investigation of its Nigerian and West African operations, focusing on brokers
who handled customs matters with respect to its affiliates operating in those
jurisdictions and whether those brokers have fully complied with the U.S.
Foreign Corrupt Practices Act (“FCPA”) and local laws. GlobalSantaFe
commenced its investigation following announcements by other oilfield service
companies that they were independently investigating the FCPA implications of
certain actions taken by third parties in respect of customs matters in
connection with their operations in Nigeria, as well as another company's
announced settlement implicating a third party handling customs matters in
Nigeria. In each case, the customs broker was reported to be
Panalpina Inc., which GlobalSantaFe used to obtain temporary import permits
for its rigs operating offshore Nigeria. GlobalSantaFe voluntarily
disclosed its internal investigation to the U.S. Department of Justice
(the “DOJ”) and the SEC and, at their request, expanded its investigation
to include the activities of its customs brokers in other West African countries
and the activities of Panalpina Inc. worldwide. The investigation is
focusing on whether the brokers have fully complied with the requirements of
their contracts, local laws and the FCPA. In late November 2007,
GlobalSantaFe received a subpoena from the SEC for documents related to its
investigation. In this connection, the SEC advised GlobalSantaFe that it
had issued a formal order of investigation. After the completion of the
Merger, outside counsel began formally reporting directly to the audit committee
of our board of directors. Our legal representatives are keeping the DOJ and SEC
apprised of the scope and details of their investigation and producing relevant
information in response to their requests.





On
July 25, 2007, our legal representatives met with the DOJ in response to a
notice we received requesting such a meeting regarding our engagement of
Panalpina Inc. for freight forwarding and other services in the United
States and abroad. The DOJ informed us that it is conducting an
investigation of alleged FCPA violations by oil service companies who used
Panalpina Inc. and other brokers in Nigeria and other parts of the
world.  We developed an investigative plan which has continued to be
amended and which would allow us to review and produce relevant and responsive
information requested by the DOJ and SEC. The investigation was expanded to
include one of our agents for Nigeria. This investigation and the legacy
GlobalSantaFe investigation are being conducted by outside counsel who reports
directly to the audit committee of our board of directors.  Our
outside counsel has coordinated their efforts with the DOJ and the SEC with
respect to the implementation of our investigative plan, including keeping the
DOJ and SEC apprised of the scope and details of the investigation and producing
relevant information in response to their requests.





We cannot
predict the ultimate outcome of these investigations, the total costs to be
incurred in completing the investigations, the potential impact on personnel,
the effect of implementing any further measures that may be necessary to ensure
full compliance with applicable laws or to what extent, if at all, we could be
subject to fines, sanctions or other penalties. Our investigation includes
a review of amounts paid to and by customs brokers in connection with the
obtaining of permits for the temporary importation of vessels and the clearance
of goods and materials. These permits and clearances are necessary in order
for us to operate our vessels in certain jurisdictions. There is a risk
that we may not be able to obtain import permits or renew temporary importation
permits in West African countries, including Nigeria, in a manner that complies
with the FCPA. As a result, we may not have the means to renew temporary
importation permits for rigs located in the relevant jurisdictions as they
expire or to send goods and equipment into those jurisdictions, in which event
we may be forced to terminate the pending drilling contracts and relocate the
rigs or leave the rigs in these countries and risk permanent importation issues,
either of which could have an adverse effect on our financial results. In
addition, termination of drilling contracts could result in damage claims by
customers.





Our
labor costs and the operating restrictions under which we operate could increase
as a result of collective bargaining negotiations and changes in labor laws and
regulations.





Some of
our employees, most of whom work in the U.K., Nigeria and Norway, are
represented by collective bargaining agreements.  In addition, some of
our contracted labor work under collective bargaining agreements.  Many of
these represented individuals are working under agreements that are subject to
ongoing salary negotiation in 2008. These negotiations could result in
higher personnel expenses, other increased costs or increased operating
restrictions. Additionally, the unions in the U.K. have sought an
interpretation of the application of the Working Time Regulations to the
offshore sector. The Tribunal has recently issued its decision in favor of
the unions and held, in part, that offshore workers are entitled to another
fourteen days of annual leave. We have taken appeal in the first instance to the
Employment Appeal Tribunal. The application of the Working Time Regulations
to the offshore sector could result in higher labor costs and could undermine
our ability to obtain a sufficient number of skilled workers in the
U.K.





- 41
-
 Index





Our
business involves numerous operating hazards.





Our
operations are subject to the usual hazards inherent in the drilling of oil and
gas wells, such as blowouts, reservoir damage, loss of production, loss of well
control, punch-throughs, craterings, fires and natural disasters such as
hurricanes and tropical storms. In particular, the Gulf of Mexico area is
subject to hurricanes and other extreme weather conditions on a relatively
frequent basis, and our drilling rigs in the region may be exposed to damage or
total loss by these storms (some of which may not be covered by
insurance). The occurrence of these events could result in the suspension
of drilling operations, damage to or destruction of the equipment involved and
injury to or death of rig personnel.  We are also subject to personal
injury and other claims by rig personnel as a result of our drilling
operations. Operations also may be suspended because of machinery
breakdowns, abnormal drilling conditions, failure of subcontractors to perform
or supply goods or services, or personnel shortages. In addition, offshore
drilling operations are subject to perils peculiar to marine operations,
including capsizing, grounding, collision and loss or damage from severe
weather. Damage to the environment could also result from our operations,
particularly through oil spillage or extensive uncontrolled fires. We may
also be subject to property, environmental and other damage claims by oil and
gas companies. Our insurance policies and contractual rights to indemnity
may not adequately cover losses, and we do not have insurance coverage or rights
to indemnity for all risks.  Consistent with standard industry practice,
our clients generally assume, and indemnify us against, well control and
subsurface risks under dayrate contracts. These are risks associated with
the loss of control of a well, such as blowout or cratering, the cost to regain
control of or redrill the well and associated pollution. However, there can
be no assurance that these clients will be financially able to indemnify us
against all these risks.





We
maintain broad insurance coverage, including coverage for property damage,
occupational injury and illness, and general and marine third-party
liabilities. Property damage insurance covers against marine and other
perils, including losses due to capsizing, grounding, collision, fire,
lightning, hurricanes and windstorms (excluding named storms in the U.S. Gulf of
Mexico and war perils worldwide, for which we generally have no coverage),
action of waves, punch-throughs, cratering, blowouts and
explosion. However, we maintain large self-insured deductibles for damage
to our offshore drilling equipment and third-party
liabilities.  Generally, our turnkey drilling contracts include
provisions that limit ADTI’s liability associated with well blowouts to $50
million.  Effective May 1, 2008, we elected to self-insure coverage
for expenses to ADTI and CMI related to well control and redrill liability for
well blowouts.





With
respect to hull and machinery we generally maintain a $125 million
deductible per occurrence, subject to a $250 million annual aggregate
deductible. In the event that the $250 million annual aggregate
deductible has been exceeded, the hull and machinery deductible becomes
$10 million per occurrence. However, in the event of a total loss or a
constructive total loss of a drilling unit, then such loss is fully covered by
our insurance with no deductible. For general and marine third-party
liabilities we generally maintain a $10 million per occurrence deductible
on personal injury liability for crew claims ($5 million for non-crew
claims) and a $5 million per occurrence deductible on third-party property
damage. We also self-insure the primary $50 million of liability
limits in excess of the $5 million and $10 million per occurrence
deductibles described in the prior sentence.





Pollution
and environmental risks generally are not totally insurable. If a
significant accident or other event occurs and is not fully covered by insurance
or an enforceable or recoverable indemnity from a client, it could adversely
affect our consolidated statement of financial position, results of operations
or cash flows.





The
amount of our insurance may be less than the related impact on enterprise value
after a loss. We do not generally have hull and machinery coverage for
losses due to hurricanes in the U.S Gulf of Mexico and war perils
worldwide. Our insurance coverage will not in all situations provide
sufficient funds to protect us from all liabilities that could result from our
drilling operations. Our coverage includes annual aggregate policy
limits. As a result, we retain the risk through self-insurance for any
losses in excess of these limits. We do not carry insurance for loss of
revenue and certain other claims may also not be reimbursed by insurance
carriers. Any such lack of reimbursement may cause us to incur substantial
costs. In addition, we could decide to retain substantially more risk
through self-insurance in the future. Moreover, no assurance can be made
that we will be able to maintain adequate insurance in the future at rates we
consider reasonable or be able to obtain insurance against certain
risks. As of May 1, 2008, all of the rigs that we owned or operated
were covered by existing insurance policies.





- 42
-
 Index





A loss of a major
tax dispute or a successful tax challenge to our operating structure,
intercompany
pricing policies or the taxable presence of our key subsidiaries in certain
countries could result in a higher tax rate on our worldwide earnings,
which could result in a significant negative impact on our earnings and cash
flows from operations.





We are a
Cayman Islands company and operate through our various subsidiaries in a number
of countries throughout the world. Consequently, we are subject to tax
laws, treaties and regulations in and between the countries in which we
operate. Our income taxes are based upon the applicable tax laws and tax
rates in effect in the countries in which we operate and earn income as well as
upon our operating structures in these countries.





Our
income tax returns are subject to review and examination. We do not
recognize the benefit of income tax positions we believe are more likely than
not to be disallowed upon challenge by a tax authority. If any tax
authority successfully challenges our operational structure, intercompany
pricing policies or the taxable presence of our key subsidiaries in certain
countries; or if the terms of certain income tax treaties are interpreted in a
manner that is adverse to our structure; or if we lose a material tax
dispute in any country, particularly in the U.S., Norway or Brazil, our
effective tax rate on our worldwide earnings could increase substantially and
our earnings and cash flows from operations could be materially adversely
affected. For example, there is considerable uncertainty as to the
activities that constitute being engaged in a trade or business within the
United States (or maintaining a permanent establishment under an applicable
treaty), so we cannot be certain that the Internal Revenue Service (IRS) will
not contend successfully that we or any of our key subsidiaries are engaged in a
trade or business in the United States (or, when applicable, maintains a
permanent establishment in the United States).  If we or any of our
key subsidiaries were considered to be engaged in a trade or business in the
United States (when applicable, through a permanent establishment), we could be
subject to U.S. corporate income and additional branch profits taxes on the
portion of our earnings effectively connected to such U.S. business, in
which case our effective tax rate on worldwide earnings could increase
substantially, and our earnings and cash flows from operations and your
investment could be adversely affected.  See “Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Outlook–Tax Matters.”





A
change in tax laws, treaties or regulations, or their interpretation, of any
country in which we operate could result in a higher tax rate on our worldwide
earnings, which could result in a significant negative impact on our earnings
and cash flows from operations.





A change
in applicable tax laws, treaties or regulations could result in a higher
effective tax rate on our worldwide earnings and such change could be
significant to our financial results. One of the income tax treaties that
we rely upon is currently in the process of being renegotiated. This
renegotiation will likely result in a change in the terms of the treaty that is
adverse to our tax structure, which in turn would increase our effective tax
rate, and such increase could be material. We are monitoring the progress
of the treaty renegotiation with a view to determining what, if any, steps are
appropriate to mitigate any potential negative impact. One of these steps
could include transactions that would result in certain subsidiaries or the
parent entity of our group of companies having a different tax residency or
different jurisdiction of incorporation. We may not be able to fully, or
partially, mitigate any negative impact of this treaty renegotiation or any
other future changes in treaties that we rely upon.





Legislation
is periodically introduced in the U.S. Congress intended to eliminate some
perceived tax advantages of companies that have legal domiciles outside the
United States but have certain U.S. connections.  Examples include,
but are not limited to, legislative proposals that would broaden the
circumstances in which a non-U.S. company would be considered a U.S. resident
and a proposal that could limit treaty benefits on certain payments by U.S.
subsidiaries to non-U.S. affiliates. Such legislation, if enacted into law,
could cause a material increase in our tax liability and effective tax rate,
which could result in a significant negative impact on our earnings and cash
flows from operations. In addition, our income tax returns are subject to
review and examination in various jurisdictions in which we
operate.  See “Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Outlook–Tax Matters.”





- 43
-
 Index





The
Organization for Economic Cooperation and Development, or OECD, has instituted a
program to eliminate harmful tax practices, which could adversely affect our tax
status in the Cayman Islands or could result in tax-related measures by other
countries that could affect us.





The OECD
has published reports and launched a global dialog among member and non-member
countries on measures to limit harmful tax competition. These measures are
largely directed at counteracting the effects of tax havens and preferential tax
regimes in countries around the world. In the OECD’s report dated April 18,
2002 and updated as of August 2007, the Cayman Islands was not listed as an
“uncooperative tax haven.” The Cayman Islands has signed a letter committing
itself to eliminate harmful tax practices, including the elimination of any
aspects of the regimes for financial and other services that attract business
with no substantial domestic activities. We are not able to predict what changes
will arise from the commitment, whether such changes will subject us to
additional taxes, or what tax-related changes, if any, might be taken by other
countries that could affect us.





The
anticipated benefits of the Merger may not be realized, and there may be
difficulties in integrating our operations.





We merged
with GlobalSantaFe on November 27, 2007, with the expectation that the
Merger would result in various benefits, including, among other things,
synergies, cost savings and operating efficiencies. We may not achieve
these benefits at the levels expected or at all.





We may
not be able to integrate our operations with those of GlobalSantaFe without a
loss of employees, customers, a loss of revenues, an increase in operating or
other costs or other difficulties.  Recently, several of our senior
executives have resigned which could have an adverse impact on our business and
on the integration of our operations following the Merger. In addition, we
may not be able to realize the operating efficiencies, synergies, cost savings
or other benefits expected from the Merger. Any unexpected delays incurred
in connection with the integration could have an adverse effect on our business,
results of operations or financial condition.





Our
business has changed as a result of our recent combination with
GlobalSantaFe.





Our
business has changed as a result of our recent combination with
GlobalSantaFe. Following the Merger, our relative exposure to the jackup
market has increased. Portions of the jackup market have in recent periods
experienced lower dayrates than in previous periods. Additionally, as a
result of the Merger, we are now engaged in drilling management services
including turnkey drilling operations and own interests in oil and gas
properties, which will expose us to additional risks.





- 44
-
 Index





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





Issuer
Purchases of Equity Securities





Period
            
            (a) Total Number of Shares Purchased
      (1)
            
            
            (b) Average Price Paid Per
      Share
            
            
            (c) Total Number of Shares Purchased as Part of
      Publicly Announced Plans or Programs (2)
            
            
            (d) Maximum Number (or Approximate Dollar Value)
      of Shares that May Yet Be Purchased Under the Plans or Programs (2) (in
      millions)January
      2008
            
            
            1,499
            
            
            $
            141.26
            
            
            
            —
            
            
            $
            600February
      2008
            
            
            1,421
            
            
            $
            125.33
            
            
            
            —
            
            
            $
            600March
      2008
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            600Total
            
            
            2,920
            
            
            $
            133.51
            
            
            
            —
            
            
            $
            600


_________________


(1)
            Total
      number of shares purchased in the first three months of 2008 consists of
      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.


(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 to $4.0 billion from $2.0 billion, which was previously authorized
      and announced in October 2005.  The shares may be repurchased
      from time to time in open market or private transactions.  The
      repurchase program does not have an established expiration date and may be
      suspended or discontinued at any time.  Under the program,
      repurchased shares are retired and returned to unissued
      status.  From inception through March 31, 2008, we have
      repurchased a total of 46.9 million of our ordinary shares at a total cost
      of $3.4 billion.  We do not currently expect to make any
      additional share repurchases under the program in the near
      future.





Item 6. Exhibits





(a)
            Exhibits





The
following exhibits are filed in connection with this Report:




Number  Description





*4.1
            Term
      Credit Agreement dated as of March 13, 2008 among Transocean Inc., the
      lenders parties thereto and Citibank, N.A., as Administrative Agent,
      Calyon New York Branch and JPMorgan Chase Bank, N.A., as Co-Syndication
      Agents, The Bank of Tokyo-Mitsubishi UFJ, Ltd. and Fortis Bank SA/NV, New
      York Branch, as Co-Documentation Agents, and Citigroup Global Markets,
      Inc., Calyon New York Branch and J.P.Morgan Securities Inc., as Joint Lead
      Arrangers and Bookrunners (incorporated by reference to Exhibit 4.1 to the
      Company’s Current Report on Form 8-K filed on March 18,
    2008)





†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.





- 45
-
 Index





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on May 7, 2008.





TRANSOCEAN
INC.











By:
            /s/ Gregory L.
      CauthenGregory L. CauthenSenior Vice President and Chief Financial Officer(Principal Financial Officer)











By:
            /s/ John H.
      BriscoeJohn H. BriscoeVice President and Controller(Principal Accounting Officer)