UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q

(Mark ~~One~~ one)

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

For the quarterly period ended ~~March 31~~June 30, ~~2006~~2008

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

For the transition period from ______ to ______.

Commission file number 333-75899

______________________

TRANSOCEAN INC.

(Exact name of registrant as specified in its charter)

______________________

Cayman Islands	66-0582307
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
(State or other jurisdiction	(I.R.S. Employer
4 Greenway Plaza
of incorporation or organization)	Identification No.)
Houston, Texas	77046
4 Greenway Plaza, Houston, Texas (Address of principal executive offices) 70 Harbour Drive, Grand Cayman, Cayman Islands (Address of principal executive offices)	77046 (Zip Code) KY1-1003 (Zip Code)
(Address of principal executive offices)	(Zip Code)

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

______________________

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

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

Large ~~Accelerated~~ ~~Filer~~ accelerated filer x Accelerated ~~Filer~~ filer o Non-accelerated ~~Filer~~ filer o (do not check if a smaller reporting company) Smaller reporting company o

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

As of ~~April~~ 28July 25, ~~2006~~2008, ~~324~~ 319,~~903~~029,~~181~~423 ordinary shares, par value $0.01 per share, were outstanding.

TRANSOCEAN INC.

INDEX TO FORM 10-Q

QUARTER ENDED ~~MARCH 31~~JUNE 30, ~~2006~~2008

	Page
PART I – FINANCIAL INFORMATION			Page
PART I - FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)
Item 1. Financial Statements (Unaudited)
		Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Operations
		Three and six months ended June 30, 2008 and 2007	1
Three Months Ended March 31, 2006 and 2005	1
		Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Comprehensive Income
		June 30, 2008 and December 31, 2007	2
Three Months Ended March 31, 2006 and 2005	2
		Condensed Consolidated Statements of Cash Flows
Condensed Consolidated Balance Sheets
		Three and six months ended June 30, 2008 and 2007	3
March 31, 2006 and December 31, 2005	3
		Notes to Condensed Consolidated Financial Statements	4
Condensed Consolidated Statements of Cash Flows
	Item 2.	Management’s Discussion and Analysis of Financial
Three Months Ended March 31, 2006 and 2005	4
		Condition and Results of Operations	21
Notes to Condensed Consolidated Financial Statements	5
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 4.	Controls and Procedures	42
Item 3. Quantitative and Qualitative Disclosures About Market Risk	34
PART II - OTHER INFORMATION
Item 4. Controls and Procedures	35
	Item 1.	Legal Proceedings	42
PART II - OTHER INFORMATION
	Item 1A.	Risk Factors	43
Item 1. Legal Proceedings	36
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 1A. Risk Factors	36
	Item 4.	Submission of Matters to a Vote of Security Holders	45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	37
	Item 6.	Exhibits	46
Item 6. Exhibits	38

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

TRANSOCEAN INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

~~CONDENSED CONSOLIDATED~~(In millions, ~~STATEMENTS~~except ~~OF OPERATIONS~~per share data)

(~~In millions, except per share data~~Unaudited)

(Unaudited)

		Three months ended June 30,					Six months ended June 30,
		2008		2007			2008			2007
Operating revenues
Contract drilling revenues	$	2,587		$	1,360		$	5,227		$	2,633
Contract drilling intangible revenues		190			—			414			—
Other revenues		325			74			571			129
		3,102			1,434			6,212			2,762
Costs and expenses
Operating and maintenance		1,364			627			2,521			1,195
Depreciation, depletion and amortization		337			101			704			201
General and administrative		45			29			94			55
		1,746			757			3,319			1,451
Gain (loss) from disposal of assets, net		(6	)		(1	)		(3	)		22
Operating income		1,350			676			2,890			1,333

Other income (expense), net
Interest income		10			5			23			10
Interest expense, net of amounts capitalized		(111	)		(33	)		(248	)		(70	)
Other, net		(3	)		(5	)		(11	)		8
		(104	)		(33	)		(236	)		(52	)

Income before income taxes and minority interest		1,246			643			2,654			1,281
Income tax expense		140			93			358			178
Minority interest		(1	)		1			—			1

Net income	$	1,107		$	549		$	2,296		$	1,102

Earnings per share
Basic	$	3.48		$	2.73		$	7.22		$	5.45
Diluted	$	3.45		$	2.63		$	7.15		$	5.24

Weighted average shares outstanding
Basic		318			202			318			202
Diluted		321			210			321			211

	Three Months Ended March 31,
	2006			2005
Operating Revenues
Contract drilling revenues	$	778.9		$	600.6
Other revenues		38.4			29.9
		817.3			630.5
Costs and Expenses
Operating and maintenance		475.0			388.3
Depreciation		101.6			100.7
General and administrative		20.2			18.1
		596.8			507.1
Gain from disposal of assets, net		64.1			19.9
Operating Income		284.6			143.3
Other Income (Expense), net
Equity in earnings (losses) of unconsolidated affiliates		(0.5	)		3.1
Interest income		5.2			4.0
Interest expense, net of amounts capitalized		(23.9	)		(33.1	)
Loss on retirement of debt		−			(6.7	)
Other, net		0.7			(1.1	)
		(18.5	)		(33.8	)
Income Before Income Taxes and Minority Interest		266.1			109.5
Income Tax Expense		60.4			17.5
Minority Interest		−			0.2
Net Income	$	205.7		$	91.8
Earnings Per Share
Basic	$	0.63		$	0.28
Diluted	$	0.61		$	0.28
Weighted Average Shares Outstanding
Basic		325.4			323.6
Diluted		337.3			331.0

See accompanying notes.

~~See accompanying~~- ~~notes.~~1 -

1TRANSOCEAN INC. AND SUBSIDIARIES

~~Table of~~CONDENSED ~~Contents~~CONSOLIDATED BALANCE SHEETS

~~TRANSOCEAN INC.~~(In ~~AND~~millions, ~~SUBSIDIARIES~~except share data)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	June 30,			December 31,
	2008			2007
	(Unaudited)
ASSETS
Cash and cash equivalents	$	976		$	1,241
Accounts receivable, net of allowance for doubtful accounts of $62 and $50 at June 30, 2008 and December 31, 2007, respectively		2,478			2,370
Materials and supplies, net of allowance for obsolescence of $23 and $22 at June 30, 2008 and December 31, 2007, respectively		414			333
Deferred income taxes, net		84			119
Assets held for sale		567			—
Other current assets		212			233
Total current assets		4,731			4,296

Property and equipment		24,661			24,545
Less accumulated depreciation		4,277			3,615
Property and equipment, net		20,384			20,930
Goodwill		8,351			8,219
Other assets		1,011			919
Total assets	$	34,477		$	34,364

LIABILITIES AND SHAREHOLDERS’ EQUITY

Accounts payable	$	861		$	805
Accrued income taxes		182			99
Debt due within one year		2,145			6,172
Other current liabilities		732			826
Total current liabilities		3,920			7,902

Long-term debt		13,134			11,085
Deferred income taxes, net		734			681
Other long-term liabilities		1,719			2,125
Total long-term liabilities		15,587			13,891

Commitments and contingencies

Minority interest		5			5

Preference shares, $0.10 par value; 50,000,000 shares authorized, none issued and outstanding		—			—
Ordinary shares, $0.01 par value; 800,000,000 shares authorized, 319,044,814 and 317,222,909 shares issued and outstanding at June 30, 2008 and December 31, 2007, respectively		3			3
Additional paid-in capital		10,907			10,799
Accumulated other comprehensive loss		(47	)		(42	)
Retained earnings		4,102			1,806
Total shareholders’ equity		14,965			12,566
Total liabilities and shareholders’ equity	$	34,477		$	34,364

~~(In millions)~~See accompanying notes.

~~(Unaudited)~~- 2 -

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

TRANSOCEAN INC. AND SUBSIDIARIES

~~See accompanying~~CONDENSED ~~notes.~~CONSOLIDATED STATEMENTS OF CASH FLOWS

~~Table of~~(In ~~Contents~~millions)

~~TRANSOCEAN INC. AND SUBSIDIARIES~~(Unaudited)

CONDENSED CONSOLIDATED BALANCE SHEETS

	Three months ended June 30,						Six months ended June 30,
	2008			2007			2008			2007
Cash flows from operating activities
Net income	$	1,107		$	549		$	2,296		$	1,102
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of drilling contract intangibles		(190	)		—			(414	)		—
Depreciation, depletion and amortization		337			101			704			201
Share-based compensation expense		11			9			33			19
(Gain) loss from disposal of assets, net		6			1			3			(22	)
Deferred revenue, net		7			4			25			38
Deferred expenses, net		(145	)		(6	)		(129	)		(13	)
Deferred income taxes		(31	)		(5	)		(56	)		(7	)
Other, net		(6	)		5			(18	)		4
Changes in operating assets and liabilities		(85	)		(51	)		49			(61	)
Net cash provided by operating activities		1,011			607			2,493			1,261

Cash flows from investing activities
Capital expenditures		(420	)		(290	)		(1,189	)		(755	)
Proceeds from disposal of assets, net		93			2			347			41
Joint ventures and other investments, net		—			—			(3	)		(3	)
Net cash used in investing activities		(327	)		(288	)		(845	)		(717	)

Cash flows from financing activities
Borrowings (repayments) under commercial paper program, net		(171	)		—			1,145			—
Repayments under revolving credit facilities, net		(180	)		(190	)		(1,500	)		—
Proceeds from debt		75			—			2,051			—
Repayments of debt		(1,040	)		(230	)		(3,673	)		(230	)
Payments made upon exercise of warrants, net		—			—			(4	)		—
Proceeds from issuance of ordinary shares under share-based compensation plans, net		34			40			61			55
Repurchase of ordinary shares		—			—			—			(400	)
Tax benefit from issuance of ordinary shares under share-based compensation plans		8			4			11			9
Other, net		(1	)		—			(4	)		—
Net cash used in financing activities		(1,275	)		(376	)		(1,913	)		(566	)
Net decrease in cash and cash equivalents		(591	)		(57	)		(265	)		(22	)
Cash and cash equivalents at beginning of period		1,567			502			1,241			467
Cash and cash equivalents at end of period	$	976		$	445		$	976		$	445

~~(In millions,~~See ~~except~~accompanying ~~share data)~~notes.

	March 31,			December 31,
	2006			2005
	(Unaudited)
ASSETS
Cash and Cash Equivalents	$	461.9		$	445.4
Accounts Receivable, net of allowance for doubtful accounts of $18.0 and $15.3 at March 31, 2006 and December 31, 2005, respectively		670.9			599.7
Materials and Supplies, net of allowance for obsolescence of $16.6 and $19.1 at March 31, 2006 and December 31, 2005, respectively		160.3			156.2
Deferred Income Taxes, net		23.4			23.4
Other Current Assets		37.1			54.4
Total Current Assets		1,353.6			1,279.1
Property and Equipment		9,911.5			9,791.0
Less Accumulated Depreciation		3,110.7			3,042.8
Property and Equipment, net		6,800.8			6,748.2
Goodwill		2,208.9			2,208.9
Investments in and Advances to Unconsolidated Affiliates		7.6			8.1
Other Assets		218.8			212.9
Total Assets	$	10,589.7		$	10,457.2
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts Payable	$	264.9		$	254.0
Accrued Income Taxes		29.8			27.5
Debt Due Within One Year		400.0			400.0
Other Current Liabilities		251.3			242.1
Total Current Liabilities		946.0			923.6
Long-Term Debt		1,196.6			1,197.1
Deferred Income Taxes, net		98.9			65.0
Other Long-Term Liabilities		309.8			286.2
Total Long-Term Liabilities		1,605.3			1,548.3
Commitments and Contingencies
Minority Interest		3.8			3.6
Preference Shares, $0.10 par value; 50,000,000 shares authorized, none issued and outstanding		−			−
Ordinary Shares, $0.01 par value; 800,000,000 shares authorized, 324,067,074 and 324,750,166 shares issued and outstanding at March 31, 2006 and December 31, 2005, respectively		3.2			3.2
Additional Paid-in Capital		10,412.5			10,565.3
Accumulated Other Comprehensive Loss		(20.4	)		(20.4	)
Retained Deficit		(2,360.7	)		(2,566.4	)
Total Shareholders’ Equity		8,034.6			7,981.7
Total Liabilities and Shareholders’ Equity	$	10,589.7		$	10,457.2

- 3 -

~~See accompanying notes~~TRANSOCEAN INC. AND SUBSIDIARIES

~~Table of~~NOTES ~~Contents~~TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~TRANSOCEAN INC. AND SUBSIDIARIES~~(Unaudited)

~~CONDENSED CONSOLIDATED~~Note 1—Nature ~~STATEMENTS~~of OFBusiness ~~CASH~~and ~~FLOWS~~Principles of Consolidation

Transocean Inc. (Intogether 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 ~~millions~~ 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. At June 30, 2008, we owned, had partial ownership interests in or operated 137 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, 55 Standard Jackups and four Other Rigs. In addition, as of June 30, 2008, we had ten Ultra-Deepwater Floaters under construction or contracted for construction (see Note 4—Drilling Fleet Expansion and Upgrades).

We also provide oil and gas drilling management services on either a dayrate basis or a completed-project, fixed-price (~~Unaudited~~or “turnkey”) basis, as well as drilling engineering and drilling project management services, and we participate in oil and gas exploration and production activities. 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.

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

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.

~~See~~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 we have the ability to exercise significant influence. We use the cost method of ~~accompanying~~ accounting ~~notes~~for investments in unconsolidated affiliates 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.

~~Table~~ Note 2—Summary of ~~Contents~~Significant Accounting Policies

~~TRANSOCEAN~~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 ~~INC~~Commission (“SEC”). ~~AND~~Pursuant ~~SUBSIDIARIES~~to such rules and regulations, these financial statements do not include all disclosures required by accounting principles generally accepted in the U.S. for complete financial statements. The condensed consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods. Such adjustments are considered to be of a normal recurring nature unless otherwise identified. Operating results for the three and six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008 or for any future period.

~~NOTES TO~~- ~~CONDENSED~~4 ~~CONSOLIDATED STATEMENTS~~ -

~~(Unaudited)~~TRANSOCEAN INC. AND SUBSIDIARIES

~~Transocean Inc.~~NOTES ~~(together~~TO ~~with~~CONDENSED ~~its~~CONSOLIDATED ~~subsidiaries~~FINANCIAL ~~and~~STATEMENTS predecessors, unless the context requires otherwise, “Transocean,” “we,” “us” or “our”) is a leading international provider of offshore contract drilling services for oil and gas wells. We contract our drilling rigs, related equipment and work crews primarily on a dayrate basis to drill oil and gas wells. We also provide additional services, including integrated services. At March 31, 2006, we owned, had partial ownership interests in or operated 88 mobile offshore and barge drilling units. As of this date, our fleet consisted of 32 High-Specification semisubmersibles and drillships (~~“floaters”~~Continued)~~, 22 Other Floaters, 25 Jackup Rigs and nine Other Rigs.~~

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

~~Note~~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 ~~2―Summary~~ number of ~~Significant~~our ~~Accounting~~ordinary ~~Policies~~shares issued and outstanding as a result of this accounting treatment, unless otherwise noted.

~~Basis of~~The ~~Presentation—Our~~ accompanying condensed consolidated financial statements ~~have been prepared without audit in accordance with accounting principles generally accepted in the United States for interim financial information~~ and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, pursuant to such rules and regulations, these financial statements do not include all disclosures required by accounting principles generally accepted in the U.S. for complete financial statements. The condensed consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods. Such adjustments are considered to be of a normal recurring nature unless otherwise identified. Operating results for the three months ended March 31, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006 or for any future period. The accompanying condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2005~~ 2007.

Accounting Estimates—The preparation of financial statements inthat ~~conformity~~comply 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.

~~Capitalized Interest~~Total Comprehensive Income—~~We capitalize~~Total ~~interest~~comprehensive ~~costs~~income for ~~qualifying~~the ~~construction~~three and ~~upgrade projects.~~six months ended June We30, ~~capitalized~~2008 ~~interest~~was ~~costs~~$1,107 million onand ~~construction~~$2,296 million, ~~work~~respectively, inwhile ~~progress~~total ~~of $0.3~~comprehensive ~~million~~income for the three and six months ended ~~March~~June 30, 312007 was $549 million and $1,102 million, ~~2006~~respectively. ~~There~~Other ~~was~~comprehensive ~~no capitalized~~income ~~interest~~ did ~~for~~not ~~the~~contain ~~three~~any ~~months~~material ~~ended~~items ~~March~~for ~~31,~~any ~~2005~~of the periods presented.

5Capitalized Interest—We capitalize interest costs for qualifying construction and upgrade projects. We capitalized interest costs on construction work in progress of $30 million and $59 million for the three and six months ended June 30, 2008, respectively. Capitalized interest for the three and six months ended June 30, 2007 was $15 million and $28 million, respectively.

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

~~TRANSOCEAN~~Share-Based Compensation—Share-based compensation expense for the three and six months ended June 30, 2008 was $11 million ($10 million, or $0.03 per diluted share, net of tax) and $33 million ($29 million, or $0.09 per diluted share, net of tax), respectively. Share-based compensation expense for the three and ~~INC~~ six months ended June 30, 2007 was $9 million ($7 million, or $0.03 per ~~AND~~diluted ~~SUBSIDIARIES~~share, net of tax) and $19 million ($16 million, or $0.08 per diluted share, net of tax), respectively. Additionally, tax deduction benefits in excess of recognized compensation costs, reported in financing cash flows, were $8 million and $11 million for the three and six months ended June 30, 2008, respectively, and $4 million and $9 million for the three and six months ended June 30, 2007, respectively.

~~NOTES~~Income Taxes—Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”) clarifies the accounting TO for ~~CONDENSED~~income ~~CONSOLIDATED~~taxes ~~STATEMENTS~~recognized in an entity’s financial statements in accordance with Statement of Financial Accounting Standards (~~Continued~~“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.

New Accounting Pronouncements—In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (~~Unaudited~~“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

~~Segments—We operate~~- in5 one business segment, the Transocean Drilling segment, which consists of floaters, jackups and other rigs used in support of offshore drilling activities and offshore support services. Our fleet operates in a single, global market for the provision of contract drilling services. The location of our rigs and the allocation of resources to build or upgrade rigs are determined by the activities and needs of our customers.-

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

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

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

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

fiscal years beginning after November 15, 2008, for nonfinancial assets and nonfinancial liabilities except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). In the first quarter 2008, we adopted those provisions of SFAS 157 that were unaffected by the delay. Such adoption did not have a material effect on our consolidated statement of financial position, results of operations or cash flows.

6In 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 upon losing control. SFAS 160 is effective for fiscal years beginning after December 15, 2008. We will be required initially to adopt SFAS 160 in 2009. We are currently evaluating the requirements of SFAS 160 and have not yet determined the impact that the adoption will have on our consolidated statement of financial position, results of operations or cash flows.

~~Table~~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) changes previous guidance so as to require that primarily all acquired assets, liabilities, minority interest and certain contingencies be measured at fair value, (2) broadens the scope of ~~Contents~~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.

~~TRANSOCEAN~~In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 changes the disclosure requirements for derivative instruments and hedging ~~INC~~activities. ~~AND~~Entities ~~SUBSIDIARIES~~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 are currently evaluating the requirements of SFAS 161 and have not yet determined what impact the adoption will have on our consolidated statement of financial position, results of operations or cash flows.

~~NOTES TO~~In ~~CONDENSED~~April 2008, ~~CONSOLIDATED~~the ~~STATEMENTS~~FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets (~~Continued~~“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.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (~~Unaudited~~“SFAS 162”), which identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with accounting principles generally accepted in the U.S. SFAS 162 shall be effective 60 days following the SEC’s approval of certain amendments to auditing standards proposed by the Public Company Accounting Oversight Board. We do not expect the adoption of SFAS 162 to have an effect on our consolidated statement of financial position, results of operations or cash flows.

~~The above pro~~In ~~forma~~May 2008, ~~amounts~~the ~~are~~FASB ~~not~~also ~~indicative~~issued ofFSP ~~future~~No. ~~pro~~APB 14-1, ~~forma~~Accounting ~~results.~~for ~~The~~Convertible ~~fair value of~~Debt ~~each~~Instruments ~~option~~That ~~grant~~May ~~under~~Be ~~our~~Settled ~~long~~in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-~~term~~1”), ~~incentive~~which ~~plan~~requires ~~was~~the ~~estimated~~issuer onof a convertible debt instrument to separately account for the liability and equity ~~date~~ components of ~~grant~~the ~~using~~instrument and reflect interest expense at the ~~Black~~entity’s market rate of borrowing for non-~~Scholes~~convertible debt instruments. FSP APB 14-~~Merton~~1 ~~option~~requires ~~pricing~~retrospective ~~model~~restatement of all periods presented with the ~~following~~ ~~weighted-average~~cumulative ~~assumptions~~effect ~~used:~~of the change in accounting principle on prior periods being

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

- 6 -

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

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

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

~~New Accounting~~recognized ~~Pronouncement—In May 2005,~~as of the ~~FASB~~beginning ~~issued~~of ~~SFAS~~the ~~154~~first period presented. The adoption of FSP APB 14-1 will have an effect on the accounting, ~~Accounting Changes~~both retrospectively and ~~Error Corrections~~prospectively, ~~which requires~~for ~~retrospective~~our ~~application~~1.625% toSeries ~~all~~A ~~prior~~Convertible ~~period~~Senior ~~financial~~Notes ~~statements presented~~due ~~for~~December ~~voluntary~~2037, ~~changes~~1.50% inSeries ~~accounting~~B ~~principle~~Convertible ~~unless~~Senior itNotes ~~is impracticable~~due December 2037 and 1. ~~This~~50% ~~statement~~Series ~~replaces~~C ~~APB~~Convertible ~~20,~~Senior ~~Accounting Changes,~~ Notes due December 2037 and ~~SFAS~~, 3retrospectively, ~~Reporting~~for our previously redeemed ~~Accounting~~ 1.5% ~~Changes~~Convertible inDebentures ~~Interim~~due ~~Financial~~May ~~Statements, though it~~2021. ~~carries~~Aside ~~forward~~from ~~the~~a ~~guidance~~reduction inof ~~those~~debt ~~pronouncements~~balances ~~with~~and ~~respect~~an increase to ~~accounting~~ shareholders’ equity on our consolidated balance sheets for ~~changes~~each inperiod ~~estimates~~presented, ~~changes~~we expect the retrospective application of FSP APB 14-1 will result in ~~reporting~~an ~~entity~~non-cash ~~and~~increase ~~the correction~~to ofour ~~errors. SFAS~~annual ~~154~~historical isinterest ~~effective~~expense, ~~for~~net ~~accounting~~of ~~changes~~amounts ~~and corrections~~capitalized, of ~~errors~~approximately ~~made~~$9 inmillion ~~fiscal~~and ~~years~~$176 ~~beginning~~million ~~after~~for ~~December~~2007 15and 2008, ~~2005~~respectively. Additionally, we expect that the adoption will ~~We adopted~~ result ~~SFAS~~in ~~154~~a ~~effective~~non-cash ~~January~~increase 1to our projected annual interest expense, ~~2006.~~net ~~The~~of ~~adoption~~amounts expected to be capitalized, of ~~this~~approximately ~~statement had no~~$175 ~~impact~~million, on$205 ~~our~~million ~~consolidated~~and ~~financial~~$150 ~~position~~million for 2009, ~~results~~2010 ofand ~~operations~~2011, ~~or cash flows~~respectively.

~~Reclassifications—Certain reclassifications~~In ~~have~~June 2008, ~~been~~the ~~made~~FASB ratified the consensus on Emerging Issues Task Force (“EITF”) Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to ~~prior~~an ~~period~~Entity’s ~~amounts~~Own Stock” (“EITF 07-5”). An instrument or embedded feature that is both indexed to ~~conform~~an entity’s own stock and potentially settled in shares may be exempt, if certain other criteria are met, from mark-to-market accounting of derivative financial instruments. EITF 07-5 addresses instruments with contingent and other adjustment features that may change the exercise price or notional amount or otherwise alter the payoff at settlement. For example, instruments with strike prices in a currency other than our functional currency would not be indexed solely to our ordinary shares under EITF 07-5. We have both warrants and convertible ~~current~~ notes ~~period’s~~outstanding ~~presentation~~that are exercisable or convertible into our ordinary shares. We do not expect EITF 07-5, which is effective for fiscal years beginning after December 15, 2008, to have a material effect on our consolidated statement of financial position, results of operations or cash flows after adoption.

7In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 clarifies that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. We are currently assessing the impact of FSP EITF 03-6-1 on our consolidated financial position and results of operations.

~~Table~~ 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 ~~Contents~~financial position, results of operations or cash flows.

~~TRANSOCEAN INC.~~Note 3—Merger ~~AND~~with ~~SUBSIDIARIES~~GlobalSantaFe Corporation

~~NOTES TO~~Completed ~~CONDENSED~~in ~~CONSOLIDATED~~November 2007, ~~STATEMENTS~~we ~~(Continued)~~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.

~~(Unaudited)~~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 Transocean 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.

~~In February~~The ~~2006,~~purchase weprice ~~completed~~included, ~~the~~at ~~sale~~estimated offair ~~the~~value, ~~drillship~~current ~~Peregrine III~~assets ~~for net proceeds~~ of $782.71 ~~million~~billion, ofdrilling ~~which~~and ~~$7.8~~other ~~million~~property ~~was~~and ~~received~~equipment inof ~~December~~$12.3 billion, ~~2005 and~~intangible ~~reflected~~assets asof ~~unearned~~$434 million, ~~income in~~ other ~~current~~assets ~~liabilities~~of in$98 million ~~our consolidated~~and ~~balance~~the ~~sheet.~~assumption Weof ~~recognized~~current aliabilities ~~gain~~of on$607 million, ~~the~~long-term ~~sale~~debt of $~~61.9~~ 576 million ~~($40.2~~ ~~million,~~and orother ~~$0.12~~long-term ~~per~~liabilities ~~diluted share, net~~ of ~~tax)~~$2.4 billion. inThe ~~the first quarter~~excess of ~~2006.~~ Atthe ~~December~~purchase ~~31,~~price ~~2005,~~over ~~this~~the ~~drillship~~estimated ~~was~~fair ~~classified~~value asof ~~held~~net ~~for~~assets ~~sale in the~~acquired ~~amount~~was of $126.32 billion, ~~million~~which ~~and~~has ~~was~~been ~~included~~accounted infor ~~other~~as ~~current assets in our consolidated balance sheet~~goodwill.

~~In March 2006~~During the six months ended June 30, 2008, we ~~completed~~made adjustments to the ~~sale~~estimated fair value of acertain ~~platform~~assets ~~rig~~and ~~for~~liabilities with a corresponding net ~~proceeds~~adjustment ofto goodwill amounting to $~~10.1~~169 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 ~~recognized~~the aclosing ~~gain~~of onthe Merger close to our year-end, we are continuing our review of the ~~sale~~valuation of ~~$2.7~~property ~~million~~and ~~($0.01~~equipment, ~~per~~intangible ~~diluted~~assets, ~~share)~~liabilities, ~~which~~ ~~had~~evaluation noof tax ~~effect~~positions and contingencies.

In ~~March 2006,~~ weconnection ~~entered~~with ~~into~~the anMerger, ~~agreement~~we toacquired ~~sell~~drilling ~~the~~contracts ~~semisubmersible~~for ~~rig~~future ~~Transocean Explorer in connection~~contract ~~with~~drilling ~~our~~services ~~efforts to dispose~~ of ~~non-strategic assets. At March 31~~GlobalSantaFe, ~~2006,~~ ~~this~~some ~~rig~~of ~~was~~which ~~classified~~extend asthrough ~~held~~2016. ~~for~~These ~~sale~~contracts ininclude ~~the~~fixed ~~amount~~dayrates ofthat ~~$2.9~~may ~~million and included~~be inabove ~~other~~or ~~current~~below ~~assets~~dayrates inavailable ~~our condensed consolidated balance sheet.~~ in

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

~~Note 4―Repurchase of~~TRANSOCEAN ~~Ordinary~~INC. ~~Shares~~AND SUBSIDIARIES

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

~~Note 5―Income Taxes~~ (Unaudited)

~~We are~~the ~~a Cayman~~market ~~Islands~~as ~~company~~of ~~and~~the wedate ~~are~~of ~~not~~the ~~subject~~Merger tofor ~~income~~similar ~~tax~~contracts. inAfter determining the ~~Cayman Islands.~~fair Wevalues ~~operate~~of ~~through~~these ~~our~~drilling ~~various~~contracts ~~subsidiaries~~as inof athe ~~number~~date of ~~countries throughout~~ the ~~world.~~Merger, ~~Income~~we ~~taxes~~recorded ~~have~~the ~~been~~respective ~~provided~~market ~~based~~adjustments ~~upon~~on ~~the~~our ~~tax~~consolidated ~~laws and~~balance ~~rates~~sheet inas ~~the~~intangible ~~countries~~assets inand ~~which~~liabilities ~~operations~~that ~~are~~we ~~conducted~~will ~~and~~amortize ~~income~~into ~~is earned.~~contract ~~There~~intangible isrevenues nousing ~~expected~~the ~~relationship~~straight-line ~~between~~method over the ~~provision~~respective ~~for~~contract orperiods. ~~benefit~~In the ~~from~~ three ~~income~~and ~~taxes~~six ~~and~~months ~~income~~ended orJune 30, ~~loss~~2008, ~~before~~we ~~income~~recognized ~~taxes~~$190 million ~~because~~and ~~the~~$414 million ~~countries~~ in ~~which~~contract weintangible ~~operate~~revenues. ~~have~~The ~~taxation~~carrying ~~regimes~~values ~~that~~were ~~vary~~$123 million ~~not~~and ~~only with respect to nominal rate~~$179 million, ~~but~~recorded ~~also~~ in ~~terms~~other ofassets, ~~the~~and ~~availability~~$914 million ~~of deductions, credits~~ and ~~other~~ ~~benefits~~$1.4 billion, ~~Variations~~recorded ~~also~~in ~~arise~~other ~~when~~long-term ~~income~~liabilities, ~~earned~~on ~~and~~our ~~taxed~~consolidated inbalance ~~a particular~~sheets ~~country~~at orJune 30, ~~countries~~2008 ~~fluctuates~~and ~~from~~December 31, ~~year~~2007, ~~to year~~respectively.

~~The estimated~~Additionally, ~~annual~~we ~~effective~~identified ~~tax~~intangible ~~rate~~assets ~~for~~associated with the ~~three~~trade ~~months~~name, ~~ended~~customer ~~March~~relationships ~~31,~~and ~~2006 was~~contract ~~based~~backlog onof ~~estimated~~our ~~2006~~drilling ~~annual~~management ~~income~~services ~~before~~business. ~~income~~We ~~taxes~~consider ~~and~~the ~~minority interest~~ADTI trade name to be an indefinite life intangible asset, ~~after~~which ~~adjusting~~will ~~for~~not ~~certain~~be ~~items~~amortized ~~such~~and aswill ~~net~~be ~~gains~~subject onto ~~rig~~an ~~sales~~annual impairment test. The customer relationships and contract backlog have definite ~~estimated~~ lifespans ~~annual~~and ~~effective~~will ~~tax~~each ~~rate~~be ~~for~~amortized ~~the~~over ~~three~~their estimated useful lives of 15 years and three months, ~~ended~~respectively. ~~March~~At December 31, ~~2005 was~~2007, ~~based~~the oncarrying ~~estimated~~values ~~2005~~of ~~annual~~these ~~income~~intangibles ~~before~~were ~~income~~$76 million, ~~taxes~~$145 million and ~~minority interest~~$11 million ~~after~~for ~~adjusting~~the ~~for~~trade ~~certain~~name, ~~items~~customer ~~such~~relationships asand acontract ~~gain~~backlog, ~~related~~respectively. toAt June 30, 2008, the ~~disposition~~ ofcarrying ~~TODCO~~values (aof ~~former~~these ~~wholly-owned~~intangibles ~~subsidiary)~~were $76 million and ~~loss~~$142 million onfor ~~retirement~~the trade name and customer relationships, of the ~~debt.~~contract backlog having been fully amortized during the six months then ended.

8Unaudited pro forma combined operating results of Transocean and GlobalSantaFe assuming the Transactions were completed as of January 1, 2007 are as follows (in millions, except per share data):

Table of Contents

	Six months ended June 30, 2007
Operating revenues	$	5,183
Operating income		2,189
Income from continuing operations		1,393
Earnings per share
Basic	$	4.48
Diluted	$	4.34

~~TRANSOCEAN~~The unaudited pro forma financial information includes adjustments for additional depreciation based on the fair market value of the drilling and other property and equipment acquired, amortization of intangibles arising from the Merger, increased interest expense for debt assumed in the Merger and related adjustments for income taxes. The unaudited pro forma financial information has ~~INC~~ not been adjusted for additional charges and expenses or for other potential cost savings and operational efficiencies that may be realized as a result of the Transactions. ~~AND~~The ~~SUBSIDIARIES~~unaudited pro forma financial information is not necessarily indicative of the result of operations had the Transactions been completed on the assumed date or the results of operations for any future periods.

~~NOTES TO~~- ~~CONDENSED~~8 ~~CONSOLIDATED STATEMENTS (Continued)~~-

~~(Unaudited)~~TRANSOCEAN INC. AND SUBSIDIARIES

~~Our income~~NOTES ~~tax~~TO ~~returns~~CONDENSED ~~are~~CONSOLIDATED ~~subject~~FINANCIAL toSTATEMENTS review and examination in the various jurisdictions in which we operate. We are currently contesting various tax assessments. We accrue for income tax contingencies that we believe are probable exposures.(Continued)

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

~~In April 2006,~~Note 4—Drilling weFleet ~~received~~Expansion ~~notice from the Norwegian tax authorities regarding their intent to propose adjustments to taxable income for the tax years 1999, 2001~~ and ~~2002.~~ These proposed assessments would result in an increase in tax of approximately $260 million, plus interest, and the authorities further indicated they intend to impose penalties, which could range from 15 to 60 percent of the assessments. The anticipated assessments relate to restructuring transactions undertaken in 2001 and 2002. The Norwegian tax authorities initiated inquiries in September 2004 related to the restructuring transactions and a separate dividend payment made during 2001. In February 2005, we filed a response to these inquiries. In March 2005, pursuant to court orders, the Norwegian tax authorities took action to obtain additional information regarding these transactions. We have continued to respond to information requests from the Norwegian authorities. We also believe the Norwegian authorities are contemplating a tax assessment of approximately $98 million on the dividend, plus interest and a penalty, which could range from 15 to 60 percent of the assessment. Norwegian civil tax and criminal authorities are currently investigating the restructuring transactions and dividend. We plan to vigorously contest any assertions by the Norwegian authorities in connection with the restructuring transactions or dividend. While we cannot predict or provide assurance as to the final outcome of these proceedings, we do not expect it to have a material adverse effect on our consolidated financial position, results of operations or cash flows.Upgrades

~~In addition,~~Construction ~~other~~work ~~tax~~in ~~authorities~~progress, ~~are~~recorded ~~examining~~in ~~our~~property ~~tax~~and ~~returns~~equipment, inwas ~~various jurisdictions~~$4.0 billion ~~While~~and we$3.1 billion ~~cannot~~at ~~predict~~June 30, or2008 ~~provide~~and ~~assurance~~December 31, ~~as to the final outcome~~2007, werespectively. doThe ~~not~~following ~~expect~~table ~~the~~summarizes ~~ultimate~~actual ~~settlement~~capital ofexpenditures, ~~any~~including ~~liability~~capitalized ~~resulting from~~interest, ~~these~~for ~~existing or future assessments to have a material adverse effect on~~ our ~~consolidated~~major ~~financial~~construction ~~position,~~and ~~results~~conversion ofprojects ~~operations or cash flows.~~(in millions):

	Six months ended June 30, 2008		Through December 31, 2007		Total costs

Discoverer Luanda	$	125	$	107	$	232
Enhanced Enterprise-class drillship no. 5		114		—		114
HHI Newbuild Drillship (a)		109		109		218
Discoverer Inspiration		109		248		357
Dhirubhai Deepwater KG1 (b)		95		279		374
Discoverer Americas		97		301		398
Discoverer Clear Leader		75		409		484
Sedco 700-series upgrades		73		396		469
GSF Development Driller III (a)		74		369		443
Dhirubhai Deepwater KG2 (b)		—		179		179
Petrobras 10000 (c)		—		—		—
Capitalized interest		59		92		151
Total	$	930	$	2,489	$	3,419

~~Table of Contents~~______________________

~~TRANSOCEAN INC.~~(a) ~~AND~~Total ~~SUBSIDIARIES~~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.

~~NOTES TO~~(b) ~~CONDENSED~~The ~~CONSOLIDATED~~costs ~~STATEMENTS~~for Dhirubhai Deepwater KG1 and Dhirubhai Deepwater KG2, formerly named Deepwater Pacific 1 and Deepwater Pacific 2, respectively, represent 100 percent of expenditures incurred (~~Continued~~$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.

(~~Unaudited~~c) In June 2008, we reached an agreement with subsidiaries of Petrobras and Mitsui to acquire a newbuild Ultra-Deepwater Floater, Petrobras 10000, under a capital lease contract. The capital lease contract, which is expected to commence in the third quarter of 2009, has a 20-year term, after which we will have the right and obligation to acquire the drillship for one dollar. Total capital costs to be incurred by Petrobras and Mitsui for the construction of the drillship are estimated to be $750 million, including $65 million of capitalized interest. Upon delivery of the rig, we will record a liability for the capital lease obligation and a corresponding addition to property and equipment.

~~Debt, net of~~Note 5—Asset ~~unamortized discounts, premiums and fair value adjustments, is comprised of the following (in millions):~~ Dispositions

	March 31,		December 31,
	2006		2005
6.625% Notes, due April 2011	$	182.3	$	183.0
7.375% Senior Notes, due April 2018		246.9		246.9
Zero Coupon Convertible Debentures, due May 2020 (put options exercisable May 2008 and May 2013)		17.6		17.5
1.5% Convertible Debentures, due May 2021 (put options exercisable May 2006, May 2011 and May 2016) (a)		400.0		400.0
8% Debentures, due April 2027		56.8		56.8
7.45% Notes, due April 2027 (put options exercisable April 2007)		95.3		95.3
7.5% Notes, due April 2031		597.7		597.6
Total Debt		1,596.6		1,597.1
Less Debt Due Within One Year (a)		400.0		400.0
Total Long-Term Debt	$	1,196.6	$	1,197.1

During the six months ended June 30, 2008, we completed the sale of three of our Standard Jackups (GSF High Island VIII, GSF Adriatic III and GSF High Island I). We received cash proceeds of $320 million associated with the sales, which had no effect on earnings.

~~______________~~In May 2008, we entered into a definitive agreement to sell our Standard Jackup Transocean Nordic for cash proceeds of $169 million. We expect to complete the transaction during the third quarter of 2008 upon completion of the drilling contract under which Transocean Nordic currently operates.

In February 2008, we announced our intent to proceed with divestitures of two Midwater Floaters (aGSF Arctic II and GSF Arctic IV) ~~The~~in 1connection with our previously announced undertakings to the Office of Fair Trading in the U.5%K. ~~Convertible~~At ~~Debentures~~June 30, ~~are~~2008, GSF Arctic II and GSF Arctic IV were classified as ~~debt~~assets ~~due~~held ~~within~~for ~~one~~sale ~~year~~in ~~since~~ the ~~holders~~amounts ~~can~~of ~~exercise~~$280 million ~~their~~and ~~right~~$286 million, torespectively, ~~require~~on usour toconsolidated ~~repurchase~~balance ~~the~~sheet. ~~debentures~~See inNote ~~May~~14—Subsequent ~~2006~~Events.

~~The scheduled~~- ~~maturity~~9 of our debt assumes the bondholders exercise their rights to require us to repurchase the 1.5% Convertible Debentures, 7.45% Notes and Zero Coupon Convertible Debentures in May 2006, April 2007 and May 2008, respectively. The scheduled maturities are at face value except for the Zero Coupon Convertible Debentures, which are included at the price we would be required to pay should the bondholders exercise their right to require us to repurchase the debentures in May 2008. The scheduled maturities are as follows (in millions):-

	Twelve Months Ending March 31,
2007	$	400.0
2008		100.0
2009		19.0
2010		-
2011		-
Thereafter		1,069.4
Total	$	1,588.4

TRANSOCEAN INC. AND SUBSIDIARIES

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

10(Unaudited)

~~Table~~ During the six months ended June 30, 2007, we completed the sale of ~~Contents~~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).

~~TRANSOCEAN INC.~~Note 6—Repurchase ~~AND~~of ~~SUBSIDIARIES~~Ordinary Shares

~~NOTES~~During the six months ended June 30, 2007, we repurchased and retired 5.2 million aggregate ordinary shares for $400 million at an average purchase price of $77.39 per share. The number of shares purchased and average purchase price have not been restated to reflect the effects of the Reclassification in connection with the Merger. There were no repurchases during the three months TOended ~~CONDENSED~~June ~~CONSOLIDATED~~30, ~~STATEMENTS~~2007 ~~(Continued)~~or the three and six months ended June 30, 2008.

~~(Unaudited)~~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 June 30, 2008, we had authority to repurchase $600 million of our ordinary shares under our share repurchase program.

In January 2003, we terminated all our outstanding interest rate swaps, which were designated as fair value hedges, and recognized $173.5 million as a fair value adjustment to the underlying long-term debt in our consolidated balance sheet. We amortize this amount as a reduction to interest expense over the remaining life of the underlying debt. During the three months ended March 31, 2006 and 2005, such reduction amounted to $0.8 million and $3.9 million ($0.01 per diluted share), respectively. As a result of the redemption of our 6.95% Senior Notes in March 2005, we recognized $13.2 million ($0.08 per diluted share) of the unamortized fair value adjustment, which had no tax effect, as a reduction to our loss on redemption of debt (see Note 7—Income ~~6). At March 31, 2006 and December 31, 2005, the remaining balance to be amortized was $17.1 million and $17.9 million, respectively, and related to the 6.625% Notes due April 2011.~~Taxes

AtWe 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. ~~March 31~~ Due to the fact that the countries in which we operate have taxation regimes with varying nominal rates, ~~2006~~deductions, credits and ~~December~~other ~~31,~~tax ~~2005~~attributes, wethere ~~had~~is no ~~outstanding~~expected ~~interest~~relationship ~~rate swaps~~between the provision for or benefit from income taxes and income or loss before income taxes.

~~Note 8―Earnings Per~~The ~~Share~~estimated annual effective tax rate for the six months ended June 30, 2008 and June 30, 2007 was 12.5 percent and 14.9 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.

~~The reconciliation~~During of the ~~numerator~~six ~~and~~months ~~denominator~~ended ~~used~~June 30, 2008, our liability for ~~the~~unrecognized ~~computation~~tax benefits increased by $58 million to a total of ~~basic~~ $482 million, including interest and ~~diluted~~penalties. ~~earnings~~We ~~per~~accrue ~~share~~interest isand penalties related to our liabilities for unrecognized tax benefits as ~~follows~~a ~~(in~~component ~~millions~~of income tax expense. For the six months ended June 30, ~~except~~2008, ~~per~~we increased the liability ~~share~~ related ~~data):~~to interest and penalties on our unrecognized tax benefits by $20 million.

	Three Months Ended March 31,
	2006		2005
Numerator for Basic Earnings per Share
Net Income for basic earnings per share	$	205.7	$	91.8
Numerator for Diluted Earnings per Share
Net Income	$	205.7	$	91.8
Add back interest expense on the 1.5% convertible debentures		1.6		-
Net Income for diluted earnings per share	$	207.3	$	91.8
Denominator for Diluted Earnings per Share
Weighted-average shares outstanding for basic earnings per share		325.4		323.6
Effect of dilutive securities:
Employee stock options and unvested stock grants		3.5		4.7
Warrants to purchase ordinary shares		2.9		2.7
1.5% convertible debentures		5.5		-
Adjusted weighted-average shares and assumed conversions for diluted earnings per share		337.3		331.0
Basic Earnings Per Share
Net Income	$	0.63	$	0.28
Diluted Earnings Per Share
Net Income	$	0.61	$	0.28

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 six months ended June 30, 2008 from the settlement of disputes with tax authorities and the expiration of statute of limitations was insignificant.

~~Ordinary shares~~With ~~subject~~respect to ~~issuance~~our ~~pursuant~~2004 toand ~~the~~2005 ~~conversion~~U.S. ~~features~~federal ofincome ~~the~~tax ~~Zero Coupon~~returns, ~~Convertible~~U.S. ~~Debentures~~taxing ~~are~~authorities ~~not~~previously ~~included~~proposed certain adjustments that, if sustained, would have resulted in ~~the~~a ~~calculation~~cash tax liability of ~~adjusted weighted-average~~approximately ~~shares~~$413 million, ~~and~~exclusive ~~assumed~~of ~~conversions~~interest. ~~for~~The ~~diluted~~tax ~~earnings~~authorities ~~per~~have ~~share because~~now ~~the~~withdrawn ~~effect~~one of ~~including~~these ~~those~~proposed ~~shares~~adjustments, iswhich ~~anti-dilutive~~will ~~for~~significantly ~~all~~reduce ~~periods~~the proposed assessment. The ~~presented~~ authorities continue to contend that one of our key subsidiaries maintains a permanent establishment in the U.S. ~~Ordinary~~and ~~shares~~is therefore subject to ~~issuance~~U.S. ~~pursuant~~taxation toon ~~the~~certain ~~conversion feature~~earnings ofeffectively ~~the~~connected 1to such U.5%S. ~~Convertible~~business. ~~Debentures~~Such ~~are~~tax treatment would not ~~included~~result in ~~the~~a ~~calculation~~ material adverse effect on our consolidated statement of ~~adjusted~~financial ~~weighted-average~~position, ~~shares~~results of operations or cash flows with respect to 2004 and ~~assumed~~2005 ~~conversions~~activities. ~~for~~We ~~diluted~~believe ~~earnings~~our returns are materially correct as filed, and we will ~~per~~ continue ~~share~~to ~~for~~vigorously ~~the~~defend ~~three~~against ~~months~~all ~~ended~~proposed ~~March~~changes. ~~31,~~The tax authorities’ audit of GlobalSantaFe’s 2004 and 2005 ~~because~~U.S. federal income tax returns was closed during the ~~effect~~quarter ~~of including~~without ~~those~~giving ~~shares~~rise isto ~~anti-dilutive.~~a material tax liability.

11Certain 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 $77 million of interest through June 30, 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.

~~Table~~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 ~~Contents~~these losses will not be realized. As of June 30, 2008, the valuation allowance for non-current deferred tax assets was $29 million.

~~TRANSOCEAN INC.~~- ~~AND~~10 ~~SUBSIDIARIES~~-

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (~~Unaudited~~Continued)

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

~~In 1990 and~~Norwegian ~~1991,~~civil ~~two~~tax ofand ~~our~~criminal ~~subsidiaries~~authorities ~~were~~are ~~served~~investigating ~~with~~ various ~~assessments collectively~~transactions ~~valued~~undertaken atby ~~approximately~~our ~~$10~~subsidiaries ~~million~~in ~~from~~2001 ~~the~~and ~~municipality of Rio de Janeiro, Brazil to collect a municipal tax on services~~2002. WeThe ~~believe~~authorities ~~that~~have ~~neither subsidiary~~issued isnotifications ~~liable~~of ~~for~~their ~~the~~intent ~~taxes~~to ~~and~~issue ~~have~~tax ~~contested the~~ assessments inof ~~the Brazilian~~approximately ~~administrative~~$310 million, ~~and~~plus ~~court~~interest, ~~systems.~~related Weto ~~have~~certain ~~received~~restructuring ~~several~~transactions, ~~adverse rulings~~approximately by$83 million, ~~various~~plus ~~courts~~interest, ~~with~~related ~~respect~~ to a ~~June~~2001 ~~1991 assessment, which is~~dividend ~~valued~~ payment atand approximately $98 million. Werelated ~~are~~to ~~continuing~~certain toforeign ~~challenge~~exchange ~~the assessment,~~deductions. ~~however,~~The ~~and~~authorities have anindicated ~~action to stay execution of a related tax foreclosure proceeding. We expect~~ that ~~the~~they ~~government~~plan ~~will~~to ~~attempt~~seek topenalties ~~enforce the~~of ~~judgment~~60 percent on ~~this~~all ~~assessment~~matters. ~~and~~In ~~that~~ the ~~amount~~course ~~claimed~~of ~~may~~its ~~exceed~~investigations, the ~~amounts~~ weNorwegian ~~believe~~authorities ~~are~~secured atcertain ~~issue.~~records Welocated ~~received a favorable ruling~~ in ~~connection with a disputed August 1990 assessment and~~ the ~~government~~United ~~has~~Kingdom ~~lost~~related ~~what is expected~~ to bea ~~its~~Norwegian ~~final~~subsidiary ~~appeal~~that ~~with~~was ~~respect~~previously subject to ~~that~~tax ~~ruling~~in Norway. WeThe ~~also~~authorities are ~~awaiting~~ aevaluating ~~ruling~~whether ~~from~~to ~~the~~impose ~~Taxpayer's~~additional ~~Council~~taxes inon ~~connection~~this ~~with~~Norwegian ~~an October 1990 assessment~~subsidiary. IfWe ~~our~~have ~~defenses are ultimately unsuccessful, we believe that the~~and ~~Brazilian~~ will ~~government-controlled~~continue ~~oil~~to ~~company,~~respond ~~Petrobras, has a contractual obligation~~ to ~~reimburse~~all usinformation ~~for~~requests ~~municipal~~from ~~tax~~the ~~payments~~Norwegian authorities. We doplan ~~not~~to ~~expect~~vigorously ~~the liability,~~contest if any, ~~resulting~~assertions ~~from~~by ~~these~~the ~~assessments~~Norwegian toauthorities ~~have~~in aconnection ~~material~~with ~~adverse effect~~the onvarious ~~our~~transactions ~~consolidated~~being ~~financial position, results of operations or cash flows~~investigated.

~~The Indian~~During ~~Customs Department, Mumbai, filed a “show cause notice” against one of our subsidiaries and various third parties in July 1999. The show cause notice alleged that~~ the ~~initial~~six ~~entry~~months ~~into~~ended India in 1988 and other subsequent movements of the Trident II jackup rig operated by the subsidiary constituted imports and exports for which proper customs procedures were not followed and sought payment of customs duties of approximately $31 million based on an alleged 1998 rig value of $49 millionJune 30, ~~plus~~ ~~interest and penalties~~2008, ~~and~~our ~~confiscation~~long-term ofliability ~~the~~for ~~rig.~~unrecognized Intax ~~January~~benefits ~~2000, the Customs~~related ~~Department issued its order, which found that we had imported the rig improperly and intentionally concealed the import from the authorities, and directed us~~ to ~~pay~~these aNorwegian ~~redemption~~tax ~~fee~~issues ofincreased ~~approximately~~by $317 million ~~for the rig in lieu of confiscation and~~ to ~~pay penalties of approximately~~ $1 185 million ~~in addition~~due to the ~~amount~~accrual of ~~customs~~interest ~~duties owed. In February 2000, we filed an appeal with the Customs, Excise~~ and ~~Service~~exchange ~~Tax~~rate ~~Appellate Tribunal (“CESTAT”) together with an application to have the confiscation of the rig stayed pending the outcome of the appeal~~fluctuations. InWhile ~~March~~we ~~2000,~~cannot ~~the~~predict CESTAT ruled on the stay application, directing that the confiscation be stayed pending the appeal. The CESTAT issued its order on our appeal on February 2, 2001, and while it found that the rig was imported in 1988 without proper documentation or ~~payment~~provide ~~of duties,~~assurance the redemption fee and penalties were reduced to less than $0.1 million in view of the ambiguity surrounding the import practice at the time and the lack of intentional concealment by us. The CESTAT further sustained our position regarding the value of the rig at the time of import as ~~$13 million and ruled that subsequent movements of the rig were not liable~~ to ~~import documentation or duties in view of~~ the ~~prevailing~~final ~~practice~~outcome of ~~the~~these ~~Customs Department~~proceedings, ~~thus limiting~~we ~~our~~do ~~exposure as to custom duties to approximately $6 million. Although CESTAT did~~ not ~~grant~~expect us the ~~benefit~~ultimate ofresolution ~~a customs duty exemption due to the~~of ~~absence~~ these ofmatters ~~the required documentation, CESTAT left it open for our subsidiary~~ to ~~seek~~ ~~such~~have ~~documentation from the Ministry of Petroleum. Following the CESTAT order, we tendered payment of redemption, penalty and duty in the amount specified by the order by offset against~~ a ~~$0.6~~material ~~million~~adverse ~~deposit~~effect and $10.7 million guarantee previously made by us. The Customs Department attempted to draw the entire guarantee, alleging the actual duty payable is approximately $22 million based on an interpretation of the CESTAT order that we believe is incorrect. This action was stopped by an interim ruling of the High Court, Mumbai on writ petition filed by us. We and the Customs Department both filed appeals with the Supreme Court of India against the order of the CESTAT, and both appeals were admitted. The Supreme Court has dismissed the Customs Department appeal and affirmed the CESTAT order but the Customs Department has not agreed with our ~~interpretation~~consolidated ofstatement ~~that order. We are contesting their interpretation. We and our customer agreed to pursue and obtained the issuance~~ of ~~the~~financial ~~required~~position ~~documentation~~or ~~from~~results ~~the Ministry~~ of ~~Petroleum that~~operations, ifalthough ~~accepted by~~it ~~the~~may Customs Department, would reduce the duty to nil. The Customs Department did not accept the documentation or agree to refund the duties already paid. We are pursuing our remedies against the Customs Department and our customer. We do not expect the liability, if any, resulting from this matter to have a material adverse effect on our consolidated ~~financial position, results of operations or~~ cash flows.

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.

~~Table~~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 ~~Contents~~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 it utilizes, subsequent to the TODCO IPO.

~~TRANSOCEAN~~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 ~~INC~~ tax benefits as of July 11, 2007 by 80 percent. ~~AND~~In ~~SUBSIDIARIES~~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. Hercules disputed our claim for the additional amounts. On June 27, 2008, we made a formal demand for arbitration with respect to this dispute.

~~NOTES~~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 June 30, 2008 TO would ~~CONDENSED~~be ~~CONSOLIDATED~~approximately ~~STATEMENTS~~$25 million, assuming a price of $152.39 per ordinary share at the time of exercise of the options (~~Continued~~the actual price of our ordinary shares at the close of trading on June 30, 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.

~~(Unaudited)~~Through June 30, 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.

~~In October~~- ~~2001,~~11 TODCO was notified by the U.S. Environmental Protection Agency (“EPA”) that the EPA had identified a subsidiary as a potentially responsible party in connection with the Palmer Barge Line superfund site located in Port Arthur, Texas. Based upon the information provided by the EPA and a review of TODCO's internal records to date, TODCO disputes its designation as a potentially responsible party. Pursuant to the master separation agreement with TODCO, we are responsible and will indemnify TODCO for any losses TODCO incurs in connection with this action. We do not expect the liability, if any, resulting from this matter to have a material adverse effect on our consolidated financial position, results of operations or cash flows.-

~~In August 2003,~~TRANSOCEAN ~~a judgment of approximately $9~~INC.5 ~~million~~AND was entered by the Labor Division of the Provincial Court of Luanda, Angola, against us and one of our labor contractors, Hull Blyth, in favor of certain former workers on several of our drilling rigs. The workers were employed by Hull Blyth to work on several drilling rigs while the rigs were located in Angola. When the drilling contracts concluded and the rigs left Angola, the workers’ employment ended. The workers brought suit claiming that they were not properly compensated when their employment ended. In addition to the monetary judgment, the Labor Division ordered the workers to be hired by us. We believe that this judgment is without sufficient legal foundation and have appealed the matter to the Angola Supreme Court. We further believe that Hull Blyth has an obligation to protect us from any judgment. We do not expect the liability, if any, resulting from this matter to have a material adverse effect on our consolidated financial position, results of operations or cash flows.SUBSIDIARIES

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

13(Unaudited)

~~Table of Contents~~Note 8—Debt

~~TRANSOCEAN INC.~~Debt, ~~AND~~net ~~SUBSIDIARIES~~of unamortized discounts, premiums and fair value adjustments, is comprised of the following (in millions):

NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)

	June 30,		December 31,
	2008		2007

Commercial paper program (a)	$	1,145		$	—
Floating Rate Notes due September 2008 (a)		1,000			1,000
Bridge Loan Facility due November 2008 (a)		—			3,670
364-Day Revolving Credit Facility due December 2008 (a)		—			1,500
Term Loan A due March 2010		2,000			—
6.625% Notes due April 2011		175			177
Five-Year Revolving Credit Facility due November 2012		—			—
5% Notes due February 2013		248			246
5.25% Senior Notes due March 2013		499			499
6.00% Senior Notes due March 2018		997			997
7.375% Senior Notes due April 2018		247			247
Capital lease obligation due July 2026 (b)		16			17
8% Debentures due April 2027		57			57
7.45% Notes due April 2027		96			95
7% Senior Notes due June 2028		313			314
7.5% Notes due April 2031		598			598
1.625% Series A Convertible Senior Notes due December 2037		2,200			2,200
1.50% Series B Convertible Senior Notes due December 2037		2,200			2,200
1.50% Series C Convertible Senior Notes due December 2037		2,200			2,200
6.80% Senior Notes due March 2038		999			999
Debt to affiliates		289			241
Total debt		15,279			17,257
Less debt due within one year (a)(b)		2,145			6,172
Total long-term debt	$	13,134		$	11,085

~~(Unaudited)~~______________

~~We have~~ (a ~~dispute~~) ~~with~~The ~~TODCO~~Floating ~~concerning~~Rate ~~payment~~Notes, to364-Day usRevolving ~~under~~Credit ~~our~~Facility tax sharing agreement with TODCO for the tax benefit that TODCO derives from exercises of options to purchase our ordinary shares held by employees of TODCO. An arbitration proceeding that was initiated in January 2006 continues and iscommercial ~~expected~~paper ~~to be concluded~~program ~~during 2006. We~~ are ~~seeking~~classified ~~payment~~as ofdebt ~~the~~due ~~amount~~within ofone ~~tax~~year. ~~benefits derived~~The ~~from~~Bridge ~~exercises~~Loan ofFacility ~~options~~was toclassified ~~purchase~~as ~~our~~debt ~~ordinary~~due ~~shares~~within byone ~~employees of~~year ~~TODCO who were not on the payroll of TODCO~~ at ~~the~~December time of exercise and a declaration that TODCO pay us for the benefit derived from such exercises in the future. TODCO is seeking to avoid such payment and is asking that the entire tax sharing agreement be voided. TODCO also filed suit in Houston in the district court of the State of Texas in January 2006 seeking to set aside the arbitration provision and to void the entire tax sharing agreement. We believe TODCO owes us approximately $18.0 million, exclusive of interest, based on options exercised through March 31, ~~2006, and we do not believe TODCO’s attempts to void the tax sharing agreement have merit~~2007. ~~We do not expect the outcome of this matter to have a material adverse effect on our consolidated financial position, results of operations or cash flows.~~

~~We are involved~~(b) inThe acapital ~~number~~lease ofobligation ~~other~~had ~~lawsuits,~~less ~~all~~than of$1 ~~which~~million ~~have~~and ~~arisen~~$2 inmillion ~~the~~classified ~~ordinary course~~as ofdebt ~~our~~due ~~business.~~within Weone doyear ~~not~~at ~~expect~~June ~~the liability~~30, if2008 ~~any,~~and ~~resulting~~December ~~from these~~31, ~~matters to have a material adverse effect on our consolidated financial position~~2007, ~~results of operations or cash flows~~respectively. ~~We are also involved in various tax matters (see Note 5).~~

~~Self Insurance—We are self-insured~~The ~~for~~scheduled ~~the~~maturity ~~deductible portion~~ of our ~~insurance~~debt ~~coverage.~~assumes In the ~~opinion~~ ofbondholders ~~management,~~exercise ~~adequate~~their ~~accruals~~options ~~have~~to ~~been~~require ~~made~~us ~~based~~to onrepurchase ~~known~~the 1.625% Series A, 1.50% Series B and ~~estimated~~ ~~exposures~~1.50% Series C upConvertible toSenior ~~the~~Notes ~~deductible~~in ~~portion~~December 2010, of2011 ~~our~~and ~~insurance~~2012, ~~coverages~~respectively. ~~Management~~ ~~believes~~The ~~that~~scheduled ~~claims~~maturities, ~~and~~presented ~~liabilities~~using inthe ~~excess~~face value of ~~the~~our ~~amounts~~debt, ~~accrued~~ are ~~adequately~~as ~~insured.~~follows (in millions):

Letters of Credit and Surety Bonds—We had letters of credit outstanding totaling $355.1 million and $313.8 million at March 31, 2006 and December 31, 2005, respectively. These letters of credit guarantee various contract bidding and performance activities under various uncommitted lines provided by several banks.

Twelve months ending June 30,
2009	$	2,145
2010		2,000
2011		2,200
2012		2,366
2013		2,951
Thereafter		3,607
Total	$	15,269

~~As is customary~~- in12 the contract drilling business, we also have various surety bonds in place that secure customs obligations relating to the importation of our rigs and certain performance and other obligations. Surety bonds outstanding totaled $6.4 million and $8.0 million at March 31, 2006 and December 31, 2005, respectively. -

~~Note 10―Stock-Based Compensation~~TRANSOCEAN INC. AND SUBSIDIARIES

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

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

14Commercial 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. At June 30, 2008, $1.1 billion in commercial paper was outstanding at a weighted-average interest rate of 3.0 percent.

~~Table~~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 of applicable ~~Contents~~margin, which was based upon our non-credit enhanced senior unsecured long-term debt rating (“Debt Rating”). In June 2008, we repaid the then outstanding balance and terminated this facility.

~~TRANSOCEAN~~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 ~~INC~~loan rate or (b) the federal funds effective rate plus 0.50 percent, ~~AND~~or ~~SUBSIDIARIES~~(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 June 30, 2008, no amounts were outstanding under this facility.

~~NOTES~~Term Loan A—In March 2008, we entered into a term credit facility (“Term Loan”) and borrowed $1.925 billion under the facility. In April 2008, we borrowed an additional $75 million, increasing the borrowings under this facility to $2.0 billion, the maximum allowed under the Term Loan. Borrowings may be made under the TOfacility ~~CONDENSED~~(1) at ~~CONSOLIDATED~~the ~~STATEMENTS~~base rate, determined as the greater of (~~Continued~~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 June 30, 2008, we had $2.0 billion outstanding under this credit facility at a weighted average interest rate of 3.15 percent.

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 (~~Unaudited~~“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 June 30, 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 June 30, 2008, no borrowings were outstanding under this facility.

Under SFAS 123, we based expected volatility solely on historical data. Upon the adoption of SFAS 123R, we began using a blended volatility for the volatility assumption. We changed the calculation of our volatility to better reflect our expectation of how our stock will react to the future cyclicality of our industry. The blended volatility is calculated using two components. The first component is derived from volatility computed from historical data for a period of time approximately equal to the expected term of the stock option, starting from the date of grant. The second component is implied volatility derived from our ‘at-~~the-money’~~ ~~long~~13 dated call options with a term of six months or longer. The two components are equally weighted creating a blended volatility. This change in estimate did not have a material effect on the financial statements.-

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

~~As of March~~NOTES ~~31,~~TO ~~2006,~~CONDENSED ~~total~~CONSOLIDATED ~~unrecognized~~FINANCIAL ~~compensation~~STATEMENTS ~~costs related to all nonvested share-based awards totaled $16.6 million, which is expected to be recognized over a weighted average period of 2.1 years.~~ (Continued)

~~Time-Based Vesting Awards~~(Unaudited)

~~Stock Options~~Note 9—~~The following~~Earnings ~~table~~per ~~summarizes time-based vesting stock option (“time-based options”) activity under the Incentive Plan as of March 31, 2006, and changes during the period then ended:~~Share

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

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):

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

	Three months ended June 30,				Six months ended June 30,
	2008		2007		2008		2007

Numerator for earnings per share
Net income for basic earnings per share	$	1,107	$	549	$	2,296	$	1,102
Add back interest expense on the 1.5% convertible debentures		—		2		—		4
Net income for diluted earnings per share	$	1,107	$	551	$	2,296	$	1,106

Denominator for earnings per share
Weighted-average shares outstanding for basic earnings per share		318		202		318		202
Effect of dilutive securities:
Stock options, appreciation rights and unvested stock grants		2		2		2		3
Warrants to purchase ordinary shares		1		2		1		2
1.5% convertible debentures		—		4		—		4
Adjusted weighted-average shares and assumed conversions for diluted earnings per share		321		210		321		211

Earnings per share
Basic	$	3.48	$	2.73	$	7.22	$	5.45
Diluted	$	3.45	$	2.63	$	7.15	$	5.24

~~The following~~Ordinary ~~table~~shares ~~summarizes~~subject ~~nonvested~~to ~~time-based~~issuance ~~option~~pursuant ~~activity~~to ~~under~~ the ~~Incentive~~ ~~Plan~~conversion asfeatures of ~~March~~the 311.625% Series A, ~~2006,~~1.50% Series B and ~~changes~~1.50% Series C ~~during~~Convertible Senior Notes did not have an effect on the ~~period~~calculation ~~then~~ for the three and six months ended: June 30, 2008.

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

Note 10—Contingencies

15Legal Proceedings—In 2004, several of our subsidiaries were named, along with numerous unaffiliated defendants, in 21 complaints that were filed in the Circuit Courts of the State of Mississippi involving approximately 750 plaintiffs that alleged 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 named as defendants certain subsidiaries of TODCO and certain subsidiaries of Sedco, Inc. to whom we may owe indemnity. Further, the complaints named other unaffiliated defendant companies, including companies that allegedly manufactured drilling related products containing asbestos. The complaints alleged that the defendants used asbestos-containing products in connection with drilling operations and included allegations of negligence, strict liability, and claims allowed under the Jones Act and general maritime law. The plaintiffs generally sought awards of unspecified compensatory and punitive damages. The Special Master who was appointed to oversee these cases required that each plaintiff file a separate amended complaint and then he dismissed the original 21 complaints. We believe that we may have a direct or indirect interest in 44 of the resulting complaints. We have not been provided with sufficient information in all claims to determine the period of the claimants’ exposure to asbestos, their medical condition or the vessels potentially involved in the claims. We historically have maintained broad liability insurance, but we are not certain whether our insurance will cover all liabilities arising out of the 44 claims. We intend to defend these lawsuits vigorously, but there can be no assurance as to their ultimate outcome.

~~Table~~ One of ~~Contents~~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

~~TRANSOCEAN INC.~~- ~~AND~~14 ~~SUBSIDIARIES~~-

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (~~Unaudited~~Continued)

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

~~Restricted Ordinary~~the ~~Shares—The following~~Sedco Forex ~~table~~merger, ~~summarizes~~the ~~nonvested~~drilling ~~share~~contract ~~activity~~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 ~~time-based~~another ~~vesting restricted~~year. ~~ordinary~~On ~~shares~~January 10, ~~(“time-based~~2000, ~~shares”)~~the temporary import permit granted ~~under~~to the ~~Incentive~~Schlumberger ~~Plan~~ entity asexpired, ofand ~~March~~renewal 31filings were not made until later that January. In April 2000, ~~2006~~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, ~~and~~the ~~changes~~court ~~during~~permitted the ~~period~~transfer ~~then~~of the temporary admission ~~ended:~~ 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 $155 million against our subsidiary.

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

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 June 30, 2008, the U.S. dollar equivalent of this assessment was approximately $251 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 was granted and we expect will 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.

~~The weighted-average~~In ~~grant-date~~the ~~fair~~third ~~value~~quarter of ~~time-based~~2006, ~~shares~~we ~~granted~~received ~~during~~ tax assessments of approximately $153 million from the ~~three~~ ~~months~~state ~~ended~~tax ~~March~~authorities ~~31,~~of ~~2006~~Rio ~~was~~de ~~$0.6~~Janeiro ~~million.~~in ~~There~~Brazil ~~were~~against ~~20,150~~one ~~time-based shares granted~~of ~~during~~our ~~the~~Brazilian ~~three~~subsidiaries ~~months~~for ~~ended~~customs ~~March~~taxes ~~31,~~on ~~2005,~~equipment imported into the state in connection with our operations. The assessments resulted from a preliminary finding by these authorities that our subsidiary’s ~~weighted-average~~ record ~~grant-date~~keeping ~~fair~~practices ~~value~~were deficient. We currently believe that the substantial majority of ~~$43~~these assessments are without merit.51 We filed an initial response with the Rio de Janeiro tax authorities on September 9, 2006 refuting these additional tax assessments. ~~The~~In ~~total~~September 2007, ~~fair~~we ~~value~~received ~~of time-based~~confirmation ~~shares~~from the state tax authorities that ~~vested~~they ~~during~~believe the ~~three~~additional ~~months~~tax ~~ended~~assessments ~~March~~are 31valid, ~~2006~~and as a result, we filed an appeal on September 27, 2007 to the state ~~was $0.3~~ Taxpayer’s ~~million~~Council contesting these assessments. NoWhile ~~time-based~~we ~~shares~~cannot ~~vested~~predict ~~during~~or provide assurance as to the ~~three~~final ~~months~~outcome ~~ended~~of ~~March 31~~these proceedings, ~~2005~~we do not expect it to have a material adverse effect on our consolidated statement of financial position, results of operations or cash flows.

~~Deferred Units—A deferred~~One ~~unit~~of our subsidiaries is ainvolved ~~unit~~in ~~that~~lawsuits isarising ~~equal~~out toof ~~one~~the ~~ordinary~~subsidiary’s ~~share~~involvement ~~but~~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 ~~voting~~remaining assets other than the insurance policies involved in its litigation, fundings from ~~rights~~ settlements ~~until~~with the ~~underlying~~primary ~~ordinary~~insurers ~~shares~~and ~~are~~funds ~~issued~~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~~ 31June 30, ~~2006~~2008, ~~our~~the ~~nonvested~~subsidiary ~~time-based~~was ~~deferred~~a ~~units~~defendant ~~outstanding~~in ~~totaled~~approximately 976 lawsuits, of which 102 were filed during 2007. Some of these lawsuits include multiple plaintiffs and we estimate that there are approximately 36 3,~~856~~219 plaintiffs in these lawsuits. For many of these lawsuits, we have not been provided with asufficient ~~weighted~~information ~~averaged~~from ~~grant~~the ~~date~~plaintiffs ~~fair~~to ~~value~~determine whether all or some of ~~$36~~the plaintiffs have claims against the subsidiary, the basis of any such claims, or the nature of their alleged injuries.~~18.~~ ~~There~~The ~~was no activity~~first of the asbestos-related lawsuits was filed against this subsidiary in 1990. Through June 30, 2008, the amounts expended to ~~grants~~resolve claims (including both attorneys’ fees and expenses, ~~vesting~~and orsettlement ~~forfeitures~~costs) ~~during~~have not been material, and all deductibles with respect to the ~~first~~primary ~~three~~insurance ~~months~~ have been satisfied. The subsidiary continues to be named as a defendant in additional lawsuits and we cannot predict the number of ~~2006~~additional cases in which it may be named a defendant nor can we predict the potential costs to resolve such additional cases or ~~2005~~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

~~SARs—The following table summarizes time~~-~~based~~ ~~vesting~~15 ~~SARs activity under the Incentive Plan as of March 31, 2006, and changes during the period then ended:~~-

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

TRANSOCEAN INC. AND SUBSIDIARIES

~~The total pretax~~NOTES ~~intrinsic~~TO ~~value~~CONDENSED ofCONSOLIDATED ~~SARs~~FINANCIAL ~~exercised~~STATEMENTS during the three months ended March 31, 2006 and 2005 was $0.6 million and $0.5 million, respectively. No SARs were granted during the three months ended March 31, 2006 and 2005. No SARs vested during the three months ended March 31, 2005. As of March 31, 2006, all SARs granted under the Incentive Plan are fully vested and expensed.(Continued)

16(Unaudited)

~~Table~~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 carriers available 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 ~~Contents~~financial position, results of operations or cash flows.

~~TRANSOCEAN~~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. ~~INC~~ 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. ~~AND~~There ~~SUBSIDIARIES~~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.

~~NOTES~~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 TO without ~~CONDENSED~~regard ~~CONSOLIDATED~~to ~~STATEMENTS~~fault. Potentially responsible parties (~~Continued~~“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 (~~Unaudited~~“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.

~~Performance-Based~~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 ~~Vesting~~ liabilities ~~Awards~~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.

~~Stock Options—The following~~We ~~table~~have ~~summarizes~~been ~~performance~~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-~~based~~day ~~vesting~~notification ~~stock~~that ~~option~~eight California cities, on behalf of themselves and other PRPs, intend to commence an action against us under the Resource Conservation and Recovery Act (“~~performance-based options~~RCRA”). ~~activity~~On ~~under~~April 1, 2002, a complaint was filed by the ~~Incentive~~cities ~~Plan~~against asus ofand ~~March~~others 31alleging that we have liabilities in connection with the site. However, ~~2006~~ the complaint has not been served. The site was closed in or around 1965, and ~~changes~~we ~~during~~do ~~the~~not ~~period~~have ~~then~~sufficient ~~ended~~information to enable us to assess our potential liability, if any, for this site.

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

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.

~~No performance-based~~One ~~options~~of ~~were~~our ~~granted~~subsidiaries ~~during~~was ~~the~~previously ~~three~~requested ~~months~~to ~~ended~~contribute ~~March 31~~approximately $140, ~~2006~~000 ~~and~~toward ~~2005.~~remediation ~~The~~costs ~~total~~of ~~pretax~~the ~~intrinsic~~Environmental ~~value~~Protection ofCorporation ~~performance-based~~(“EPC”) ~~options exercised~~Eastside ~~during~~Disposal ~~the~~Facility ~~three~~near ~~months~~Bakersfield, ~~ended~~California, ~~March~~by ~~31,~~a ~~2006~~company ~~was~~that ~~$4.4~~has ~~million.~~taken ~~No performance-based~~responsibility ~~options~~for ~~were~~site ~~exercised~~remediation ~~during~~from the ~~three~~California ~~months~~Department ~~ended~~of ~~March 31~~Toxic Substances Control. In July 2008, we settled our ~~2005~~ interest in the dispute for approximately $130,000.

~~The following table summarizes nonvested performance~~-~~based~~ ~~option~~16 ~~activity under the Incentive Plan as of March 31, 2006, and changes during the period then ended:~~-

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

TRANSOCEAN INC. AND SUBSIDIARIES

~~The total fair~~NOTES ~~value~~TO ofCONDENSED ~~performance-based~~CONSOLIDATED ~~options~~FINANCIAL ~~vested~~STATEMENTS ~~during the period ended March 31, 2006 was $3.5 million. No performance-based options vested during the period ended March 31, 2005.~~(Continued)

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

	Number of Shares Under Option			Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2006		1,242,829		$	35.56
2004 Performance-based shares converted to deferred units		(133,932	)		28.12
2005 Performance-based shares converted to deferred units		(103,152	)		56.34
Vested and distributed		(130,030	)		21.20
Forfeited		(2,364	)		21.20
Nonvested at March 31, 2006		873,351		$	36.42

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

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

~~Table of~~• ~~Contents~~appropriate investigatory and/or remedial actions; and

~~TRANSOCEAN INC.~~• ~~AND~~allocation ~~SUBSIDIARIES~~of the costs of such activities among the PRPs and other site users.

~~NOTES TO~~Our ~~CONDENSED~~ultimate ~~CONSOLIDATED~~financial ~~STATEMENTS~~responsibility ~~(Continued)~~in connection with those sites may depend on many factors, including:

~~(Unaudited)~~• the volume and nature of material, if any, contributed to the site for which we are responsible;

~~No performance-based~~• ~~shares were granted during~~ the ~~three~~numbers ~~months~~of ~~ended~~other ~~March 31, 2006~~PRPs and ~~2005.~~their ~~The~~financial ~~total~~viability; fair value of performance-based shares that vested during the three months ended March 31, 2006 was $2.8 million. No performance-based shares vested during the period ended March 31, 2005.and

	Number of Shares Under Option			Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2006		91,338		$	29.15
2004 Performance-based shares converted to deferred units		133,932			28.12
2005 Performance-based shares converted to deferred units		103,152			56.34
Vested and distributed		(13,790	)		21.20
Forfeited		(593	)		21.20
Nonvested at March 31, 2006		314,039		$	38.01

•

the remediation methods and technology to be used.

~~No performance-based~~It ~~units~~is ~~were~~difficult ~~granted~~to ~~during~~quantify with certainty the ~~three~~potential ~~months~~cost ~~ended~~of ~~March~~these 31environmental matters, ~~2006~~ ~~and~~particularly ~~2005.~~in ~~The~~respect ~~total~~of ~~fair~~remediation ~~value~~obligations. ofNevertheless, ~~performance-~~based ~~units~~upon the information currently available, we believe that ~~vested during~~our ~~the~~ultimate ~~period~~liability ~~ended~~arising ~~March~~from 31all environmental matters, ~~2006~~including ~~was~~the ~~$0.3~~liability ~~million.~~for Noall ~~performance-based~~other related pending legal proceedings, asserted legal claims and ~~units vested~~ known ~~during~~potential ~~the~~legal ~~period~~claims ~~ended~~which ~~March~~are 31likely to be asserted, ~~2005~~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.

~~Employee Stock~~Contamination ~~Purchase Plan~~Litigation—~~We provide~~On July 11, 2005, one of our subsidiaries was served with a lawsuit filed on behalf of three landowners in Louisiana in the ~~ESPP~~12th Judicial District Court for ~~certain~~the ~~full-time~~Parish ~~employees~~of Avoyelles, State of Louisiana. ~~Under~~The ~~the~~lawsuit ~~terms~~named ofnineteen ~~the~~other ~~ESPP~~defendants, ~~employees~~ ~~can~~all ~~choose~~of ~~each~~which ~~year~~were alleged to have ~~between~~contaminated ~~two~~the ~~and~~plaintiffs’ property 20with ~~percent~~naturally ofoccurring ~~their annual~~radioactive ~~base~~material, ~~earnings~~produced ~~withheld~~water, todrilling ~~purchase~~fluids, upchlorides, ~~to $25~~hydrocarbons,~~000~~ ofheavy ~~our~~metals ~~ordinary~~and ~~shares. The~~other ~~purchase~~contaminants ~~price~~as a result of ~~the~~oil ~~stock~~and isgas 85exploration ~~percent~~activities. ofExperts retained by the ~~lower~~plaintiffs ofissued ~~the beginning-of-year~~a orreport ~~end-of-year~~suggesting ~~market~~significant ~~price~~contamination ofin ~~our~~the ~~ordinary~~area ~~shares.~~operated ~~At December~~by ~~31,~~the ~~2005,~~subsidiary 1and another codefendant,~~139,089~~ ~~ordinary~~and ~~shares~~claimed ~~were~~that ~~available~~over ~~for~~$300 million ~~issuance pursuant~~would be required to properly remediate the ~~ESPP~~contamination. ~~after~~The ~~taking~~experts ~~into~~retained ~~account~~by the ~~shares~~defendants conducted ~~issued~~their ~~for~~own investigation and concluded that the ~~2005 plan~~remediation ~~year~~costs would amount to no more than $2.5 million.

~~Note~~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~~―Stock~~ 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 ~~Warrants~~ 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.

~~At March 31,~~In ~~2006~~the bankruptcy case, ~~there~~our ~~were~~subsidiary ~~203,900~~filed ~~warrants~~suit ~~outstanding~~to obtain declaratory and injunctive relief against the codefendant concerning the matters described above and GlobalSantaFe intervened in the matter. The codefendant is seeking to ~~purchase~~dismiss ~~3,568,250~~the ~~ordinary shares~~bankruptcy atcase anand ~~exercise~~a ~~price~~modification of ~~$19.00~~the ~~per~~automatic ~~share~~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. ~~The~~On ~~warrants~~February 15, ~~expire~~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 ~~May 1~~its claims against the debtors, our subsidiary and its ~~2009.~~ parent, Onand ~~March~~their 1insurance companies. Subsequently, ~~2006~~the Bankruptcy Court ruled that these claims should proceed in Louisiana, webut ~~issued~~that ~~333~~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,~~039~~ ~~ordinary~~which ~~shares~~will ~~related~~also tobe the subject of a ~~cashless~~future hearing. The Bankruptcy Court also denied the debtors’ requests for preliminary declaratory and injunctive relief. The ~~exercise~~ codefendant has filed a Notice of ~~25,100~~Appeal ~~warrants~~of the rulings of the Bankruptcy Court.

18- 17 -

~~Table of~~TRANSOCEAN ~~Contents~~INC. AND SUBSIDIARIES

~~TRANSOCEAN INC.~~NOTES ~~AND~~TO ~~SUBSIDIARIES~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~NOTES TO CONDENSED CONSOLIDATED STATEMENTS~~ (~~Continued~~Unaudited)

~~(Unaudited)~~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. Although, it is difficult to quantify with certainty the potential cost of these matters, based on the information currently available, we do not believe the ultimate outcome of these matters will have a material impact on our consolidated statement of financial position, results of operations or cash flows.

~~Defined Benefit~~Retained ~~Pension Plans~~Risk—We ~~have several~~ ~~defined~~renewed ~~benefit~~our ~~pension~~insurance ~~plans~~coverages for the 12-month policy period beginning May 1, ~~both~~2008. ~~funded~~Under ~~and~~the ~~unfunded~~program, ~~covering substantially~~we ~~all~~generally ofmaintain a $125 million per occurrence deductible on our ~~U.S.~~hull ~~employees~~and machinery, which is subject to an aggregate deductible of $250 million. WeHowever, ~~also~~in ~~have~~the ~~various~~event ~~defined~~of ~~benefit~~a total loss or a constructive total ~~plans~~ loss inof ~~Norway~~a drilling unit, ~~Nigeria~~such loss is fully covered by our insurance with no deductible. Additionally, ~~Egypt~~we maintain a $10 million per occurrence deductible on crew personal injury liability and ~~Indonesia~~$5 million per occurrence deductible on third-party property claims, which together are subject to an aggregate deductible of $50 million that ~~cover~~is ~~our~~applied ~~employees~~to ~~and~~any occurrence in excess of the per occurrence deductible until the aggregate deductible is exhausted. We also carry ~~various~~ $950 million ~~current~~of third-party liability coverage exclusive of the personal injury liability deductibles, third-party property liability deductibles and ~~former~~retention ~~employees~~amounts ~~covered~~described ~~under~~above. ~~certain~~We ~~frozen~~retain ~~plans~~the ~~acquired~~ risk for any liability losses in ~~connection~~excess ~~with~~of the ~~R&B~~$950 million ~~Falcon merger~~limit. ~~Net~~We ~~periodic~~have ~~benefit~~elected ~~cost~~to self-insure operators extra expense coverage for our subsidiaries ADTI and CMI. This coverage provides protection against expenses related to well control and redrill liability associated with ~~these~~ blowouts. ~~defined~~Generally, ~~benefit~~ADTI’s ~~pension~~clients ~~plans~~assume, ~~includes~~and ~~the~~indemnify ~~following~~ADTI ~~components~~for, (liability associated with blowouts in ~~millions):~~ excess of $50 million.

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

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.

~~______________~~Letters of Credit and Surety Bonds—We had letters of credit outstanding totaling $655 million and $532 million at June 30, 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.

~~(a)~~As ~~Amounts~~is ~~are~~customary ~~before~~in ~~income~~the ~~tax~~contract ~~effect~~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 June 30, 2008 and December 31, 2007, respectively.

~~We expect to~~Note 11—Stock contribute approximately $9.7 million to our defined benefit pension plans in 2006, which will be funded from cash flow from operations. We contributed $0.5 million to the defined benefit pension plans in the first quarter of 2006.Warrants

~~Postretirement Benefits~~In ~~Other~~connection ~~Than~~with ~~Pensions~~our ~~(“OPEB”)—We have several~~merger ~~unfunded~~with ~~contributory~~R&B ~~and~~Falcon, ~~noncontributory~~we ~~OPEB~~assumed ~~plans~~the ~~covering substantially~~R&B ~~all~~Falcon stock warrants, which expire on May 1, 2009. Under the amended warrant agreement each holder of ~~our~~a Uwarrant may elect to receive 12.S243 ordinary shares and $578.025 ~~employees~~in cash at an exercise price of $332.50 upon ~~Net~~exercise. ~~periodic~~The ~~benefit~~cash ~~cost~~payment ~~for~~feature ~~these~~represents a liability of $38 million and ~~other~~ $48 million ~~postretirement~~at ~~plans~~June 30, ~~included~~2008 ~~the~~and ~~following~~December 31, ~~components~~2007, (respectively, which is recorded in ~~millions):~~ other current liabilities in our consolidated balance sheets.

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

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 June 30, 2008, 65,120 warrants remained outstanding to purchase 797,264 of our ordinary shares.

~~______________~~- 18 -

~~(a)~~TRANSOCEAN ~~Amounts~~INC. ~~are~~AND ~~before income tax effect.~~SUBSIDIARIES

~~We expect to~~NOTES ~~contribute~~TO ~~approximately~~CONDENSED ~~$1.5~~CONSOLIDATED ~~million~~FINANCIAL toSTATEMENTS the other postretirement benefit plans, which will be funded from cash flow from operations. We contributed $0.6 million to the other postretirement benefit plans in the first quarter of 2006.(Continued)

19(Unaudited)

~~Table of~~Note 12—Retirement ~~Contents~~Plans and Other Postemployment Benefits

~~TRANSOCEAN~~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, a frozen plan acquired in connection with the Merger that cover former members of ~~INC~~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. ~~AND~~Net ~~SUBSIDIARIES~~periodic benefit cost for these defined benefit pension plans includes the following components (in millions):

NOTES TO CONDENSED CONSOLIDATED STATEMENTS (Continued)

	Three months ended June 30,					Six months ended June 30,
	2008		2007			2008		2007
Components of net periodic benefit cost (a)
Service cost	$	11	$	6		$	23	$	11
Interest cost		17		5			33		10
Expected return on plan assets		(18)		(6	)		(37)		(11	)
Amortization of prior period service cost		—		1			—		1
Recognized net actuarial losses		1		1			2		2
Net periodic benefit cost	$	11	$	7		$	21	$	13

~~(Unaudited)~~______________

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

20We 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 $9 million to the defined benefit pension plans during the six months ended June 30, 2008.

~~Table~~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 ~~Contents~~the three months ended June 30, 2008 and 2007, and less than $2 million for each of the six months ended June 30, 2008 and 2007.

~~Forward-Looking Information~~We expect to contribute approximately $3 million to the other postretirement benefit plans in 2008, which we expect will be funded from cash flow from operations. We contributed approximately $2 million to the other postretirement benefit plans during the six months ended June 30, 2008.

~~The statements~~Severance ~~included~~Plans—In inconnection ~~this~~with ~~quarterly~~the ~~report~~Merger, ~~regarding~~we ~~future~~established ~~financial performance~~a ~~and~~plan ~~results~~to ofconsolidate operations and ~~other~~administrative ~~statements~~functions ~~that are not historical facts are forward~~post-~~looking~~Merger. ~~statements~~As ~~within the meaning~~ of ~~Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements to the effect that we or management “anticipates~~June 30,~~” “believes,”~~ ~~“budgets~~2008,” ~~“estimates,”~~we ~~“expects,”~~have ~~“forecasts,”~~identified ~~“intends,”~~218 employees ~~“plans,” “predicts,”~~who orhave ~~“projects”~~been ~~a particular result~~ or ~~course~~will ofbe ~~events,~~involuntarily orterminated ~~that~~pursuant ~~such result or course of events “could,” “might,” “may,” “scheduled” or “should” occur, and similar expressions, are also intended~~ to ~~identify~~this ~~forward-looking statements~~plan. ~~Forward-looking~~The ~~statements~~estimated inseverance-related ~~this~~costs quarterly report include, but are not limited to, statements involving contract commencements, contract option exercises, revenues, expenses, results of operations, commodity prices, customer drilling programs, supply and demand, utilization rates, dayrates, contract backlog, planned shipyard projects and rig mobilizations and their effects, newbuild projects and opportunities, the upgrade projects for the ~~Sedco 700-series semisubmersible~~affected ~~rigs,~~employees ~~other~~of ~~major upgrades, rig reactivations, expected downtime (including downtime with respect to~~ the ~~Deepwater~~legacy ~~Nautilus and Transocean Marianas), planned asset~~ GlobalSantaFe ~~sales,~~companies ~~including the disposition~~ of ~~Transocean Explorer,~~$25 million ~~the option~~was ofrecorded ~~holders~~as ofa ~~our~~liability ~~1.5%~~as ~~Convertible~~part ~~Debentures~~of ~~to require us to repurchase~~ the ~~debentures,~~accounting ~~capital~~for ~~expenditures and insurance proceeds, future activity in~~ the ~~deepwater,~~Merger. ~~mid-water~~The ~~and~~estimated ~~the shallow and inland water market sectors, market outlook for our various geographical operating sectors, capacity constraints for fifth~~severance-~~generation rigs, rig classes and business segments, effects of new rigs on the market, income~~ related tocosts ~~the~~for ~~TODCO tax sharing agreement,~~ the ~~TODCO~~affected ~~tax sharing~~employees ~~agreement dispute, intended reduction~~ of ~~debt and other uses of excess cash, including ordinary share repurchases,~~ the ~~timing~~legacy ~~and funding~~Transocean ofcompanies ~~share repurchases, planned asset sales, timing~~ of ~~asset~~$8 million ~~sales, proceeds~~is ~~from~~being ~~asset~~recognized ~~sales,~~as ~~our~~operating ~~effective tax rate, changes in tax laws, treaties~~ and ~~regulations,~~maintenance ~~Norwegian~~expense ~~tax~~or ~~assessments,~~general ~~our other expectations with regard to market outlook, operations in international markets, expected capital expenditures, results~~ and ~~effects~~administrative ofexpense ~~legal~~over ~~proceedings~~the ~~and~~service ~~governmental~~period ~~audits and assessments, adequacy~~ of ~~insurance,~~the ~~liabilities~~affected ~~for~~employees. ~~tax~~We ~~issues,~~recognized ~~liquidity, cash~~$3 million ~~flow from operations, adequacy~~ of ~~cash~~such ~~flow~~expense ~~for~~during ~~our~~the ~~obligations,~~six ~~effects of accounting~~months ~~changes,~~ended ~~adoption of accounting policies~~June 30, ~~pension~~2008. ~~plan~~The ~~and other~~termination ~~postretirement~~ benefits ~~benefit~~are ~~plan~~being ~~contributions~~paid ~~and~~as ~~benefit~~salary ~~payments~~continuation ~~and~~over ~~the~~a ~~timing and~~period ~~cost~~ of ~~completion~~between ofsix ~~capital projects. Such statements are subject to numerous risks, uncertainties~~ and ~~assumptions,~~24 ~~including, but not limited to, those described in “Item 1A~~months. ~~Risk~~Through ~~Factors” included in our Annual Report on Form 10-K for the year ended December 31~~June 30, ~~2005~~2008, ~~the~~we ~~adequacy~~have ofpaid ~~sources~~$20 million ~~of liquidity, the effect and results of litigation, audits and contingencies and other factors discussed~~ in ~~this~~termination ~~quarterly~~benefits ~~report~~under ~~and in our other filings with~~ the ~~Securities and Exchange Commission (“SEC”)~~plan, ~~which~~including ~~are~~$19 million ~~available~~during ~~free of charge on~~ the ~~SEC's website~~six atmonths ~~www.sec.gov.~~ended ~~Should one or more of these risks or uncertainties materialize~~June 30, ~~or should underlying assumptions prove incorrect, actual results may vary materially from those indicated~~2008. ~~All~~We ~~subsequent~~expect ~~written~~to ~~and~~accrue ~~oral forward-looking~~substantially ~~statements~~all ~~attributable~~of to the ~~Company~~remaining oramounts ~~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~~end of the ~~particular~~ ~~statement,~~first ~~and~~quarter weof ~~undertake no obligation to publicly update or revise any forward-looking statements~~2009.

~~The following~~Note 13—Supplementary ~~information~~Cash ~~should~~Flow be read in conjunction with the unaudited condensed consolidated financial statements included under “Item 1. Financial Statements” herein and the audited consolidated financial statements and the notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2005.Information

~~Overview~~Non-cash investing activities for the six months ended June 30, 2008 and 2007 included $116 million and $70 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.

Transocean Inc. (together with its subsidiaries and predecessors, unless the context requires otherwise, “Transocean,” “we,” “us” or “our”) is a leading international provider of offshore contract drilling services for oil and gas wells. As of May 1, 2006, we owned, had partial ownership interests in or operated 88 mobile offshore and barge drilling units. As of this date, our fleet included 33 High-~~Specification~~ ~~semisubmersibles~~19 ~~and drillships (“floaters”), 21 Other Floaters, 25 Jackup Rigs and nine Other Rigs.~~ -

21TRANSOCEAN INC. AND SUBSIDIARIES

~~Table of~~NOTES ~~Contents~~TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

~~Key measures~~Note 14—Subsequent ~~of our total company results of operations and financial condition are as follows (in millions, except daily amounts and percentages):~~Events

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

Asset Dispositions—In July 2008, we entered into definitive agreements to sell two Midwater Floaters (GSF Arctic II and GSF Arctic IV) for net proceeds of approximately $750 million. The sale of the GSF Arctic IV is expected to close late in the third quarter of 2008, and the sale of the GSF Arctic II is expected to close in the fourth quarter of 2008 following completion of existing contract commitments. We have agreed to provide non-recourse seller financing until December 31, 2010 for $745 million of the purchase price for the rigs.

~~_____________________~~- 20 -

~~“N/A” means~~Item ~~not applicable~~2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~(a)~~Forward-Looking ~~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.~~Information

~~(b)~~The ~~Utilization~~statements isincluded 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 ~~total~~meaning ~~actual~~of ~~number~~Section 27A of ~~revenue~~the ~~earning~~Securities ~~days~~Act asof a1933 ~~percentage~~and Section 21E of the ~~total~~Securities ~~number~~Exchange Act of ~~calendar~~1934. ~~days~~Forward-looking statements in this quarterly report include, but are not limited to, statements about the ~~period.~~following subjects:

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

●	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 capital
●	newbuild projects and opportunities,		expenditures,
●	the upgrade project for the Sedco	●	results and effects of legal proceedings
	700-series semisubmersible rig,		and governmental audits and
●	other major upgrades,		assessments,
●	contract awards,	●	outcome and effects of internal and
●	newbuild completion delivery and		governmental investigations,
	commencement of operations dates,	●	adequacy of insurance,
●	expected downtime and lost revenue,	●	liabilities for tax issues, including those
●	insurance proceeds,		associated with our activities in Brazil,
●	cash investments of our wholly-owned		Norway and the United States,
	captive insurance company,	●	liabilities for customs and
●	future activity in the deepwater, mid-		environmental matters,
	water and the jackup market sectors,	●	liquidity,
●	market outlook for our various	●	cash flow from operations,
	geographical operating sectors and	●	adequacy of cash flow for our
	classes of rigs,		obligations,
●	capacity constraints for ultra-deepwater	●	effects of accounting changes,
	rigs and other rig classes,	●	adoption of accounting policies,
●	effects of new rigs on the market,	●	pension plan and other postretirement
●	income related to and any payments to		benefit plan contributions,
	be received under the TODCO tax	●	the timing of severance payments,
	sharing agreement,	●	benefit payments, and
●	uses of excess cash,	●	the timing and cost of completion of
●	share repurchases under our share		capital projects.
	repurchase program,

2006 began with our industry continuing to experience strong demand for all asset classes resulting in high utilization and increasing dayrates. Leading dayrates are at record levels for most rig classes and customers are contracting rigs for longer terms than we have seen historically for rigs other than newbuilds. Interest in high-~~specification~~ ~~floaters~~21 is particularly strong. There is also evidence of a broadening base of customers with deepwater drilling rig requirements for exploration and production drilling programs in various geographic locations. Some of these rig needs could potentially be addressed by new rig construction. We are presently aware of a number of operators that may have an interest in awarding drilling contracts for newly constructed ultra-~~deepwater floaters.~~

~~To address~~Forward-looking ~~the~~statements ~~increase~~ in ~~demand,~~this wequarterly ~~have~~report ~~underway~~are aidentifiable ~~deepwater~~by ~~newbuild~~use ~~rig, two major upgrades and three reactivations~~ of ~~previously idle rigs. We also have a large number of repair and maintenance shipyard projects underway or planned to commence in~~ the ~~remainder~~following ofwords ~~2006. The actual timing~~ and ~~duration~~other ofsimilar ~~these shipyard~~expressions ~~projects,~~among ~~along with the actual start of higher dayrate contracts, will have a significant impact on our results of operations in 2006.~~others:

~~We expect our~~• ~~industry~~“anticipates” to• ~~experience~~“may” ~~higher~~• ~~costs~~“believes” in• ~~2006~~“might” ~~relative~~• to“budgets” ~~levels~~• ~~seen~~“plans” ~~in the recent~~• ~~past,~~“could” ~~due~~• in“predicts” ~~part~~• to“estimates” ~~increased~~• ~~supplier~~“projects” ~~costs~~• ~~and~~“expects” ~~higher~~• ~~personnel~~“scheduled” ~~costs required~~• to“forecasts” ~~support~~• ~~the~~“should” ~~increased~~• level of offshore drilling activity, although we anticipate revenue increases to outpace these increased costs. A shortage of qualified personnel in our industry is driving up compensation costs and suppliers are increasing prices as their backlogs grow. These labor and vendor cost increases, while meaningful, are not significant in comparison with our expected increase in revenue for 2006 and beyond. “intends”

22Such statements are subject to numerous risks, uncertainties and assumptions, including, but not limited to:

~~Table of~~• ~~Contents~~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 and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008,

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

~~We operate~~• inour ~~one~~inability ~~business~~to ~~segment,~~obtain ~~the~~contracts Transocean Drilling segment, which consists of floaters, jackups and other rigs used in support of offshore drilling activities and offshore support services on a worldwide basis. The segment fleet operates in a single, global market for ~~the provision of contract drilling services. The location of~~ our rigs ~~and~~that ~~the~~do ~~allocation~~not ofhave ~~resources to build or upgrade rigs are determined by the activities and needs of our customers.~~contracts,

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

~~Significant Events~~• 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.

~~Hurricane Damage—In the third~~Should ~~quarter~~one ofor ~~2005,~~more ~~two~~ of ~~our~~these ~~semisubmersible~~risks ~~rigs,~~or ~~the~~uncertainties ~~Deepwater Nautilus and the Transocean Marianas~~materialize, ~~sustained~~ ~~damage~~or ~~during~~should ~~hurricanes~~underlying ~~Katrina~~assumptions ~~and~~prove ~~Rita. During hurricane Katrina~~incorrect, ~~the~~ ~~Deepwater Nautilus sustained~~actual ~~damage~~results tomay ~~its~~vary ~~mooring~~materially ~~system~~from ~~and~~those ~~lost approximately 3,200 feet of marine riser and a portion of its subsea well control system~~indicated. The rig was undergoing repairs during hurricane Rita and was set adrift following the failure of a tow line utilized by a towing vessel. Also during hurricane Rita, the Transocean Marianas sustained damage to its mooring system, was forced off its drilling location and was grounded in shallow water. The Deepwater Nautilus was out of service for 24 days in 2005 and while fully operational during the first quarter of 2006, it is expected to be out of service approximately 60 days for the remainder of 2006. The Transocean Marianas was out of service for 95 days in 2005 and 72 days for the first three months of 2006. It is expected to be out of service approximately 30 days for the remainder of 2006. Operating income for the first quarter in 2006 was negatively impacted by approximately $22 million due to lost revenue and higher operating and maintenance costs on the Transocean Marianas. Depending on the timing of the repairs, we currently estimate the total lost revenue plus repair, crew and other costs for the two rigs to have a negative impact on operating income of approximately $45 million to $55 million in 2006. In addition, we also expect to spend approximately $35 million on capital expenditures during 2006 to replace damaged equipment.

23All 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.

~~Table~~ 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 ~~Contents~~Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2007.

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

~~Repurchase of~~Transocean Inc. ~~Ordinary~~(together ~~Shares—In March 2006~~with its subsidiaries and predecessors, unless the context requires otherwise, “Transocean,” the “Company,” “we,” ~~repurchased~~“us” ~~and~~or ~~retired~~“our”) ~~$200~~is ~~million~~a leading international provider of ~~our~~offshore ~~ordinary~~contract ~~shares~~drilling services for oil and gas wells. ~~See~~As of July 31, 2008, we owned, had partial ownership interests in ~~“—Liquidity~~ or operated 137 mobile offshore drilling units. As of this date, our fleet included 39 High-Specification Floaters (Ultra-Deepwater, Deepwater and ~~Capital~~Harsh ~~Resources−Sources~~Environment semisubmersibles and ~~Uses~~drillships), of29 Midwater ~~Liquidity~~Floaters, 10 High-Specification Jackups, 55 Standard Jackups and four Other Rigs.” In addition, we had ten Ultra-Deepwater Floaters under construction or contracted for construction.

~~1.5% Convertible~~We ~~Debentures—In April 2006,~~believe weour ~~announced~~mobile ~~that~~offshore ~~holders~~drilling fleet is one of ~~our~~the ~~1.5%~~most ~~Convertible~~modern ~~Debentures~~and ~~due~~versatile ~~May 15, 2021~~fleets ~~have~~in the ~~option~~world. Our primary business is to ~~require~~contract usthese drilling rigs, related equipment and work crews primarily on a dayrate basis to ~~repurchase~~drill ~~their~~oil ~~debentures~~and asgas wells. We specialize in technically demanding segments of ~~May~~the offshore drilling business with a particular focus on deepwater and harsh ~~15, 2006~~ environment drilling services. ~~See~~We ~~“—Liquidity~~ also provide oil and ~~Capital~~gas ~~Resources~~drilling management services on either a dayrate basis or a completed-~~Sources~~project, fixed-price (or “turnkey”) basis, as well as drilling engineering and ~~Uses~~drilling ofproject ~~Liquidity~~management services, and we participate in oil and gas exploration and production activities.”

~~Tax Matters—~~ In ~~April~~ ~~2006~~November 2007, we ~~received~~completed ~~notice~~our ~~from~~merger transaction (the ~~Norwegian~~“Merger”) ~~tax~~with ~~authorities~~GlobalSantaFe ~~regarding their~~Corporation ~~intent~~(“GlobalSantaFe”). toImmediately ~~propose~~prior ~~adjustments~~ to ~~taxable~~the ~~income~~effective ~~for~~time of the ~~tax~~Merger, ~~years~~each ~~1999, 2001~~of ~~and~~our ~~2002.~~outstanding ~~These~~ordinary ~~proposed~~shares ~~assessments~~was ~~would~~reclassified ~~result~~by inway anof ~~increase~~a inscheme ~~tax~~ of ~~approximately~~ ~~$260~~arrangement ~~million,~~under ~~plus~~Cayman ~~interest,~~Islands ~~and~~law ~~the~~into ~~authorities~~(1) 0.6996 ~~further~~of ~~indicated they~~our ~~intend~~ordinary toshares ~~impose~~and ~~penalties,~~(2) $33.03 ~~which~~in cash ~~could~~(the ~~range~~“Reclassification” ~~from~~and, 15together towith 60the ~~percent~~Merger, of the ~~assessments~~ “Transactions”). The ~~anticipated~~Merger ~~assessments~~was ~~relate~~accounted tofor ~~restructuring transactions undertaken in 2001 and 2002. See “—Outlook−Tax Matters.”~~as

~~Outlook~~ - 22 -

~~Drilling Market—Oil and natural~~a ~~gas~~purchase, ~~commodity~~with ~~prices~~the ~~continue~~Company toas bethe ~~strong,~~acquirer ~~with~~for ~~recent~~accounting ~~oil~~purposes. ~~prices reaching~~We ~~all~~accounted ~~time~~for ~~highs.~~the WeReclassification ~~expect~~as ~~prices~~a toreverse ~~remain~~stock ~~high~~split ~~for~~and a dividend, which require the ~~near~~restatement ~~future relative~~of toour historical ~~price~~weighted ~~levels~~average shares outstanding, historical earnings per share and other share-based calculations for prior periods. ~~Future~~All ~~price~~references ~~expectations~~to ~~have~~number ~~historically~~of shares, per share amounts and market prices of our ordinary shares have been aretroactively ~~key~~restated ~~driver~~to ~~for~~reflect ~~offshore~~the ~~drilling~~decreased ~~demand~~number of our ordinary shares issued and outstanding as a result of this accounting treatment. ~~However,~~At the ~~availability~~time of ~~quality~~ ~~drilling~~the ~~prospects~~Merger, ~~exploration~~GlobalSantaFe ~~success~~owned, ~~relative~~had ~~production~~partial ~~costs~~ownership interests in, ~~the stage~~ ofoperated, ~~reservoir~~had ~~development~~under ~~and~~construction ~~political~~or contracted for construction, 61 mobile offshore drilling units and ~~regulatory~~other ~~environments~~units ~~also affect~~utilized ~~our~~in ~~customers’~~the support of offshore drilling ~~programs~~activities. The balance sheet data as of December 31, 2007 represents the consolidated statement of financial position of the combined company.

~~Prospects for~~Key ~~our~~measures ~~33 High-Specification Floaters continue to be robust. We have been awarded a five-year contract for the construction~~ of anour ~~enhanced Enterprise-class drillship, to be named the Discoverer Clear Leader, with an estimated~~ total ~~capital~~company ~~expenditure~~results of ~~approximately $650 million, including approximately $65 million of capitalized interest. We currently expect this rig to begin~~ operations inand ~~the~~financial ~~U.S.~~condition ~~Gulf~~are ofas ~~Mexico~~follows (in ~~approximately the second quarter of 2009~~ millions, ~~after~~except ~~construction~~average indaily ~~South~~revenue ~~Korea followed by sea trials, mobilization to the U.S. Gulf of Mexico~~ and ~~customer acceptance. We are also currently in discussions with several clients concerning other potential drilling contracts for newbuild deepwater rigs.~~ percentages):

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

	Three months ended June 30,								Six months ended June 30,
	2008			2007			Change		2008			2007			Change

Average daily revenue (a)(b)	$	238,600		$	202,400		$	36,200	$	233,700		$	200,200		$	33,500
Utilization (b)(c)		87	%		91	%		n/a		89	%		90	%		n/a
Statement of operations
Operating revenues	$	3,102		$	1,434		$	1,668	$	6,212		$	2,762		$	3,450
Operating and maintenance expense		1,364			627			737		2,521			1,195			1,326
Operating income		1,350			676			674		2,890			1,333			1,557
Net income		1,107			549			558		2,296			1,102			1,194

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

	June 30, 2008		December 31, 2007		Change
Balance sheet data (at end of period)
Cash and cash equivalents	$	976	$	1,241	$	(265)
Total assets		34,477		34,364		113
Total debt		15,279		17,257		(1,978)

24______________

~~Table of~~“n/a” ~~Contents~~means not applicable

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

~~While we anticipate~~(b) ~~near~~Excludes ~~full~~a ~~utilization~~drillship ofengaged ~~available~~in ~~capacity~~scientific ~~during~~geological ~~the~~coring ~~remainder of 2006 and into 2007~~activities, ~~our results of operations for~~ the ~~remainder~~Joides ofResolution, ~~2006~~that ~~will be significantly~~is ~~influenced~~owned by ~~the~~a ~~actual~~joint ~~timing~~venture ~~and~~in ~~duration~~which ofwe ~~the~~have ~~various shipyard~~a ~~projects~~50 ~~and~~percent ~~the~~interest ~~actual start of higher dayrate contracts. We expect to incur downtime~~ and ~~increased~~is ~~operating~~accounted ~~and~~for ~~maintenance~~under ~~expenses in~~ the ~~second quarter~~equity ofmethod ~~2006 in connection with planned shipyard projects for and/or mobilizations~~ of ~~the Sedco 709, J~~accounting. ~~W. McLean and J. T. Angel.~~

~~We also expect~~(c) toUtilization ~~incur~~is ~~significant costs in~~ the ~~second~~total ~~and~~actual ~~third~~number ~~quarters~~ of ~~2006 due to~~revenue ~~the~~earning ~~reactivation~~days ofas ~~the~~a ~~previously~~percentage ~~idled Transocean Prospect, Transocean Winner and C. Kirk Rhein, Jr., planned shipyard projects for and/or mobilizations~~ of the ~~Discoverer 534 and Sedco 707 and downtime~~total tonumber ~~replace~~of ~~and~~calendar ~~upgrade~~days ~~equipment~~in ~~damaged on~~ the ~~Transocean Marianas and Deepwater Nautilus during hurricanes Katrina and Rita~~period. In addition, vendor price increases and rising labor costs due to increased drilling activity, as well as increases in insurance costs, are expected to increase operating and maintenance costs in 2006.

~~Our shipyard~~We ~~projects,~~continue ~~including~~to ~~the~~experience ~~construction~~strong ~~of the deepwater drillship Discoverer Clear Leader~~demand, ~~the Sedco 700-series rig~~ ~~upgrades,~~which ~~our~~has ~~three~~resulted ~~rig~~in ~~reactivations~~high utilization and ~~any~~historically ~~other~~high ~~potential~~dayrates. ~~newbuild projects,~~Leading dayrates are ~~subject~~at toor ~~risks~~near ofrecord ~~delay~~levels ~~and cost overruns~~ for ~~a variety of reasons~~floaters, ~~including~~and ~~some~~customers ~~outside~~continue ofto ~~our~~express ~~control.~~interest Ain ~~delay~~multi-year ~~could~~contracts ~~adversely affect any drilling contract~~ for ~~the~~these ~~rig following the shipyard work, depending upon the drilling contract terms~~units.

~~We also expect~~A ~~that~~shortage ~~a number~~ of ~~pre-existing,~~qualified ~~fixed-price~~personnel ~~contract~~in ~~options will be exercised by~~ our ~~customers,~~industry ~~which~~is ~~will~~driving ~~preclude~~up uscompensation ~~from~~costs ~~taking~~and ~~full~~suppliers ~~advantage of increased~~are ~~market~~increasing ~~rates~~prices ~~for~~as ~~rigs~~their ~~subject~~backlogs ~~to these contract options~~grow. WeThese ~~have seven existing~~labor ~~contracts~~and ~~with~~vendor ~~fixed-priced~~cost orincreases, ~~capped~~while ~~options~~meaningful, ~~for dayrates that we believe~~ are ~~less~~not ~~than~~expected ~~current~~to ~~market~~be ~~dayrates.~~significant ~~Well-~~in~~-progress~~ orcomparison ~~similar provisions~~with in our ~~existing~~expected ~~contracts~~increase ~~may~~in ~~delay~~revenue ~~the~~in ~~start~~2008 ofand ~~higher dayrates in subsequent contracts~~beyond.

~~There are currently~~Our ~~approximately~~revenues 26for ~~newbuild~~the ~~deepwater~~six ~~rigs~~months onended ~~order~~June 30, 2008 increased from the prior year period primarily as a result of higher dayrates and ~~options~~the ~~for 17 additional~~addition ~~newbuilds~~of GlobalSantaFe’s operations. ~~The~~Our ~~announced~~operating ~~delivery~~and ~~dates~~maintenance expenses for ~~most~~the same period increased from the prior year period primarily as a result of ~~these~~higher ~~rigs~~labor ~~are~~ and rig maintenance costs in connection with such increased ~~2008~~ activity ~~and~~as ~~2009.~~well ~~While~~as weinflationary ~~currently~~cost ~~believe~~increases ~~demand~~and ~~for~~the ~~deepwater~~addition ~~drilling~~of ~~services will~~GlobalSantaFe’s ~~remain~~operations ~~strong~~(see ~~into~~“—Outlook”). Total debt as of June 30, 2008 decreased compared to December 31, ~~the~~2007, ~~addition~~as a result of ~~deepwater~~repayments ~~rig~~of ~~capacity~~borrowings ~~could have an~~under ~~adverse~~the ~~impact~~Bridge onLoan ~~utilization~~Facility during the six months ended June 30, 2008. See “—Liquidity and ~~dayrates~~Capital Resources–Sources and Uses of Liquidity.”

The offshore contract drilling market remains highly competitive and cyclical, and it has been historically difficult to forecast future market conditions. Declines in oil and/or gas prices and other risks may reduce rig demand and adversely affect utilization and dayrates. Major operator and national oil company capital budgets are key drivers of the overall business climate, and these may change within a fiscal year depending on exploration results and other factors. Additionally, increased competition for our customers’ drilling budgets could come from, among other areas, land-~~based~~ ~~energy~~23 ~~markets in Africa, Russia, other former Soviet Union States, the Middle East and Alaska.~~-

~~Our operations~~Prior ~~are~~to ~~geographically~~the ~~dispersed~~Merger, we operated in ~~oil~~one ~~and~~business ~~gas~~segment. ~~exploration~~As ~~and development~~a ~~areas~~result ~~throughout~~of the ~~world.~~Merger, ~~Rigs~~we ~~can~~have beestablished ~~moved~~two ~~from~~reportable ~~one~~segments: ~~region~~(1) Contract ~~to another,~~Drilling ~~but~~and ~~the~~(2) Other. ~~cost~~The ofContract ~~moving~~Drilling asegment ~~rig~~consists of floaters, jackups and ~~the~~other ~~availability~~rigs ofused ~~rig-moving~~in ~~vessels may~~support ~~cause~~of ~~the~~offshore ~~supply~~drilling activities and ~~demand~~offshore ~~balance~~support toservices ~~vary~~on ~~somewhat~~a ~~between~~worldwide ~~regions~~basis. ~~However,~~ ~~significant~~Our ~~variations~~fleet ~~between~~operates ~~regions~~in doa ~~not~~single, global ~~tend~~market tofor ~~persist~~the ~~long-term because~~provision of ~~rig~~contract ~~mobility~~drilling services. ~~Consequently,~~The welocation ~~operate~~of inour arigs ~~single,~~and ~~global~~the ~~offshore drilling~~allocation ~~market.~~of resources to build or upgrade rigs are determined by the activities and needs of our customers.

25The 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.

~~Table of~~Significant ~~Contents~~Events

~~Insurance~~Asset Dispositions—~~We have renewed~~During ~~our~~the ~~insurance~~six ~~coverages for 12~~ months ~~effective~~ended ~~May~~June 30, 12008, ~~2006.~~we ~~We currently~~completed ~~maintain~~the asale ~~$10~~of ~~million~~three ~~per~~of ~~occurrence~~our ~~insurance~~Standard ~~deductible~~Jackups ~~on hull and machinery~~(GSF Adriatic III, ~~a $10 million per occurrence deductible on personal injury liability~~ ~~and~~GSF High Island I ~~a $5 million per occurrence deductible on third party property damage~~andGSF High Island VIII). In ~~addition~~ toJuly ~~the per occurrence deductibles described above~~2008, we ~~also have~~ ~~aggregate~~entered ~~deductibles~~into ~~that~~definitive ~~are~~agreements ~~applied~~ to ~~any~~sell ~~occurrence~~two inMidwater ~~excess~~Floaters of(GSF Arctic II ~~the per occurrence~~and ~~deductible until the aggregate deductible is exhausted~~GSF Arctic IV). ~~After the aggregate~~See ~~deductible~~“—Liquidity isand ~~fully~~Capital ~~exhausted, the per occurrence deductible continues~~Resources–Fleet toExpansion ~~apply. Such aggregate deductibles are $20 million in the case of our hull~~ and ~~machinery~~ ~~coverage and $25 million in the case of our personal injury liability and third party property damage coverage~~Dispositions. ~~We do not carry insurance for loss of revenue.~~”

~~The annualized~~Bank ~~cost~~Agreements—In toMarch 2008, ~~maintain~~we ~~our~~entered ~~current~~into ~~insurance~~a ~~and~~term ~~deductible~~credit ~~level~~facility ~~has increased~~(the by“Term ~~approximately~~Loan”) ~~$17~~and ~~million~~borrowed ~~effective May~~ $1,.925 billion ~~2006~~under ~~and~~the ~~now~~facility. ~~includes an annual~~In ~~limit~~April on2008, ~~losses~~we ~~due~~borrowed toan ~~hurricanes~~additional in$75 million under the UTerm Loan.S ~~Gulf~~In ofJune ~~Mexico of $250 million~~2008, ~~except~~we inrepaid the ~~case~~then ofoutstanding abalance ~~total~~under ~~loss, where~~ the ~~limit~~Bridge isLoan ~~$300~~Facility ~~million. As a~~and ~~result~~terminated ofthe ~~these~~facility. ~~limits,~~See “—Liquidity weand ~~are~~Capital ~~self-insured~~Resources–Sources ~~for~~and ~~losses~~Uses ~~due to hurricanes in excess~~ of ~~these amounts~~Liquidity. ”

~~Tax Matters~~Fleet Expansion—~~We are~~In ~~a Cayman~~April ~~Islands company. We operate through our various subsidiaries in a number of countries throughout the world. Consequently~~2008, we ~~are~~were ~~subject~~awarded toa ~~changes in tax~~drilling ~~laws,~~contract ~~treaties~~for ~~and regulations in and between~~ the ~~countries~~enhanced inEnterprise-class ~~which~~drillship ~~we operate~~no. A5. ~~material~~The ~~change~~Ultra-Deepwater inFloater ~~these~~is ~~tax~~expected ~~laws,~~to ~~treaties~~commence oroperations ~~regulations~~under ina ~~any of the~~multi-year ~~countries~~drilling incontract ~~which~~during wethe ~~operate~~fourth ~~could~~quarter ~~result~~of in2010. aSee ~~higher~~“—Outlook–Drilling ~~or lower effective tax rate on our worldwide earnings~~Market. ”

~~Our income~~In ~~tax~~June ~~returns~~2008, ~~are~~we ~~subject~~reached toan ~~review~~agreement with subsidiaries of Petrobras and ~~examination~~Mitsui into acquire a newbuild Ultra-Deepwater Floater, Petrobras 10000, under a capital lease contract. In conjunction with the ~~various jurisdictions~~capital inlease ~~which~~contract, we ~~operate.~~entered Weinto ~~are~~a ~~currently~~10-year ~~contesting~~drilling ~~various~~contract ~~tax~~with subsidiaries of Petrobras covering worldwide operations of the ~~assessments.~~ drillship Wewith ~~accrue~~an option for ~~income~~Petrobras ~~tax~~to ~~contingencies~~extend ~~that~~the weterm ~~believe~~of ~~are~~the ~~probable exposures~~drilling contract by up to an additional 10 years. See “—Outlook–Drilling Market.”

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

~~In April 2006,~~Drilling weMarket—Demand ~~received~~for ~~notice~~offshore ~~from~~drilling ~~the~~units ~~Norwegian~~continues ~~tax authorities regarding their intent~~ to ~~propose~~be ~~adjustments~~strong, toparticularly ~~taxable income~~ for ~~the tax years 1999, 2001 and 2002~~floaters. ~~These~~Our ~~proposed~~High-Specification ~~assessments~~Floater ~~would~~fleet ~~result~~is infully ancommitted ~~increase~~ in ~~tax~~2008 ~~of approximately $260 million, plus interest,~~ and ~~the~~only ~~authorities~~three ~~further indicated they intend to impose penalties, which could range from 15 to 60 percent~~ of ~~the assessments.~~ ~~The~~our ~~anticipated~~High-Specification ~~assessments~~Floaters ~~relate~~have toany ~~restructuring~~available ~~transactions undertaken~~uncommitted time in ~~2001 and 2002~~2009. ~~The~~We ~~Norwegian~~have ~~tax~~two ~~authorities~~rigs ~~initiated inquiries~~ in ~~September~~our ~~2004~~Midwater ~~related~~Floater tofleet ~~the~~that ~~restructuring~~have ~~transactions~~available ~~and~~uncommitted atime ~~separate dividend~~in ~~payment made during 2001. In February 2005, we filed a response to~~2008 ~~these~~ and ~~inquiries.~~10 rigs Inin ~~March~~this ~~2005,~~fleet ~~pursuant to court orders, the Norwegian tax authorities took action to obtain additional information regarding these transactions. We~~ have ~~continued~~available touncommitted ~~respond~~time toin ~~information requests from the Norwegian authorities~~2009. WeThe ~~also~~High-Specification ~~believe~~Jackups ~~the Norwegian authorities~~ are ~~contemplating~~ afully ~~tax~~committed ~~assessment~~in of2008 ~~approximately~~while ~~$98~~10 Standard ~~million~~Jackups onhave ~~the~~uncommitted ~~dividend, plus~~time ~~interest~~in ~~and a penalty~~2008, ~~which could range from 15 to 60 percent of the assessment. Norwegian civil tax~~ and ~~criminal~~six ~~authorities~~High-Specification ~~are~~Jackups ~~currently investigating the restructuring transactions~~ and ~~dividend.~~27 Standard WeJackups ~~plan~~have touncommitted ~~vigorously contest~~time ~~any assertions by the Norwegian authorities~~ in ~~connection with the restructuring transactions or dividend~~2009. ~~While~~Our wecontract ~~cannot~~backlog ~~predict~~at orAugust ~~provide assurance~~1, as2008 towas ~~the~~approximately ~~final~~$41 ~~outcome of these proceedings~~billion, weup dofrom ~~not~~approximately ~~expect~~$34 billion ~~it to have~~at aMay ~~material adverse effect on our consolidated financial position~~6, ~~results of operations or cash flows~~2008.

~~In addition,~~Supporting ~~other~~our ~~tax~~view ~~authorities~~on ~~are~~the ~~examining~~strong ~~our~~deepwater ~~tax~~market, ~~returns~~ in ~~various jurisdictions.~~June ~~While~~and weJuly ~~cannot~~2008, ~~predict~~we orwere ~~provide~~awarded ~~assurance~~seven ascontracts tofor ~~the~~our ~~final outcome~~existing ofHigh-Specification ~~these~~Floater ~~other~~fleet ~~existing~~in oraddition ~~future~~to ~~assessments,~~expanding weour dofleet ~~not~~with ~~expect~~ the ~~ultimate~~ ~~settlement~~agreement ofto ~~any~~acquire ~~liability~~an ~~resulting~~ultra-deepwater ~~from~~newbuild ~~these~~under ~~existing or future assessments to have~~ a ~~material~~capital ~~adverse~~lease ~~effect~~agreement onas ~~our~~described ~~consolidated financial position, results of operations or cash flows~~below.

26We were awarded contracts for Deepwater Expedition, GSF Development Driller II, Transocean Marianas, Deepwater Pathfinder, Deepwater Navigator, Sedco 707 and Sedco 710 resulting in 30 contracted years and $4.9 billion of estimated contract revenues. Estimated contract revenues represent the maximum amount of revenues that may be earned in the contract period, excluding revenues for cost escalations.

~~Table~~In June 2008, we reached an agreement with subsidiaries of Petrobras and Mitsui to acquire a newbuild Ultra-Deepwater Floater, Petrobras 10000, under a capital lease contract. In conjunction with the capital lease contract, we entered into a 10-year drilling contract with subsidiaries of Petrobras covering worldwide operations of the drillship with an option for Petrobras to extend the term of ~~Contents~~the drilling contract by up to an additional 10 years at a mutually agreed operating dayrate. The capital lease contract has a 20-year term, after which we will have the right and obligation to acquire the drillship for one dollar. Total capital costs to be incurred by Petrobras and Mitsui for the construction of the drillship are estimated to be $750 million, including $65 million of capitalized interest. The drilling contract is expected to commence in the third quarter of 2009. Contract revenues over the initial 10-year contract term are estimated to be $1.68 billion, including monthly bonuses, which could be as high as 12 percent of dayrate revenue each month. Additionally, if the rig is operating in a jurisdiction where we have a valid dual activity patent, we will be owed an additional five percent royalty.

~~Performance and~~- ~~Other~~24 ~~Key Indicators~~-

~~Contract Backlog—The following~~In ~~table~~April ~~reflects~~2007, ~~our~~we ~~contract~~entered ~~backlog~~into ~~and~~a ~~associated~~marketing ~~average~~and ~~contractual dayrates~~purchase ~~for~~option ~~each~~agreement ofwith ~~the~~Pacific ~~three~~Drilling ~~months~~Limited ~~ended~~(“Pacific ~~on March~~Drilling”) ~~31,~~that ~~2006,~~provided ~~December~~us ~~31, 2005~~with ~~and~~the ~~March~~exclusive ~~31,~~marketing ~~2005 and~~rights ~~reflects~~for ~~firm~~two ~~commitments~~newbuild ~~only,~~Ultra-Deepwater ~~typically represented~~Floaters byto ~~signed~~be ~~contracts. Backlog~~named is Dhirubhai Deepwater KG1 ~~indicative~~and ofDhirubhai Deepwater KG2, ~~the~~formerly ~~full~~named Deepwater Pacific 1 ~~contractual~~and ~~dayrate.~~Deepwater Pacific 2, ~~The~~respectively, ~~amount~~as ofwell ~~actual~~as ~~revenue earned~~an ~~and~~option ~~the~~to ~~actual~~purchase ~~periods~~a ~~during~~50 percent ~~which~~interest ~~revenues~~in ~~are~~a ~~earned~~joint ~~will~~venture becompany ~~different than~~through ~~the~~which ~~amounts~~we and Pacific ~~periods~~Drilling ~~shown~~would inown the ~~tables~~drillships. ~~below~~In ~~due~~October 2007, towe ~~various~~obtained ~~factors including~~a ~~shipyard~~firm ~~and~~commitment ~~maintenance~~for ~~projects~~Dhirubhai Deepwater KG1, ~~other~~and ~~downtime~~we exercised our option and ~~other~~acquired ~~factors that~~a ~~result~~50 percent interest in ~~lower~~the ~~applicable~~joint ~~dayrates~~venture, ~~than~~Transocean ~~the~~Pacific ~~full~~Drilling ~~contractual~~Inc. ~~operating dayrate~~(“TPDI”). Dhirubhai Deepwater KG1 ~~Our~~was ~~contract~~awarded ~~backlog~~a isfirm ~~calculated~~commitment byfor ~~multiplying~~a ~~the~~four-year ~~contracted operating~~contract ~~dayrate~~that bywas ~~the~~subsequently ~~firm~~extended ~~contract~~to ~~period~~five years, ~~excluding~~and ~~revenues~~in ~~for~~April 2008 Dhirubhai Deepwater KG2 was ~~mobilization,~~ awarded ~~demobilization,~~a five-year contract ~~preparation~~with ~~and~~the ~~customer~~same ~~reimbursables and~~operator. ~~such~~These ~~amounts~~contracts are ~~not~~ expected to becommence ~~significant~~during tothe ~~our~~second ~~contract~~quarter ~~drilling revenues.~~of ~~The~~2009 ~~contract~~and ~~backlog~~first ~~average~~quarter ~~dayrate~~of is2010, ~~defined~~respectively, asfollowing ~~the~~shipyard ~~contracted operating~~construction, ~~dayrate~~sea trials, mobilization to belocation ~~earned~~and ~~per~~customer ~~revenue~~acceptance. ~~earning~~We ~~day~~estimate intotal ~~the~~capital ~~period.~~expenditures Afor ~~revenue earning~~the ~~day~~construction isof ~~defined~~these asrigs ato ~~day~~be ~~for~~approximately ~~which~~$695 million afor each rig, ~~earns~~excluding ~~dayrate~~capitalized ~~after~~interest. ~~commencement of~~See ~~operations~~“—Liquidity and ~~over~~Capital ~~the~~Resources–Fleet Expansion ~~firm~~and ~~contract period~~Dispositions. ”

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

As of June 30, 2008, we and Pacific Drilling had each paid $299 million in documented costs for the two rigs since the formation of the joint venture in October 2007.

~~Fleet Utilization~~Under ~~and~~a ~~Average~~management ~~Daily~~services ~~Revenue—The following~~agreement, ~~table~~we ~~shows~~are ~~our~~providing ~~average~~construction ~~daily~~management ~~revenue~~services for the Pacific Drilling newbuilds and ~~utilization~~have ~~for~~agreed ~~each~~to of provide operating management services once the ~~three~~ ~~months~~drillships ~~ended~~begin onoperations. ~~March~~Beginning 31on October 18, ~~2006~~2010, ~~December~~Pacific ~~31,~~Drilling ~~2005~~will ~~and~~have ~~March~~the ~~31,~~right ~~2005. See “—Overview”~~to exchange its interest in the joint venture for our ordinary shares or cash at a ~~definition~~purchase price based on an appraisal of ~~average~~the ~~daily~~fair ~~revenue~~value of the drillships, ~~revenue~~subject ~~earning~~to ~~day~~various ~~and utilization~~adjustments.

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

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 Ultra-Deepwater Floater 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.

27Prior to the Merger, GlobalSantaFe had one Ultra-Deepwater Floater under construction, GSF Development Driller III, and one contracted for construction. GSF Development Driller III has 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.

~~Table~~We have been successful in building contract backlog within our High-Specification Floaters fleet with 34 of our 49 current and future High-Specification Floaters, including nine of the ten newbuilds, contracted into or beyond 2011 as of August 1, 2008. These 34 units also include 23 of our 28 current Ultra-Deepwater Floaters. Our total contract backlog of approximately $41 billion as of ~~Contents~~August 1, 2008 includes an estimated $30 billion of backlog represented by our High-Specification Floaters. With the known demand for deepwater programs, we believe that the long-term outlook for deepwater capable rigs is very favorable. We believe the continued exploration successes in the deepwater offshore sub-salt trend in Brazil (Tupi, Carioca and Jupiter) and offshore Angola are driving significant demand for the Ultra-Deepwater Floaters. Additionally, the continued exploration success in the deepwater of the U.S. Gulf of Mexico and India support our optimistic outlook for the deepwater drilling market sector. As of August 1, 2008, none of our High-Specification Floater fleet contract days are uncommitted for the remainder of 2008, while approximately three percent, 16 percent and 38 percent are uncommitted in 2009, 2010 and 2011, respectively.

~~Liquidity~~Our Midwater Floaters fleet, which includes 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. In July 2008, we entered into definitive agreements to sell two of our Midwater Floaters (GSF Arctic II and ~~Capital~~GSF Arctic IV) ~~Resources~~in the North Sea in connection with our previously announced undertakings to the Office of Fair Trading in the U.K. As of August 1, 2008, seven percent of our Midwater Floater fleet contract days are uncommitted for the remainder of 2008, while approximately 24 percent, 56 percent and 82 percent are uncommitted in 2009, 2010 and 2011, respectively.

~~Sources~~We continue to see steady demand for jackups, and we continue to believe that the increase in supply due to the delivery of newbuild units can be absorbed over the short term. The number of jackups under construction without contracts continues to be a concern, however, and we believe the delivery of these uncontracted units could have an adverse impact on the market in 2009. As of August 1, 2008, none of our High-Specification Jackup fleet contract days are uncommitted for the remainder of 2008, while approximately 33 percent, 90 percent and ~~Uses~~100 percent are uncommitted in 2009, 2010 and 2011, respectively. In addition, 11 percent of ~~Cash~~our Standard Jackup fleet contract days are uncommitted for the remainder of 2008, while approximately 37 percent, 71 percent and 88 percent are uncommitted in 2009, 2010 and 2011, respectively.

~~Our primary~~- ~~sources~~25 of cash during the first three months of 2006 were our cash flows from operations, proceeds from asset sales and proceeds from issuance of ordinary shares upon the exercise of stock options. Our primary uses of cash were repurchases of our ordinary shares and capital expenditures. At March 31, 2006, we had $461.9 million in cash and cash equivalents.-

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

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. In May 2008, we completed the sale of GSF High Island VIII.

~~Net cash provided~~In byMay ~~operating~~2008, ~~activities~~we ~~increased~~entered ~~due~~into a definitive agreement to ansell ~~increase~~our inStandard ~~cash~~Jackup ~~generated from~~Transocean Nordic. ~~net~~We ~~income,~~expect ~~partially~~to ~~offset~~complete bythe atransaction ~~decrease~~during inthe ~~cash~~third ~~related~~quarter toof ~~working~~2008 upon completion of the drilling contract under which ~~capital~~ Transocean Nordic ~~items.~~currently operates.

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

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. These increases will be partially offset by a decrease in revenue from the sale of Peregrine I in November 2007.

~~During the~~The ~~three~~aggregate ~~months~~amount ~~ended~~of ~~March~~out-of-service ~~31,~~time ~~2006,~~we ~~capital~~incur ~~expenditures~~in ~~increased~~2008 ~~$146.4 million~~is ~~over~~expected ~~the~~to ~~corresponding~~be ~~prior~~substantially ~~year~~higher ~~period,~~than ~~primarily~~the amount incurred in 2007 due to the ~~construction~~ inclusion of GlobalSantaFe’s operations, partially offset by a ~~deepwater~~decrease ~~drillship~~in ~~and~~out-of-service ~~equipment~~time ~~replaced~~primarily ~~and~~due ~~upgraded. The increase~~to indecreased ~~capital~~shipyard ~~expenditures~~time isfor ~~partially~~the ~~offset~~legacy byTransocean anrigs. ~~increase~~However, the shipyard projects we intend to undertake in ~~proceeds~~2008 will ~~from~~ involve ~~asset~~rigs ~~sales~~with ofhigher ~~$48.7~~dayrates ~~million.~~than those that underwent shipyard projects in 2007.

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

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. These increases will 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.

28We 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 seven existing contracts with fixed-priced or capped options for dayrates that we believe are less than current market dayrates. Well-in-progress or similar provisions in our existing contracts may delay the start of higher dayrates in subsequent contracts, and some of the delays have been and could be significant.

~~Table~~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 ~~Contents~~rig mobility. Consequently, we operate in a single, global offshore drilling market.

~~Net cash used~~Insurance inMatters—We ~~financing~~periodically ~~activities~~evaluate ~~decreased~~our ~~due~~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 ~~lower~~large ~~debt~~self-insured ~~repayments~~retentions, inwe ~~the~~carry hull and machinery insurance covering physical damage ~~first quarter~~ to ofthe ~~2006~~rigs for operational risks worldwide, and we carry liability insurance covering damage to third parties. ~~The~~However, ~~first~~we ~~quarter~~do ofnot ~~2005~~generally ~~included~~have commercial market insurance coverage for physical damage losses to our rigs due to hurricanes in the ~~early~~U.S. ~~redemption~~Gulf of ~~our 6~~ Mexico and war perils worldwide.~~95%~~ ~~Senior~~Additionally, ~~Notes~~we ~~with~~do nonot ~~comparable~~carry ~~activity~~insurance for ~~the~~loss ~~corresponding~~of ~~period in 2006~~revenue. InAlso, ~~addition~~for our subsidiaries ADTI and CMI, we ~~received~~generally ~~lower~~self-insure ~~proceeds~~operators’ ~~from~~extra ~~stock~~expense ~~option~~coverage. ~~exercises~~This incoverage provides ~~the first~~ protection ~~quarter~~against ofexpenses ~~2006~~related ~~compared~~ to ~~the~~well ~~same~~control ~~period~~and redrill liability associated with blowouts. Generally, ADTI’s clients assume, and indemnify ADTI for, liability associated with blowouts in ~~2005~~excess of $50 million. In the opinion of management, adequate accruals have been made based on known and estimated losses related to such exposures.

~~In March 2006,~~Tax weMatters—We ~~repurchased~~are a Cayman Islands company and ~~retired~~we ~~$200~~operate ~~million~~through our various subsidiaries in a number of countries throughout the world. Consequently, our ~~ordinary shares~~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 ~~See “―Sources~~ 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 ~~Uses~~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 ~~Liquidity~~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.”

~~Capital Expenditures,~~- ~~Acquisitions~~26 ~~and Dispositions~~-

~~From time to~~Our ~~time,~~income wetax ~~review~~return ~~possible~~filings ~~acquisitions~~in ofthe ~~businesses~~major ~~and~~jurisdictions ~~drilling~~in ~~rigs~~which ~~and may in~~we ~~the~~operate ~~future~~worldwide ~~make~~are ~~significant~~generally ~~capital~~subject ~~commitments~~to examination for ~~such~~periods ~~purposes.~~ranging Wefrom ~~may also~~three ~~consider~~to ~~investments~~six ~~related~~years. toWe ~~major~~have ~~rig~~agreed ~~upgrades~~to orextensions ~~new~~beyond ~~rig~~the ~~construction if~~statute ~~generally~~of ~~supported~~limitations byin ~~firm~~two ~~contracts.~~jurisdictions ~~Any~~for ~~such~~up ~~acquisition,~~to ~~upgrade~~12 years. ~~or new rig~~Tax ~~construction~~authorities ~~could~~in ~~involve~~certain ~~the~~jurisdictions ~~payment~~are byexamining usour oftax areturns ~~substantial~~and ~~amount~~in ~~of cash or~~some ~~the~~cases ~~issuance~~have ofissued assessments. aWe ~~substantial~~are ~~number~~defending ofour ~~additional~~tax ~~ordinary~~positions ~~shares~~in orthose ~~other securities~~jurisdictions. ~~We have been awarded~~While awe ~~drilling~~cannot ~~contract~~predict ~~for~~or ~~the~~provide ~~construction~~assurance ofas ato ~~new~~the ~~deepwater~~final ~~drilling rig and~~outcome ~~are~~of ~~currently~~these inproceedings, ~~discussions~~we ~~with~~do ~~various~~not ~~clients~~expect ~~for~~the ~~potential~~ultimate ~~other deepwater~~liability ~~drilling~~to ~~contracts~~have ~~related~~a tomaterial ~~new~~adverse ~~deepwater~~effect ~~rig~~on ~~construction.~~our ~~In addition,~~consolidated ~~from~~statement ~~time~~of tofinancial ~~time~~position, weresults ~~review~~of ~~possible~~operations ~~dispositions~~or ofcash ~~drilling units~~flows.

~~Capital expenditures—Capital expenditures,~~With ~~including~~respect ~~capitalized~~to ~~interest,~~our ~~totaled~~2004 ~~$177.6~~and ~~million~~2005 ~~during the three~~U.S. ~~months~~federal ~~ended~~income ~~March~~tax 31returns, ~~2006~~U.S. ~~During~~taxing ~~2006,~~authorities wepreviously ~~expect~~proposed tocertain ~~spend~~adjustments ~~between $750 million~~that, ~~and~~if ~~$800~~sustained, ~~million~~would onhave ~~our~~resulted ~~existing~~in ~~fleet,~~a ~~including~~cash tax liability of approximately $~~250~~ 413 million, onexclusive ~~the~~of ~~construction~~interest. ofThe ~~the~~tax ~~deepwater~~authorities ~~drillship~~have ~~Discoverer Clear~~now ~~Leader, approximately~~withdrawn ~~$250~~one ~~million~~of ~~for~~these ~~the~~proposed ~~upgrade~~adjustments, ofwhich ~~two~~will ofsignificantly ~~our~~reduce ~~Sedco 700-series rigs,~~the ~~approximately~~proposed ~~$35~~assessment. ~~million~~The authorities continue to ~~replace~~contend ~~and~~that ~~upgrade~~one ~~equipment~~of ~~damaged~~our ~~during hurricanes~~key ~~Katrina~~subsidiaries ~~and~~maintains ~~Rita~~a onpermanent establishment in the ~~Deepwater Nautilus~~U.S. and ~~the Transocean Marianas and approximately~~ ~~$30~~is, ~~million~~therefore, subject to ~~reactivate~~U.S. ~~three~~taxation ofon ~~our~~certain ~~Other~~earnings ~~Floaters~~effectively connected to such U.S. ~~The~~business. ~~level of~~Such ~~our~~tax ~~capital~~treatment ~~expenditures~~would isnot ~~dependent~~result ~~upon~~in ~~the~~a ~~actual~~material ~~level~~adverse effect on our consolidated statement of ~~operational~~ financial position, results of operations or cash flows with respect to 2004 and ~~contracting~~2005 ~~activity~~activities. ~~These~~We ~~expected~~believe ~~capital~~our ~~expenditures~~returns doare ~~not~~materially ~~include~~correct as filed, and we will ~~amounts~~ continue ~~that~~to ~~would~~vigorously bedefend ~~incurred~~against asall aproposed ~~result~~changes. ofThe ~~any~~tax authorities’ audit of ~~the~~GlobalSantaFe’s ~~other~~2004 ~~newbuild~~and ~~or other reactivation~~2005 ~~opportunities~~U.S. ~~being~~federal ~~discussed~~income ~~with~~tax ~~clients~~returns ~~(see~~was ~~“—Outlook”)~~closed during the quarter without giving rise to a material tax liability.

~~As with any~~With ~~major~~respect ~~shipyard~~to ~~project~~years ~~that~~following ~~takes~~2005, ~~place~~U.S. ~~over~~taxing anauthorities ~~extended~~may ~~period~~continue ofto ~~time,~~ pursue the ~~actual~~ ~~costs,~~argument ~~the~~that ~~timing~~one of ~~expenditures~~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. Since there is considerable uncertainty as to the ~~project~~activities ~~completion~~that ~~date~~constitute ~~may~~being engaged in a trade ~~vary~~ or ~~from~~business ~~estimates~~within ~~based~~the onUnited ~~numerous~~States ~~factors~~(or maintaining a permanent establishment under an applicable treaty), ~~including~~we ~~actual~~cannot ~~contract~~be ~~terms~~certain that the tax authorities will not be successful in their claim that we or any of our key subsidiaries is/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 was/were considered to be engaged in a trade or business in the United States (when ~~weather~~ applicable, ~~exchange~~through ~~rates~~a permanent establishment), ~~shipyard~~we ~~labor~~could ~~conditions~~be subject to U.S. corporate income and additional branch profits taxes on the ~~market~~portion ~~demand~~of ~~for components~~its earnings effectively connected to such U.S. business, in which case our effective tax rate on worldwide earnings could increase substantially, and ~~resources~~our ~~required~~earnings ~~for~~and ~~drilling~~cash ~~unit~~flows ~~construction~~from operations could be adversely affected. We believe our returns are materially correct as filed, and we will continue to vigorously defend against all such claims.

~~We intend to~~Certain ~~fund~~of ~~the~~our ~~cash~~Brazilian ~~requirements~~income ~~relating~~tax toreturns ~~our~~for ~~capital~~the ~~expenditures~~years 2000 through ~~available~~ ~~cash~~2004 ~~balances~~are currently under examination. The Brazil tax authorities have issued tax assessments totaling $112 million, ~~cash~~plus ~~generated~~a ~~from~~75 percent ~~operations~~penalty and ~~asset~~$77 million ~~sales.~~of ~~We also have~~interest ~~available~~through ~~credit~~June 30, ~~under~~2008. We believe our ~~revolving~~returns ~~credit~~are ~~agreement~~materially ~~(see~~correct ~~“—Sources~~as filed, and we are vigorously contesting these ~~Uses~~ assessments. ofWe ~~Liquidity”)~~filed ~~and~~a ~~may~~protest ~~utilize~~letter ~~other~~with ~~commercial~~the ~~bank~~Brazilian ortax ~~capital~~authorities ~~market financings~~on January 25, 2008.

~~Dispositions—In February~~Norwegian ~~2006,~~civil wetax ~~completed~~and ~~the~~criminal ~~sale~~authorities are investigating various transactions undertaken by our subsidiaries in 2001 and 2002. The authorities have issued notifications of ~~the~~their ~~drillship~~intent ~~Peregrine III for~~to ~~net proceeds~~issue tax assessments of approximately $~~78.7~~310 million, plus interest, related to certain restructuring transactions, approximately $83 million, ~~and~~plus ~~recognized~~interest, related to a ~~gain~~2001 dividend payment and approximately $8 million related to certain foreign exchange deductions. The authorities have indicated that they plan to seek penalties of 60 percent on all matters. In the ~~sale~~course of ~~$61~~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.9 ~~million~~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.

~~In March 2006~~During the six months ended June 30, we2008, ~~completed~~our long-term liability for unrecognized tax benefits related to these Norwegian tax issues increased by $17 million to $185 million due to the ~~sale~~accrual of ainterest ~~platform~~and ~~rig~~exchange ~~for~~rate ~~net~~fluctuations. ~~proceeds~~While we cannot predict or provide assurance as to the final outcome of ~~$10.1~~these ~~million~~proceedings, we do not expect the ultimate resolution of ~~and~~ these ~~recognized~~matters to have a ~~gain~~material adverse effect on ~~the~~our ~~sale~~consolidated statement of $2financial 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 ~~million~~Taxes.

~~Sources and~~- ~~Uses~~27 ~~of Liquidity~~-

~~Our~~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 ~~primary~~ Corrupt ~~sources~~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 ~~liquidity~~certain ~~are~~actions ~~cash~~taken ~~flows~~by ~~from~~third parties in respect of customs matters in connection with their operations in Nigeria, ~~proceeds~~as ~~from~~well as another company’s announced settlement implicating a third party handling customs matters in Nigeria. In each case, the customs ~~asset sales~~ broker was reported to be Panalpina Inc., ~~proceeds~~which ~~from~~GlobalSantaFe ~~issuance~~used to obtain temporary import permits for its rigs operating offshore Nigeria. GlobalSantaFe voluntarily disclosed its internal investigation to the U.S. Department of ~~ordinary~~Justice ~~shares~~(the ~~upon~~“DOJ”) and the ~~exercise~~Securities and Exchange Commission (“SEC”) and, at their request, expanded its investigation to include the activities of ~~stock~~its customs brokers in other West African countries and the activities of ~~options~~ Panalpina Inc. worldwide. The investigation is focusing on whether the brokers have fully complied with the requirements of their contracts, local laws and ~~existing~~the ~~cash~~FCPA. ~~balances~~In late November 2007, GlobalSantaFe received a subpoena from the SEC for documents related to its investigation. ~~Our~~In ~~primary~~this ~~uses~~connection, the SEC advised GlobalSantaFe that it had issued a formal order of ~~cash~~investigation. ~~are~~After ~~capital expenditures~~the completion of the Merger, ~~repurchases~~outside counsel began formally reporting directly to the audit committee of ~~ordinary~~our ~~shares~~board of directors. Our legal representatives are keeping the DOJ and ~~debt~~SEC ~~repayments.~~apprised of the scope and details of their investigation and producing relevant information in response to their requests.

29On 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. 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.

~~Table~~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 the U.S. Treasury Department’s Office of ~~Contents~~Foreign Assets Control (“OFAC”), and comprehensive restrictions on the export and re-export of U.S.-origin items to Iran. Iran has been designated as a state sponsor of terrorism by the U.S. State Department. 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 is conducting a thorough investigation of the matter.

~~We expect to~~Joint ~~use~~Venture, ~~existing~~Agency ~~cash~~and ~~balances,~~Sponsorship ~~internally~~Relationships ~~generated~~and ~~cash~~Other ~~flows~~Investments—In ~~and~~some ~~proceeds from asset~~areas ~~sales~~of tothe ~~fulfill~~world, ~~anticipated~~local ~~obligations~~customs ~~such~~and aspractice ~~scheduled~~or ~~debt maturities,~~governmental ~~capital~~requirements ~~expenditures~~necessitate ~~and~~the ~~working~~formation ~~capital~~of ~~needs.~~joint ~~From~~ventures ~~time~~with tolocal ~~time~~participation, which we may ~~also~~or ~~use~~may ~~bank~~not ~~lines~~control. ofWe ~~credit~~are toan ~~maintain~~active ~~liquidity~~participant ~~for~~in ~~short-term~~several ~~cash~~joint venture drilling companies, principally in ~~needs~~ Azerbaijan, Indonesia, Malaysia, Angola, Libya and Nigeria.

~~When cash on~~We ~~hand,~~hold ~~cash~~a ~~flows~~50 percent ~~from~~interest ~~operations~~in ~~and~~Overseas ~~proceeds~~Drilling ~~from~~Limited ~~asset~~(“ODL”), ~~sales~~which ~~exceed~~owns ~~our expected~~the ~~liquidity~~drillship ~~needs,~~Joides Resolution. ~~including~~The ~~major~~drillship ~~upgrades,~~is ~~new~~contracted ~~rig~~to ~~construction~~perform ~~and/or~~ drilling ~~rig~~and ~~acquisitions,~~coring weoperations ~~may~~in ~~use~~deep awaters ~~portion~~worldwide offor ~~such~~the ~~cash~~purpose toof ~~repurchase our ordinary~~scientific ~~shares~~research. We ~~may~~manage ~~also allow cash balances to increase~~ and ~~will continue~~ to operate ~~consider~~ the ~~reduction~~vessel ofon ~~debt~~behalf ~~prior~~of ~~to scheduled maturities~~ODL.

In ~~October~~ ~~2005~~early October 2007, ~~our~~we ~~board~~exercised ofour ~~directors~~option ~~authorized the repurchase of up~~ to ~~$2 billion~~purchase ofa ~~our ordinary shares.~~50 ~~The ordinary~~percent ~~shares~~equity ~~may~~interest ~~be repurchased from time to time~~ in ~~open market or private transactions. Decisions to repurchase shares will be based upon our ongoing capital requirements~~TPDI, ~~the~~a ~~price of our~~joint ~~shares,~~venture ~~regulatory~~company ~~considerations,~~formed ~~cash~~by ~~flow~~us ~~generation, general market conditions~~ and ~~other~~Pacific ~~factors.~~Drilling, Wea ~~plan~~Liberian ~~to fund the program from current and future cash balances~~company, ~~but~~whereby we ~~could~~acquired ~~use~~exclusive ~~debt~~marketing torights ~~fund~~for ~~share~~two ~~repurchases.~~ultra-deepwater ~~The repurchase~~drillships ~~program~~to ~~does~~be ~~not~~named ~~have~~Dhirubhai ~~an established~~Deepwater ~~expiration~~KG1 ~~date~~ and ~~may~~ be Dhirubhai ~~suspended~~Deepwater ~~or discontinued at any time. There can be no assurance regarding the number of shares that will be repurchased under the program. Under the program~~KG2, ~~repurchased~~which ~~shares~~ are ~~retired~~currently ~~and~~under ~~returned to unissued status~~construction. ~~In March~~See ~~2006,~~“Item ~~we repurchased and retired $200 million of our ordinary shares, which amounted to approximately~~ 2.6 ~~million~~Management’s ~~ordinary~~Discussion ~~shares~~and atAnalysis ~~an average purchase price~~ of ~~$77.54~~Financial ~~per~~Condition ~~share. Total consideration paid to repurchase the shares was recorded in shareholders’ equity as a reduction in ordinary shares~~ and ~~additional~~Results ~~paid-in capital. Such consideration was funded with existing cash balances. At April 28, 2006, after prior purchases, we still had authority to repurchase $1.4 billion~~ of ~~our~~Operations—Outlook-Drilling ~~ordinary shares under the program~~Market. ”

In April 2006, we announced that holders of our 1.5% Convertible Debentures due May 15, 2021 have the option to require us to repurchase their debentures as of May 15, 2006. Each holder of the debentures has the right, pursuant to the terms of the indenture under which the debentures were issued, to require us to repurchase on May 15, 2006 all or any part of such holder’s debentures at a repurchase price of $1,000 per $1,000 principal amount plus accrued and unpaid interest through May 15, 2006. Under the terms of the debentures, we had the option to pay for the debentures with cash, ordinary shares, or a combination of cash and shares, and we elected to pay for the debentures solely with cash. If all outstanding debentures are surrendered for repurchase, the aggregate cash repurchase price will be approximately $400 million. We intend to pay the repurchase price from existing cash balances. The debentures are convertible, at the option of the holder, into 13.8627 of our ordinary shares per $1,000 principal amount, subject to adjustment under certain circumstances. If all of the debentures are converted by the holders, approximately 5.5 million shares would be issued to the debenture holders and the debentures would be retired in a non-~~cash~~ ~~transaction.~~28 ~~Because of the level of our share price, we believe it is unlikely that the debentures will be surrendered for repurchase.~~-

~~Our internally~~In ~~generated~~Azerbaijan, ~~cash~~the ~~flow~~semisubmersibles isIstiglal ~~directly~~and ~~related~~Dada Gorgud tooperate ~~our~~under ~~business~~long-term ~~and~~bareboat ~~the market~~charters ~~sectors~~between (a) Caspian Drilling Company Limited (“CDC”), a joint venture in which we ~~operate.~~hold ~~Should~~a 45 percent ownership interest, and (b) the ~~drilling~~owner ~~market~~of ~~deteriorate~~both rigs, ~~or should~~ wethe ~~experience~~State ~~poor~~Oil ~~results~~Company inof ~~our~~the ~~operations~~Azerbaijan Republic (“SOCAR”), ~~cash~~our ~~flow~~sole ~~from~~equity ~~operations may~~partner bein ~~reduced~~CDC. WeSOCAR ~~have,~~has ~~however,~~granted ~~continued~~exclusive bareboat charter rights to ~~generate~~CDC ~~positive~~for ~~cash~~the ~~flow from operating~~life ~~activities~~of ~~over~~the ~~recent~~joint ~~years~~venture. ~~and~~During ~~expect~~2005, ~~cash~~these ~~flow~~bareboat ~~will~~charter ~~continue~~rights were extended through October 2011, pursuant to ~~be positive~~ ~~over~~an amendment to the ~~next~~agreement ~~several~~establishing ~~years~~CDC.

~~We have access~~A joint venture in which we hold a noncontrolling minority interest operates primarily in Libya, and to a ~~bank~~limited ~~line~~extent in Syria. The joint venture, Arab Drilling & Workover Company (“ADWOC”), is a Libyan joint company, of ~~credit~~which ~~under~~we own a ~~$500~~40 ~~million~~percent ~~five-year~~interest, ~~revolving~~with ~~credit~~the remaining 60 percent being owned by parties unrelated to us. One of these parties is Arab Petroleum ~~agreement~~ Investments Corporation, a Saudi Arabian company (“APIC”) whose shareholders are the ten member states of the Organization of Arab Petroleum Exporting Countries (“OAPEC”), including Syria (3 percent interest). AtAPIC ~~April~~owns 28a 20 percent interest in ADWOC. The other party is Arab Petroleum Services Company, ~~2006~~a Libyan company (“APSCO”), ~~$500~~whose ~~million~~shareholders ~~remained~~are ~~available~~the ~~under~~member ~~this~~states ~~credit~~of OAPEC, which owns a 40 percent interest in ADWOC. The Establishment Agreement ~~line~~ and Statutes of the joint venture provide us with the right to appoint two of the five members of the board of directors of ADWOC. While the Libyan Sanctions Regulations of OFAC were in effect, our two representatives on the board generally attended but did not otherwise participate in meetings of the board of directors. Since the Libyan Sanctions Regulations were lifted by Executive Order, our representatives have voted on some matters at meetings of the board of directors of ADWOC.

~~The bank credit~~Syria ~~line~~is ~~requires~~identified ~~compliance~~by ~~with~~the ~~various~~U.S. ~~covenants~~State ~~and~~Department ~~provisions~~as ~~customary for~~a ~~agreements~~state sponsor of ~~this~~terrorism. ~~nature~~In addition, ~~including~~Syria ais ~~debt~~subject to ~~total~~a ~~tangible~~number ~~capitalization ratio~~of economic regulations, asincluding ~~defined~~sanctions administered by OFAC, and comprehensive restrictions on the ~~credit~~export ~~agreement,~~and ~~not~~re-export ~~greater~~of ~~than~~U.S.-origin 60items ~~percent~~to Syria. ~~There is no~~We ~~interest~~believe ~~coverage~~our ~~covenant~~noncontrolling ~~associated~~minority investment has been maintained in accordance with ~~this~~all ~~facility~~applicable OFAC regulations. ~~Other~~However, ~~provisions of the~~potential ~~credit~~investors ~~agreement~~could ~~include~~view ~~limitations~~our onminority ~~creating~~interest ~~liens,~~in ~~incurring~~our ~~subsidiary debt,~~Libyan ~~transactions~~joint ~~with~~venture ~~affiliates~~and any potential violations of OFAC regulations negatively, ~~sale/leaseback~~which ~~transactions~~could ~~and~~adversely ~~mergers~~ affect our reputation and ~~sale~~ ofthe ~~substantially~~market ~~all~~for ~~assets~~our ordinary shares. ~~Should~~Various westate ~~fail~~and tomunicipal ~~comply~~governments, ~~with~~universities ~~these~~and ~~covenants, we~~other ~~would~~investors behave inproposed ~~default~~or adopted divestment and ~~may~~other ~~lose~~initiatives ~~access~~regarding investment (including, with respect to ~~this~~state ~~facility.~~governments, Weby ~~are~~state ~~also~~retirement ~~subject~~systems) in to companies ~~various~~that ~~covenants~~do ~~under~~business ~~the~~with ~~indentures~~countries ~~pursuant~~that tohave ~~which~~been ~~our~~designated ~~public~~as ~~debt was issued,~~state ~~including~~sponsors ~~restrictions~~of onterrorism ~~creating~~by ~~liens,~~the ~~engaging~~U.S. inState ~~sale/leaseback transactions~~Department. ~~and~~As ~~engaging~~a ~~in merger~~result, ~~consolidation~~certain orinvestors ~~reorganization transactions.~~may Abe ~~default~~subject ~~under~~to ~~our~~reporting ~~public~~requirements ~~debt~~with ~~could~~respect ~~trigger~~to ainvestments ~~default~~in ~~under our credit~~companies ~~line~~such ~~and~~as ~~cause~~ours usor may be subject to ~~lose~~limits ~~access~~or prohibitions with respect to ~~this~~those ~~facility~~investments.

30Local laws or customs in some areas of the world also effectively mandate establishment of a relationship with a local agent or sponsor. When appropriate in these areas, we enter into agency or sponsorship agreements.

~~Table of~~Performance ~~Contents~~and Other Key Indicators

~~In April 2001,~~Contract ~~the~~Backlog—The ~~SEC~~following ~~declared~~table ~~effective~~presents our ~~shelf~~contract ~~registration~~backlog, ~~statement~~including onfirm ~~Form~~commitments ~~S-3~~ only, for ~~the~~our ~~proposed~~Contract ~~offering~~Drilling ~~from~~segment ~~time~~as toof ~~time~~June 30, of2008, upMarch to31, $22008 and June 30, 2007.0 ~~billion~~Firm incommitments ~~gross~~are typically represented by signed drilling contracts. Our ~~proceeds~~ contract ofbacklog ~~senior~~is orcalculated ~~subordinated~~by ~~debt~~multiplying ~~securities,~~the ~~preference~~full ~~shares,~~contractual ~~ordinary shares~~operating ~~and~~dayrate ~~warrants~~by tothe ~~purchase~~number ~~debt~~of ~~securities~~days remaining in the firm contract period, ~~preference~~excluding ~~shares~~revenues for mobilization, ~~ordinary shares~~demobilization orand ~~other~~contract ~~securities.~~preparation Ator ~~April~~other ~~28,~~incentive ~~2006~~provisions, ~~$1.6~~which ~~billion~~are innot ~~gross~~expected ~~proceeds of securities~~to ~~remained~~be ~~unissued~~significant ~~under~~to ~~the~~our ~~shelf~~contract ~~registration statement~~drilling revenues.

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

	June 30, 2008		March 31, 2008		June 30, 2007
	(In millions)
Contract backlog
High-Specification Floaters	$	26,945	$	21,373	$	15,296

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