UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~June~~ September 30, ~~2005~~2007

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

Commission File Number 1-14634

GlobalSantaFe Corporation

(Exact name of registrant as specified in its charter)

Cayman Islands		98-0108989
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
15375 Memorial Drive, Houston, Texas		77079-4101
(Address of principal executive offices)		(Zip Code)

15375 Memorial Drive, Houston, Texas		77079-4101
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (281) 925-6000

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, ~~(as~~or ~~defined~~a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act). ~~Yes x No ¨~~

~~The~~Large ~~number~~accelerated offiler x Accelerated ~~shares~~filer ¨ Non-accelerated offiler ¨ ~~the registrant’s ordinary shares, par value $.01 per share, outstanding as of July 31, 2005, was 241,820,361.~~

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

The number of shares of the registrant’s ordinary shares, par value $.01 per share, outstanding as of October 31, 2007, was 225,587,511.

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS TO FORM 10-Q

QUARTER ENDED ~~JUNE~~SEPTEMBER 30, ~~2005~~ 2007

	Page	~~Page~~
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
Item 1. Financial Statements (Unaudited)
Report of Independent Registered Public Accounting Firm	4	3
Condensed Consolidated Statements of Income for theThree and Six Months Ended June 30, 2005 and 2004		4
Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2007 and 2006	5
Condensed Consolidated Balance Sheets as ofJune 30, 2005, and December 31, 2004		5
Condensed Consolidated Balance Sheets as of September 30, 2007, and December 31, 2006	6
Condensed Consolidated Statements of Cash Flows for theSix Months Ended June 30, 2005 and 2004		7
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006	8
Condensed Consolidated Statement of Shareholders’ Equity for theSix Months Ended June 30, 2005		8
Condensed Consolidated Statement of Shareholders’ Equity for the Nine Months Ended September 30, 2007	9
Notes to Condensed Consolidated Financial Statements	10	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 3. Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	34
Item 4. Controls and Procedures	38
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1. Legal Proceedings	38
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	36
Item 1A. Risk Factors	41
Item 4.	Submission of Matters to a Vote of Security Holders	36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 5.	Other Information	36
Item 6. Exhibits	46
Item 6.	Exhibits	37
SIGNATURE	48
SIGNATURE		38

FORWARD-LOOKING STATEMENTS

Under the Private Securities Litigation Reform Act of 1995, companies are provided a “safe harbor” for discussing their expectations regarding future performance. We believe it is in the best interests of our shareholders and the investment community to use these provisions and provide such forward-looking information. We do so in this report and in other communications. Forward-looking statements are often but not always identifiable by ~~the~~ use of words such as “anticipate,” “believe,” “budget,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “should,” and “~~should~~will.”

Our forward-looking statements include statements about the following subjects:

• our ~~expectation~~possible ~~that, if required, any additional payments made under certain fully defeased financing leases would not be material to our financial position~~ or assumed results of operations ~~in any given year~~;

• our ~~expectations~~estimate regarding ~~realization~~the timing of ~~contract~~the ~~drilling~~completion ~~backlogs~~of ~~during~~ the ~~remainder~~merger ofwith ~~2005~~Transocean;

• our expectations regarding ~~commencement~~the financing in connection with the merger and ~~value~~the possible effects of ~~certain~~the ~~contracts~~increased level of debt following the merger;

• our ~~anticipated~~expectation ~~estimated~~that ~~effective~~Transocean ~~tax~~will ~~rate~~likely ~~for~~seek ~~financial~~to ~~reporting~~refinance ~~purposes~~the ~~for~~bridge ~~2005~~loan facility in whole or in part prior to the expiration of its one-year term;

• our ~~estimation~~expectations ofregarding the ~~capitalized~~possible ~~cost,~~effects ~~capital~~of ~~spares, startup expenses, customer-required modifications, mobilization costs, and capitalized interest for our two new semisubmersibles,~~ the ~~GSF~~pending ~~Development~~merger ~~Driller I and GSF Development Driller II~~transaction;

• our ~~estimation~~funding of the expected delay in commencement of initial operations of our two new semisubmersibles due to thruster defects, estimated costs to remediate the defects, expectation regarding who will bear those costs and ~~expectation~~financing ~~that the delay will have an adverse impact on our results of operations~~plans;

• our ~~expectation~~expectations ~~that~~regarding wefunding ~~will fund all remaining construction and startup costs~~ of our ~~two new semisubmersibles from our existing cash, cash equivalents and marketable securities balances, and future cash flow from operations~~pensions;

• ~~our~~the ~~expectation~~dates ~~that~~drilling ~~our~~rigs ~~effective~~will ~~tax~~become ~~rate~~available following completion of current contracts, the dates rigs will ~~continue~~commerce tocontracts ~~fluctuate~~and ~~from~~the ~~year~~dollar toamount ~~year~~of assuch ~~our~~contracts, ~~operations~~and ~~are~~the ~~conducted~~dates inrigs ~~different~~will ~~taxing~~be ~~jurisdictions~~mobilized to other locations;

• ~~expectations~~with ~~regarding~~respect ~~pension~~to ~~plan~~our ~~funding~~new ~~obligations~~ultra-deepwater semisubmersible, the GSF Development Driller III and our new ultra-deepwater exploration and development drillship, the estimate of the construction costs for both and the projected delivery date for the GSF Development Driller III;

•

our expected insurance recoveries for the costs to remediate thruster defects on the GSF Development Driller I and the GSF Development Driller II;

•

our expectations regarding insurance recoveries in connection with remediation of the thruster defects on the GSF Development Driller I and the GSF Development Driller II, certain of our rigs damaged by Hurricanes Katrina and Rita and under our loss of hire insurance provisions;

•

our estimates of loss of hire recoveries from our insurers;

•

our expectation that we will fund the costs we incur for the construction of the GSF Development Driller III and our new ultra-deepwater exploration and development drillship, from our existing cash, cash equivalents balances, and future cash flow from operations;

•

our contract drilling revenue backlog and the amount expected to be realized in 2007;

•

our expectations regarding our investigation into our customs brokers in Nigeria and West Africa and Panalpina, Inc., its materiality, and its effect on our financial position and results of operations;

•

our ability to obtain import permits or to renew temporary importation permits in a manner that complies with the U.S. Foreign Corrupt Practices Act and local laws in various geographic markets in which we operate, in order to continue to operate our vessels in these jurisdictions and send goods and materials into these jurisdictions;

•

our expectations regarding future conditions in various geographic markets in which we operate and the prospects for future work, contract terms and dayrates in those markets;

• ~~our~~the ~~expectations~~expected ~~regarding~~outcomes ~~equipment~~of ~~supply~~legal and ~~demand~~administrative inproceedings, ~~various~~their ~~geographic~~materiality, ~~markets~~potential insurance coverage and their expected effects on our financial position and results of operations;

• our ~~expectations~~expectation ~~regarding~~that the potential impact of ~~the~~cycles ~~entry~~and ~~into~~market ~~service~~forces on our results of ~~new~~operations ~~rigs~~will ~~under~~be ~~construction,~~mitigated ~~and~~in ~~rigs~~part ~~being~~by ~~upgraded~~our orcontract ~~reactivated~~drilling backlog;

•

our expectations regarding supply and demand for equipment, ancillary services, and drilling rigs in various geographic markets;

•

our expectations regarding the time and impact of the entry into service of new rigs under construction, and rigs being upgraded or reactivated;

•

our expectation that further new rig construction announcements are likely;

• ~~our~~estimated ~~estimate~~costs ofin ~~the~~2007 ~~third~~for ~~quarter~~drilling ~~pretax~~management ~~loss resulting from unforeseen difficulties on a turnkey project~~services;

• our estimated ~~costs~~capital ~~for~~expenditures ~~drilling~~in ~~management services~~2007;

• our expectation that we ~~expect~~will tonot ~~redeem~~recover ~~all~~the ~~remaining~~lost ~~Zero~~riser ~~Coupon~~for ~~Convertible~~GSF ~~Debentures~~Rig in135, the ~~third~~expected ~~quarter~~delay ofin ~~2005~~commencement atof ~~a redemption price equal to $594.25 plus an additional amount reflecting~~ the ~~3.5%~~rig’s ~~issue~~drilling ~~discount~~operations ~~accrued~~due ~~from June 23, 2005~~ to the ~~date~~loss, ~~of redemption~~ and ~~will fund~~ the ~~redemption~~possible ~~price~~insurance ~~from~~recoveries ~~our~~related ~~existing cash, cash equivalents and marketable securities balances~~thereto;

• our ~~expectations~~expectation ~~regarding~~that ~~the~~our ~~costs~~effective tax rate will continue to fluctuate from quarter to quarter and ~~date~~year ofto ~~completion~~year ~~for~~as ~~the~~our ~~reactivation~~operations ofare ~~the~~conducted ~~GSF~~in ~~Artic~~different IItaxing jurisdictions;

• our ~~estimated~~expectation ~~capital~~that ~~expenditures~~the renegotiation of a tax treaty currently underway will likely result in ~~2005~~a change in the terms of the treaty that is adverse to our structure and will increase our effective tax rate, and our expectations regarding our ability to mitigate any negative impact of such renegotiation;

• our ~~expectation~~ability ~~that~~to wemeet ~~will~~all ~~fund~~of ~~various~~our ~~commitments~~current obligations, ~~primarily~~including ~~related~~working tocapital ~~our~~requirements, ~~debt and~~ capital expenditures, lease obligations, ~~leases~~construction ~~for~~and ~~office~~development ~~space~~commitments, and ~~other~~debt ~~property~~service, ~~and~~from ~~equipment~~our ~~with~~ existing cash, ~~and~~ cash equivalents, and marketable securities balances and future cash flow from operations;

• our ~~ability~~expectation tothat, ~~meet~~if ~~all of our current obligations~~required, ~~including~~any ~~working~~additional ~~capital~~payments ~~requirements,~~made ~~capital~~under ~~expenditures,~~certain ~~lease~~fully ~~obligations,~~defeased ~~construction~~financing ~~and~~leases ~~development~~would ~~commitments~~not ~~and~~be ~~debt~~material ~~service~~to ~~from~~ our ~~existing~~financial ~~cash~~position, ~~cash~~results ~~equivalents~~of ~~and~~operations ~~marketable~~or ~~securities~~cash ~~balances,~~flows ~~and~~in ~~future~~any ~~cash~~given ~~flow from operations~~year;

• our ~~beliefs~~estimation ~~regarding~~that the ~~outcome,~~Minerals ~~impact~~Management onService ~~our~~of ~~financial~~the ~~position,~~U.S. ~~results~~Department of ~~operations~~Interior ~~and~~or ~~cash~~insurance ~~flows~~underwriters, ~~and~~or ~~availability~~both, ofmay ~~insurance~~impose operating criteria in ~~respect~~the U.S. Gulf of ~~pending~~Mexico ~~litigation~~that could increase the capital cost or cost of operations or reduce the area of operations for rigs operating there, which could materially and adversely affect our operations in the U.S. Gulf of Mexico;

~~any~~• ~~other~~our ~~statements~~expectation ~~that~~regarding ~~are~~the ~~not~~effect ~~historical~~of ~~facts.~~adoption of certain accounting standards; and

•

any other statements that are not historical facts.

Our forward-looking statements speak only as of the date of this report and are based on available industry, financial and economic data and our operating and financing plans as of that date. They are also inherently uncertain, and investors must recognize that events could turn out to be materially different from what we expect.

Factors that could cause or contribute to such differences include, but are not limited to (a) ~~general~~market ~~economic and business~~ conditions; (b) ~~the cyclical nature of the drilling business~~competition; (c) oil and natural gas price fluctuations ~~and related market expectations~~; (d) ~~the~~changes ~~political~~in ~~environment~~laws ofor ~~oil-producing regions~~regulations; (e) our ability to hire and retain qualified personnel; (f) additional new rig construction; (g) ~~delays~~the occurrence of any event, ~~due~~change or other circumstances that could give rise to ~~adverse~~the ~~weather~~termination ~~conditions~~of the Merger Agreement with Transocean; (h) failure to obtain shareholder approval or any other ~~complications,~~failure into satisfy other conditions required to complete the ~~remediation~~proposed ofmerger, ~~thruster~~including ~~defects~~required onregulatory ~~our~~approvals; ~~two~~(i) ~~new~~uncertainties ~~semisubmersibles~~resulting from the pending merger transaction; and (hj) such other risk factors as may be discussed herein, in the “Risk Factors” section under ~~Items~~Item 11A and ~~2 and~~ elsewhere in our Annual Report on Form 10-K for the year ended December 31, ~~2004~~2006, and subsequent reports filed with the U.S. Securities and Exchange Commission.

~~You~~We ~~should~~caution investors not to place undue reliance on forward-looking ~~statements.~~ ~~Each forward-looking statement speaks only as of the date of the particular statement~~statements, and wedo ~~disclaim~~not undertake any obligation ~~or undertaking~~ to ~~disseminate~~update ~~any~~publicly ~~updates~~ or ~~revisions~~otherwise torevise ~~our~~any ~~statements,~~ forward-looking ~~or otherwise~~statements, towhether ~~reflect changes~~as ina ~~our~~result ~~expectations~~of ornew information, ~~any~~future ~~change~~events inor ~~events,~~other ~~conditions~~such orfactors ~~circumstances~~that onaffect ~~which~~the ~~any~~subject ~~such~~of these statements, ~~are~~except ~~based~~where expressly required by law.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of GlobalSantaFe Corporation:

We have reviewed the accompanying condensed consolidated balance sheet of GlobalSantaFe Corporation and its subsidiaries ~~(the Company)~~ as of ~~June~~ September 30, ~~2005~~2007, and the related condensed consolidated statements of income and comprehensive income for each of the three-month and ~~six~~nine-month periods ended ~~June~~ September 30, ~~2005~~2007 and ~~2004~~2006 and the condensed consolidated statement of cash flows for the ~~six~~nine-month periods ended ~~June~~ September 30, ~~2005~~2007 and ~~2004~~2006, and the condensed consolidated statement of shareholders’ equity for the ~~six~~nine-month period ended ~~June~~ September 30, ~~2005~~2007. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not ~~express~~ express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, ~~2004~~2006, and the related consolidated statements of income and other comprehensive income, of shareholders’ equity, and of cash flows for the year then ended, ~~management’s~~(not ~~assessment~~presented ~~of the effectiveness of the Company’s internal control over financial reporting as of December 31~~herein), ~~2004~~ and ~~the effectiveness of the Company’s internal control over financial reporting as of December 31,2004; and~~ in our report dated ~~March~~February 28, 22007, ~~2005~~ we expressed an unqualified ~~opinions~~opinion ~~thereon.~~on ~~The~~those consolidated financial statements ~~and management’s assessment of the effectiveness of internal control over financial reporting referred to above are not presented herein~~. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, ~~2004~~2006, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

~~August 2~~November 1, ~~2005~~2007

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

($ in millions, except per share ~~amounts~~ data)

	Three Months EndedJune 30,						Six Months EndedJune 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
	2007			2006			2007			2006
Revenues:
Contract drilling	$	~~403~~949.83		$	~~274~~699.42		$	~~738~~2,557.32		$	~~543~~1,800.9
Drilling management services		~~156~~224.01			~~102~~202.19			~~298~~563.02			~~207~~523.86
Oil and gas		1514.08			57.61			2744.18			1037.45
Total revenues		~~574~~1,188.82			~~382~~909.12			13,~~063~~165.42			~~762~~2,362.10
Expenses and other operating items:
Expenses:
Contract drilling		~~250~~345.85			~~211~~318.36			~~466~~1,032.02			~~402~~884.76
Drilling management services		~~145~~215.15			95209.68			~~277~~537.3			~~196~~524.04
Oil and gas		25.79			13.79			618.57			313.10
Depreciation, depletion and amortization		6887.57			6277.80			~~136~~251.46			~~127~~224.29
Gain on sale of assets		(1.1	)		—			(1.1	)		(2.7	)
Involuntary conversion of long-lived assets, net of related recoveries, loss of hire recoveries and gain on dispositions of equipment		—			—			(57.1	)		(85.3	)
Impairment loss on long-lived assets		—			—			—			1.2
General and administrative		32.6			18.1			80.2			61.2
General and administrative		14.3			12.9			30.2			28.8
Total operating expenses		687.2			627.4			1,862.9			1,622.8
Total operating expenses and other operating items		480.3			384.3			915.3			756.3
Operating income		501.0			281.8			1,302.3			739.2
Operating income (loss)		94.5			(2.2	)		148.1			5.8
Other income (expense):
Interest expense		(1112.90	)		(169.60	)		(2434.25	)		(3327.14	)
Interest capitalized		114.79			112.72			2112.81			2117.64
Interest income		58.62			25.74			1020.87			519.7
Loss on early retirement of long-term debt		—			(32.4	)		—			(32.4	)
Other		(1.2	)		1.3			1.2			(0.3	)
Other		(0.9	)		1.1			—			(0.8	)
Total other income (expense)		(0.1	)		(0.1	)		(0.5	)		9.4
Total other income (expense)		4.5			(33.5	)		8.4			(39.0	)
Income before income taxes		500.9			281.7			1,301.8			748.6
Income (loss) before income taxes		99.0			(35.7	)		156.5			(33.2	)
Provision for income taxes:
Income tax provision (benefit):
Current tax provision		44.4			25.8			89.6			61.5
Current tax provision		8.7			2.5			13.2			3.2
Deferred tax provision		7.9			10.3			52.1			30.1
Deferred tax provision (benefit)		5.2			(12.2	)		8.0			(14.5	)
Total provision for income taxes		52.3			36.1			141.7			91.6
Total income tax provision (benefit)		13.9			(9.7	)		21.2			(11.3	)
Income from continuing operations		448.6			245.6			1,160.1			657.0
Income (loss) from continuing operations		85.1			(26.0	)		135.3			(21.9	)
Income from discontinued operations, net of tax effect (Note 10)		—			—			5.7			—
Income from discontinued operations, net of tax effect		—			110.0			—			114.6
Net income		448.6			245.6			1,165.8			657.0
Net income		85.1			84.0			135.3			92.7
Other comprehensive income (loss)		3.7			—			(1.2	)		(0.1	)
Other comprehensive income (loss)		1.6			(1.5	)		(1.0	)		(0.4	)
Total comprehensive income	$	452.3		$	245.6		$	1,164.6		$	656.9
Total comprehensive income	$	86.7		$	82.5		$	134.3		$	92.3
Earnings per ordinary share (Basic):
Earnings (loss) per ordinary share (Basic):
Income from continuing operations	$	1.99		$	1.03		$	5.09		$	2.71
Income (loss) from continuing operations	$	0.36		$	(0.11	)	$	0.57		$	(0.09	)
Income from discontinued operations		—			—			0.03			—
Income from discontinued operations		—			0.47			—			0.49
Net income	$	1.99		$	1.03		$	5.12		$	2.71
Net income	$	0.36		$	0.36		$	0.57		$	0.40
Earnings per ordinary share (Diluted):
Earnings (loss) per ordinary share (Diluted):
Income from continuing operations	$	1.96		$	1.02		$	5.02		$	2.67
Income (loss) from continuing operations	$	0.35		$	(0.11	)	$	0.56		$	(0.09	)
Income from discontinued operations		—			—			0.03			—
Income from discontinued operations		—			0.47			—			0.49
Net income	$	1.96		$	1.02		$	5.05		$	2.67
Net income	$	0.35		$	0.36		$	0.56		$	0.40

See notes to condensed consolidated financial statements.

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(~~Unaudited~~unaudited)

($ in millions)

	June 30,2005		December 31, 2004
Current assets:
Cash and cash equivalents	$	274.7	$	606.7
Marketable securities		284.8		201.9
Accounts receivable, net of allowances		389.8		360.8
Costs incurred on turnkey drilling projects in progress		25.3		18.5
Prepaid expenses		28.6		31.7
Other current assets		13.3		5.0
Total current assets		1,016.5		1,224.6
Properties and equipment:
Rigs and drilling equipment, less accumulated depreciation of $1,512.6 at June 30, 2005, and $1,381.9 at December 31, 2004		4,337.7		4,307.0
Oil and gas properties, full-cost method, less accumulated depreciation, depletion and amortization of $21.9 at June 30, 2005, and $17.7 at December 31, 2004		24.9		22.9
Net properties		4,362.6		4,329.9
Goodwill		340.1		338.1
Deferred income taxes		32.4		32.8
Other assets		74.1		72.8
Total assets	$	5,825.7	$	5,998.2

ASSETS


	September 30, 2007		December 31, 2006
Current assets:
Cash and cash equivalents	$	449.1	$	336.4
Marketable securities		16.0		12.5
Accounts receivable, net of allowances		969.3		653.4
Accounts receivable from insurers		113.4		138.9
Costs incurred on turnkey drilling projects in progress		12.9		11.0
Prepaid expenses		97.4		68.8
Other current assets		13.9		12.7

Total current assets		1,672.0		1,233.7

Properties and equipment:
Rigs and drilling equipment, less accumulated depreciation of $2,075.3 at September 30, 2007 and $1,886.4 at December 31, 2006		4,753.9		4,479.3
Oil and gas properties, full-cost method, less accumulated depreciation, depletion and amortization of $45.4 at September 30, 2007 and $35.0 at December 31, 2006		60.0		35.3

Net properties and equipment		4,813.9		4,514.6

Goodwill		334.4		339.2
Deferred tax assets		37.3		34.3
Other assets		123.4		98.4

Total assets	$	6,981.0	$	6,220.2

See notes to condensed consolidated financial statements.

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS ~~(Continued)~~

(~~Unaudited~~unaudited)

($ in millions)

	June 30,2005			December 31, 2004
Current liabilities:
Accounts payable	$	182.3		$	210.8
Current maturities of long-term debt		0.5			350.7
Accrued compensation and related employee costs		67.4			76.2
Accrued income taxes		—			27.1
Accrued interest		6.4			6.4
Deferred revenue		21.8			23.5
Other accrued liabilities		104.6			78.3
Total current liabilities		383.0			773.0
Long-term debt		558.1			554.4
Capital lease obligations		24.4			31.6
Deferred income taxes		46.7			39.0
Other long-term liabilities		150.3			133.8
Commitments and contingencies (Note 4)		—			—
Shareholders’ equity:
Ordinary shares, $0.01 par value, 600,000,000 shares authorized, 240,737,844 shares and 235,957,481 shares issued and outstanding at June 30, 2005, and December 31, 2004, respectively		2.4			2.4
Additional paid-in capital		3,120.8			3,004.3
Retained earnings		1,582.9			1,501.6
Accumulated other comprehensive loss		(42.9	)		(41.9	)
Total shareholders’ equity		4,663.2			4,466.4
Total liabilities and shareholders’ equity	$	5,825.7		$	5,998.2

LIABILITIES AND SHAREHOLDERS’ EQUITY


	September 30, 2007			December 31, 2006
Current liabilities:
Accounts payable	$	341.2		$	284.5
Accrued compensation and related employee costs		134.0			111.5
Accrued income taxes		19.7			17.8
Accrued interest		8.6			6.6
Deferred revenues		35.5			13.1
Dividends payable		—			51.9
Capital lease obligations		1.8			9.3
Other accrued liabilities		68.9			68.4

Total current liabilities		609.7			563.1

Long-term debt		550.5			623.9
Capital lease obligations		14.7			15.4
Deferred tax liabilities		82.4			27.7
Pension and other post-retirement benefits		73.5			64.5
Other long-term liabilities		160.2			78.5
Commitments and contingencies (Note 7)		—			—

Shareholders’ equity:
Ordinary shares, $0.01 par value, 600 million shares authorized, 225,396,398 shares and 230,470,382 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively		2.3			2.3
Additional paid-in capital		3,209.1			3,176.3
Retained earnings		2,375.4			1,764.1
Accumulated other comprehensive loss		(96.8	)		(95.6	)

Total shareholders’ equity		5,490.0			4,847.1

Total liabilities and shareholders’ equity	$	6,981.0		$	6,220.2

See notes to condensed consolidated financial statements.

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

($ in millions)

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2005			2004
	2007			2006
Cash flows from operating activities:
Net income	$	~~135~~1,165.38		$	92657.70
Adjustments to reconcile net income to net cash flow provided by operating activities:
Depreciation, depletion and amortization		~~136~~251.46			~~131~~224.29
Deferred income taxes		852.01			~~(18~~30.91	)
Gain on sale of assets		(1.1	)		(114.7	)
Involuntary conversion of long-lived assets, net of related recoveries, loss of hire recoveries and gain on dispositions of equipment		(57.1	)		(85.3	)
Impairment loss on long-lived assets		—			1.2
Stock-based compensation expense		26.6			27.0
Loss on early retirement of long-term debt		—			32.4
Cash received from insurance for loss of hire and other recoveries		54.5			—
(Increase) decrease in accounts receivable		(28.2	)		24.6
Increase in accounts receivable		(367.7	)		(225.6	)
(Increase) decrease in prepaid expenses and other
Increase in prepaid expenses and other current assets		(31.6	)		(37.8	)
current assets		(10.5	)		16.4
Increase in deferred mobilization costs		(5.3	)		(2.8	)
Increase (decrease) in accounts payable		29.2			(13.4	)
Increase in accounts payable		59.2			74.6
Decrease in accrued liabilities		(30.2	)		(36.9	)
Increase in accrued liabilities		23.3			12.4
Decrease in deferred revenues		(0.8	)		(19.9	)
Increase in deferred revenues		87.2			5.6
Increase in other long-term liabilities		~~13.~~6.9			1829.24
Payment of imputed interest on the Zero Coupon Bond Debentures		(56.3	)		—
Contributions to defined benefit plans		(8.0	)		(64.0	)
Other, net		10(2.9	)		0(3.41	)
Net cash flow provided by operating activities		~~206~~1,254.36			~~113~~642.34
Cash flows from investing activities:
Capital expenditures		(~~228~~568.23	)		(~~235~~424.63	)
Proceeds from sale of land drilling fleet assets		—			316.5
Cash received from insurance for involuntary conversion of long-lived assets		62.3			108.1
Proceeds from disposals of properties and equipment		1.4			10.8
Purchases of available-for-sale marketable securities		(147.0	)		(1,201.4	)
Purchases of held-to-maturity marketable securities		—			(169.2	)
Proceeds from sales of available-for-sale marketable securities		144.2			1,453.7
Proceeds from maturities of held-to-maturity marketable securities		—			254.0
Proceeds from disposals of properties and equipment		34.9			2.3
Purchases of available-for-sale marketable securities		(173.2	)		—
Other, net		—			2.7
Proceeds from sales of available-for-sale marketable securities		90.5			10.2
Net cash flow used in investing activities		(473.9	)		(58.9	)
Net cash flow (used in) provided by investing activities		(309.5	)		186.7
Cash flows from financing activities:
Dividend payments		(35154.75	)		(23164.46	)
Payments on long-term debt		(299.8	)		(331.7	)
Borrowings under credit facility		195.0			—
Payments on capitalized lease obligations		(8.1	)		(8.0	)
Payments on credit facility		(270.0	)		—
Proceeds from issuance of ordinary shares		914.3			18.2
Deferred financing cost		—			(0.7	)
Ordinary Shares repurchased and retired		(799.5	)		—
Excess tax deduction resulting from option exercises		12.1			5.5
Other		—			6.1
Payments on capitalized lease obligations		(10.0	)		(10.1	)
Net cash flow used in financing activities		(228.8	)		(338.8	)
Proceeds from issuance of ordinary shares		95.9			126.8
Decrease in cash and cash equivalents		(332.0	)		(38.8	)
Payments for ordinary shares repurchased and retired		(536.5	)		(778.3	)
Cash and cash equivalents at beginning of period		606.7			711.8
Net cash flow used in financing activities		(668.0	)		(821.4	)
Cash and cash equivalents at end of period	$	274.7		$	673.0
Increase (decrease) in cash and cash equivalents		112.7			(237.9	)
Cash and cash equivalents at beginning of period		336.4			562.6
Cash and cash equivalents at end of period	$	449.1		$	324.7

See notes to condensed consolidated financial statements.

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(Unaudited)

($In in millions, except share amounts)

						Additional Paid-in Capital			Retained Earnings			AccumulatedOther Comprehensive Income (Loss)			Total
	Ordinary Shares					AdditionalPaid-in Capital			Retained Earnings			AccumulatedOtherComprehensive Income (Loss)			Total
	Ordinary Shares
	Shares		Par Value
	Shares		ParValue
Balance at December 31, 2006	230,470,382		$	2.3		$	3,176.3		$	1,764.1		$	(95.6	)	$	4,847.1
Balance at December 31, 2004	235,957,481		$	2.4		$	3,004.3		$	1,501.6		$	(41.9	)	$	4,466.4
Net income	—			—			—			1,165.8			—			1,165.8
Net income	—			—			—			135.3			—			135.3
Changes in unrealized gains on securities	—			—			—			—			0.1			0.1
Minimum pension liability adjustment	—			—			—			—			1.0			1.0
Pension and other postretirement adjustments
Unrealized gain on securities	—			—			—			—			(2.0	)		(2.0	)
Recognized actuarial loss	—			—			—			—			8.2			8.2
Comprehensive income																134.3
Curtailment loss	—			—			—			—			0.3			0.3
Exercise of employee stock options	4,573,796			—			111.2			—			—			111.2
Amortization of prior service cost	—			—			—			—			2.1			2.1
Shares issued under other benefit plans	206,567			—			6.0			—			—			6.0
Additional unrecognized actuarial loss, net of tax	—			—			—			—			(11.9	)		(11.9	)
Shares issued	23,500,000			0.2			798.6			—			—			798.8
Comprehensive income	—			—			—			—			—			1,164.6
Shares repurchased	(23,500,000	)		(0.2	)		(799.3	)		—			—			(799.5	)
Stock-based compensation:
Dividends declared	—			—			—			(54.0	)		—			(54.0	)
Exercise of employee stock options	3,141,618			0.1			95.8			—			—			95.9
Balance at June 30, 2005	240,737,844		$	2.4		$	3,120.8		$	1,582.9		$	(42.9	)	$	4,663.2
Issuance of stock-based awards	42,034			—			—			—			—			—
Stock-based compensation expense	7,771			—			26.6			—			—			26.6
Income tax benefit	—			—			12.1			—			—			12.1
Shares repurchased and retired	(8,265,407	)		(0.1	)		(100.8	)		(435.6	)		—			(536.5	)
Dividends declared	—			—			—			(102.6	)		—			(102.6	)
Cumulative effect of change in accounting for uncertain tax positions	—			—			—			(16.3	)		—			(16.3	)
Other	—			—			(0.9	)		—			—			(0.9	)
Balance at September 30, 2007	225,396,398		$	2.3		$	3,209.1		$	2,375.4		$	(96.8	)	$	5,490.0

See notes to condensed consolidated financial statements.

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation and Description of Business

GlobalSantaFe Corporation is ana worldwide offshore oil and gas drilling contractor, owning or operating aan active fleet of 6159 marine drilling rigs. As of ~~June~~ September 30, ~~2005~~2007, our fleet included 4543 cantilevered jackup rigs, 13 11 semisubmersibles, ~~and~~ three drillships., Weand ~~operate~~ two ofadditional ~~the~~ semisubmersible rigs we operate for third parties under a joint venture agreement. WeIn ~~provide~~the ~~oil~~first ~~and~~quarter ~~gas~~of ~~contract~~2006 ~~drilling~~we ~~services~~commenced construction of an additional semisubmersible, to be named the ~~oil~~GSF ~~and~~Development ~~gas~~Driller ~~industry~~III. ~~worldwide~~In onSeptember 2007, we entered into a ~~daily~~contract ~~rate~~ with Hyundai Heavy Industries, Ltd. for the construction of a new ultra-deepwater exploration and development drillship (~~“dayrate”)~~see ~~basis~~Note 7). We also provide oil and gas drilling management services on either a dayrate or completed-project, fixed-price (“turnkey”) basis, as well as drilling engineering and drilling project management services, and we participate in oil and gas exploration and production activities.

On July 21, 2007, we entered into an agreement and plan of merger (the “Merger Agreement”) with Transocean Inc. (“Transocean”) and Transocean Worldwide Inc., a direct wholly owned subsidiary of Transocean (“Transocean Worldwide”). Under the terms of the Merger Agreement, GlobalSantaFe Corporation will merge with Transocean Worldwide by way of a scheme of arrangement qualifying as an amalgamation under Cayman Islands law, with Transocean Worldwide continuing as the surviving corporation. In connection with the merger our ordinary shares will be exchanged for a combination of cash and Transocean shares (see Note 2).

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include the accounts of GlobalSantaFe Corporation and its consolidated subsidiaries. Intercompany accounts and transactions have been eliminated. Unless the context otherwise requires, the terms “we,” “us” and “our” refer to GlobalSantaFe Corporation and its consolidated subsidiaries. The condensed consolidated financial statements and related footnotes are presented in U.S. dollars and in accordance with accounting principles generally accepted in the United States of America. ~~Certain prior period amounts have been reclassified to conform to the current presentation.~~

The financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods. Such adjustments are considered to be of a normal recurring nature unless otherwise identified. Interim-period results may not be indicative of results expected for the full year. The year-end condensed consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. These interim financial statements should be read in conjunction with our audited financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2004~~2006.

~~Our~~In ~~independent~~our ~~registered~~2006 ~~public~~Form ~~accounting~~10-K ~~firm~~filing, ~~has~~we ~~performed~~misclassified athe ~~review~~“Adjustments ~~of,~~to ~~and~~initially ~~issued~~apply FASB aNo. 158, ~~report~~net ~~on,~~of ~~these~~tax” ~~consolidated~~in ~~interim~~our ~~financial statements~~Consolidated inStatements ~~accordance~~of ~~with~~Shareholders’ Equity for the ~~standards~~year ofended ~~the~~December 31, ~~Public~~2006. ~~Company~~Any ~~Accounting~~adjustments ~~Oversight~~to ~~Board~~initially ~~(United~~adopt ~~States)~~FASB No. 158 ~~Pursuant~~should have only been reflected as a one time adjustment to ~~Rule~~“Accumulated ~~436~~Other Comprehensive Income (cLoss)” ~~under~~in ~~the~~our ~~U.S.~~Consolidated ~~Securities~~Statements ~~Act~~ of ~~1933,~~Shareholders’ ~~this~~Equity. ~~report~~The ~~should~~reclassification ~~not~~will beresult ~~considered~~in a“Other ~~part~~Comprehensive Income” of ~~any~~$72.4 million ~~registration~~instead ~~statement~~of “Other ~~prepared~~Comprehensive orLoss” ~~certified~~of ~~within~~$24.6 million in both the ~~meanings~~Consolidated Statement of ~~Sections~~Shareholders’ 7Equity and 11Consolidated Statements of Income for the ~~Securities~~year ~~Act~~ended December 31, 2006, but will have no impact to “Accumulated Other Comprehensive Income (Loss)” in our Consolidated Statements of Shareholders’ Equity as of December 31, 2006. We will reflect this adjustment to our 2006 results in our annual report on Form 10-K for the year ending December 31, 2007.

~~Gain~~The condensed consolidated financial statements as of September 30, 2007 and for the three and nine months ended September 30, 2007 and 2006 have been reviewed by PricewaterhouseCoopers LLP, an independent registered public accounting firm. Their report (dated November 1, 2007) is included on ~~Sale~~page 4. The report of ~~Asset~~PricewaterhouseCoopers LLP states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited financial information because that report is not a “report” or a “part” of a registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.

In September 2004, Challenger Minerals Inc. (“CMI”), one of our wholly owned subsidiaries, completed the sale of a portion of its interest in the Broom Field, a development project in the North Sea. We received net proceeds of $35.9 million in connection with the sale and recorded a gain of $25.1 million ($13.3 million, net of taxes) in 2004. Pursuant to the terms of the sale, if commodity prices exceed a specified amount, we are also entitled to additional post-closing consideration equal to a portion of the proceeds from the production attributable to this interest sold through September 2005. We recorded an additional gain of $1.1 million during the second quarter of 2005, which represents the deferred consideration earned under the sales agreement through June 30, 2005.

STOCK-BASED COMPENSATION PLANS

We account for our stock-based compensation plans using the intrinsic-value method prescribed by Accounting Principles Board (“APB”) Opinion No. 25. Accordingly, we compute compensation cost for these plans as the amount by which the quoted market price of our ordinary shares on the date of grant exceeds the amount the employee must pay to acquire the shares. The amount of compensation cost, if any, is charged to income over the vesting period. No compensation cost has been recognized for options granted under our employee share purchase plan or for any of our outstanding stock options, all of which have exercise prices equal to or greater than the market price of our ordinary shares on the date of grant. We do, however, recognize compensation cost for all grants of performance-based and other restricted stock awards.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued a revision of Statement of Financial Accounting Standards No. 123, “Share-Based Payment” (“SFAS123R”). This statement revises FASB Statement No. 123, “Accounting for Stock-Based Compensation” and requires companies to recognize the cost of employee stock options and other awards of stock-based compensation based on the fair value of the award as of the grant date. This statement supersedes APB Opinion No. 25. SFAS123R is effective as of the beginning of the first annual period that begins after June 15, 2005.

Had compensation cost for our stock-based compensation plans been determined based on fair values as of the dates of grant, our income from continuing operations and earnings per ordinary share would have been reported as follows:

	Three MonthsEnded June 30,						Six Months EndedJune 30,
	2005			2004			2005			2004
	(In millions, except per share amounts)
Income (loss) from continuing operations, as reported	$	85.1		$	(26.0	)	$	135.3		$	(21.9	)
Add: Stock-based employee compensation expense included in reported income (loss) from continuing operations, net of related tax effects		1.2			0.1			1.7			0.3
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects		(6.5	)		(9.8	)		(12.0	)		(19.2	)
Pro forma income (loss) from continuing operations	$	79.8		$	(35.7	)	$	125.0		$	(40.8	)
Basic earnings (loss) per ordinary share from continuing operations:
As reported	$	0.36		$	(0.11	)	$	0.57		$	(0.09	)
Pro forma	$	0.33		$	(0.15	)	$	0.52		$	(0.17	)
Diluted earnings (loss) per ordinary share from continuing operations:
As reported	$	0.35		$	(0.11	)	$	0.56		$	(0.09	)
Pro forma	$	0.33		$	(0.15	)	$	0.51		$	(0.17	)

~~Estimates~~Note of2—Proposed ~~fair~~Merger values for stock options granted under our stock-based compensation plans for purposes of calculating the pro forma data in the preceding table are computed using the Black-Scholes option-pricing model. Fair values for performance-based stock awards are determined by the market price of our ordinary shares at the date of grant. The pro forma figures in the preceding table may not be representative of pro forma amounts in future years.

~~Note~~AGREEMENT 2AND -PLAN ~~Earnings~~OF ~~per~~MERGER ~~Ordinary Share~~

AOn July 21, 2007, we entered into the ~~reconciliation~~Merger Agreement with Transocean and Transocean Worldwide. Under the terms of the ~~numerators~~Merger ~~and~~Agreement, ~~denominators~~GlobalSantaFe Corporation will merge with Transocean Worldwide by way of a scheme of arrangement qualifying as an amalgamation under Cayman Islands law, with Transocean Worldwide continuing as the ~~basic~~surviving ~~and~~corporation. ~~diluted~~Immediately ~~per~~prior to the merger, each outstanding ordinary share ~~computations~~of Transocean will be reclassified by way of a scheme of arrangement under Cayman Islands law into (1) 0.6996 Transocean ordinary shares and (2) $33.03 in cash (this reclassification, together with the merger, is referred to as the “Transactions”). At the effective time of the merger, each of our outstanding ordinary shares will be exchanged for ~~net~~(1) 0.4757 ~~income~~Transocean ~~follows:~~ordinary shares (after giving effect to the reclassification) and (2) $22.46 in cash. Our Board of Directors (with one director absent) unanimously approved the Merger Agreement.

	Three Months Ended June 30,					Six Months Ended June 30,
	2005		2004			2005		2004
	(In millions, except share and per share amounts)
Numerator:
Income (loss) from continuing operations	$	85.1	$	(26.0	)	$	135.3	$	(21.9	)
Income from discontinued operations		—		110.0			—		114.6
Net income	$	85.1	$	84.0		$	135.3	$	92.7
Denominator:
Ordinary shares- Basic		239,734,342		234,544,941			238,914,851		234,353,149
Add effect of employee stock options		3,766,276		—			3,907,291		—
Ordinary shares - Diluted		243,500,618		234,544,941			242,822,142		234,353,149
Earnings (loss) per ordinary share:
Basic:
Income (loss) from continuing operations	$	0.36	$	(0.11	)	$	0.57	$	(0.09	)
Income from discontinued operations	$	—	$	0.47		$	—	$	0.49
Net income	$	0.36	$	0.36		$	0.57	$	0.40
Diluted:
Income (loss) from continuing operations	$	0.35	$	(0.11	)	$	0.56	$	(0.09	)
Income from discontinued operations	$	—	$	0.47		$	—	$	0.49
Net income	$	0.35	$	0.36		$	0.56	$	0.40

In connection with the merger, all of our outstanding equity awards (other than restricted stock units) will become fully vested and exercisable and be assumed by Transocean and converted into awards to receive Transocean ordinary shares. Restricted stock units will be exchanged for the same consideration for which each outstanding share of GlobalSantaFe is exchanged. Each outstanding right or option to acquire one Transocean ordinary share outstanding immediately prior to the reclassification will be adjusted into a right or option to acquire a number of Transocean ordinary shares, adjusted to reflect the reclassification. Our equity incentive plans will be assumed by Transocean.

The ~~computation~~Merger ofAgreement ~~diluted~~provides ~~earnings per~~that ~~ordinary~~following ~~share~~the ~~for~~effective time of the ~~three~~Transactions, ~~and~~Transocean ~~six~~will ~~months~~have ~~ended~~a ~~June~~board ~~30,~~of directors ~~2005,~~that ~~excludes~~consists ~~outstanding~~of ~~options~~14 tomembers, ~~purchase~~which ~~GlobalSantaFe~~will ~~ordinary~~include ~~shares~~seven ~~with~~directors ~~exercise~~named ~~prices~~by ~~greater~~us ~~than~~and ~~the~~seven ~~average~~directors ~~market~~named ~~price~~by ofTransocean. ~~GlobalSantaFe~~Robert ~~ordinary~~E. ~~shares~~Rose, ~~for~~our ~~the~~current ~~period, because~~Chairman of the ~~inclusion~~Board of ~~such~~Directors, ~~options~~will ~~would~~serve ~~have~~as the ~~effect~~Chairman of ~~increasing~~the ~~diluted~~Board ~~earnings~~of ~~per~~Directors ~~ordinary~~of Transocean. ~~share~~Robert (iL.e. ~~their~~Long, ~~effect~~the ~~would~~current beChief ~~“antidilutive”).~~Executive ~~Options~~Officer toof ~~purchase~~Transocean, awill ~~total~~be ofthe ~~3,458,377~~Chief ~~ordinary~~Executive ~~shares~~Officer ~~and~~of ~~3,391,719~~Transocean. ~~ordinary shares~~Jon ~~were~~A. ~~excluded~~Marshall, ~~from~~our ~~the~~current ~~computation~~President ofand ~~diluted~~Chief ~~earnings~~Executive ~~per~~Officer, ~~ordinary~~will ~~share~~be ~~for~~ the ~~three~~President and ~~six~~Chief ~~months~~Operating ~~ended~~Officer of ~~June 30, 2005, respectively~~Transocean.

~~The~~We, ~~computation~~Transocean ofand ~~diluted~~Transocean ~~earnings~~Worldwide ~~(loss)~~have ~~from~~made ~~continuing~~customary ~~operations~~representations, ~~per~~warranties and covenants in the Merger Agreement, including, among others, covenants to conduct our businesses in the ordinary ~~share~~course ~~for~~between the ~~three~~execution of the Merger Agreement and ~~six~~the ~~months~~consummation ~~ended~~of ~~June~~the 30Transactions and covenants not to engage in certain kinds of transactions during that period. We and Transocean have made certain additional customary covenants, ~~2004~~including, ~~excludes~~among ~~options~~others, ~~representing 20~~covenants,~~287~~ subject to certain exceptions,~~016~~ ~~shares~~(1) not to solicit proposals regarding alternative business combination transactions, ~~which~~(2) not ~~comprise~~to ~~all~~enter ofinto discussions ~~our~~concerning, ~~outstanding~~or ~~stock~~provide ~~options~~confidential atinformation ~~June~~in 30connection with, ~~2004~~alternative business combination transactions, ~~because~~(3) to ~~the~~cause ~~inclusion~~shareholder ofmeetings ~~such~~to ~~options~~be ~~would~~held ~~have~~to ~~the~~consider ~~effect~~approval of ~~decreasing~~ the ~~diluted~~Transactions ~~loss~~and ~~per~~(4) for ~~ordinary~~our ~~share~~respective Boards ~~from~~of ~~continuing~~Directors ~~operations~~to ~~for~~recommend ~~both~~approval of ~~these periods~~the ~~(i.e.~~Merger ~~their~~Agreement ~~effect~~by ~~would~~our berespective ~~“antidilutive”)~~shareholders.

We and Transocean have arranged financing commitments for the Transactions, the aggregate proceeds of which will be sufficient for Transocean upon closing to pay the aggregate cash consideration to the holders of currently outstanding shares of Transocean and GlobalSantaFe in connection with the Transactions. See “—Financing” below. Consummation of the Transactions is subject to various conditions, including, among others, (1) approval by our shareholders of the merger and approval by the shareholders of Transocean of the reclassification, the issuance of shares in the merger and the amendments to Transocean’s charter documents, in each case pursuant to the requirements specified in the Merger Agreement, (2) the receipt of certain regulatory clearances, including the expiration of waiting periods under foreign competition laws, (3) the receipt of financing sufficient to enable Transocean to deliver the cash consideration in connection with the Transactions, (4) the accuracy of representations and warranties as of the closing date, including the absence of any material adverse effect with respect to Transocean’s or our business, as applicable, and (5) other customary closing conditions. Early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act was granted on September 19, 2007. We and Transocean filed a definitive joint proxy statement with the Securities and Exchange Commission on October 3, 2007. We will hold a meeting of our shareholders on November 9, 2007 to vote on the merger and Transocean will hold a separate meeting of its shareholders on the same date to vote on the items referenced above. If the requisite approvals of our shareholders and the shareholders of Transocean are received, then in accordance with Cayman Islands law, the Grand Court of the Cayman Islands will hold a hearing on November 20, 2007 to approve the Transactions. We currently estimate that the parties will complete the Transactions by the end of 2007. However, under certain circumstances, the Transactions may not be completed until the first half of 2008.

The Merger Agreement may be terminated under certain circumstances, including if the Board of Directors of either GlobalSantaFe or Transocean has determined in good faith that it has received a superior proposal and otherwise complies

~~Diluted~~ with ~~earnings~~certain ~~per~~terms ~~ordinary~~of ~~share presented in~~ the ~~table~~Merger ~~above~~Agreement. ~~also~~Upon ~~excludes~~the ~~6,500~~termination ~~potentially~~of ~~dilutive shares for~~ the ~~three~~ ~~and~~Merger ~~six~~Agreement, ~~months~~under ~~ended~~specified ~~June 30~~circumstances, ~~2005~~a ~~that~~party ~~become~~will ~~issuable upon conversion of our remaining Zero Coupon Convertible Debentures (see Note 5) because the inclusion of such shares would~~ be ~~antidilutive~~required ~~given~~to reimburse the ~~level~~other ofparty ~~net income from continuing operations~~ for ~~these~~such ~~periods.~~party’s ~~Diluted~~third-party ~~earnings~~costs ~~per ordinary share for the three~~ and ~~six~~expenses ~~months~~up ~~ended~~to ~~June~~ $30, ~~2004~~million ~~excludes 4~~or,~~875,062~~ ~~potentially~~under ~~dilutive~~specified ~~shares~~circumstances, ~~that~~a ~~would~~party ~~have~~will ~~become~~be ~~issuable~~required ~~upon~~to ~~conversion~~pay of the ~~Zero~~other ~~Coupon~~party ~~Convertible Debentures~~a ~~because~~termination ~~the~~fee ~~inclusion~~ of ~~such~~$300 ~~shares would have been antidilutive~~million.

FINANCING

In connection with the Transactions, on July 21, 2007, Transocean and GlobalSantaFe entered into a commitment letter, pursuant to which Goldman Sachs Credit Partners L.P., and Lehman Brothers Commercial Bank and Lehman Brothers Holdings Inc. and their respective affiliates committed to provide financing for the Transactions. The commitment letter provides for a $15.0 billion senior unsecured bridge loan facility due one year after closing (the “Bridge Loan Facility”). Transocean, the lenders who are party to the commitment letter and other lenders entered into the Bridge Loan Facility on September 28, 2007. The obligation of each lender to make loans under the Bridge Loan Facility is subject to the satisfaction of certain conditions, including the execution of satisfactory documentation, the absence of a material adverse effect (as defined in the Merger Agreement) and the consummation, or substantially concurrent consummation, of the Transactions. There can be no assurance that these conditions will be met.

MERGER COSTS

During the three months ended September 30, 2007, we incurred merger related costs of $12.6 million consisting of advisory fees, commitment fees, and syndication fees related to the Bridge Loan Facility. These costs are included in General and Administrative Expenses on the Condensed Consolidated Statement of Income for the three and nine months ended September 30, 2007.

Note 3 - Earnings per Ordinary Share

A reconciliation of the numerators and denominators of the basic and diluted per share computations for income from continuing operations follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2006		2007		2006
	(In millions, except share and per share amounts)
Numerator:
Income from continuing operations	$	448.6	$	245.6	$	1,160.1	$	657.0
Income from discontinued operations		—		—		5.7		—

Net income	$	448.6	$	245.6	$	1,165.8	$	657.0

Denominator:
Ordinary shares - Basic		225,591,095		238,079,898		227,896,017		242,621,571
Add effect of share-based awards		2,690,079		2,892,822		3,063,257		3,549,564

Ordinary shares - Diluted		228,281,174		240,972,720		230,959,274		246,171,135

Earnings per ordinary share:
Basic:
Income from continuing operations	$	1.99	$	1.03	$	5.09	$	2.71
Income from discontinued operations		—		—		0.03		—

Net income	$	1.99	$	1.03	$	5.12	$	2.71

Diluted:
Income from continuing operations	$	1.96	$	1.02	$	5.02	$	2.67
Income from discontinued operations		—		—		0.03		—

Net income	$	1.96	$	1.02	$	5.05	$	2.67

The computation of diluted earnings per ordinary share excludes outstanding stock options and Stock Appreciation Rights (“SARs”) with exercise prices greater than the average market price of GlobalSantaFe ordinary shares for the period, because

~~Note~~the 3inclusion -of ~~Segment~~these ~~Information~~options and SARs would have the effect of increasing diluted earnings per ordinary share (i.e., their effect would be “antidilutive”). A total of 11,125 and 43,123 SARs were excluded from the computation of diluted earnings per ordinary share for the three and nine months ended September 30, 2007, respectively. All outstanding options, however, had a lower exercise price than the average market price of GlobalSantaFe ordinary shares for the three and nine months ended September 30, 2007, and accordingly no options were excluded from the calculation for those periods. The number of antidilutive options excluded from the computation of diluted earnings per ordinary share represented 23,940 ordinary shares for both the three and nine months ended September 30, 2006. A total of 56,500 SARs were also excluded from the computation of diluted earnings per ordinary share for both the three and nine months ended September 30, 2006.

Note 4 - Segment Information

Information by operating segment, together with reconciliations to the consolidated totals, is presented in the following table:

	Three Months Ended June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
	2007			2006			2007			2006
	($ in millions)
Revenues from external customers:
Contract drilling	$	~~403~~949.83		$	~~274~~699.42		$	~~738~~2,557.32		$	~~543~~1,800.9
Drilling management services		~~156~~224.01			~~102~~202.19			~~298~~563.02			~~207~~523.86
Oil and gas		1514.08			57.61			2744.18			1037.45
Consolidated	$	~~574~~1,188.82		$	~~382~~909.12		$	13,~~063~~165.42		$	~~762~~2,362.10
Intersegment revenues:
Contract drilling	$	—29.7		$	05.5		$	376.0		$	313.29
Drilling management services		422.28			310.38			636.57			425.83
Intersegment elimination		(452.25	)		(316.83	)		(9112.57	)		(839.02	)
Consolidated	$	—		$	—		$	—		$	—
Total revenues:
Contract drilling	$	~~403~~979.80		$	~~274~~704.97		$	~~741~~2,633.32		$	~~547.~~1,814.8
Drilling management services		~~160~~246.29			~~105~~213.47			~~304~~599.59			~~212~~548.69
Oil and gas		1514.08			57.61			2744.18			1037.45
Intersegment elimination		(452.25	)		(316.83	)		(9112.57	)		(839.02	)
Consolidated	$	~~574~~1,188.82		$	~~382~~909.12		$	13,~~063~~165.42		$	~~762~~2,362.10
Segment income:
Segment operating income:
Contract drilling	$	88522.43		$	2307.72		$	~~143~~1,289.69		$	18704.61
Drilling management services		108.96			(6.59	)		2025.79			11(0.8	)
Oil and gas		105.20			21.96			1615.47			517.57
Gain on sale of assets		1.1			—			1.1			2.7
Involuntary conversion of long-lived assets, net of related recoveries, loss of hire recoveries and gain on disposition of equipment		—			—			57.1			85.3
Impairment loss on long-lived assets		—			—			—			(1.2	)
Total segment operating income		535.9			301.9			1,388.6			806.3
Total segment income		110.6			12.1			181.8			37.4
Corporate expenses		(34.9	)		(20.1	)		(86.3	)		(67.1	)
Corporate expenses		(16.1	)		(14.3	)		(33.7	)		(31.6	)
Operating income		501.0			281.8			1,302.3			739.2
Operating income (loss)		94.5			(2.2	)		148.1			5.8
Other income (expense)		(0.1	)		(0.1	)		(0.5	)		9.4
Loss on early retirement of long-term debt		—			(32.4	)		—			(32.4	)
Income before income taxes	$	500.9		$	281.7		$	1,301.8		$	748.6
Other income (expense)		4.5			(1.1	)		8.4			(6.6	)
Income (loss) before income taxes	$	99.0		$	(35.7	)	$	156.5		$	(33.2	)

~~Turnkey~~As drilling projects often involve numerous subcontractors and third party vendors and, as a result, the actual final project cost is typically not known at the time a project is completed. We typically rely on detailed cost estimates created by our project engineering staff to compute and record profits on turnkey drilling projects based on revenues due upon completion of ~~the~~September project. These cost estimates are adjusted when final actual project costs have been determined, which may result in adjustments to previously recorded amounts. Results for the three and six months ended June 30, ~~2005 and 2004~~2007, ~~were~~total ~~favorably~~contract ~~affected~~drilling byassets ~~downward revisions to cost estimates for certain wells completed in prior periods. Such revisions~~ increased ~~segment operating income~~ by ~~$4.1~~ ~~million and~~ $2714.78 million ~~for~~to ~~the three and six months ended June 30, 2005, respectively, and by~~ $46,456.3 million ~~and~~ from $35,741.95 million, ~~respectively,~~at ~~for~~December ~~the three and six months ended June 30~~31, ~~2004. The effect of these revisions~~2006, ~~however,~~due ~~was~~primarily ~~offset~~to ~~by the~~an ~~deferral~~increased ofin ~~turnkey~~accounts ~~drilling~~receivable ~~profit totaling $3.1 million~~ and ~~$3.8~~capitalized ~~million~~amounts ~~for~~related to the ~~three~~GSF ~~and~~Development ~~six~~Driller ~~months~~III ~~ended June 30, 2005, respectively,~~ and byour ~~$4.6~~new ~~million and $6~~drillship.9 ~~million, respectively, for the three and six months ended June 30, 2004,~~

Turnkey drilling projects often involve numerous subcontractors and third party vendors and, as a result, the actual final project cost is often not known at the time a project is completed. We therefore rely on detailed cost estimates created by our project engineering staff to compute and record profits on turnkey drilling projects based on known revenues. These cost estimates are adjusted as final actual project costs are determined, which may result in adjustments to previously recorded amounts. Further, we recognize estimated losses on turnkey drilling projects immediately upon occurrence of events which indicate that it is probable that a loss will be incurred and, depending on the timing of the events leading to the loss recognition in relation to completion of the project, these cost estimates could be relatively significant to the total project costs.

Results for the three and nine months ended September 30, 2007 and 2006 were affected by revisions to cost estimates for certain wells completed in prior periods. Such revisions increased segment operating income by $5.0 million and $3.3 million for the three and nine months ended September 30, 2007, respectively. Such revisions decreased segment operating income by $0.7 million for the three months ended September 30, 2006 and increased segment operating income by $1.7 million for the nine months ended September 30, 2006. Results for the three and nine month periods ended September 30, 2007 and 2006 were also affected by the deferral of turnkey drilling profit totaling $8.2 million and $17.2 million for the three and nine months ended September 30, 2007, respectively, and by $10.6 million and $22.3 million for the three and nine months ended September 30, 2006, respectively, related to wells in which ~~CMI~~our oil and gas division was either the operator or held a working interest. This deferred turnkey profit has been credited to our full cost pool of oil and gas properties and will be recognized through a lower depletion rate as reserves are produced. Estimated costs included in ~~2005~~2007 drilling management services operating results totaled approximately $3667.6 2 million at ~~June~~ September 30, ~~2005~~2007. To the extent that actual costs differ from estimated costs, results in future periods will be affected by revisions to this amount. Estimated costs included in ~~2004~~2006 drilling management services operating results totaled approximately $2774.28 million at ~~June~~ September 30, ~~2004~~2006.

Note 45 – ~~Commitments~~Retirement ~~and Contingencies~~Plans

~~CAPITAL~~Pensions ~~COMMITMENTS~~

~~During~~We ~~the~~have ~~first~~defined ~~quarter~~benefit ofpension ~~2005,~~plans wein ~~took delivery of our two ultra-deepwater semisubmersibles ordered from PPL Shipyard PTE, Ltd. of Singapore (“PPL”),~~ the ~~GSF~~United ~~Development~~States ~~Driller I~~ and the ~~GSF~~United ~~Development~~Kingdom ~~Driller~~covering ~~II.~~all ~~Construction~~of ~~costs~~our ~~for~~U.S. ~~the~~employees ~~GSF~~and ~~Development~~a ~~Driller I are expected to total~~portion ~~approximately $309 million, excluding an estimated $95 million~~ of ~~capital~~our ~~spares, startup expenses, customer~~non-~~required~~U.S. ~~modifications~~employees. ~~and~~These ~~mobilization~~plans ~~costs,~~are ~~$24~~designed ~~million~~and ~~related~~operated to ~~the~~be ~~thruster~~in ~~defect~~compliance ~~discussed~~with ~~below,~~applicable ~~and $60 million of capitalized interest~~U.S. Wetax ~~have~~requirements ~~incurred~~for ~~approximately~~qualified ~~$383~~plans ~~million~~and ofU.K. ~~capitalized~~tax ~~costs~~requirements ~~related~~for tofunded ~~the~~plans ~~GSF~~and, ~~Development~~as ~~Driller I~~such, ~~excluding~~the ~~capitalized~~trust ~~interest,~~earnings asare ofnot ~~June~~subject ~~30,~~to ~~2005~~income taxes. ~~Construction~~For ~~costs for~~ the ~~GSF~~most ~~Development~~part, ~~Driller~~benefits II are ~~expected~~ tobased ~~total~~on ~~approximately $310 million, excluding~~ an ~~estimated~~employee’s ~~$75~~length ~~million~~ of ~~capital~~service ~~spares, startup expenses, customer-required modifications~~ and ~~mobilization~~eligible ~~costs,~~earnings. ~~$21~~Substantially ~~million~~all ~~related~~benefits toare ~~the~~paid ~~thruster~~from ~~defect~~established ~~discussed~~trust ~~below,~~funds. ~~and~~We ~~$44~~are ~~million of~~the ~~capitalized~~sole ~~interest.~~contributor Weto ~~have~~the ~~incurred~~plans, ~~approximately~~with ~~$372~~the ~~million~~exception of ~~capitalized~~our ~~costs~~plan ~~related to~~ in the ~~GSF~~U.K., ~~Development~~to ~~Driller~~which ~~II,~~employees ~~excluding~~who ~~capitalized~~elect ~~interest,~~to asparticipate ofin ~~June~~the ~~30,~~plan ~~2005~~also contribute.

We recently discovered a defect in the thruster nozzles on the GSF Development Driller I and the GSF Development Driller II, which caused damage to the nozzles. Based on our preliminary assessment, we expect the correction of this defect could delay the start of the initial drilling contracts for the GSF Development Driller II until September 2005 and the GSF Development Driller I until October 2005, which will have an adverse impact on our results of operations. The delay could be longer if the magnitude of the defect is greater than that expected based on our preliminary assessment or if the remediation is delayed. As noted above, we currently expect that the cost of corrections to the equipment, exclusive of continued capitalized interest, will be approximately $45 million and will be added to the capitalized costs of the rigs to the extent not recovered from the manufacturer or insurance underwriters.

CONTINGENCIES

In 1998, we entered into fixed-price contracts for the construction of two dynamically positioned, ultra-deepwater drillships, the GSF C.R. Luigs and the GSF Jack Ryan, which began operating in April and December 2000, respectively. Pursuant to two 20-year capital lease agreements, we subsequently novated the construction contracts for the drillships to two financial institutions (the “Lessors”), which now own the drillships and lease them to us. We have deposited with three large foreign banks (the “Payment Banks”) amounts equal to the progress payments that the Lessors were required to make under the construction contracts, less a lease benefit of approximately $62 million (the “Defeasance Payment”). In exchange for the deposits, the Payment Banks have assumed

~~liability~~The ~~for~~components ~~making~~of ~~rental~~net ~~payments~~periodic ~~required~~pension ~~under~~cost ~~the~~for ~~leases~~our ~~and~~pension ~~the~~plans ~~Lessors~~for ~~have~~the ~~legally~~three ~~released~~and usnine asmonths ~~the~~ended ~~primary~~September 30, ~~obligor~~2007 ofand ~~such rental payments. Accordingly~~2006, wewere ~~have~~as ~~recorded~~follows: ~~no capital lease obligations on our balance sheet with respect to the two drillships.~~

We have interest rate risk in connection with these fully defeased financing leases for the GSF Jack Ryan and GSF C. R. Luigs. The Defeasance Payment earns interest based on the British Pound Sterling three-month LIBOR, which approximated 8.00% at the time of the agreement. Should the Defeasance Payment earn less than the assumed 8.00% rate of interest, we will be required to make additional payments as necessary to augment the annual payments made by the Payment Banks pursuant to the agreements. If the June 30, 2005, LIBOR rate of 4.80% were to continue over the next eight years, we would be required to fund an additional estimated $48 million during that period. Any additional payments made by us pursuant to the financing leases would increase the carrying value of our leasehold interest in the rigs and therefore be reflected in higher depreciation expense over their then-remaining useful lives. We do not expect that, if required, any additional payments made under these leases would be material to our financial position, results of operations or cash flows in any given year.


	Three Months Ended September 30,
	2007						2006
	U.S. Plans			U.K. Plans			U.S. Plans			U.K. Plans
	(In millions)
Service cost - benefits earned during the period	$	3.5		$	2.7		$	3.2		$	2.2
Interest cost on projected benefit obligation		6.7			3.1			5.8			2.5
Expected return on plan assets		(7.0	)		(4.4	)		(6.6	)		(3.1	)
Recognized actuarial loss		3.0			0.3			3.3			0.3
Settlement gain		—			—
Amortization of prior service cost		0.7			—			0.4			—

Net periodic pension cost	$	6.9		$	1.7		$	6.1		$	1.9


	Nine Months Ended September 30,
	2007						2006
	U.S. Plans			U.K. Plans			U.S. Plans			U.K. Plans
	(In millions)
Service cost - benefits earned during the period	$	10.2		$	7.9		$	10.0		$	6.4
Interest cost on projected benefit obligation		19.2			9.2			16.9			7.1
Expected return on plan assets		(22.4	)		(13.1	)		(19.6	)		(8.9	)
Recognized actuarial loss		7.1			0.9			9.7			0.8
Curtailment charge		0.6			—			—			—
Recognized actuarial loss - termination benefits		0.2			—			—			—
Amortization of prior service cost		2.1			—			2.4			—

Net periodic pension cost	$	17.0		$	4.9		$	19.4		$	5.4

~~LEGAL~~During ~~PROCEEDINGS~~the quarter ended June 30, 2007, we finalized our January 1, 2007 valuation results for the U.S. Plans, which resulted in a $11.9 million, net of tax, increase in non current pension liabilities and a corresponding increase in Accumulated Other Comprehensive Loss.

~~One~~Our offunding ~~our~~objective ~~subsidiaries~~is ~~filed~~to ~~suit~~fund inparticipants’ ~~February~~benefits ~~2004~~under ~~against its insurance underwriters in~~ the ~~Superior~~plans ~~Court of San Francisco County, California, seeking a declaration~~ as tothey ~~its~~are ~~rights~~earned. toWe ~~insurance~~contributed ~~coverage~~$8.0 ~~and~~million ~~the proper allocation among its insurers of liability for claims payments in order~~ to ~~assist~~our ~~in the future management and disposition of certain claims described below~~U.S. ~~The~~defined ~~subsidiary~~benefit isplans ~~continuing~~in toJanuary ~~receive payment from its insurers for claim settlements and legal costs, and expects to continue to receive such payments during the pendency of this action~~2007.

~~The~~Other ~~insurance~~Postretirement ~~coverage~~Benefits in question relates to lawsuits filed against the subsidiary arising out of its involvement in the design, construction and refurbishment of major industrial complexes. The operating assets of the subsidiary were sold and its operations discontinued in 1989, and the subsidiary has no remaining assets other than the insurance policies involved in the litigation and funds received from the cancellation of certain insurance policies. The subsidiary has been named as a defendant, along with numerous other companies, in lawsuits alleging personal injury as a result of exposure to asbestos. The subsidiary has been named as a defendant in approximately 4,640 lawsuits, the first of which was filed in 1990, and a substantial number of which are currently pending. Approximately $31 million has been expended to resolve claims with the subsidiary having expended $4 million of that amount due to insurance deductible obligations, all of which have now been satisfied. Insurers have funded the balance of the settlement costs and all legal costs associated therewith. The subsidiary continues to be named as a defendant in additional lawsuits and we cannot predict the number of additional cases in which it may be named a defendant nor can we predict the potential costs to resolve such additional cases or to resolve the pending cases. However, the subsidiary has in excess of $1 billion in insurance limits. Although not all of that will be available due to the insolvency of certain insurers, we believe that the subsidiary will have sufficient insurance available to respond to these claims. We do not believe that these claims will have any material impact on our consolidated financial position, results of operations or cash flows.

~~The~~During ~~same~~2005 ~~subsidiary~~we ~~has~~discontinued ~~been~~offering retiree ahealthcare ~~defendant~~coverage infor acurrent ~~lawsuit~~employees ~~filed~~who ~~against~~had itnot bymet ~~Union~~certain ~~Oil~~eligibility ~~Company of~~requirements. ~~California~~For ~~(“Union”)~~eligible inparticipants ~~the~~we ~~Circuit~~provide ~~Court~~retiree ofhealth ~~Cook~~care ~~County,~~benefits ~~Illinois~~to those who are enrolled in our U.S. ~~That~~Health ~~lawsuit~~Care ~~arises~~Plan ~~out~~at the time of ~~claims~~their retirement ~~alleging~~and ~~personal~~who ~~injury~~elect ~~caused~~to byenroll ~~exposure~~for tosuch ~~asbestos~~coverage. atFor athe ~~refinery~~most ~~owned~~part, byhealth ~~Union~~care ~~and~~benefits ~~constructed~~require bya ~~the~~contribution ~~Company’s~~from ~~subsidiary~~the retiree. ~~Union~~ ~~has~~We ~~alleged~~also ~~that~~provided ~~the~~term ~~subsidiary~~life isinsurance ~~required~~to certain retirees, both U.S. citizens and non-U.S. citizens, who retired prior to July 1, 2002.

~~defend~~The ~~and~~components ~~indemnify~~of itnet ~~pursuant~~periodic topension ~~the~~cost ~~terms~~for ofour ~~contracts~~postretirement ~~entered~~benefit ~~into~~plans for the ~~construction~~three ofand ~~the~~nine ~~refinery.~~months ~~On March~~ended 24September 30, ~~2005,~~2007 Union filed a motion requesting permission from the Court to add GlobalSantaFe Corporation as a defendant in the pending litigation. Union intends to attempt to establish liability against GlobalSantaFe Corporation as the alter ego of, and ~~successor~~ ~~in interest to~~2006, its subsidiary and on the basis of a fraudulent conveyance of the subsidiary’s assets, and seeks to pierce the corporate veil between the subsidiary and GlobalSantaFe Corporation. We believe that the allegations of the lawsuit are ~~without merit and intend to vigorously defend against the lawsuit, but cannot provide any assurance~~ as tofollows: ~~its ultimate outcome.~~

On July 11, 2005, one of our subsidiaries was served with a lawsuit filed on behalf of three landowners in Louisiana in the 12th Judicial District Court for the Parish of Avoyelles, State of Louisiana. The lawsuit names nineteen other defendants, all of whom are alleged to have contaminated the plaintiffs’ property with naturally occurring radioactive material, produced water, drilling fluids, chlorides, hydrocarbons, heavy metals and other contaminants as a result of oil and gas exploration activities. The lawsuit specifies sixty-five wells drilled on the property in question beginning in 1939, and alleges that our subsidiary was the operator or non-operating partner in thirteen of the wells during certain periods of time. The plaintiffs allege that the defendants are liable on the basis of strict liability, breach of contract, breach of the mineral leases, negligence, nuisance, trespass, improper handling of toxic or hazardous substances, that their storage and disposal of toxic and hazardous substances constituted an ultra hazardous activity, and for the violation of various state statutes. The lawsuit seeks unspecified amounts of compensatory and punitive damages, payment of funds sufficient to conduct an environmental assessment of the property in question, damages for diminution of property value and injunctive relief requiring that defendants restore the property to its prior condition and prevent the migration of toxic and hazardous substances. We do not have sufficient information at this time to form an opinion as to the merits of the lawsuit or its potential liability, if any, but intend to vigorously defend against the lawsuit.


	Three Months Ended September 30,
	2007		2006
	(In millions)
Service cost - benefits earned during the period	$	0.1	$	0.2
Interest cost on projected benefit obligation		0.3		0.3
Recognized actuarial loss		0.1		—

Net periodic pension cost	$	0.5	$	0.5


	Nine Months Ended September 30,
	2007		2006
	(In millions)
Service cost - benefits earned during the period	$	0.3	$	0.4
Interest cost on projected benefit obligation		0.9		0.9
Recognized actuarial loss		0.2		0.2

Net periodic pension cost	$	1.4	$	1.5

~~For~~Defined aContribution ~~further~~Plans discussion of our commitments and contingencies, including legal proceedings and environmental matters, see Note 5 to the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2004.

~~Note~~We 5also –sponsor ~~Long-term~~a ~~Debt~~defined contribution (“401(k)”) savings plan in which substantially all of our U.S. employees are eligible to participate. Our contributions to the 401(k) savings plan are based on the amount of employee contributions. We match 100 percent of each participant’s contribution to the 401(k), up to six percent of eligible earnings. Charges to expense with respect to this plan totaled $2.4 million and $7.2 million for the three and nine months ended September 30, 2007, respectively, and $2.3 million and $6.8 million for the three and nine months ended September 30, 2006, respectively. We also sponsor various defined contribution plans for certain of our U.K. employees. Charges to expense for these plans totaled $0.7 million and $1.9 million for the three and nine months ended September 30, 2007, respectively, and $0.4 million and $1.0 million for the three and nine months ended September 30, 2006, respectively.

OnNote ~~June~~6 ~~23,~~— ~~2005,~~Involuntary weConversion ~~repurchased $599.2 million principal amount at maturity~~ of ~~the~~Long-Lived ~~then~~Assets outstanding $600 million principal amount at maturity of Global Marine Inc.’s Zero Coupon Convertible Debentures due June 23, 2020, for a total purchase price of $356.1 million, representing $299.8 million in principal payment and ~~$56.3~~Related ~~million~~Recoveries in imputed interest. Global Marine accepted all surrendered debentures for repurchase at a purchase price of $594.25 per $1,000 of principal amount at maturity. We funded the repurchase price from our existing cash, cash equivalents and marketable securities balances. Upon completion of this purchase, debentures totaling $800,000 of principal amount at maturity ($0.5 million at June 30, 2005) remain outstanding.

During the third quarter of 2005, a number of our rigs were damaged as a result of hurricanes Katrina and Rita. All of these rigs have now returned to work with the exception of the GSF High Island III, which was sold in March 2007, and the GSF Adriatic VII, which was sold in December 2006. In March 2007 we sold the GSF High Island III to a third party and collected proceeds of approximately $26.0 million, net of selling costs, and recorded a gain of $24.8 million, which represents the proceeds less the $1.2 million estimated salvage value.

We collected $116.8 million in insurance recoveries in the first nine months of 2007 related to damage inflicted by hurricanes Katrina and Rita and Loss of Hire recoveries. Offsetting these collections in “Accounts receivable from insurers” are anticipated reimbursements for cash outlays to salvage our rigs damaged during the hurricanes.

We recorded gains totaling $61.2 million in the nine months ended September 30, 2007, which includes a $36.4 million gain representing amounts collected from insurers in excess of the estimated recoveries we recorded during the third quarter of 2005 related to the rigs damaged during these hurricanes and an additional $24.8 million gain recorded during the first quarter of 2007 in connection with the sale of the GSF High Island III. These gains, which are included in “Involuntary conversion of long-lived assets, net of related recoveries, loss of hire recoveries and gain on dispositions of equipment” in the Condensed Consolidated Statement of Income and Comprehensive Income for the nine months ended September 30, 2007, had a year to date tax expense of $20.1 million, resulting in an after tax gain of $41.1 million.

~~Long-term~~ Hurricane ~~debt~~Katrina, atthe ~~June~~GSF 30Arctic I, ~~2005~~GSF Development Driller I, and ~~December~~GSF ~~31,~~Development ~~2004~~Driller II, ~~consisted~~were covered by loss of ~~the~~hire insurance under which we are reimbursed for 100% of their contracted dayrate for up to a maximum of 270 days following 60 days (inthe ~~millions~~“waiting period”): of lost revenue.

	June 30,2005		December 31, 2004
5% Notes due 2013, net of unamortized discount of $0.5 million and $0.5 million at June 30, 2005, and December 31, 2004, respectively (1)	$	261.0	$	257.4
7% Notes due 2028, net of unamortized discount of $2.9 million and $3.0 million at June 30, 2005, and December 31, 2004, respectively		297.1		297.0
Zero Coupon Convertible Debentures due 2020, net of unamortized discount of $0.3 million and $249.3 million at June 30, 2005, and December 31, 2004, respectively		0.5		350.7
Total long-term debt, including current maturities		558.6		905.1
Less current maturities		0.5		350.7
Long-term debt	$	558.1	$	554.4

Our insurance policy provided that if claims for a single event are filed under both the hull and machinery and loss of hire sections of the policy, we would bear only a single deductible from that occurrence of no more than the highest deductible from any individual section. Hurricanes Katrina and Rita were considered separate events under our policy. Based on remediations completed for the three rigs covered under the loss of hire insurance, the amount of revenue we lost during the waiting period was higher than the $10 million hull and machinery deductible. Therefore, the 60-day waiting period under our loss of hire insurance will serve as the only deductible for the Hurricane Katrina event. The application of the 60-day waiting period provision with regard to the GSF Development Driller I, the only rig that was still out of service after the 60-day waiting period, is complicated by the fact that at the time of the hurricane, the rig was undergoing thruster remediations and, accordingly, we had already put our underwriters on notice as to a claim under the loss of hire section of the policy. As discussed in Note 7—”Commitments and Contingencies,” during 2005 and 2006, we recorded $25.4 million ($3.8 million in the fourth quarter of 2005, $18.9 million in the first quarter of 2006, and $2.7 million in the second quarter of 2006) in estimated loss of hire insurance recoveries with respect to the GSF Development Driller I and during 2007 we collected all of this claim from our underwriters. None of the jackup rigs damaged during Hurricane Rita was insured for loss of hire and, therefore, a single $10 million hull and machinery deductible was applicable to claims for damage to the rigs caused by Hurricane Rita. This deductible was recognized as a loss in the third quarter of 2005.

~~(1)~~In ~~Balances at~~ June 302007, ~~2005,~~prior ~~and~~to ~~December~~the ~~31,~~start ~~2004~~of GSF Rig 135’s contract in West Africa, ~~include~~the ~~mark-~~transport vessel used to~~-market~~ ~~adjustments~~carry ~~totaling~~the ~~$11~~rig’s riser capsized and the riser was lost.5 ~~million~~We do not expect to recover the riser and recorded a $74.91 million, ~~respectively~~charge related to this loss in the second quarter of 2007, aswhich ~~part~~is included in “Involuntary conversion of ~~fair~~long-~~value~~lived ~~hedge~~assets, ~~accounting~~net of related torecoveries, ~~fixed-for-floating~~loss ~~interest~~of ~~rate~~hire ~~swaps~~recoveries and gain on dispositions of equipment” in the Condensed Consolidated Statement of Income and Comprehensive Income. There was no tax impact related to this loss.

Note 6 7 – ~~Retirement~~Commitments ~~Plans~~and Contingencies

WeCAPITAL ~~have~~COMMITMENTS defined benefit pension plans in the United States and the United Kingdom covering all of our U.S. employees and a portion of our non-U.S. employees. These plans are designed and operated to be in compliance with applicable U.S. tax-qualified requirements and U.K. tax requirements for funded plans and, as such, the trust earnings are not subject to income taxes. For the most part, benefits are based on the employee’s length of service and eligible earnings. Substantially all benefits are paid from established trust funds. We are the sole contributor to the plans, with the exception of our contributory plans in the U.K.

In the first quarter of 2006, we entered into a contract with Keppel FELS, a shipyard located in Singapore, for construction of a new ultra-deepwater semisubmersible to be named the GSF Development Driller III. Construction costs for the GSF Development Driller III are expected to total approximately $590 million, excluding capital spares, startup expenses, mobilization costs, contract compliance costs, and capitalized interest. We had incurred a total of approximately $292 million of capitalized costs related to the GSF Development Driller III, excluding capitalized interest, capital spares, start-up costs, and contract compliance costs, as of September 30, 2007.

In September 2007, we entered into a contract with Hyundai Heavy Industries, a shipyard located in Korea, for construction of a new ultra-deepwater exploration and development drillship. Construction costs for the drillship are expected to total approximately $740 million, excluding capital spares, startup expenses, mobilization costs, contract compliance costs, and capitalized interest. We had incurred a total of approximately $107 million of capitalized costs related to the drillship, excluding capitalized interest, capital spares, start-up costs, and contract compliance costs, as of September 30, 2007.

CONTINGENCIES

In 1998, we entered into a fixed-price contract for the construction of a dynamically positioned, ultra-deepwater drillship, the GSF Jack Ryan, which began operating in December 2000. Pursuant to a 20-year capital lease agreement, we subsequently novated the construction contract for the drillship to a financial institution (the “Lessor”), which owns the drillship and leases it to us. We deposited with three large foreign banks (the “Payment Banks”) amounts equal to the progress payments that the Lessor would be required to make under the construction contracts, less a lease benefit of approximately $31 million (the “Defeasance Payment”). In exchange for the deposits, the Payment Banks assumed liability for making rental payments required under the lease and the Lessor legally released us as the primary obligor of such rental payments. Accordingly, we recorded no capital lease obligation on our balance sheet with respect to the GSF Jack Ryan.

We continue to have interest rate risk in connection with the fully defeased financing lease for the GSF Jack Ryan. The Defeasance Payment earns interest based on the British Pound Sterling three-month LIBOR, which approximated 8.00% at the time of the agreement. Should the Defeasance Payment earn less than the assumed 8.00% rate of interest, we will be required to make additional payments as necessary to augment the annual payments made by the Payment Banks pursuant to the agreements. If the September 30, 2007, LIBOR rate of 6.3% were to continue over the next six years, we would be required to fund an additional estimated $10.2 million for the GSF Jack Ryan during that period. Any additional payments made by us pursuant to the financing lease would increase the carrying value of our leasehold interest in the GSF Jack Ryan

~~The~~ and ~~components~~therefore ofbe ~~net~~reflected ~~periodic~~in ~~pension~~higher ~~benefit~~depreciation ~~cost~~expense ~~for~~over ~~our~~its ~~pension~~then-remaining ~~plans~~useful ~~for~~life. ~~the~~We ~~three~~do ~~and~~not ~~six~~expect ~~months~~that, ~~ended~~if ~~June 30~~required, any additional payments ~~2005~~made ~~and~~under ~~2004~~this lease would be material to our financial position, ~~were~~results asof ~~follows:~~operations or cash flows in any given year.

	Three Months Ended June 30,
	2005						2004
	U.S. Plans			U.K. Plans			U.S. Plans			U.K. Plans
Service cost - benefits earned during the period	$	2.7		$	3.5		$	2.9		$	3.1
Interest cost on projected benefit obligation		4.9			2.5			5.0			2.0
Expected return on plan assets		(6.1	)		(2.4	)		(4.2	)		(2.0	)
Recognized actuarial loss		2.0			1.1			2.1			0.8
Settlement loss		1.0			—			—			—
Amortization of prior service cost		1.0			—			1.1			—
Net periodic pension cost	$	5.5		$	4.7		$	6.9		$	3.9
	Six Months Ended June 30,
	2005						2004
	U.S. Plans			U.K. Plans			U.S. Plans			U.K. Plans
Service cost - benefits earned during the period	$	5.8		$	7.0		$	5.7		$	6.2
Interest cost on projected benefit obligation		10.1			5.0			9.9			4.0
Expected return on plan assets		(12.1	)		(4.8	)		(8.3	)		(4.0	)
Recognized actuarial loss		4.5			2.2			4.2			1.6
Settlement loss		1.0			—			—			—
Amortization of prior service cost		2.0			—			2.3			—
Net periodic pension cost	$	11.3		$	9.4		$	13.8		$	7.8

During the second quarter of 2005, we discovered a defect and resulting damage in the thruster nozzles on our two ultra-deepwater semisubmersibles, the GSF Development Driller I and GSF Development Driller II. Both rigs were being remediated for the thruster defect and resulting damage when they sustained additional damage as a result of Hurricane Katrina. This additional damage further delayed the start of the initial drilling contracts for the GSF Development Driller I and the GSF Development Driller II. Remediations of the GSF Development Driller II were completed and the rig went on contract in November 2005. The thruster defect and damage from Hurricane Katrina further delayed the start of the initial drilling contract for the GSF Development Driller I until June 2006.

~~Our~~We ~~funding~~have ~~objective~~made isclaims tounder ~~fund~~our loss of hire insurance for the GSF Development Driller ~~participants’~~I ~~benefits~~and ~~under~~GSF Development Driller II for the ~~plans~~periods asrequired ~~they~~to ~~accrue~~remediate the damage arising from both the thruster defect and Hurricane Katrina. ~~Although~~Under wethe ~~expect~~loss ~~that~~of ~~there~~hire ~~will~~section beof noour ~~minimum~~insurance ~~required~~policy, ~~pension~~we ~~contribution~~are entitled to reimbursement for our ~~plans~~full dayrate for ~~2005~~up to 270 days after a 60-day waiting period. Significant unresolved issues remain as to the proper application of the loss of hire waiting period in connection with the thruster damage, wewhich could lead to substantial differences in the amount of the loss of hire recovery. The underwriters have ~~funded~~formally reserved their rights to decline coverage for the ~~plans~~thruster damage claims on the rigs in respect of both the ~~past~~hull onand amachinery ~~regular~~and ~~basis,~~loss ~~including~~of ~~contributions~~hire tocoverages. ~~our~~During U2005 and 2006, we recorded $25.S4 million ($3.8 ~~plans~~million in ~~2004~~the ~~totaling~~fourth quarter of 2005, $5918.69 million. ~~Accordingly~~in the first quarter of 2006, weand ~~may~~$2.7 ~~continue~~million in the second quarter of 2006) in estimated hurricane-related loss of hire insurance recoveries with respect to ~~make~~the ~~discretionary~~GSF ~~contributions,~~Development ~~which~~Driller ~~will~~I beand ~~determined~~during ~~after~~2007 we collected all of this claim from our underwriters. The GSF Development Driller II was not out of service longer than the ~~2005~~combined ~~actuarial~~120-day ~~valuations~~waiting ~~are~~period ~~complete~~and therefore no loss of hire recoveries were recorded for this rig.

WeIn ~~also~~connection ~~sponsor~~with aan ~~defined~~audit ~~contribution~~of ~~(“401(k)”)~~the ~~savings~~2002 ~~plan~~and in2003 ~~which~~United ~~substantially~~States ~~all~~federal ofincome ~~our~~tax ~~U.S.~~returns ~~employees~~of ~~are~~our ~~eligible to~~United ~~participate.~~States ~~Our~~subsidiaries, ~~contributions to~~ the ~~401(k)~~examination ~~savings~~division ~~plan~~of ~~are based on~~ the ~~amount~~Internal ofRevenue ~~employee~~Service ~~contributions.~~(“IRS”) Weproposed ~~match~~that ~~100%~~interest ofpayments ~~each~~made ~~participant’s~~from ~~first~~one ~~six percent~~ of ~~compensation~~our ~~contributed~~domestic subsidiaries to ~~the~~one ~~plan.~~of ~~Charges~~our toforeign ~~expense~~subsidiaries with respect to ~~this plan~~certain ~~totaled~~notes ~~$1.9~~issued ~~million~~in connection ~~and~~with ~~$3.7~~the ~~million~~business ~~for~~combination ~~the~~of ~~three~~Global ~~and~~Marine ~~six~~Inc. ~~months~~and ~~ended~~Santa ~~June~~Fe ~~30,~~International ~~2005,~~Corporation ~~respectively,~~were ~~and~~subject ~~$1.6~~to ~~million~~withholding ~~and~~of ~~$3.4~~United ~~million~~States ~~for~~federal ~~the~~income ~~three~~tax ~~and~~at ~~six~~a ~~months~~30% ~~ended~~rate ~~June~~and 30that, ~~2004,~~as ~~respectively.~~a Weresult, ~~also~~the ~~sponsor~~domestic ~~various~~subsidiary ~~defined~~owed ~~contribution plans~~additional ~~for~~tax ~~certain~~ of approximately ~~our U~~$50.6 K.million ~~employees~~plus interest. ~~Charges~~Our toUnited ~~expense~~States ~~for~~subsidiaries ~~these~~appealed ~~plans~~this ~~totaled~~proposed ~~$0.4~~tax ~~million~~adjustment ~~and~~to $0IRS Appeals.7 ~~million~~During ~~for~~ the ~~three~~quarter ~~and six months~~ ended ~~June~~ September 30, ~~2005~~2007, ~~respectively,~~IRS ~~and~~Appeals ~~$0.3~~agreed ~~million~~to ~~and~~concede ~~$0.5~~in ~~million~~full ~~for~~the proposed tax adjustments which the ~~three~~IRS ~~and~~examination ~~six~~division ~~months~~had ~~ended June~~issued ~~30,~~to ~~2004,~~our ~~respectively~~subsidiaries.

~~Note~~INTERNAL 7INVESTIGATION ~~– Supplemental Cash Flow Information – Noncash Financing Activity~~

~~Cash~~In ~~payments~~June ~~for~~2007, ~~capital~~our management retained independent outside counsel to conduct an internal investigation of our Nigerian and West African operations, focusing on brokers ~~expenditures~~who handled customs matters with respect to our affiliates operating in those jurisdictions and whether those brokers have fully complied with the U.S. Foreign Corrupt Practices Act (“FCPA”) and local laws. We commenced our investigation following announcements by other oilfield service companies that they were independently investigating the FCPA implications of certain actions taken by third parties in respect of customs matters in connection with their operations in Nigeria, as well as another company’s recently announced settlement implicating a third party handling customs matters in Nigeria. In each case, the customs broker was reported to be Panalpina Inc., which we used to obtain temporary import permits for our rigs operating offshore Nigeria. We voluntarily disclosed our internal investigation to the ~~six~~U.S. ~~months~~Department ~~ended~~of ~~June~~Justice 30(“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”) and, ~~2005~~at their request, have expanded our investigation to include the activities ~~$63~~of our customs brokers in other West African countries and the activities of Panalpina Inc.9 ~~million~~worldwide. The investigation is focusing on whether the brokers have fully complied with the requirements of their contracts, local laws, and the FCPA. Our legal representatives are keeping the DOJ and SEC apprised of the scope and details of their investigation and producing relevant information in response to their requests. The audit committee of our Board of Directors has had unfettered access to the independent outside counsel, and our general counsel and outside counsel have provided periodic updates to the committee during its meetings and to the chairman of the committee between such meetings as circumstances warrant. We cannot predict at this time the ultimate outcome of the investigation, the effect of implementing any further measures that ~~was~~may ~~accrued~~be ~~but~~necessary ~~unpaid~~to ensure full compliance with applicable laws, or to what extent, if at ~~December~~all, 31we could be subject to fines, ~~2004~~sanctions or other penalties. ~~Cash~~Our ~~payments~~investigation ~~for~~includes ~~capital~~a ~~expenditures~~review of amounts paid to and by customs brokers in connection with the obtaining of permits for the ~~six~~temporary ~~months~~importation ~~ended~~of ~~June~~vessels and ~~30,~~clearances ~~2004~~of goods and materials through customs into West African countries, ~~include~~including ~~$16~~Nigeria.6 ~~million~~These permits and clearances are necessary in order for us to operate our drilling rigs in certain jurisdictions. There is a risk that ~~was~~we ~~accrued~~may ~~but~~not ~~unpaid~~be atable to obtain import permits or renew temporary importation permits in West African countries, including Nigeria, in a manner that complies with the FCPA. As a result, we may not have the means to renew temporary importation permits for rigs located in the relevant jurisdictions as they expire or to send goods and equipment

~~December~~ into 31those jurisdictions, ~~2003.~~in ~~Accrued~~which ~~but~~event ~~unpaid~~we ~~capital~~may ~~expenditures~~be atforced ~~June~~to ~~30,~~terminate ~~2005,~~the ~~totaled~~pending ~~$6.1~~drilling ~~million.~~contracts ~~This~~and ~~amount~~relocate ~~is included~~the rigs or leave the rigs in ~~Accounts~~these countries ~~payable~~and onrisk ~~the~~permanent ~~Condensed~~importation ~~Consolidated~~issues, ~~Balance~~either ~~Sheet~~of atwhich ~~June~~could 30have an adverse effect on our financial results. In addition, ~~2005~~termination of drilling contracts could result in damage claims by customers.

InLEGAL ~~June~~PROCEEDINGS 2005, our Board of Directors declared a regular quarterly cash dividend for the second quarter of 2005 of $0.15 per ordinary share, payable to shareholders of record as of the close of business on June 30, 2005. This second quarter dividend in the amount of $36.1 million was paid on July 15, 2005.

~~Note~~In 8August –2004, ~~Share~~certain ~~Repurchase~~of our subsidiaries were named as defendants in six lawsuits filed in Mississippi, five of which are pending in the Circuit Court of Jones County and one of which is pending in the Circuit Court of Jasper County, Mississippi, alleging that certain individuals aboard our offshore drilling rigs had been exposed to asbestos. These six lawsuits are part of a group of 23 lawsuits filed on behalf of approximately 800 plaintiffs against a large number of defendants, most of which are not affiliated with us. Our subsidiaries have not been named as defendants in any of the other 17 lawsuits. The lawsuits assert claims based on theories of unseaworthiness, negligence, strict liability and our subsidiaries’ status as Jones Act employers and seek unspecified compensatory and punitive damages. In general, the defendants are alleged to have manufactured, distributed or utilized products containing asbestos. In the case of our named subsidiaries and that of several other offshore drilling companies named as defendants, the lawsuits allege those defendants allowed such products to be utilized aboard offshore drilling rigs. We have not been provided with sufficient information to determine the number of plaintiffs who claim to have been exposed to asbestos aboard our rigs, whether they were employees nor their period of employment, the period of their alleged exposure to asbestos, nor their medical condition. Accordingly, we are unable to estimate our potential exposure in these lawsuits. We historically have maintained insurance which we believe will be available to address any liability arising from these claims. We intend to defend these lawsuits vigorously, but there can be no assurance as to their ultimate outcome.

~~In April~~One ~~2005,~~of weour ~~issued~~subsidiaries ~~23,500,000~~filed ~~ordinary~~suit ~~shares~~in atFebruary a2004 ~~price,~~against ~~net~~its ofinsurance underwriters in the ~~underwriting~~Superior ~~discount,~~Court of ~~$34.02~~San ~~per~~Francisco ~~ordinary~~County, ~~share~~California, seeking ina andeclaration ~~offering~~as ~~under~~to aits ~~registration~~rights ~~statement~~to ~~filed~~insurance incoverage ~~September~~and ~~2003.~~the Weproper ~~immediately~~allocation ~~used~~among ~~the~~its ~~net~~insurers ~~proceeds~~of ~~from~~liability ~~the offering~~for ~~totaling~~claims ~~approximately~~payments ~~$799.5~~in ~~million~~order to ~~repurchase~~assist anin ~~equal~~the ~~number~~future management and disposition of ~~our~~certain ~~ordinary~~claims ~~shares~~described ~~from~~below. aThe subsidiary’s three primary insurers had historically paid settlement and defense costs for the subsidiary. One of ~~Kuwait~~these ~~Petroleum~~insurers ~~Corporation~~was atnearing ainsolvency ~~price~~and ~~per~~claimed ~~share~~exhaustion ~~equal~~of toits ~~the~~coverage ~~net~~limits, ~~proceeds~~but ~~per~~following ~~share~~negotiations weagreed ~~received~~to make a cash payment in ~~the~~exchange ~~offering.~~for Ina ~~connection with~~release ~~this~~of ~~transaction~~all wefurther ~~incurred~~liability $0for the subsidiary’s asbestos liabilities.7 ~~million~~Both of ~~costs~~the ~~associated~~subsidiary’s other primary insurers have entered into settlement agreements with the ~~filing,~~subsidiary ~~which~~that ~~were~~will ~~recorded~~provide asfor limited aadditional ~~reduction~~funding of ~~additional~~asbestos ~~paid~~liabilities inand ~~capital~~attorneys’ fees and costs associated therewith. ~~There~~The ~~was~~subsidiary noalso ~~change~~intends into ~~the~~enter ~~number~~into ofdiscussions ~~our~~with ~~outstanding~~its ~~shares~~excess asinsurers. aWe ~~result~~believe ofthat the ~~transactions~~subsidiary aswill ~~the shares~~continue ~~repurchased~~to have funds from ~~Kuwait~~its ~~Petroleum~~insurers ~~Corporation~~sufficient ~~were~~to ~~immediately~~meet ~~cancelled~~its settlement and defense obligations for the foreseeable future.

~~Note~~The 9insurance –coverage ~~Transactions~~in question relates to lawsuits filed against the subsidiary arising out of its involvement in the design, construction and refurbishment of major industrial complexes. The operating assets of the subsidiary were sold and its operations discontinued in 1989, and the subsidiary has no remaining assets other than the insurance policies involved in the litigation and funds received from the cancellation of certain insurance policies. The subsidiary has been named as a defendant, along with ~~Affiliates~~numerous other companies, in lawsuits alleging personal injury as a result of exposure to asbestos. As of September 30, 2007, the subsidiary had been named as a defendant in approximately 4,300 lawsuits, the first of which was filed in 1990, and a substantial number of which are currently pending. We believe that as of January 1, 2007, from $40 million to $45 million had been expended to resolve claims (including both attorneys’ fees and expenses, and settlement costs), with the subsidiary having expended $4 million of that amount due to insurance deductible obligations, all of which have now been satisfied. Because we have had to rely on the insurers of our subsidiary for certain historical information regarding the amounts expended in settlement and defense of these lawsuits and are not able to verify or confirm the information, we do not know with precision the amounts expended. The subsidiary continues to be named as a defendant in additional lawsuits and we cannot predict the number of additional cases in which it may be named a defendant nor can we predict the potential costs to resolve such additional cases or to resolve the pending cases. However, the subsidiary has in excess of $1 billion in insurance limits. Although not all of that will be available due to the insolvency of certain insurers, we believe that the subsidiary will have sufficient insurance available to respond to these claims. We do not believe that these claims will have a material impact on our consolidated financial position, results of operations or cash flows.

InThe ~~connection~~same ~~with~~subsidiary ~~its~~was ~~initial~~a ~~public~~defendant ~~offering,~~in ~~Santa~~a Felawsuit ~~International~~filed ~~entered~~against ~~into~~it anby ~~intercompany~~Union Oil ~~agreement~~Company ~~with~~of ~~Kuwait~~California ~~Petroleum Corporation~~ (“~~KPC~~Union”) ~~and~~in ~~its~~the ~~wholly~~Circuit ~~owned~~Court ~~subsidiary,~~of ~~SFIC~~Cook ~~Holdings (Cayman)~~County, ~~Inc~~Illinois. ~~(“SFIC Holdings”),~~That ~~which~~lawsuit ~~agreement~~arose ~~was~~out ~~amended~~of inclaims ~~connection~~alleging ~~with~~personal ~~the~~injury ~~November~~caused ~~2001~~by ~~merger~~exposure ~~between~~to ~~Global~~asbestos ~~Marine~~at ~~Inc.~~a ~~and~~refinery ~~Santa~~owned Feby ~~International.~~Union ~~The~~and ~~intercompany~~constructed ~~agreement,~~by asour ~~amended,~~subsidiary. Union ~~generally~~alleged ~~provides~~ that asthe ~~long~~subsidiary aswas ~~KPC~~required to defend and ~~its~~indemnify ~~affiliates~~it ~~own~~pursuant ~~at least~~to ~~7.5%~~the terms of ~~our~~contracts ~~outstanding~~entered ~~ordinary~~into ~~shares,~~for ~~SFIC~~the ~~Holdings~~construction ~~has~~of the ~~right~~refinery. toGlobalSantaFe ~~designate~~Corporation ~~for~~was ~~election~~also ~~two~~named ~~directors~~as a defendant in the pending litigation. IfUnion stated ~~SFIC~~that ~~Holdings’~~it ~~interest~~intended isto ~~reduced~~attempt to ~~less~~establish ~~than~~liability ~~7.5%~~against GlobalSantaFe Corporation as the alter ego of, and ~~equal~~successor in interest to, orits ~~greater~~subsidiary ~~than~~and ~~4%,~~on the ~~number~~basis of ~~directors~~a ~~that~~fraudulent ~~SFIC Holdings~~conveyance ~~may~~of ~~designate~~the ~~for~~subsidiary’s ~~election~~assets, isand ~~generally~~to ~~reduced~~seek to pierce ~~one.~~the Ifcorporate ~~SFIC~~veil ~~Holdings’~~between ~~interest~~the issubsidiary ~~reduced~~and toGlobalSantaFe ~~less~~Corporation. ~~than~~The ~~4%,~~parties itsettled ~~will~~that ~~not~~lawsuit ~~have~~in ~~the~~June ~~right~~2007, with our subsidiary having agreed to ~~designate~~pay ~~any~~an ~~directors~~amount ~~for~~from ~~election~~funds topreviously ~~our~~received ~~Board~~from insurance underwriters, and with no contribution from GlobalSantaFe Corporation.

Following the share repurchase discussed in Note 8, SFIC Holdings, a wholly owed subsidiary of KPC, currently owns 20,000,000 of our ordinary shares. This reflects a reduction in SFIC Holdings’ ownership interest to approximately 8.3% of the total shares outstanding at June 30, 2005 from approximately 18.4% at December 31, 2004.

We and a number of our subsidiaries were named as defendants in two lawsuits claiming that the GSF Adriatic VII caused damage to a platform in the South Marsh Island area of the U.S. Gulf of Mexico when the rig broke free from its location during Hurricane Rita. On September 20, 2006, Devon Energy Corporation and Pogo Producing Company filed suit in the United States District Court for the Southern District of Texas, Houston Division, claiming that the defendants caused damage in an amount exceeding $75 million. On the same day Apache Corporation, as successor in interest to BP p.l.c., filed suit against the defendants in the United States District Court for the Western District of Louisiana, Lafayette Division, claiming damage in an unspecified amount. The lawsuit filed by Devon and Pogo has now been transferred to the United States District Court for the Western District of Louisiana, Lafayette Division, and consolidated with the lawsuit filed by Apache Corporation. We have not been presented with evidence indicating that the GSF Adriatic VII caused the damage, if any, claimed by plaintiffs. In any event, we believe that we will be entitled to the benefits of the Act of God defense. Any liability arising from this lawsuit, including legal fees and expenses, will be paid by our insurance underwriters.

We and our subsidiaries are defendants or otherwise involved in a number of lawsuits in the ordinary course of business. In the opinion of management, our ultimate liability with respect to these pending lawsuits is not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

ENVIRONMENTAL MATTERS

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

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

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

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

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.

alleged to have been a small contributor of the wastes that were improperly disposed by EPC at the site. We have undertaken an investigation as to whether our subsidiary is a liable party, what the total remediation costs may be and the amount of waste that may have been contributed by other parties. Until that investigation is complete we are unable to assess our potential liability, if any, for this site.

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

•

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

•

appropriate investigatory and/or remedial actions; and

•

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

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

•

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

•

the numbers of other PRPs and their financial viability; and

•

the remediation methods and technology to be used.

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

On July 11, 2005, one of our dissolved subsidiaries, Santa Fe Minerals, Inc., was served with a lawsuit filed on behalf of three landowners in Louisiana in the 12^th Judicial District Court for the Parish of Avoyelles, State of Louisiana. The lawsuit named nineteen other defendants, all of which were alleged to have contaminated the plaintiffs’ property with naturally occurring radioactive material, produced water, drilling fluids, chlorides, hydrocarbons, heavy metals and other contaminants as a result of oil and gas exploration activities. The lawsuit specified 95 wells drilled on the property in question beginning in 1939, and alleges that our subsidiary, which is a dissolved corporation that no longer conducts operations or holds assets, was the operator or non-operating partner in 13 of the wells during certain periods of time. The plaintiffs alleged that the defendants were liable on the basis of strict liability, breach of contract, breach of the mineral leases, negligence, nuisance, trespass, and improper handling of toxic or hazardous substances, that their storage and disposal of toxic and hazardous substances constituted an ultra-hazardous activity, and that they violated various state statutes. The lawsuit sought unspecified amounts of compensatory and punitive damages, payment of funds sufficient to conduct an environmental assessment of the property in question, damages for diminution of property value and injunctive relief requiring that defendants restore the property to its prior condition and prevent the migration of toxic and hazardous substances. Experts retained by the plaintiffs issued a report suggesting significant contamination in the area operated by the subsidiary and another codefendant, and claimed that over $300 million would be required to properly remediate the contamination. The experts retained by the defendants conducted their own investigation and concluded that the remediation costs would amount to no more than $2.5 million.

The plaintiffs and the codefendant threatened to add GlobalSantaFe Corporation as a defendant in the lawsuit under the “single business enterprise” doctrine contained in Louisiana law. The single business enterprise doctrine is an equitable construct created and applied by the judiciary to impose liability against the parent company or a different subsidiary or affiliated companies where more than one company represents precisely the same single interests. The single business enterprise doctrine is similar to corporate veil piercing doctrines. On August 16, 2006, Santa Fe Minerals, Inc. and its immediate parent company, 15375 Memorial Corporation, which is also an entity that no longer conducts operations or holds assets, filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. Later that day, the plaintiffs dismissed Santa Fe Minerals, Inc. 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 Corporation and two other subsidiaries in the lawsuit. We believe that these legal theories should not be applied against GlobalSantaFe Corporation 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 Corporation 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 Santa Fe Minerals, Inc. and other parties, including GlobalSantaFe Corporation and the other two subsidiaries, to the codefendant.

In the bankruptcy case, Santa Fe Minerals, Inc. has filed suit to obtain declaratory and injunctive relief against the codefendant concerning the matters described above and GlobalSantaFe Corporation has intervened in the matter. The codefendant is seeking to dismiss the bankruptcy case and a modification of the automatic stay afforded under the Bankruptcy Code to Santa Fe Minerals, Inc. and 15375 Memorial Corporation so that the codefendant may pursue the entities and GlobalSantaFe Corporation 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.

A trial on the declaratory and injunctive relief, dismissal and modification of the automatic stay matters was conducted in the bankruptcy case on September 17 and 18, 2007 and is now subject to post trial briefing. In addition, the codefendant has filed proofs of claim against both Santa Fe Minerals, Inc. and 15371 Memorial Corporation 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 GlobalSantaFe Corporation. Santa Fe Minerals, Inc., 15375 Memorial Corporation and GlobalSantaFe Corporation 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.

Note 8 – Supplemental Cash Flow Information – Noncash Investing and Financing Activities

Cash payments for capital expenditures for the nine months ended September 30, 2007 include $13.7 million that was accrued but unpaid at December 31, 2006. Cash payments for capital expenditures for the nine months ended September 30, 2006, include $49.8 million that was accrued but unpaid at December 31, 2005. Accrued but unpaid capital expenditures at September 30, 2007, totaled $11.1 million. This amount is included in “Accounts payable” on the Condensed Consolidated Balance Sheet at September 30, 2007.

In connection with damage sustained by our rigs from hurricanes Katrina and Rita (see Note 6), we have recorded a receivable of approximately $111.2 million, which represents amounts expected to be recovered from our insurers, including ongoing recovery and salvage costs and loss of hire recoveries. This amount is included in “Accounts receivable from insurers”, along with various other insurance claims receivables, on the Condensed Consolidated Balance Sheet as of September 30, 2007.

On June 7, 2007, our Board of Directors declared a regular quarterly cash dividend for the second quarter of 2007 of $0.225 per ordinary share, payable to shareholders of record as of the close of business on June 29, 2007. This second quarter dividend in the amount of $51.1 million was paid on July 13, 2007. Under the terms of the Merger Agreement, we have agreed not to declare and pay any future dividends on our ordinary shares pending completion of the merger.

Note 9 – Share Repurchase

On March 3, 2006, our Board of Directors authorized us to repurchase up to $2 billion of our ordinary shares from time to time. During 2007 we repurchased a total of 7,986,907 ordinary shares for $520.0 million at an average price of $65.10 per share. Not included in this number are 278,500 ordinary shares that were purchased for $16.5 million in December 2006 but did not settle until January 2007. Under the terms of the Merger Agreement, we have agreed not to repurchase any additional shares pending completion of the merger.

Note 10 – Discontinued Operations

On May 21, 2004, we completed the sale of our land drilling business to Precision Drilling Corporation. Our land drilling business consisted of a fleet of 31 rigs, 12 of which were located in Kuwait, eight in Venezuela, four in Saudi Arabia, four in Egypt, and three in Oman. During the second quarter of 2004 we recorded a $5.7 million contingent tax liability related to the sale of our Egyptian land rigs. During the first quarter of 2007, the tax audit for the 2004 tax year and the tax return filing position related to the contingent tax liability were favorably resolved. As a result, we released the $5.7 million reserve, which is classified as “Income from discontinued operations” in the Condensed Consolidated Statements of Income and Comprehensive Income for the nine months ended September 30, 2007.

Note 11—Recently Adopted Accounting Pronouncements

We adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (“FIN 48”), on January 1, 2007. As a result of the implementation of FIN 48, we recognized a

$11.5 million increase in the liability for uncertain tax positions taken on previously filed tax returns, which was accounted for as a $16.3 million decrease in retained earnings and a $4.8 million decrease in goodwill for items related to events that took place prior to the business combination in 2001 of Global Marine Inc. and Santa Fe International Corporation.

We accrue interest and penalties related to our liability for uncertain tax positions as a component of income tax expense. In conjunction with the adoption of FIN 48 we recognized approximately $8.5 million for the payment of interest and penalties at January 1, 2007, which is included as a component of the $11.5 million of liability for uncertain tax positions noted above. The amount of interest recognized during the three and nine months ended September 30, 2007 was insignificant to our financial results.

During the quarter ended September 30, 2007, our liability for uncertain tax positions increased by $1.8 million to a total of $50.1 million.

In May 2007, the FASB issued FASB Staff Position No. FIN 48-1 “Definition of Settlement in FASB Interpretation No. 48”, an amendment to FIN 48, to provide guidance on how to determine when a tax position is effectively settled for the purpose of reversing liabilities for uncertain tax positions. We have adopted and applied the terms of FASB Staff Position No. FIN 48-1 to determine whether current quarter settlements of previously recorded uncertain tax positions correctly resulted in changes in our liability for uncertain tax positions. During the quarter ended September 30, 2007, we did not have material changes in our liabilities for uncertain tax positions resulting from settlements of previously recorded uncertain tax positions.

Note 12—Recently Issued Accounting Pronouncements

In February 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This standard, which becomes effective at the beginning of the first fiscal year that begins after November 15, 2007, provides companies with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons. We are still evaluating the impact this statement will have on our operations and financial position.

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

We are ana worldwide offshore oil and gas drilling contractor, owning or operating aan active fleet of 6159 marine drilling rigs. Our fleet includes 4543 cantilevered jackup rigs, 13 11 semisubmersibles, ~~and~~ three drillships. Weand ~~operate~~ two ofadditional ~~the~~ semisubmersible rigs ~~for~~we operate for third parties under a joint venture agreement. During the first quarter of 2006, we commenced a construction project for an additional semisubmersible, to be named the GSF Development Driller III. In September 2007, we entered into a contract with Hyundai Heavy Industries, Ltd for the construction of a new ultra-deepwater exploration and development drillship.

We provide offshore oil and gas contract drilling services to the oil and gas industry worldwide on a daily rate (“dayrate”) basis. We also provide oil and gas drilling management services on either a dayrate or completed-project, fixed-price (“turnkey”) basis, as well as drilling engineering and drilling project management services, and we participate in oil and gas exploration and production activities, principally in order to facilitate the acquisition of turnkey contracts for our drilling management services operations.

We derive substantially all of our revenues from our contract drilling and drilling management services operations, which depend on the level of drilling activity in offshore oil and natural gas exploration and development ~~drilling in~~ markets worldwide. These operations are subject to a number of risks, many of which are outside our control. For a discussion of these risks, see “~~Items 1~~Item 1A. ~~and 2. Business and Properties —~~ Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2004~~2006 and “Part II—Item 1A. Risk Factors” herein.

~~CRITICAL~~AGREEMENT ~~ACCOUNTING~~AND ~~ESTIMATES~~PLAN OF MERGER

~~Our~~On ~~consolidated~~July 21, ~~financial~~2007 ~~statements~~we ~~are~~entered into ~~impacted~~the byMerger ~~the~~Agreement ~~accounting~~with ~~policies~~Transocean ~~used~~Inc. (“Transocean”) and Transocean Worldwide Inc., a direct wholly owned subsidiary of Transocean (“Transocean Worldwide”). Under the ~~estimates~~terms ~~and~~of ~~assumptions~~the ~~made~~Merger Agreement, GlobalSantaFe Corporation will merge with Transocean Worldwide by ~~management~~way ~~during~~of ~~their~~a ~~preparation.~~scheme ~~These~~of ~~estimates~~arrangement ~~and~~qualifying ~~assumptions~~as ~~affect~~an amalgamation under Cayman Islands law, with Transocean Worldwide continuing as the ~~carrying~~surviving corporation. Immediately prior to the merger, each ~~values~~outstanding ordinary share of ~~assets~~Transocean ~~and~~will ~~liabilities~~be ~~and~~reclassified ~~disclosures~~by way of ~~contingent~~a ~~assets~~scheme of arrangement under Cayman Islands law into (1) 0.6996 Transocean ordinary shares and ~~liabilities~~(2) $33.03 atin cash (this reclassification, together with the ~~balance~~merger, ~~sheet~~is referred ~~date~~to ~~and~~as the ~~amounts~~“Transactions”). At the effective time of ~~revenues~~the ~~and~~merger, ~~expenses~~each ~~recognized~~outstanding ~~during~~ordinary ~~the~~share ~~period~~of GlobalSantaFe will be exchanged for (1) 0.4757 ~~Actual~~Transocean ~~results~~ordinary ~~could~~shares ~~differ~~(after ~~from~~giving ~~such~~effect ~~estimates~~to the reclassification) and (2) $22.46 ~~assumptions~~in cash. ~~For~~ aWe ~~discussion~~have agreed to various covenants under the Merger Agreement and the closing of the ~~critical~~Transactions ~~accounting~~is ~~policies~~subject ~~and~~to ~~estimates~~a number of conditions. We currently estimate that wethe ~~use~~parties inwill complete the ~~preparation~~Transactions by the end of 2007. ~~our~~However ~~condensed~~the ~~consolidated~~Transactions ~~financial~~may ~~statements,~~not ~~see~~be ~~“Item~~completed 7.until ~~Management’s~~the ~~Discussion~~first ~~and~~half ~~Analysis~~of 2008. See Note 2 of Notes to the Condensed Consolidated Financial ~~Condition~~Statements for additional information about the Transactions, our covenants under the Merger Agreement and the ~~Results~~conditions to consummation of ~~Operations~~ –the ~~Critical~~Transactions, ~~Accounting~~as ~~Estimates”~~well inas ~~our~~the ~~Annual~~financing ~~Report~~commitments onrelating ~~Form~~to ~~10-K~~the Transactions. See “Part II. Item 1A. Risk Factors” for ~~the~~more ~~year~~information ~~ended~~regarding ~~December~~risks ~~31,~~relating ~~2004~~to the Transactions.

20INTERNAL INVESTIGATION

In June 2007, our management retained independent outside counsel to conduct an internal investigation of our Nigerian and other West African operations, focusing on brokers who handled customs matters with respect to our affiliates operating in those jurisdictions and whether those brokers have fully complied with the U.S. Foreign Corrupt Practices Act (“FCPA”) and local laws. We commenced our investigation following announcements by other oilfield service companies that they were independently investigating the FCPA implications of certain actions taken by third parties in respect of customs matters in connection with their operations in Nigeria, as well as another company’s recently announced settlement implicating a third party handling customs matters in Nigeria. In each case, the customs broker was reported to be Panalpina Inc., which we used to obtain temporary import permits for our rigs operating offshore Nigeria. We voluntarily disclosed our internal investigation to the U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”) and, at their request, have expanded our investigation to include the activities of our customs brokers in other West African countries and the activities of Panalpina Inc. worldwide. The investigation is focusing on whether the brokers have fully complied with the requirements of their contracts, local laws, and the FCPA. Our legal representatives are keeping the DOJ and SEC apprised of the scope and details of their investigation and producing relevant information in response to their requests. The audit committee of our Board of Directors has had unfettered access to the independent outside counsel, and our general counsel and outside counsel have provided periodic updates to the committee during its meetings and to the chairman of the committee between such meetings as circumstances warrant. We cannot predict at this time the ultimate outcome of the investigation, the effect of implementing any further measures that may be necessary to ensure full compliance with applicable laws, or to what extent, if at all, we could be subject to fines, sanctions or other penalties. Our investigation

includes a review of amounts paid to and by customs brokers in connection with the obtaining of permits for the temporary importation of vessels and clearances of goods and materials through customs into West African countries, including Nigeria. These permits and clearances are necessary in order for us to operate our drilling rigs in certain jurisdictions. There is a risk that we may not be able to obtain import permits or renew temporary importation permits in West African countries, including Nigeria, in a manner that complies with the FCPA. As a result we may not have the means to renew temporary importation permits for rigs located in the relevant jurisdictions as they expire or to send goods and equipment into those jurisdictions, in which event we may be forced to terminate the pending drilling contracts and relocate the rigs or leave the rigs in these countries and risk permanent importation issues, either of which could have an adverse effect on our financial results. In addition, termination of drilling contracts could result in damage claims by customers.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. These estimates and assumptions affect the carrying values of assets and liabilities and disclosures of contingent assets and liabilities at the balance sheet date and the amounts of revenues and expenses recognized during the period. Actual results could differ from such estimates and assumptions. For a discussion of critical accounting policies and estimates that we use in the preparation of our condensed consolidated financial statements, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2006.

Operating Results

SUMMARY

Data relating to our ~~continuing~~ operations by business segment follows (dollars in millions):

	Three Months Ended June 30,						Increase / (Decrease)		Six Months Ended June 30,						Increase / (Decrease)
	Three Months Ended						Increase / (Decrease)		Nine Months Ended						Increase / (Decrease)
	2005			2004					2005			2004
	September 30,								September 30,
	2007			2006					2007			2006
Revenues:
Contract drilling	$	~~403~~979.80		$	~~274~~704.97		4739	%	$	~~741~~2,633.32		$	~~547.~~1,814.8		3545	%
Drilling management services		~~160~~246.29			~~105~~213.47		5216	%		~~304~~599.59			~~212~~548.69		439	%
Oil and gas		1514.08			57.61		~~168~~108	%		2744.18			1037.45		~~161~~19	%
Less: Intersegment revenues		(452.25	)		(316.83	)	11222	%		(9112.57	)		(839.02	)	19188	%
	$	~~574~~1,188.82		$	~~382~~909.12		5031	%	$	13,~~063~~165.42		$	~~762~~2,362.10		4034	%
Operating income (loss):
Operating income:
Contract drilling	$	88522.43		$	2307.72		~~3,174~~70	%	$	~~143~~1,289.69		$	18704.61		~~672~~83	%
Drilling management services		108.96			(6.59	)	68225	%		2025.79			11(0.8	)	753,338	%
Oil and gas		105.20			21.96		~~252~~213	%		1615.47			517.57		~~198~~(11	)%
Gain on sale of assets		1.1			—		100	%		1.1			2.7		(59	)%
Involuntary conversion of long-lived assets, net of related recoveries, loss of hire recoveries and gain on dispositions of equipment		—			—		N/A			57.1			85.3		N/A
Impairment loss		—			—		—	%		—			(1.2	)	(100	)%
Corporate expenses		(34.9	)		(20.1	)	74	%		(86.3	)		(67.1	)	29	%
Corporate expenses		(16.1	)		(14.3	)	13	%		(33.7	)		(31.6	)	7	%
	$	501.0		$	281.8		78	%	$	1,302.3		$	739.2		76	%
	$	94.5		$	(2.2	)	N/A		$	148.1		$	5.8		2,453	%

Operating income increased by $96219.7 2 million ~~from~~to a $2501.20 million ~~loss~~for in the ~~second~~three ~~quarter~~months ofended ~~2004~~September 30, to2007, from ~~operating income of~~ $94281.58 million infor the ~~second~~third quarter of ~~2005,~~2006. This increase was due primarily to higher dayrates ~~and~~throughout ~~utilization~~most ~~for~~of ~~the~~our drilling fleet, ~~better~~along with improved turnkey ~~operating~~drilling performance, ~~and increases in oil production. These factors were~~ offset in part by ~~higher~~costs ~~depreciation~~incurred ~~expense, due~~ in ~~part~~connection towith the merger, ~~addition~~which ofare ~~the~~included ~~GSF Constellation II cantilevered jackup to our fleet~~ in ~~third~~corporate ~~quarter~~expenses ~~2004 and higher depletion expense due to increased oil production. Operating income~~ for the ~~second~~three ~~quarter~~and ofnine ~~2005~~months ~~includes~~ended ~~a $1.1 million gain related to deferred consideration earned under the sales agreement Challenger Minerals Inc~~September 30, ~~(“CMI”), one of our wholly owned subsidiaries, entered when it sold a percentage of its interest in the Broom Field, a development project in the North Sea, in the third quarter of 2004~~2007.

Operating income ~~for the six months ended June 30, 2005,~~ increased by $~~142~~563.31 million, to $~~148.~~1,302.3 million for the nine months ended September 30, 2007, from $5739.82 million for the ~~comparable~~same period in ~~2004,~~2006. This increase was due primarily to higher dayrates ~~and~~throughout ~~utilization~~most ~~for~~of the ~~drilling~~ fleet, ~~better~~the ~~turnkey~~addition ~~operating~~of ~~performance~~the GSF Development Driller I, ~~and~~which ~~increases~~commenced operations in ~~oil~~the ~~production~~second quarter of 2006, ~~offset~~an byimprovement ~~higher~~in ~~depreciation~~turnkey ~~expense,~~drilling ~~due~~performance toin the ~~addition~~U.S. Gulf of Mexico and increased turnkey drilling activity in the ~~GSF~~North ~~Constellation~~Sea. IIOperating ~~cantilevered~~income ~~jackup~~for tothe nine months ended ~~our~~September 30, ~~fleet~~2007 inincludes ~~third~~gains ~~quarter~~from ~~2004~~insurance recoveries and ~~higher~~the ~~depletion~~sale ~~expense~~of ~~due~~the toGSF ~~increased~~High ~~oil~~Island ~~production.~~III ~~Included~~totaling in$61.2 ~~operating~~million. Operating income for ~~2004~~the isnine amonths ~~gain~~ended ofSeptember 30, 2006 includes $263.7 million ~~recognized~~of ongains ~~the~~related ~~sale~~to insurance ofrecoveries ~~our~~for ~~interest~~hurricane indamage anto ~~oil~~the ~~and~~cantilevered ~~gas~~jackups ~~drilling~~GSF ~~lease~~High ~~offshore Mauritania,~~Island ~~West~~III ~~Africa,~~and ~~offset~~GSF inAdriatic ~~part~~VII byand ana ~~impairment~~recovery ~~loss~~from insurers of $121.26 million ~~recognized~~under inour ~~the~~loss ~~first~~of ~~quarter~~hire ofinsurance ~~2004~~policy onrelated to the ~~sale~~GSF ofDevelopment Driller ~~the~~I. ~~platform~~For ~~rig~~further ~~Rig~~details, 82see in“—Involuntary ~~April~~Conversion ~~2004~~of Long-Lived Assets and Related Recoveries.”

~~Our~~25 contract drilling backlog at June 30, 2005, totaled approximately $2.5 billion, $0.8 billion of which is expected to be realized during the remainder of 2005. Our contract drilling backlog at December 31, 2004, was $1.7 billion.

CURRENT MARKET CONDITIONS AND TRENDS

Although market conditions continue to improve in all of the world’s major offshore markets, historically the offshore drilling business has been cyclical, marked by periods of low demand,

~~excess~~Our ~~rig~~contract ~~supply~~drilling ~~and~~revenue ~~low~~backlog ~~dayrates~~at September 30, ~~followed by periods of high demand~~2007, ~~short~~totaled ~~rig~~approximately ~~supply and increasing dayrates~~$9.5 ~~These cycles have been volatile and have traditionally been influenced by a number of factors~~billion, ~~including~~consisting ~~oil and gas prices, the spending plans~~ of ~~our customers and the highly competitive nature of the offshore drilling industry~~$9. ~~Even when rig markets~~3 ~~appear~~billion related to ~~have~~executed ~~stabilized~~contracts ~~at a certain level of utilization~~ and ~~dayrates~~$0.2 orbillion ~~appear~~related to becustomer ~~improving,~~commitments ~~these~~for ~~markets~~which ~~can~~contracts ~~change~~had ~~swiftly,~~not ~~making~~yet itbeen ~~difficult~~executed. toApproximately ~~predict~~$1.0 ~~trends~~billion orof ~~conditions in~~ the ~~market~~$9.5 ~~The~~billion ~~relocation~~backlog ofis ~~rigs~~expected ~~from weak markets~~ to ~~stable~~ orbe ~~strong~~realized ~~markets~~during ~~may also have a significant impact on utilization and dayrates in~~ the ~~affected~~remainder ~~markets. A summary~~ of ~~current~~2007. ~~market~~Our contract ~~conditions~~drilling ~~and~~backlog ~~trends~~at inDecember 31, ~~our~~2006, ~~areas~~was of$10.6 ~~operations~~billion. ~~follows:~~

~~Worldwide~~ Current Market Conditions and Trends

~~Our~~Although ~~current~~conditions ~~worldwide~~continue to be strong in all of our markets other than the U.S. Gulf of Mexico jackup market, ~~outlook~~historically ~~for~~the offshore drilling business has been cyclical, with periods of high demand, inadequate rig supply and increasing dayrates, which have characterized the ~~remainder~~condition of ~~2005~~the ismarket ~~one~~for the last few years, being followed by periods of ~~continuing increases~~low demand or excess rig supply, resulting in ~~demand~~lower utilization and decreasing dayrates. These cycles have been volatile and have traditionally been influenced by a number of factors, including oil and gas prices, the ~~result~~spending plans of ~~which~~our ~~should~~customers, the highly competitive nature of the offshore drilling industry and the construction of new rigs. Even when rig markets appear to have stabilized at a certain level of utilization and dayrates appear to be ~~higher~~improving, these markets can change swiftly, making it difficult to predict trends or conditions in the market. The relocation of rigs from weak markets to stable or strong markets may also have a significant impact on utilization and dayrates ~~for~~in the affected markets. The potential impact of these cycles and market forces on our results of operations is expected to be mitigated in part by our contract drilling ~~rigs~~backlog ~~with~~which ~~available~~totaled ~~uncontracted~~$9.5 ~~time~~billion at September 30, 2007.

As market conditions improve further, we expect that a number of our competitors’ jackups and mid-water depth semisubmersibles that are currently “cold-stacked” (i.e. minimally crewed with little or no scheduled maintenance being performed) will continue to reenter the market. In addition, orders for the construction of as many as 42 jackup rigs have been announced with delivery dates ranging from 2005 to 2009. Most of these units are cantilevered units capable of drilling in water depths in the 300 - 400 ft. range, and are considered to be premium units. In the ultra deepwater sector, there have been announcements of as many as eight new high-specification semisubmersible rigs, one ultra-deepwater drillship, and the upgrade of as many as three other semisubmersibles to ultra deepwater units, with delivery forecast to occur from the third quarter of 2006 through 2009. A number of the contracts for units currently under construction provide for options for the construction of additional units and we believe further new construction announcements are likely for all classes of rigs pursuant to the exercise of ~~one~~summary ~~or more~~ of ~~these~~current ~~options~~industry ormarket ~~otherwise.~~conditions ~~During prior periods of newbuild construction, the entry into service of newly constructed, upgraded~~ and ~~reactivated~~trends ~~rigs created an oversupply of drilling units and a decline~~ in ~~utilization~~our ~~and~~areas ~~dayrates, sometimes for extended periods~~ of ~~time~~operations asfollows: rigs were absorbed into the active fleet. We do not currently anticipate that this increase in the number of active units will have a significant adverse effect on dayrates in the near future as there are indications of increased demand for these units over the course of the next few years. Any further increase in construction of new drilling units, however, may exacerbate any adverse effect on utilization and dayrates.

~~Deepwater~~International ~~and Ultra-Deepwater Market~~

~~Dayrates~~Our ~~for~~current ~~deepwater~~international ~~and~~market ~~ultra-deepwater~~outlook ~~rigs have increased significantly~~ for ~~new contracts made during~~ the ~~second~~remainder ~~quarter~~of ~~2005,~~2007 inand ~~some cases reaching historical highs~~ for ~~such units. All deepwater units in~~ the ~~U.S.~~first ~~Gulf~~half of ~~Mexico~~2008 ~~are~~is ~~fully~~that ~~contracted~~demand for ~~work~~drilling ~~through~~rigs ~~2005~~will ~~and~~continue ~~the~~to ~~majority~~exceed ofthe ~~these~~available supply, ~~are~~due ~~contracted~~in ~~well~~part ~~into~~to ~~2006. These~~the ~~same~~high ~~conditions~~percentage ~~also~~of ~~exist~~the inindustry’s ~~international~~rigs ~~markets.~~that Awill ~~number~~remain ofon ~~new short~~long-term ~~and~~contracts ~~long-term~~through ~~projects~~the ~~are~~period. ~~seeking~~This ~~ultra~~supply-~~deepwater~~demand ~~and~~imbalance ~~deepwater~~is ~~rigs~~expected ~~and these requirements are likely~~ to beresult ~~met~~in ~~only~~continuing ~~through~~high ~~rig~~levels ~~farmouts~~of ~~from~~utilization ~~existing contracts.~~and Ifstrong ~~suitable~~dayrates for rigs ~~are~~with ~~not~~ available ~~through~~rig ~~farmouts,~~time. ~~the~~These ~~projects~~market ~~will~~conditions, ~~need~~which tohave beexisted ~~deferred~~for ~~until~~the ~~late~~past ~~2006~~few oryears, ~~into~~have ~~2007.~~led ~~The~~to ~~overall~~a ~~market~~substantial ~~tightness~~number inof ~~the~~orders ~~ultra-deepwater~~being ~~and~~placed ~~deepwater~~with ~~fleet~~shipyards infor the ~~U.S.~~construction ~~Gulf~~ of ~~Mexico,~~additional ~~West~~rigs ~~Africa~~by ~~and Brazil,~~both ~~along~~existing ~~with~~and ~~other~~recently formed drilling ~~markets, is anticipated to result in continued increases in dayrates for the foreseeable future~~contractors.

22Newbuilds

Nineteen premium jackup newbuild rigs have entered the market since January 1, 2006, and construction is in progress or contracts have been announced for the construction of 77 additional premium jackup rigs, an increase in the worldwide premium jackup fleet of approximately 51% since January 1, 2006. In the deepwater and ultra-deepwater rig classes, there have been announcements of the construction of 70 new high-specification rigs, an increase of approximately 70% in the worldwide deepwater supply since January 1, 2006. Most of these 70 rigs, including our GSF Development Driller III presently under construction and our recently announced newbuild drillship, are ultra-deepwater units and represent an increase in the worldwide ultra-deepwater fleet of over 200% since January 1, 2006, excluding two rigs that were upgraded to ultra-deepwater capacity.

The balance of the deliveries for these units are forecast to occur through the end of 2011, with the majority of the newbuild jackups scheduled for delivery in 2009 and the majority of the newbuild semisubmersibles and drillships scheduled for delivery in 2010. A number of the shipyard contracts for units currently under construction provide for options for the construction of additional units, and we believe further new construction announcements are likely for all classes of rigs. We expect that the delivery of a number of the newbuild units, primarily the deepwater and ultra-deepwater rigs, will be delayed. These delays will be attributable to numerous factors including: the use of new, untested rig designs; the use of shipyards with little or no experience in building offshore drilling units; delays in the deliveries of equipment; and a shortage of experienced, qualified commissioning personnel. During prior periods of high utilization and dayrates, the entry into service of newly constructed, upgraded and reactivated rigs created an oversupply of drilling units and a decline in utilization and dayrates, sometimes for extended periods of time as rigs were absorbed into the active fleet. We currently believe that through the first half of 2008 demand for jackup rigs is adequate to absorb the new rigs expected to be delivered into the active market without a major impact on industry utilization rates and dayrates. The marketing of the newbuild jackups scheduled for delivery beyond the first half of 2008, however, could have a negative effect on jackup dayrates, even in advance of the rigs’ delivery dates. Further increases in the number of new drilling units under construction could exacerbate any such future negative effect. We expect the market for ultra-deepwater rigs to remain in balance through 2010 due to the later delivery dates for this class of rigs, the contracted status of existing rigs and apparent strong demand from customers.

Deepwater and Ultra-Deepwater Market

Virtually all deepwater and ultra-deepwater units in the industry are contracted through 2008 and customers continue to bring additional deepwater and ultra-deepwater requirements to the market. To the extent rig demand created by these new projects cannot be satisfied through rig subleases, the projects will have to be deferred until 2009 or later, when a significant number of ultra-deepwater newbuild units are scheduled to be delivered. In the third quarter of 2007, deepwater and ultra-deepwater rigs continued to be contracted at the same range of dayrates as in the second quarter of 2007.

U.S. Gulf of Mexico

Utilization and dayrates for ~~the~~jackups ~~jackup~~continued ~~fleet~~to insoften during the ~~U.S.~~third ~~Gulf~~quarter of ~~Mexico~~2007. ~~market~~We ~~has~~believe ~~remained~~the atprincipal orcauses ~~near~~continue to ~~the~~be ~~95%~~operators’ ~~level~~perception ~~for~~of ~~the~~relatively ~~second~~soft ~~quarter~~natural ~~2005~~gas prices, ~~with~~and ~~associated~~a ~~increases~~reluctance ~~in dayrates~~to conduct work during the hurricane season. ~~All~~Jackup ~~marketed~~rigs ~~semisubmersibles~~continued into depart the U.S. Gulf of Mexico ~~are~~in ~~currently~~the ~~fully~~quarter, ~~employed~~ and wesome ~~believe~~additional ~~this~~rig ~~condition~~departures ishave been ~~likely~~announced tofor ~~remain~~the ~~through~~coming ~~the~~months. ~~third~~The ~~quarter~~number of ~~2005.~~jackups ~~The~~currently ~~terms~~under contract in the U.S. Gulf of ~~contracts~~Mexico ~~are~~has ~~also~~declined ~~steadily~~to ~~lengthening~~the ~~for~~low ~~all~~50’s ~~classes~~ and we believe the marketed supply of ~~rigs~~jackups will decline to the high 60’s by December 2007. We believe ~~expect~~it ~~continued~~is ~~strong~~likely ~~demand~~that ~~with~~the ~~increasing~~U.S. ~~dayrates~~Gulf ~~and~~of ~~longer~~Mexico ~~contract~~jackup ~~terms~~market inwill ~~this~~remain ~~market~~soft ~~through~~for the ~~end~~remainder of ~~2005~~2007.

North Sea

The North Sea market for mid-water depth semisubmersibles, ~~cantilevered~~ heavy-duty harsh environment (“HDHE”) jackups, and standard ~~cantilevered~~ jackups ~~continues~~remains tostrong. ~~improve~~Utilization inis 100% for the North Sea offshore fleet. WeAlthough ~~believe~~there have been relatively few new contracts during the ~~market~~current ~~for HDHE~~period, ~~and~~we ~~standard-specification~~have ~~jackup~~observed ~~rigs~~an ~~will~~increase ~~remain~~in ~~strong~~inquiries from our customers for ~~2005~~work ~~and~~commencing ~~into~~in ~~2006~~the ~~with~~second ~~dayrates~~quarter ~~for~~of ~~these~~2008. ~~rigs~~Standard semisubmersible ~~continuing~~supply is forecast to ~~increase.~~decrease ~~Dayrates~~by ~~for~~at ~~marketed~~least ~~semisubmersibles~~one ~~have~~unit ~~now~~over ~~surpassed~~the ~~historical~~next ~~highs~~quarter, ~~for~~while ~~work~~the ~~commencing~~HDHE inrig ~~mid~~supply ~~2006~~is forecast to increase by one unit.

West Africa

~~Demand~~The inmarket ~~each~~for ~~segment~~all types of ~~the~~drilling units in West Africa ~~market~~remains ~~continues to strengthen~~strong. The ~~industry~~ West Africa jackup fleet ~~in this market~~ is ~~currently~~forecast ~~fully~~to remain at ~~utilized~~above ~~and,~~95% asutilization athroughout ~~result,~~2007 ~~dayrates~~and ~~have~~well ~~increased~~into ~~significantly~~2008. InDeepwater ~~addition,~~rigs ~~increasing~~and ~~demand for mid~~ultra-~~water~~deepwater ~~semisubmersibles~~rigs in this market ~~during~~are ~~the~~all ~~second~~fully ~~quarter~~contracted ofthrough ~~2005~~2008, ~~together~~while ~~with~~several ~~the relocation~~projects ofslated ~~one~~for of2008 ~~our~~and ~~competitors’~~2009 ~~units~~and ~~from~~beyond ~~West~~are ~~Africa~~still toin ~~the~~need ~~Mediterranean~~of ~~Sea,~~a drilling ~~have~~unit. ~~resulted~~This ininadequate ~~significant~~supply ~~increases~~is inexpected ~~dayrates.~~to ~~Dayrates~~lead ~~have~~to ~~reached~~mobilization ~~new~~of ~~all~~several ~~time~~of ~~highs~~the ~~for~~newbuild ultra-deepwater ~~and~~units ~~deepwater rigs in this market and demand remains extremely strong with several programs still outstanding for year 2007 and beyond. There is little~~ to noWest ~~availability~~Africa ~~within~~in the ~~present~~course ~~fleet~~of inthe ~~West~~next ~~Africa,~~two ~~and~~to wefour ~~expect~~years. ~~continuing~~Shallow semisubmersible demand ~~for~~remains ~~rigs~~strong in ~~this~~the ~~market~~region towith only ~~lead~~one toor ~~several~~two units ~~joining~~ ~~the~~becoming ~~West~~available ~~Africa~~toward ~~fleet over~~ the ~~next~~end 18of ~~months~~2007.

Southeast Asia

~~Although~~The ~~there~~jackup market in Southeast Asia has ~~been~~recently aexperienced ~~net~~some ~~increase~~indications inof ~~rigs~~dayrates lower than levels recorded in ~~the~~early ~~Southeast~~2007 ~~Asia market~~due, in part, to the ~~first~~anticipated ~~half~~delivery of ~~2005,~~a welarge ~~continue~~number toof ~~expect~~newbuild ~~increasing~~jackups ~~demand~~being constructed toin ~~exceed~~ the ~~available~~region. ~~supply~~Five of ~~rigs~~the ten newbuild jackups scheduled for delivery by the ~~remainder~~end of ~~this~~the ~~year,~~first ~~creating~~quarter ~~shortages~~2008 ofare ~~available~~uncontracted. ~~rigs~~Currently ~~and~~there ~~possibly~~is ~~delaying~~one ~~some~~jackup ~~drilling~~idle ~~programs.~~and ~~Due~~available tofor ~~increases~~work in ~~demand~~ inthe ~~other~~region, ~~jackup~~and ~~markets,~~recent wecontracts ~~believe~~for itlower specification isjackups ~~unlikely~~have ~~that~~been ~~there~~at ~~will~~reduced bedayrates. ~~any~~Given ~~significant~~these ~~movements~~indications, ofwe ~~rigs~~believe ~~into~~the ~~this~~newbuild ~~area~~jackups ~~from~~will ~~other~~be ~~markets~~more inaggressively ~~2005.~~marketed Asoutside athe ~~result,~~Southeast weAsia ~~expect~~region, ~~continuing~~which ~~upward~~could ~~pressure~~assist onin stabilizing dayrates ~~until~~for ~~the~~jackups ~~possible~~in ~~delivery~~Southeast ~~during~~Asia. ~~the~~The ~~period~~deepwater ofmarket ~~late~~in ~~2005~~the toregion ~~2009~~and ofin ~~newbuild~~Australia ~~rigs~~in ~~currently~~particular ~~under~~remains ~~construction in Singapore~~strong.

Middle East &and Mediterranean

~~We expect~~Recent ~~the~~contract ~~jackup~~extensions ~~market~~for jackups in the Mediterranean tohave ~~remain~~created ina ~~balance~~shortage ~~through~~of ~~2006.~~rigs Byin ~~early~~ 2007, weresulting ~~expect~~in ~~the~~a ~~jackup~~movement ~~fleet~~of inrigs into the ~~Mediterranean~~area. toThe ~~increase~~deepwater bymarket ~~two~~is also ~~additional~~expected ~~units~~to inbe ~~order~~undersupplied tothrough ~~meet~~2008, ~~demand~~due ~~requirements~~in ~~associated~~part ~~with~~to ~~future exploration~~announced ~~and~~drilling ~~development~~ projects in Libya. The Gulf of Suez jackup market continues to ~~remain~~be ~~strong with all ten jackups~~ in ~~this~~balance ~~area~~with ~~fully~~additional ~~utilized.~~demand ~~Dayrates~~forecasted for ~~this sector are at all time highs~~2008. ~~Strong~~In ~~market fundamentals remain intact for~~ the Arabian Gulf, ~~due primarily~~we continue to ~~increasing~~observe strong demand ~~offshore~~for ~~Saudi~~jackups ~~Arabia~~ and ~~Qatar~~stable dayrates. WeOur ~~anticipate~~four ~~the~~upgraded ~~near-term~~jackups ~~supply~~have ~~shortages~~commenced ~~and~~drilling ~~opportunities~~operations ~~for significant increases~~ in ~~dayrates~~Saudi inArabia ~~the~~and ~~Arabian~~we ~~Gulf~~continue ~~jackup market~~ to bepursue ~~offset~~additional byopportunities ~~the delivery of newbuild rigs currently under construction~~ in ~~Singapore~~the region.

2327

Canada and South America

WeDrilling ~~expect~~activity ~~little~~in ~~additional~~Northeastern ~~jackup~~Canada ~~demand~~is expected to ~~develop~~remain inconstrained ~~the~~by ~~South~~rig ~~American~~supply ~~market~~in ~~through~~2007, ~~the~~especially ~~remainder~~in view of ~~2005.~~the ~~There~~strength ~~appears~~of tomarkets beelsewhere. ~~additional~~Our ~~jackup~~deepwater ~~requirements, however,~~unit ~~starting~~ in ~~late~~the ~~2005~~region ~~and~~remains under contract into 2008 ~~the~~with ~~first~~an ~~half~~opportunity offor ~~2006~~contract extensions.

~~Other~~We expect the South America jackup market to remain tight throughout 2008. The market for semisubmersibles and drillships in South America is expected to continue to strengthen due to the Brazilian national oil company’s aggressive five-year drilling campaign. Requirements for semisubmersibles and drillships from other operators working in Brazil are expected to add to the strengthening of this market over the next two years.

The other markets in which we operate, Canada and the Azerbaijan area of the Caspian Sea, remain stable and we expect little change through the remainder of 2005.

Labor Markets

We require highly skilled personnel to operate and provide technical services and support for our business. Competition for the skilled and other labor required for deepwater and other drilling operations, including for our turnkey drilling and drilling management services business, intensifies as the number of rigs activated or added to worldwide fleets or under construction increases. In periods of high utilization, such as the current period, we have found it more difficult to find and retain qualified individuals. We have recently experienced tightening in the relevant labor markets, and if that trend continues, the possibility exists that competition for skilled and other labor for deepwater and other operations could limit our results of operations.

CONTRACT DRILLING OPERATIONS

Data with respect to our contract drilling operations follows (dollars in millions, except average revenues per day):

	Three Months Ended June 30,						Increase/ (Decrease)		Six Months Ended June 30,						Increase/ (Decrease)
	Three Months EndedSeptember 30,						Increase/ (Decrease)		Nine Months EndedSeptember 30,						Increase/ (Decrease)
	2005			2004					2005			2004
	2007			2006					2007			2006
Contract drilling revenues by area: (1)
U.S. Gulf of Mexico	$	75.7		$	65.8		15	%	$	145.4		$	133.5		9	%
West Africa	$	292.2		$	150.7		94	%	$	763.5		$	400.3		91	%
North Sea		77.3			46.2		67	%		129.6			85.7		51	%
U.S. Gulf of Mexico		99.1			190.9		(48	)%		423.0			436.2		(3	)%
West Africa		89.8			50.5		78	%		151.8			108.2		40	%
North Sea		195.2			119.6		63	%		493.0			312.2		58	%
Southeast Asia		48114.21			3875.37		2651	%		91308.97			75208.68		2248	%
Middle East		28110.25			1940.79		43170	%		52247.79			40105.25		31135	%
Mediterranean		18.3			16.3		12	%		35.6			32.5		10	%
Mediterranean Sea		61.1			47.0		30	%		177.5			93.3		90	%
South America		3172.49			1333.46		~~134~~117	%		69124.81			25120.9		~~169~~3	%
Other		3433.9			2446.73		41(27	)%		6495.5			45137.56		42(31	)%
	$	~~403~~979.80		$	~~274~~704.97		4739	%	$	~~741~~2,633.32		$	~~547.~~1,814.8		3545	%
Average rig utilization by area:
U.S. Gulf of Mexico		98	%		87	%	13	%		97	%		88	%	10	%
West Africa		98	%		100	%	(2	)%		98	%		96	%	2	%
North Sea		90	%		65	%	38	%		86	%		58	%	48	%
U.S. Gulf of Mexico		89	%		88	%	1	%		88	%		85	%	4	%
West Africa		99	%		78	%	27	%		93	%		84	%	11	%
North Sea		100	%		98	%	2	%		95	%		97	%	(2	)%
Southeast Asia		100	%		99100	%	1—	%		94100	%		99100	%	(5—	)%
Middle East		95	%		94	%	1	%		95	%		97	%	(2	)%
Middle East (2)		87	%		100	%	(13	)%		70	%		99	%	(29	)%
Mediterranean		100	%		100	%	—	%		100	%		100	%	—	%
Mediterranean Sea		100	%		100	%	—	%		100	%		99	%	1	%
South America		99100	%		67100	%	48—	%		100	%		67100	%	49—	%
Other		75100	%		79100	%	(5—	)%		87100	%		73100	%	19—	%
Total average rig utilization:		9596	%		8297	%				9392	%		8295	%
Average revenues per day (2):	$	74,900		$	61,000				$	71,700		$	60,600
Average revenues per day (3)	$	185,200		$	130,500				$	174,300		$	115,400

(1)	Includes revenues earned from affiliates.

(2) ~~Average~~For ~~revenues per day is~~ the ~~ratio~~nine ofmonths ~~rig-related~~ended ~~contract~~September ~~drilling revenues divided by the aggregate contract days~~30, ~~adjusted to exclude days under contract at zero dayrate. The calculation of average revenues per day excludes non-rig related revenues~~2007, ~~consisting~~Middle ~~mainly~~East ofutilization ~~cost~~includes ~~reimbursements,~~four ~~totaling~~rigs ~~$23.9~~which ~~million~~we ~~and~~moved ~~$35.6~~from ~~million for~~ the ~~three and six months ended June 30, 2005, respectively, and $7~~U.~~3 million and $16~~S.8 ~~million,~~Gulf ~~respectively,~~of ~~for~~Mexico ~~the three~~ and ~~six~~were ~~months~~in ~~ended~~a ~~June~~shipyard ~~30, 2004. Average revenues per day including these reimbursed expenses would have been $79,600 and $75,300 for~~ the ~~three~~first ~~and~~half ~~six~~of ~~months~~2007 ~~ended~~in ~~June~~preparation ~~30, 2005, respectively, and $62,600 and $62,300, respectively,~~ for ~~the~~new ~~three and six months ended June 30, 2004~~contracts. ~~The~~One ~~calculation~~ of ~~average revenues per day for~~ the ~~three~~rigs ~~and~~commenced ~~six~~its ~~months~~contract ~~ended~~during ~~June~~May ~~30,~~2007 ~~2005~~ and ~~2004, respectively, exclude all contact drilling revenues related to~~ the ~~management~~other ~~fee~~three ~~earned~~commenced ontheir ~~one~~contracts ofduring ~~the~~July ~~semisubmersible rigs we operate for a third party~~2007.

24(3) Average revenues per day is the ratio of rig-related contract drilling revenues divided by the aggregate contract days. The calculation of average revenues per day excludes non-rig related revenues, consisting primarily of cost reimbursements, totaling $16.4 million and $55.1 million, respectively, for the three and nine months ended September 30, 2007. Average revenues per day including these reimbursed expenses would have been $188,300 and

~~Three~~ $178,000 ~~Months~~for ~~Ended~~the ~~June~~respective periods. The calculation of average revenues per day for the three and nine months ended September 30, ~~2005~~2006, ~~Compared~~excludes non-rig torelated ~~Three~~revenues, ~~Months~~consisting ~~Ended~~primarily ~~June~~of 30cost reimbursements, ~~2004~~totaling $17.4 million and $60.5 million, respectively. Average revenues per day including these reimbursed expenses would have been $133,800 and $119,400 for the respective periods.

~~Contract~~Three ~~drilling~~Months ~~revenues~~Ended increased $128.9 million to $403.8 million for the second quarter of 2005 as compared to $274.9 million for the 2004 second quarter. Higher utilization and dayrates for our drilling fleet accounted for approximately $56.7 million and $50.2 millionSeptember 30, ~~respectively~~2007, ofCompared ~~this increase. The remainder of the increase was due~~ to ~~higher~~Three ~~reimbursable~~Months ~~and~~Ended ~~other revenues~~September 30, ~~which~~2006 increased by $16.2 million and $5.8 million, respectively. Reimbursable revenues represent reimbursements from customers for certain out-of-pocket expenses incurred and have no effect on operating income. Other revenues include rig mobilization fees and miscellaneous fees including labor, material, rental, handling and incentive bonuses.

~~The~~Contract ~~increase in~~ drilling revenues ~~was~~before ~~due~~intersegment ~~primarily~~eliminations toincreased ~~higher~~$274.3 ~~utilization~~million ~~and~~to ~~dayrates~~$979.0 million for the ~~North~~three ~~Sea~~months ~~and~~ended ~~West~~September 30, ~~Africa drilling fleet~~2007, ~~higher~~compared ~~dayrates for our~~to ~~ultra-deepwater rigs and our jackup fleet in the U~~$704.S.7 ~~Gulf~~million ~~of Mexico, higher utilization of the GSF Galaxy II HDHE jackup offshore eastern Canada, which was idle~~ for ~~much of~~ the ~~2004~~2006 ~~second~~third quarter,. ~~higher~~Higher ~~utilization~~dayrates ofthroughout ~~the~~most ~~GSF Constellation I cantilevered jackup offshore Trinidad and the GSF Adriatic XI cantilevered jackup offshore Vietnam, both~~ of ~~which~~our ~~were~~drilling ~~idle~~fleet inaccounted ~~the~~for ~~second~~an ~~quarter~~increase of ~~2004,~~$278.4 ~~and the addition to our fleet of the GSF Constellation II cantilevered jackup~~million, ~~which began operating under contract offshore Argentina in September 2004. These increases were~~ offset in part by ~~the~~a ~~loss~~decrease of ~~the~~$6.6 ~~GSF~~million ~~Adriatic~~attributable IVto ~~cantilevered~~lower ~~jackup~~utilization ~~offshore~~of ~~Egypt~~our inU.S. ~~the~~Gulf ~~third quarter~~ of ~~2004 and lower~~Mexico ~~utilization~~jackup ~~of the GSF Explorer drillship which was in the shipyard during second quarter 2005 prior to commencing its contract offshore Turkey~~fleet.

~~The~~Contract ~~mobilization~~drilling ofoperating ~~rigs~~income ~~between~~and ~~the~~margin ~~geographic~~(operating ~~areas~~income ~~shown~~as ~~below~~a ~~also~~percentage ~~affected~~of ~~each~~revenues, ~~area’s~~excluding intersegment revenues and ~~utilization~~expenses), increased into $522.3 million and 55.0%, respectively, for the ~~table~~three ~~above~~months ended September 30, 2007, from $307.2 ~~These~~million ~~mobilizations~~and ~~were~~43.9%, asrespectively, for the third quarter of 2006 due primarily to the higher dayrates noted above, offset in part by ~~follows:~~higher labor and repairs and maintenance expenses.

Rig	Rig Type	From	To	Completion Date
GSF Constellation I	Cantilevered Jackup	Southeast Asia	South America	May-04
GSF High Island IX	Cantilevered Jackup	West Africa	Middle East	Jun-04
GSF Constellation II	Cantilevered Jackup	Shipyard	South America	Jun-04
GSF Jack Ryan	Drillship	U.S. Gulf of Mexico	South America	Aug-04
GSF Arctic I	Semisubmersible	U.S. Gulf of Mexico	South America	Aug-04
GSF Adriatic XI	Cantilevered Jackup	North Sea	Southeast Asia	Oct-04
GSF Adriatic X	Cantilevered Jackup	U.S. Gulf of Mexico	Mediterranean	Nov-04
GSF Adriatic II	Cantilevered Jackup	U.S. Gulf of Mexico	West Africa	Nov-04
GSF Jack Ryan	Drillship	South America	West Africa	Mar-05
GSF Adriatic VII	Cantilevered Jackup	South America	U.S. Gulf of Mexico	Apr-05
GSF Explorer	Drillship	U.S. Gulf of Mexico	Other (Black Sea)	May-05

Nine Months Ended September 30, 2007, Compared to Nine Months Ended September 30, 2006

Contract drilling ~~operating~~revenues ~~expenses~~ before intersegment eliminations ~~reflect~~increased $818.4 million to $2,633.2 million for the ~~increases~~nine months ended September 30, 2007, compared to $1,814.8 million for the same period in ~~utilization~~2006. ~~noted~~Higher ~~above~~dayrates throughout most of our drilling fleet, ~~increasing~~excluding bythe U.S. Gulf of Mexico jackup fleet, accounted for an increase of $37888.9 million, along with a $26.3 million increase in utilization related to the drillship GSF Explorer, which was undergoing modifications during the first half of the prior year. The increases were offset in part, however, by a $~~250~~20.1 million decrease in dayrates and a $22.8 million decrease in utilization related to our U.S. Gulf of Mexico jackup fleet, a $30.3 million decrease in utilization related to the ~~second~~jackup GSF Galaxy II, which was moving from Canada to the North Sea during the first quarter of ~~2005~~2007, and a $47.2 million decrease in utilization related to three of the four jackup rigs offshore Saudi Arabia that moved from the U.S. Gulf of Mexico to the Middle East during the first quarter of 2007. The U.S. Gulf of Mexico jackup market is experiencing an overall decline in both dayrates and utilization, as discussed in “Current Market Conditions and Trends.”

25Contract drilling operating income and margin, increased to $1,289.9 million and 50.4%, respectively, for the nine months ended September 30, 2007, from $704.1 million and 39.1%, respectively, for the comparable period in 2006. The improvements in operating income and operating margin were due primarily to the net increase in revenues discussed above, offset in part by higher labor, repairs and maintenance, and insurance expenses. Contract drilling depreciation expense also increased for the nine months ended September 30, 2007 compared to the same period in 2006 due primarily to the addition of the semisubmersible GSF Development Driller I noted above and to upgrades on several other rigs in our fleet during 2006.

The movement of rigs between the geographic areas shown below also affected each area’s revenues and utilization in the table above. These movements were as follows:


Rig	Rig Type	From	To	Completion Date
GSF Explorer	Drillship	Other (Black Sea)	U.S. Gulf of Mexico	Mar-06
GSF High Island IX	Cantilevered Jackup	Middle East	West Africa	Apr-06
GSF Constellation II	Cantilevered Jackup	South America	Mediterranean	May-06
GSF Development Driller I	Semisubmersible	Shipyard	U.S. Gulf of Mexico	Jun-06
GSF Aleutian Key	Semisubmersible	South America	West Africa	Dec-06
GSF High Island IV	Cantilevered Jackup	U.S. Gulf of Mexico	Middle East	Jan-07
GSF Main Pass I	Cantilevered Jackup	U.S. Gulf of Mexico	Middle East	Jan-07
GSF Main Pass IV	Cantilevered Jackup	U.S. Gulf of Mexico	Middle East	Jan-07
GSF Galaxy II	HDHE Jackup	Other (Canada)	North Sea	Feb-07
GSF High Island II	Cantilevered Jackup	U.S. Gulf of Mexico	Middle East	Feb-07
GSF Explorer	Drillship	U.S. Gulf of Mexico	West Africa	Jun-07
GSF Rig 140	Semisubmersible	North Sea	West Africa	Jun-07
GSF Celtic Sea	Semisubmersible	U.S. Gulf of Mexico	South America	Aug-07

from $212.9 million in the 2004 second quarter. The increase was due primarily to higher reimbursable expenses, repairs and maintenance expenses, and labor expenses, offset in part by lower mobilization expenses. Repairs and maintenance expense for the second quarter 2005 includes approximately $6.0 million related to the reactivation of the GSF Arctic II semisubmersible which has been cold-stacked in the North Sea.

Contract drilling depreciation expense for the second quarter of 2005 increased by $4.2 million from the prior year second quarter due primarily to the GSF Constellation II cantilevered jackup, which was placed in service during the third quarter 2004, and to upgrades on several other rigs in our fleet during 2004.

As a result of the increases in dayrates and utilization discussed above, contract drilling operating income and operating margin excluding intersegment revenues increased to $88.4 million and 21.9% for the second quarter of 2005 compared to operating income and operating margin of $2.7 million and 1.0%, respectively, for the second quarter of 2004.

Six Months Ended June 30, 2005, Compared to Six Months Ended June 30, 2004

Contract drilling revenues increased by $194.2 million to $741.3 million for the six months ended June 30, 2005, compared to $547.1 million for the six months ended June 30, 2004. Higher utilization and dayrates for our drilling fleet accounted for $84.3 million and $84.0 million, respectively, of this increase and higher reimbursable and other revenues accounted for $18.9 million and $7.0 million, respectively, of the remainder.

The increase in drilling revenues was due primarily to higher utilization and dayrates for the North Sea and West Africa drilling fleet, higher dayrates for our ultra-deepwater rigs and our jackup fleet in the U.S. Gulf of Mexico, higher utilization of the GSF Galaxy II HDHE jackup offshore eastern Canada and the GSF Adriatic XI cantilevered jackup offshore Vietnam, both of which remained idle for much of the first half of 2004 before resuming operations in late May 2004, higher utilization of the GSF Constellation I cantilevered jackup offshore Trinidad, which was idle for all of first half of 2004, and the addition to our fleet of the GSF Constellation II cantilevered jackup, which began operating under contract offshore Argentina in September 2004. These increases were offset in part by the loss of the GSF Adriatic IV cantilevered jackup offshore Egypt in the third quarter of 2004, lower utilization of the GSF Explorer drillship which was in the shipyard during second quarter of 2005, and the mobilization of the GSF Adriatic VII cantilevered jackup from Trinidad to the U.S. Gulf of Mexico during the second quarter of 2005.

Contract drilling operating expenses before intersegment eliminations for the first half of 2005 increased by $63.1 million to $470.1 million for the six months ended June 30, 2005, from $407.0 million in the comparable prior year period. The increase was primarily due to higher repairs and maintenance expenses, reimbursable expenses, and labor expenses, offset in part by lower mobilization expenses. Repairs and maintenance expense for 2005 includes approximately $7.1 million related to the reactivation of the GSF Arctic II semisubmersible which has been cold-stacked in the North Sea.

Contract drilling depreciation expense increased by $6.1 million for the first six months of 2005 from the same period in 2004 due primarily to the addition of the GSF Constellation II cantilevered jackup, which was placed in service during the third quarter 2004, and to upgrades on several other rigs in our fleet during 2004.

Contract drilling operating income and margin excluding intersegment revenues increased to $143.6 million and 19.5%, respectively, for the first half of 2005 from $18.6 million and 3.4%, respectively, for the comparable period of 2004, due primarily to higher rig utilization and dayrates as discussed above.

DRILLING MANAGEMENT SERVICES

Results of operations from our drilling management services segment may be limited by certain factors, inincluding ~~particular~~ our ability to find and retain qualified personnel, to hire suitable rigs at acceptable rates, and to obtain and successfully perform turnkey drilling contracts based on competitive bids. Our ability to obtain turnkey drilling contracts is largely dependent on the number of such contracts available for bid, which in turn is influenced by market prices for oil and gas, among other factors. Furthermore, our ability to enter into turnkey drilling contracts may be constrained from time to time by the availability of GlobalSantaFe or third-party drilling rigs. Drilling management services results are also affected by the required deferral of turnkey drilling profit related to wells in which our oil and gas division is either the operator or holds a working interest. This turnkey profit is credited to our full-cost pool of oil and gas properties and is recognized over future periods through a lower depletion rate as reserves are produced. Accordingly, results of our drilling management service operations may vary widely from quarter to quarter and from year to year.

Three Months Ended ~~June~~ September 30, ~~2005~~2007, Compared to Three Months Ended ~~June~~ September 30, ~~2004~~2006

Drilling management services revenues before intersegment eliminations increased by $5433.82 million to $~~160~~246.29 million in the ~~second~~three ~~quarter~~months ofended ~~2005~~September 30, ~~from~~2007 from $~~105~~213.47 million in the ~~2004~~third ~~second~~ quarter of 2006. This increase consisted of $3658.78 million attributable to an increase in average revenues per turnkey ~~projects completed~~project, aalong ~~$12.7~~with ~~million~~an increase inof ~~reimbursable revenues,~~ $26.95 million in daywork and other revenues, and an increase of $20.5 8 million ~~attributable to an increase~~ in ~~average~~reimbursable revenues ~~per turnkey project~~. Reimbursable revenues represent reimbursements received from the client for certain out-of-pocket expenses and have little or no effect on operating income. These increases were offset in part by a decrease of $32.9 million attributable primarily to a decrease in the number of turnkey projects performed in the U.S. Gulf of Mexico. The increase in average revenues per turnkey project was due primarily to three large turnkey projects performed in the North Sea during in the third quarter of 2007. We ~~completed~~performed 31one turnkey project in this market during the same period in 2006. Our drilling management services segment performed a total of 25 turnkey projects in the ~~second~~third quarter of ~~2005~~2007 (2417 wells drilled and 8 7 well completions) as compared to 22a total of 29 turnkey projects in the ~~second~~third quarter of ~~2004~~2006 (1720 wells drilled and 59 well completions).

Drilling management services operating income and margin (operating income as a percentage of revenues, excluding intersegment revenues and expenses) increased byto $48.46 million toand ~~$10~~3.98%, ~~million~~respectively, infor the ~~second~~third quarter of ~~2005~~2007 from a $6.59 million inoperating loss in the ~~second~~third quarter of ~~2004~~2006. ~~and~~The primary reason for the improvement in turnkey operating ~~profit~~results ~~margin~~was ~~excluding~~improved ~~intersegment~~drilling ~~revenues~~performance ~~increased~~in ~~to 7~~the U.0%S. inGulf of Mexico, along with fewer losses on wells during the ~~second~~third quarter of ~~2005~~2007 ~~from~~compared ~~6.4%~~to the same period in the ~~comparable~~prior ~~2004~~year. During the third quarter of 2007, ~~due~~we ~~primarily~~incurred tolosses ~~improved~~totaling ~~operating~~approximately ~~performance~~$7.7 million on ~~our~~three turnkey ~~projects~~wells incompared ~~2005~~to losses of $13.6 ~~Second~~million ~~quarter~~on ~~2005~~two ~~results~~turnkey ~~include~~wells ain $1the third quarter of 2006.7 ~~million~~While ~~loss~~our onrevenues before aintersegment ~~turnkey~~eliminations ~~project~~improved ~~that~~due ~~was~~to the activity in ~~progress~~ atthe North Sea, our oil and gas division held a working interest in the ~~end~~three oflarge turnkey projects in the ~~quarter.~~North WeSea ~~incurred~~and, ~~losses~~as ~~totaling~~a ~~approximately~~result, ~~$2.2~~we ~~million~~were onrequired ~~three~~to defer most of ~~our~~the 22combined profit ~~projects~~earned ~~completed~~on ~~during~~these wells in the ~~second~~third quarter of ~~2004~~2007.

~~Subsequent~~Results for the three months ended September 30, 2007 and 2006 were affected by revisions to ~~June~~cost estimates for certain wells completed in prior periods. Such revisions increased segment operating income by $5.0 million for the three months ended September 30, ~~2005~~2007 and decreased segment operating income by $0.7 million for the three months ended September 30, we2006. ~~encountered~~These ~~unforeseen~~results ~~difficulties~~were onalso anaffected ~~additional~~by the deferral of turnkey ~~project~~drilling ~~underway~~profit attotaling ~~June~~$8.2 million and $10.6 million for the three months ended September 30, ~~2005.~~2007 ~~This~~and ~~well~~2006, ~~is still~~respectively, related to wells in which ~~progress~~our oil and wegas ~~estimate~~division ~~this~~was ~~project~~either ~~will~~the ~~result~~operator inor anheld ~~estimated~~a ~~third~~working ~~quarter~~interest. ~~2005~~This ~~pretax~~deferred ~~loss~~turnkey profit has been credited to our full cost pool of ~~approximately~~oil ~~$0.7~~and ~~million~~gas properties and will be recognized through a lower depletion rate as reserves are produced.

~~Results~~Nine ~~for~~Months ~~the~~Ended second quarters of 2005 and 2004 were favorably affected by downward revisions to cost estimates for certain wells completed in prior periods. Such revisions increased segment income by $4.1 million and $4.3 million for the three months ended June September 30, ~~2005 and 2004~~2007, ~~respectively.~~Compared The effect of these revisions, however, was generally offset by the deferral of turnkey drilling profit totaling $3.1 million and $4.6 million for the three months ended June 30, 2005 and 2004, respectively, related to ~~wells~~Nine inMonths ~~which~~Ended CMI was either the operator or held a working interest. This turnkey profit has been credited to our full cost pool of oil and gas properties and will be recognized through a lower depletion rate as reserves are produced. Estimated costs included in drilling management services operating results for the three months ended June September 30, ~~2005~~2006 ~~totaled~~

27Drilling management services revenues before intersegment eliminations increased by $51.0 million to $599.9 million in the nine months ended September 30, 2007, from $548.9 million for the same period in 2006. This net increase consisted of $141.6 million attributable to an increase in average revenues per turnkey project and an increase of $12.8 million in reimbursable revenues, offset by a decrease of $103.1 million attributable to a decrease in the number of turnkey projects performed in the U.S. Gulf of Mexico and a decrease of $0.3 million in daywork and other revenues. The increase in average revenues per turnkey project is due primarily to six large turnkey projects performed in the North Sea during the first three quarters of 2007, compared to one turnkey project performed in this market during the same period in 2006. Our drilling management services segment performed 62 turnkey projects in the nine months ended September 30, 2007 (45 wells drilled and 17 well completions) compared to 75 turnkey projects in the comparable period of 2006 (54 wells drilled and 21 well completions).

Drilling management services operating income and margin increased to $25.9 million and 4.6%, respectively, for the nine months ended September 30, 2007, from an operating loss of $0.8 million in the same period in 2006, due primarily to the increased activity in the North Sea during the 2007 period, along with fewer losses on wells during 2007 compared to the same

~~approximately~~ prior ~~$36.6~~year ~~million~~period. ToWe ~~the~~incurred ~~extent~~losses ~~that~~totaling ~~actual~~approximately ~~costs~~$14.1 ~~differ~~million ~~from~~on ~~estimated~~a ~~costs,~~total ~~results~~of insix ~~future~~turnkey ~~periods~~wells ~~will be~~during ~~affected~~the byfirst ~~revisions~~nine tomonths ~~this~~of ~~amount.~~2007 ~~Estimated~~compared ~~costs~~to losses ~~included~~totaling inapproximately ~~drilling~~$19.2 ~~management~~million ~~services~~on ~~operating~~five ~~results~~turnkey wells for the ~~three~~nine months ended ~~June~~ September 30, ~~2004 totaled approximately $27~~2006.2 ~~million.~~

~~Six~~Results ~~Months~~for ~~Ended~~the ~~June~~nine months ended September 30, ~~2005,~~2007 ~~Compared~~and 2006 were favorably affected by downward revisions to ~~Six~~cost ~~Months~~estimates ~~Ended~~for ~~June~~certain wells completed in prior periods. Such revisions increased segment operating income by $3.3 million for the nine months ended September 30, ~~2004~~2007 and by $1.7 million for the nine months ended September 30, 2006. These results were also affected by the deferral of turnkey drilling profit totaling $17.2 million for the nine months ended September 30, 2007, and by $22.3 million for the nine months ended September 30, 2006, related to wells in which our oil and gas division was either the operator or held a working interest.

~~Drilling~~Turnkey ~~management~~drilling ~~services~~projects ~~revenues~~often ~~increased~~involve bynumerous ~~$91.9~~subcontractors ~~million~~and tothird ~~$304.5~~party ~~million~~vendors ~~for the~~and, ~~six~~as ~~months~~a ~~ended~~result, ~~June~~the ~~30,~~actual ~~2005,~~final ~~from~~project ~~$212.6~~cost ~~million~~is ~~for~~often not known at the ~~same~~time ~~period~~a inproject ~~2004~~is completed. ~~This~~We ~~increase~~therefore inrely ~~revenues~~on detailed ~~consisted~~cost ofestimates acreated ~~$50.1~~by ~~million~~our ~~increase~~project inengineering ~~revenues~~staff ~~attributable~~ to ~~higher~~compute ~~average~~and ~~revenues~~record ~~per~~profits on turnkey drilling projects based on known revenues. These cost estimates are adjusted as final actual project costs are determined, ~~$33.8~~which ~~million~~may ~~attributable~~result in adjustments to anpreviously ~~increase~~recorded inamounts. ~~the~~Further, ~~number~~we ofrecognize estimated losses on turnkey drilling projects ~~completed,~~immediately ~~and~~upon occurrence of events which indicate that it is probable that a ~~$10.7~~loss ~~million~~will ~~increase~~be incurred and, depending on the timing of the events leading to the loss recognition in ~~daywork~~relation ~~and~~to ~~other~~completion ~~revenues~~of the project, ~~partly~~these ~~offset~~cost byestimates acould $2be relatively significant to the total project costs.7 ~~million~~Estimated ~~decrease~~costs included in ~~reimbursable~~2007 ~~revenues.~~drilling Wemanagement ~~completed~~services 57operating ~~turnkey~~results ~~projects~~totaled approximately in$67.2 million at September 30, 2007. To the ~~first~~extent ~~half~~that ofactual ~~2005~~costs ~~(47 wells~~differ ~~drilled~~from ~~and~~estimated 10costs, ~~well~~results ~~completions)~~in asfuture ~~compared~~periods will be affected by revisions to 49this ~~turnkey~~amount. ~~projects~~Estimated costs included in ~~the~~2006 ~~comparable~~drilling ~~period~~management services ofoperating ~~2004~~results ~~(36~~totaled ~~wells~~approximately ~~drilled~~$74.8 ~~and~~million 13at ~~well~~September 30, ~~completions)~~2006.

Drilling management services operating income and margin excluding intersegment revenues increased to $20.7 million and 6.9%, respectively, for the six months ended June 30, 2005, from $11.8 million and 5.7%, respectively, in the same period in 2004, due primarily to improved operating performance on our turnkey projects in 2005. Our 2005 results include a $1.7 million loss on a turnkey project that was in progress at June 30, 2005, along with a $0.4 million loss incurred in the first quarter 2005, mostly related to a completion project in the North Sea. We incurred losses totaling approximately $2.2 million on three of our 49 projects completed during the six months ended June 30, 2004, along with a loss of $0.9 million incurred in connection with our project management operations during the first quarter of 2004.

Results for the first half of 2005 and 2004 were also favorably affected by downward revisions to cost estimates of wells completed in prior periods totaling $2.7 million and $3.9 million, respectively, which were more than offset by the deferral of turnkey drilling profit totaling $3.8 million and $6.9 million, respectively, related to wells in which CMI was either the operator or held a working interest.

OIL AND GAS OPERATIONS

We acquire interests in oil and gas properties principally in order to facilitate the acquisition of turnkey contracts for our drilling management services operations.

Three Months Ended ~~June~~ September 30, ~~2005~~2007, Compared to Three Months Ended ~~June~~ September 30, ~~2004~~ 2006

Oil and gas revenues increased by $97.47 million to $1514.08 million for the three months ended ~~June~~ September 30, ~~2005~~2007, from $57.61 million for the three months ended ~~June~~ September 30, ~~2004~~2006. ~~Higher~~Increases in oil ~~production~~sales, ~~and~~due ~~prices,~~primarily ~~along~~to ~~with~~the ~~increased~~timing ~~gas~~of ~~prices~~oil ~~accounted~~sales ~~for~~from ~~$9.9~~the ~~million,~~Broom ~~$0.4~~Field ~~million~~in the North Sea, ~~and~~accounted for $04.6 million, ~~respectively,~~ of ~~this~~the increase, ~~offset~~along with increases in ~~part~~oil byprices aand ~~decrease~~gas ofproduction and prices which accounted for an additional $10.52 million, ~~due~~$2.7 tomillion, ~~lower~~and ~~gas volumes~~$0.2 ~~produced~~million, respectively.

Operating income from our oil and gas operations ~~increased~~ increased by $7.3.4 million to $105.20 million infor ~~2005~~the ~~compared~~three tomonths ended September 30, 2007 from $21.96 million for same period in ~~2004~~2006, due ~~primarily~~ to the ~~increases~~increased in revenues discussed above, offset in part by ~~increases~~an increase in ~~lease~~compensation ~~operating~~costs ~~expense~~and asexpenses related ato ~~result~~the start-up of ~~the~~new ~~increases~~oil inand ~~oil~~gas ~~production~~properties.

~~Six~~Nine Months Ended ~~June~~ September 30, ~~2005~~2007, Compared to ~~Six~~Nine Months Ended ~~June~~ September 30, ~~2004~~2006

Oil and gas revenues increased by $~~16.~~7.3 million to $2744.18 million for the ~~six~~ nine months ended ~~June~~ September 30, ~~2005~~2007, from $1037.45 million for the ~~six~~ nine months ended ~~June~~ September 30, ~~2004~~2006. ~~Higher~~Increases ~~oil~~in gas production ~~and~~related ~~prices~~primarily to the new fields, along with ~~increased~~an ~~gas~~increase in oil prices accounted for $167.93 million, ~~$0.7 million,~~ and $0.8 million, respectively, of this increase, offset in part by a decrease of $10.75 million due to lower gas ~~volumes~~prices ~~produced~~and a $0.3 million decrease attributable to lower oil production.

Operating income from our oil and gas operations decreased ~~increased~~ by $102.90 million to $1615.47 million infor ~~2005~~the ~~compared~~nine tomonths ended September 30, 2007, from $517.57 million for same period in ~~2004,~~2006. This decrease was due primarily to ~~the~~an ~~increases~~increase in ~~revenues~~compensation ~~discussed~~costs ~~above~~and expenses related to the start-up of new oil and gas properties, ~~offset~~along inwith ~~part~~the byrecognition ~~increases~~of in$1.5 ~~lease operating~~million of expense asrelated ato ~~result~~the cessation of ~~the~~our ~~increases~~involvement in ~~oil~~exploratory ~~production~~activities in a previously unevaluated property offshore West Africa.

INVOLUNTARY CONVERSION OF LONG-LIVED ASSETS AND RELATED RECOVERIES

We have collected a total of $226.1 million in insurance recoveries related to damage inflicted by hurricanes Katrina and Rita and loss of hire recoveries, of which $116.8 million was collected in the first three quarters of 2007. Offsetting these collections in “Accounts receivable from insurers” are anticipated reimbursements for cash outlays to salvage our rigs damaged during the hurricanes.

We recorded gains totaling $61.2 million in the nine months ended September 30, 2007, which include a $36.4 million gain representing amounts collected from insurers in excess of the estimated recoveries we recorded during the third quarter of 2005 related to the rigs damaged during these hurricanes and an additional $24.8 million gain recorded during the first quarter of 2007 in connection with the sale of the GSF High Island III. These gains, which are included in “Involuntary conversion of long-lived assets, net of related recoveries, loss of hire recoveries and gain on dispositions of equipment” in the Condensed Consolidated Statement of Income and Comprehensive Income, for the nine months ended September 30, 2007, had a year to date tax expense of $20.1 million, resulting in an after tax gain of $41.1 million.

All of the rigs that were damaged in the hurricanes were covered for physical damage under the hull and machinery provision of our insurance policy, which carried a deductible of $10 million per occurrence. In addition, three rigs damaged in Hurricane Katrina, the GSF Arctic I, GSF Development Driller I, and GSF Development Driller II, were covered by loss of hire insurance under which we are reimbursed for 100% of their contracted dayrate for up to a maximum of 270 days following 60 days (the “waiting period”) of lost revenue.

Our insurance policy provided that if claims for a single event are filed under both the hull and machinery and loss of hire sections of the policy, we would bear only a single deductible from that occurrence of no more than the highest deductible from any individual section. Hurricanes Katrina and Rita were considered separate events under our policy. Based on remediations completed for the three rigs covered under the loss of hire insurance, the amount of revenue we lost during the waiting period was higher than the $10 million hull and machinery deductible. Therefore, the 60-day waiting period under our loss of hire insurance will serve as the only deductible for the Hurricane Katrina event. The application of the 60-day waiting period provision with regard to the GSF Development Driller I, the only rig that was still out of service after the 60-day waiting period, is complicated by the fact that at the time of the hurricane, the rig was undergoing thruster remediations and, accordingly, we had already put our underwriters on notice as to a claim under the loss of hire section of the policy. As discussed in Note 7 — “Commitments and Contingencies,” during 2005 and 2006, we recorded $25.4 million ($3.8 million in the fourth quarter of 2005, $18.9 million in the first quarter of 2006, and $2.7 million in the second quarter of 2006) in estimated loss of hire insurance recoveries with respect to the GSF Development Driller I and during 2007 we collected all of this claim from our underwriters. None of the jackup rigs damaged during Hurricane Rita was insured for loss of hire and, therefore, a single $10 million hull and machinery deductible was applicable to claims for damage to the rigs caused by Hurricane Rita. This deductible was recognized as a loss in the third quarter of 2005.

In June 2007, prior to the start of GSF Rig 135’s contract in West Africa, the transport vessel used to carry the rig’s riser capsized and the riser was lost. We do not expect to recover the riser and recorded a $4.1 million charge related to this loss in the second quarter of 2007, which is included in “Involuntary conversion of long-lived assets, net of related recoveries, loss of hire recoveries and gain on dispositions of equipment” in the Condensed Consolidated Statement of Income and Comprehensive Income. There was no tax impact related to this loss. We currently plan to replace the riser, utilizing a new riser that was originally ordered for GSF Rig 140. The loss of the riser, nevertheless, delayed the commencement of drilling operations for GSF Rig 135 by 30-60 days, and will result in a reduced dayrate for GSF Rig 140 until another riser is obtained. We are currently evaluating recoveries under our applicable insurance policies.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses ~~increased to $14.3 million and $30.2 million, respectively,~~ for the ~~three~~third ~~and~~quarter ~~six~~of ~~months~~2007 ~~ended~~increased ~~June~~by ~~30,~~$14.5 ~~2005,~~million ~~compared~~ to $1232.96 million, ~~and~~from $2818.81 million, ~~respectively~~ for the ~~same periods~~third inquarter ~~2004, due primarily to costs associated with the support~~ of ~~our~~2006. ~~new~~This ~~enterprise~~increase ~~resource~~was ~~management~~due ~~software~~primarily ~~system,~~to ~~which~~transaction ~~was~~costs related ~~placed~~to ~~into~~the ~~service on January 1~~merger, ~~2005,~~as ~~along~~discussed ~~with~~in ~~costs~~Note ~~incurred~~2 inof ~~connection~~Notes ~~with~~to the ~~implementation~~Condensed ofConsolidated ~~this system~~Financial ~~in our foreign offices~~Statements.

~~OTHER~~General ~~INCOME~~and administrative expenses for the ~~AND~~nine ~~EXPENSE~~months ended September 30, 2007, increased by $19.0 million to $80.2 million, from $61.2 million, for the same period of 2006. This increase was due primarily to costs related to the merger and higher compensation costs and costs associated with information technology projects, offset in part by lower stock-based compensation costs.

~~Interest~~32 expense decreased to $11.9 million and $24.2 million, respectively, for the three and six months ended June 30, 2005, compared to $16.6 million and $33.1 million, respectively for the same periods in 2004, due primarily to the retirement of our 7 1/8% Notes due 2007 in the second quarter of 2004.

OnOTHER ~~June~~INCOME ~~30,~~AND ~~2004,~~EXPENSE we completed the redemption of all of the outstanding $300 million principal amount of Global Marine Inc.’s 7 1/8% Notes due 2007, for a total redemption price of $331.7 million, plus accrued and unpaid interest of $7.1 million. As a result, we recognized a pretax loss on the early retirement of debt of approximately $32.4 million, including unamortized discount and debt issue costs. Pretax interest expense related to the 7 1/8% Notes totaled $21.4 million annually.

WeInterest ~~capitalized~~expense increased to $1112.70 million and $2134.85 million, respectively, ~~of interest costs~~ for the three and ~~six~~nine months ended ~~June~~ September 30, ~~2005~~2007, ~~compared to~~from $119.70 million and $2127.6 4 million, ~~respectively,~~ for the same periods in ~~2004~~2006 indue ~~connection~~primarily with the construction of the GSF Constellation II cantilevered jackup, which began operations in the third quarter 2004, and the GSF Development Driller I semisubmersible, and GSF Development Driller II semisubmersible, which are currently expected to ~~begin~~borrowings ~~operations~~under inour ~~October~~revolving ~~2005~~credit ~~and September 2005, respectively~~facility.

Interest ~~income~~capitalized ~~increased to $5.6 million and $10.8 million~~ for the three and ~~six~~nine months ended ~~June~~ September 30, ~~2005,~~2007 ~~respectively,~~and ~~from~~2006 ~~$2.7 million~~is ~~and~~due ~~$5.7~~primarily ~~million~~to ~~for~~ the ~~comparable~~capitalization ~~2004~~of ~~periods,~~interest ~~due~~costs ~~primarily~~in toconnection ~~higher~~with ~~interest~~our ~~rates~~rig ~~earned~~expansion inprogram ~~2005~~discussed onin ~~our~~“Liquidity ~~average~~and ~~cash,~~Capital ~~cash~~Resources ~~equivalents~~– Investing and ~~marketable~~Financing ~~securities balances~~Activities. ”

~~Other~~Interest ~~expense~~income ofincreased to $08.92 million from $5.4 million for the three months ended ~~June~~ September 30, ~~2005~~2007 ~~consists~~compared ~~primarily of costs incurred~~ to ~~settle a Canadian tax audit for~~ the ~~years~~prior ~~1998~~year -third ~~2001~~quarter, and ~~which~~increased ~~fully offset the first quarter 2005 realized gain on marketable securities related~~ to ~~our nonqualified pension plans~~$20.7 ~~Other~~million ~~expenses~~ for the ~~six~~nine months ended ~~June~~ September 30, ~~2004~~2007 ~~includes~~from ~~a loss of~~ $319.87 million onfor ~~a commodity~~the ~~derivative~~prior ~~entered~~year ~~into~~comparable inperiod, ~~the~~due ~~first~~primarily ~~quarter~~to ofhigher ~~2004,~~interest ~~offset~~rates inearned ~~part~~on byour ~~realized~~higher ~~gains~~average oncash, ~~the~~cash ~~sale~~equivalents ofand marketable securities ~~related~~balances toduring ~~one~~the ofthird ~~our~~quarter ~~retirement~~of ~~plans~~2007.

INCOME TAXES

We are a Cayman Islands company. ~~The~~and ~~Cayman~~we ~~Islands~~operate ~~does~~through ~~not~~our ~~impose~~various ~~corporate~~subsidiaries ~~income~~in ~~taxes~~numerous countries throughout the world, including the United States. Consequently, our tax provision is based upon the tax laws and rates in effect in the countries in which our operations are conducted and income is earned. The income tax rates imposed and methods of computing taxable income in these jurisdictions vary substantially. Our effective tax rate for financial statement purposes will continue to fluctuate from quarter to quarter and year to year as our operations are conducted in different taxing jurisdictions. Our effective income tax rate on income from continuing operations for financial reporting purposes was 10.4% and 10.9% for the three and nine months ended September 30, 2007, respectively. Our effective income tax rate for financial reporting purposes was 12.8% and 12.2%, respectively, for the three and nine months ended September 30, 2006.

~~Our~~On ~~effective~~May 21, ~~income~~2004, ~~tax~~we ~~rate~~completed ~~for~~the ~~financial~~sale ~~reporting~~of ~~purposes~~our ~~was~~land ~~14.04%~~drilling ~~and~~business 13to Precision Drilling Corporation.~~54%~~ ~~for~~During the ~~three~~second ~~months~~quarter ~~and~~of ~~six~~2004 ~~months~~we ~~ended~~recorded ~~June~~a ~~30, 2005 respectively~~$5.7 ~~Our~~million ~~second quarter~~contingent ~~effective income~~ tax ~~rate~~liability ~~before~~related to the ~~recognition~~sale of ~~discrete~~our ~~items~~Egyptian ~~was~~land ~~decreased~~rigs. byDuring the ~~release~~first ofquarter ~~some~~ of ~~our~~2007, ~~U.S.~~the ~~valuation~~2004 ~~previously~~Egyptian ~~recorded~~tax ~~allowance~~audit ~~against~~and ~~U.S.~~the ~~Net~~tax ~~Operating~~return ~~Loss~~filing position ~~carryforwards,~~related ~~and~~to ~~lower~~the ~~statutory~~contingent tax ~~rates~~liability ~~coupled with~~were ~~changes~~favorably inresolved. ~~operating~~As ~~structures~~a inresult, ~~certain~~we ~~foreign~~released ~~jurisdictions~~the ~~enacted~~$5.7 ormillion ~~approved~~reserve, ~~during~~which is classified as “Income from discontinued operations” in the ~~second~~Condensed ~~quarter~~Consolidated Statements of ~~2005~~Income and Comprehensive Income.

We ~~recorded~~adopted athe ~~net~~provisions ~~income~~of ~~tax~~FASB ~~benefit~~Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of $9FASB Statement No.7 109” ~~million~~(“FIN ~~and~~48”), ~~$11~~on January 1, 2007.3 ~~million~~As ~~for~~a result of the ~~three~~implementation ~~and~~of ~~six~~FIN ~~months~~48, ~~ended~~we ~~June~~recognized ~~30,~~a ~~2004,~~$11.5 ~~respectively,~~million ~~due~~increase toin the ~~recognition~~liability offor ~~various~~uncertain tax positions taken on previously ~~discrete~~filed tax ~~items~~returns, ~~including~~which anwas accounted for as a $1116.43 million ~~deferred~~decrease ~~tax~~in ~~benefit~~retained inearnings ~~the~~and ~~second~~a ~~quarter~~$4.8 ofmillion ~~2004~~decrease ~~from~~in ~~the~~goodwill ~~make~~for ~~whole~~items ~~premium~~related ~~paid~~to asevents athat ~~result~~took ofplace prior to the ~~retirement~~business combination in 2001 of ~~the~~Global ~~7 1/8%~~Marine ~~Notes~~Inc. ~~due~~and ~~2007~~Santa Fe International Corporation.

29We accrue interest and penalties related to our liability for uncertain tax positions as a component of income tax expense. In conjunction with the adoption of FIN 48 we recognized approximately $8.5 million for the payment of interest and penalties at January 1, 2007, which is included as a component of the $11.5 million of liability for uncertain tax positions noted above. The amount of interest recognized during the three and nine months ended September 30, 2007 was insignificant to our financial results.

~~Table~~During the quarter ended September 30, 2007, our liability for uncertain tax positions increased by $1.8 million to a total of ~~Contents~~$50.1 million.

WeIn ~~currently~~connection ~~anticipate~~with ~~that,~~an ~~before~~audit ~~discrete~~of ~~items~~the 2002 and 2003 United States federal income tax returns of our United States subsidiaries, the examination division of the Internal Revenue Service (“IRS”) proposed that interest payments made from one of our ~~effective~~domestic ~~tax~~subsidiaries ~~rate~~to ~~for~~one ~~financial~~of ~~reporting~~our ~~purposes~~foreign ~~will~~subsidiaries bewith respect to certain notes issued in connection with the ~~range~~business combination of ~~14%~~Global Marine Inc. and Santa Fe International Corporation were subject to 16withholding of United States federal income tax at a 30% ~~for~~rate ~~2005~~and that, as a result, the domestic subsidiary owed additional tax of approximately $50.6 million plus interest. Our United States subsidiaries appealed this proposed tax adjustment to IRS Appeals. During the quarter ended September 30, 2007, IRS Appeals agreed to concede in full the proposed tax adjustments which the IRS examination division had issued to our subsidiaries.

Liquidity and Capital Resources

SOURCES OF LIQUIDITY

Our primary sources of liquidity are our cash and cash equivalents, marketable securities, borrowings on our revolving credit facility, and cash generated from operations. AsAt ~~of June~~ September 30, ~~2005~~2007, we had $~~559~~465.51 million of cash, cash equivalents and marketable securities, all of which were unrestricted. We had $~~808~~348.69 million in cash, cash equivalents and marketable securities at December 31, ~~2004~~2006, all of which were unrestricted. Cash generated from operating activities totaled $~~206~~1,254.36 million and $~~113~~642.34 million for the ~~six~~nine months ended ~~June~~ September 30, ~~2005~~2007 and ~~2004~~2006, respectively.

In33 September 2003, we filed a universal shelf registration statement on Form S-3 with the U.S. Securities and Exchange Commission (the “SEC”) under which we could offer to sell from time to time any combination of the following securities: (i) unsecured debt securities consisting of notes, debentures or other evidences of indebtedness, (ii) ordinary shares, par value $0.01 per share, (iii) preference shares, (iv) depositary shares, (v) warrants and (vi) securities purchase contracts and units. In April 2005, we issued 23,500,000 ordinary shares at a price, net of the underwriting discount, of $34.02 per ordinary share, in an offering under that shelf registration statement. We immediately used the net proceeds from the offering totaling approximately $799.5 million to repurchase an equal number of our ordinary shares from a subsidiary of Kuwait Petroleum Corporation at a price per share equal to the net proceeds per share we received in the offering. In connection with this transaction we incurred $0.7 million of costs associated with the filing, which were recorded as a reduction of additional paid in capital. There was no change in the number of our outstanding shares as a result of the transactions as the shares repurchased from Kuwait Petroleum Corporation were immediately cancelled. On August 4, 2005, we filed a new universal shelf registration statement on Form S-3 with the SEC, which has not yet been declared effective by the SEC. The new shelf registration statement registers the issuance from time to time of the same types of securities as the September 2003 shelf registration statement, for an aggregate initial public offering price not to exceed $1.0 billion, which includes the remaining capacity of the prior shelf registration statement. Upon effectiveness of the registration statement, we will be permitted to periodically offer one or more of the securities registered thereby.

During the third quarter of 2005, a number of our rigs, including the GSF High Island III, were damaged as a result of hurricanes Katrina and Rita. During the first quarter of 2007, we sold the GSF High Island III to a third party and collected proceeds of approximately $26.0 million, net of selling costs.

In the first three quarters of 2007 we also collected $116.8 million from insurers related to rigs damaged as a result of hurricanes Katrina and Rita and loss of hire claims resulting from Hurricane Katrina (see—”Involuntary Conversion of Long-Lived Assets, Related Recoveries and Gain on Dispositions of Equipment”).

INVESTING AND FINANCING ACTIVITIES

~~During~~In the first quarter of ~~2005~~ 2006, we ~~took~~entered ~~delivery~~into ofa ~~our~~contract ~~two~~with ~~ultra-deepwater~~Keppel ~~semisubmersibles~~FELS, ~~ordered~~a ~~from~~shipyard ~~PPL~~located ~~Shipyard~~in ~~PTE~~Singapore, ~~Ltd.~~for construction of ~~Singapore~~ ~~(“PPL”)~~a new ultra-deepwater semisubmersible, to be named the GSF Development Driller IIII. Construction commenced in the first quarter of 2006 and delivery is currently expected during the ~~GSF~~first ~~Development~~half ~~Driller~~of II2009. Construction costs for the GSF Development Driller IIII are expected to total approximately $~~309~~590 million, excluding ~~an estimated $95 million of~~ capital spares, startup expenses, ~~customer-required~~mobilization ~~modifications~~costs, contract ~~and~~compliance ~~mobilization~~ costs, ~~$24~~and ~~million~~capitalized ~~related~~interest. toWe ~~the~~have ~~thruster~~incurred ~~defect~~a ~~discussed~~total ~~below,~~of ~~and~~approximately $60292 million of capitalized ~~interest. Construction~~ costs ~~for~~related to the GSF Development Driller IIIII, ~~are~~excluding ~~expected~~capitalized tointerest, ~~total~~capital ~~approximately~~spares, ~~$310~~start-up ~~million~~costs, ~~excluding~~and contract ancompliance ~~estimated~~costs, ~~$75~~as ~~million~~ of ~~capital spares~~September 30, ~~startup~~2007. ~~expenses,~~We ~~customer-required~~expect ~~modifications~~to fund all construction and ~~mobilization~~startup costs, ~~$21~~of ~~million~~the ~~related~~GSF toDevelopment ~~the~~Driller ~~thruster~~III ~~defect~~from ~~discussed below,~~our existing cash and ~~$44~~cash ~~million~~equivalents ofbalances ~~capitalized~~and ~~interest.~~future cash flow from operations.

In September 2007, we entered into a contract with Hyundai Heavy Industries, a shipyard located in South Korea, for construction of a new ultra-deepwater exploration and development drillship, delivery of which is expected in September 2010. Construction costs for the drillship are expected to total approximately $740 million, excluding capital spares, startup expenses, mobilization costs, contract compliance costs, and capitalized interest. We have incurred a total of approximately $106.5 million of capitalized costs related to the drillship, excluding capitalized interest, capital spares, start-up costs, and contract compliance costs, as of September 30, 2007.

We have made claims under our loss of hire insurance for the GSF Development Driller I and GSF Development Driller II for the periods required to remediate the damage arising from both the thruster defect and Hurricane Katrina. Under the loss of hire section of our insurance policy, we are entitled to reimbursement for our full dayrate for up to 270 days after a 60-day waiting period. Significant unresolved issues remain as to the proper application of the loss of hire waiting period in connection with the thruster damage, which could lead to substantial differences in the amount of the loss of hire recovery. The underwriters have formally reserved their rights to decline coverage for the thruster damage claims on the rigs in respect of both the hull and machinery and loss of hire coverage. During 2005 and 2006, we recorded $25.4 million ($3.8 million in the fourth quarter of 2005, $18.9 million in the first quarter of 2006, and $2.7 million in the second quarter of 2006) in estimated hurricane-related loss of hire insurance recoveries with respect to the GSF Development Driller I and during 2007 we collected all of this claim from our underwriters. The GSF Development Driller II was not out of service longer than the combined 120-day waiting period and therefore no loss of hire recoveries have been recorded for this rig.

Our debt to capitalization ratio, calculated as the ratio of total debt, including undefeased capitalized lease obligations, to the sum of total shareholders’ equity and total debt, was 9.4% at September 30, 2007 and 11.8% at December 31, 2006. Our total debt includes the current portion of our capitalized lease obligations, which totaled $1.8 million at September 30, 2007 and $9.3 million at December 31, 2006.

In connection with the Transactions, as discussed in Note 2 of Notes to the Condensed Consolidated Financial Statements, Transocean expects to add approximately $15 billion in debt under a senior unsecured bridge loan facility due one year after closing (see “—Financing for the Transactions”). As a result of the anticipated significant increase in debt level, Standard and Poor’s Rating Services downgraded the credit rating of our existing debt from A+ to BBB+ and placed it on CreditWatch with negative implications, and Moody’s Investor Services placed its credit rating under review for possible downgrade. After completion of the Transactions, Transocean’s increased level of debt and other obligations could have significant adverse consequences on the business and future prospects of the combined company, including that the combined company

We may ~~recently~~not ~~discovered~~be aable ~~defect~~to inobtain ~~the~~financing ~~thruster~~in ~~nozzles on~~ the ~~GSF Development Driller I and the GSF Development Driller II~~future, ~~which~~less ~~caused~~levered ~~damage~~competitors tocould ~~the~~have ~~nozzles.~~a ~~Based~~competitive onadvantage ~~our~~and ~~preliminary assessment, we expect~~ the ~~correction~~combined ofcompany ~~this~~may ~~defect~~be ~~could~~less ~~delay~~able ~~the~~to take ~~start~~advantage of ~~the~~significant ~~initial~~business ~~drilling~~opportunities ~~contracts for the GSF Development Driller II until September 2005~~ and ~~the~~to ~~GSF~~react ~~Development~~to ~~Driller~~changes Iin ~~until~~market ~~October~~or ~~2005,~~industry ~~which~~conditions ~~will~~than ~~have~~its ~~an adverse impact on our results of operations~~competitors. ~~The~~There ~~delay~~also ~~could~~can be ~~longer~~no ifassurance ~~the magnitude of the defect is greater than~~ that ~~expected~~Transocean ~~based~~will onbe ~~our preliminary~~successful ~~assessment~~in orrefinancing if the ~~remediation~~debt isor ~~delayed. As noted above, we currently expect that~~ the ~~cost~~terms of ~~corrections to~~ the refinancing ~~equipment, exclusive of continued capitalized interest,~~ will be ~~approximately~~favorable ~~$45 million and will be added~~ to ~~the capitalized~~Transocean, ~~costs~~which ofcould ~~the~~adversely ~~rigs~~affect to the ~~extent~~combined ~~not~~company’s ~~recovered~~results ~~from~~of ~~the~~operations ~~manufacturer~~ or ~~insurance~~financial ~~underwriters~~condition.

We expect to fund all remaining construction and startup costs of these rigs from our existing cash, cash equivalents and marketable securities balances, and future cash flow from operations.

BP America Production Company (“BP”) has awarded a three-year contract to the GSF Development Driller II for its Atlantis project in the U.S. Gulf of Mexico. The estimated 20-well project has a total contract value of approximately $200 million, and is expected to commence in September 2005, following correction of the thruster defect. BHP Billiton Petroleum (Americas) Inc. has awarded a two-year contract to the GSF Development Driller I for its project in the U.S. Gulf of Mexico. The multi-well exploration and development program is expected to commence in October 2005, following correction of the thruster defect, and has a total contract value of $157 million.

On June 23, 2005, we repurchased $599.2 million principal amount at maturity of the outstanding $600 million principal amount at maturity of Global Marine Inc.’s Zero Coupon Convertible Debentures due June 23, 2020, for a total purchase price of $356.1 million, representing $299.8 million in principal payment and $56.3 million in imputed interest. Global Marine accepted all surrendered debentures for repurchase at a purchase price of $594.25 per $1,000 of principal amount at maturity. We funded the repurchase price from our existing cash, cash equivalents and marketable securities balances. Upon completion of this purchase, debentures totaling $800,000 of principal amount at maturity ($0.5 million at June 30, 2005) remain outstanding.

Our debt to capitalization ratio, calculated as the ratio of total debt, including undefeased capitalized lease obligations, to the sum of total shareholders’ equity and total debt, was 11.3% at June 30, 2005, compared to 17.5% at December 31, 2004. Our total debt includes the current portion of our capitalized lease obligations, which totaled $9.8 million at both June 30, 2005 and December 31, 2004.

FUTURE CASH REQUIREMENTS

At ~~June~~ September 30, ~~2005~~2007, we had total long-term debt and capital lease obligations, including the current portion of our ~~long-term debt and~~ capital lease obligations, of $~~592~~567.8 0 million and shareholders’ equity of $45,~~663~~490.20 million. Long-term debt, ~~including current maturities,~~ consisted of $297.14 million (net of discount) 7% Notes due 2028; $~~261~~253.01 million (net of discount) 5% Notes due 2013; ~~$0.5 million (net of discount) Zero Coupon Convertible Debentures due 2020;~~ and capitalized lease obligations, including the current portion, totaling $3416.25 million. No amounts were outstanding under our revolving credit facility as of September 30, 2007. We were in compliance with our debt covenants at ~~June~~ September 30, ~~2005~~2007.

31Annual interest on the 7% Notes is $21.0 million, payable semiannually each June and December. Annual interest on the 5% Notes is $12.5 million, payable semiannually each February and August. No principal payments are due under the 7% Notes or the 5% Notes until the maturity date. Interest on the revolving credit facility is based on the applicable LIBOR rate, plus an applicable margin, for the period of each borrowing.

We may redeem the 7% Notes and the 5% Notes in whole at any time, or in part from time to time, at a price equal to 100% of the principal amount thereof plus accrued interest, if any, to the date of redemption, plus a premium, if any, relating to the then-prevailing Treasury Yield and the remaining life of the notes. The indentures relating to the 5% Notes and the 7% Notes contain limitations on our ability to incur indebtedness for borrowed money secured by certain liens and on our ability to engage in certain sale/leaseback transactions. The 7% Notes continue to be obligations of Global Marine Inc., and GlobalSantaFe Corporation has not guaranteed this obligation. GlobalSantaFe Corporation is the sole obligor under the 5% Notes.

Total capital expenditures for 2007 are currently estimated to be approximately $782 million, including $141 million in construction costs for the GSF Development Driller III, $108 million in construction costs for the new drillship, $174 million for major upgrades to the fleet, including $87 million relating to the four rigs we have moved to Saudi Arabia, $278 million for other purchases and replacements of capital equipment, $19 million for capitalized interest, and $62 million (net of intersegment eliminations) for oil and gas operations.

On March 3, 2006, our Board of Directors authorized us to repurchase up to $2 billion of our ordinary shares from time to time. We have purchased 27,448,895 ordinary shares for a total of $1.6 billion since the inception of this plan, including 7,986,907 ordinary shares for $520.0 million repurchased during the nine months ended September 30, 2007. Not included in the repurchases for the nine months ended September 30, 2007 are 278,500 ordinary shares that were purchased for $16.5 million in December 2006 but did not settle until January 2007. Under the terms of the Merger Agreement, we have agreed not to repurchase any additional shares pending completion of the merger and accordingly have suspended our share repurchase program and will not make further repurchases.

Under the terms of the Merger Agreement, we have agreed not to declare and pay any future dividends on our ordinary shares pending completion of the merger.

Our funding objective with regard to our defined benefit pension plans is to fund participants’ benefits under the plans as they are earned. During the first quarter of 2007 we contributed $8.0 million to our U.S. defined benefit plans.

We believe that we will be able to meet all of our current obligations, including working capital requirements, capital expenditures, lease obligations, construction and development commitments and debt service, from our existing cash, cash equivalents and marketable securities balances, along with future cash flow from operations.

As part of our goal of enhancing shareholder value, we continually consider and from time to time actively pursue the acquisition or construction of suitable additional drilling rigs and other assets or the possible sale of existing assets. If we decide to undertake an acquisition of a drilling rig or additional construction projects, we might be required to incur additional indebtedness. While the Merger Agreement sets forth certain limitations on our ability to effect acquisitions and dispositions, incur indebtedness and make capital expenditures pending the completion of the merger, those limitations are subject to exceptions agreed to by the parties and also may be waived by Transocean.

~~Annual~~We ~~interest~~frequently onbid for or negotiate with customers regarding multi-year drilling contracts, including, from time to time, contracts that would necessitate the 7%construction ~~Notes~~of isa ~~$21~~new drilling rig to fulfill the contract.0 ~~million~~In the past, ~~payable~~our ~~semiannually~~approach ~~each~~was ~~June~~to ~~and~~consider ~~December.~~construction ~~Annual~~of ~~interest~~a onnew semisubmersible or drillship only when expected cash flows from the 5%anticipated contract ~~Notes~~would iscover ~~$12~~a substantial portion of the capital cost of the rig.5 ~~million~~However, ~~payable~~as ~~semiannually~~a ~~each~~result ~~February~~of tight capacity with shipyards and ~~August~~major equipment suppliers, we decided not to delay entry into a construction contract until we had a contract with a customer. NoAccordingly, ~~principal~~and ~~payments~~in ~~are~~light ~~due~~of ~~under~~our ~~the~~expectations 7%of ~~Notes~~ongoing orfavorable conditions in the 5%ultra-deepwater ~~Notes~~market, ~~until~~in September 2007, we entered into an agreement for the ~~maturity~~construction ~~date.~~of the new drillship without an executed drilling contract.

WeFINANCING ~~may~~FOR ~~redeem~~THE ~~the~~TRANSACTIONS 7% Notes and the 5% Notes in whole at any time, or in part from time to time, at a price equal to 100% of the principal amount thereof plus accrued interest, if any, to the date of redemption, plus a premium, if any, relating to the then-prevailing Treasury Yield and the remaining life of the notes. The indentures relating to the 5% Notes, the Zero Coupon Convertible Debentures and the 7% Notes contain limitations on our ability to incur indebtedness for borrowed money secured by certain liens and on our ability to engage in certain sale/leaseback transactions. The Zero Coupon Convertible Debentures and the 7% Notes continue to be obligations of Global Marine Inc., and GlobalSantaFe Corporation has not guaranteed any of these obligations. GlobalSantaFe Corporation is the sole obligor under the 5% Notes.

~~During~~In connection with the ~~third~~Transactions, ~~quarter~~on ofJuly 21, ~~2005~~2007, weTransocean ~~expect~~and toGlobalSantaFe ~~redeem~~entered ~~all~~into ~~remaining~~a ~~Zero~~commitment ~~Coupon~~letter, ~~Convertible~~pursuant ~~Debentures~~to atwhich aGoldman ~~redemption~~Sachs ~~price~~Credit ~~equal~~Partners ~~to $594~~L.25P. ~~plus~~(“GSCP”), anand ~~additional~~Lehman ~~amount~~Brothers Commercial ~~reflecting~~Bank ~~the~~and ~~original~~Lehman ~~3.5%~~Brothers ~~issue~~Holdings ~~discount~~Inc. ~~accrued~~and ~~from~~their ~~June~~respective 23affiliates (collectively, ~~2005~~the “Lehman Lenders”) committed to provide financing for the ~~date~~Transactions. ofThe ~~redemption~~commitment letter provides for a $15.0 Webillion ~~will~~senior ~~fund~~unsecured bridge ~~the~~loan ~~redemption~~facility ~~price~~due ~~from~~one ~~our~~year ~~existing~~after ~~cash~~closing (the “Bridge Loan Facility”), ~~cash~~$10.0 ~~equivalents~~billion ~~and~~of ~~marketable~~which ~~securities~~is ~~balances~~to be provided by GSCP and $5. ~~Accordingly,~~0 webillion ~~have~~of ~~classified~~which ~~these~~is ~~debentures~~to asbe ~~current~~provided ~~maturities~~by asthe ofLehman ~~June~~Lenders ~~30,~~(except ~~2005~~to the extent such commitments to provide financing are assigned to other lenders under the Bridge Loan Facility).

~~Total~~Transocean, ~~capital~~GSCP, ~~expenditures~~the ~~for~~Lehman ~~2005~~Lenders ~~are~~and ~~currently~~other ~~estimated~~lenders toentered beinto ~~approximately~~the Bridge ~~$307~~Loan ~~million,~~Facility ~~including~~on ~~$84~~September 28, 2007.7 ~~million~~Transocean inmay ~~startup~~make ~~costs,~~borrowings ~~correction~~under of the ~~thruster~~Bridge ~~defect,~~Loan asFacility ~~discussed~~at ~~above,~~either ~~customer-required modifications,~~(1) a ~~capital~~base ~~spares~~rate, ~~and~~determined ~~mobilization~~as ~~costs for~~ the ~~GSF~~greater ~~Development~~of ~~Driller~~(A) the I,prime ~~$96.2~~loan ~~million~~rate quoted in ~~startup~~The ~~costs,~~Wall ~~correction~~Street ofJournal ~~the~~Money Rates ~~thruster~~Section ~~defect,~~ as ~~discussed~~the ~~above,~~prime ~~customer-required~~rate ~~modifications,~~or ~~capital~~(B) the ~~spares~~federal ~~and~~funds ~~mobilization costs~~effective ~~for~~rate ~~the~~plus ~~GSF~~1/2 ~~Development~~of ~~Driller II~~1%, ~~$38.1~~or ~~million~~(2) the ~~for~~reserve ~~major~~adjusted ~~upgrades~~LIBO torate plus the ~~marine~~applicable ~~fleet~~margin, ~~$30.1~~which ~~million~~is ~~for~~based ~~other~~upon ~~purchases~~Transocean’s ~~and~~senior ~~replacements~~unsecured oflong ~~capital~~term ~~equipment,~~debt ~~$32.0~~rating ~~million for capitalized interest, $13.2 million~~ (~~net~~a margin of ~~intersegment~~ ~~eliminations)~~0.4%, ~~for~~based ~~oil~~on ~~and~~Transocean’s ~~gas~~current ~~operations~~credit ~~and $12~~ratings).7 ~~million for other capital expenditures.~~

~~During~~The ~~the~~Bridge ~~first~~Loan ~~quarter~~Facility ofmay ~~2005,~~be weprepaid ~~began~~in awhole ~~program~~or toin ~~reactivate~~part ~~the~~without ~~semisubmersible~~premium ~~GSF~~or penalty. ~~Arctic~~In IIaddition, ~~which~~the ~~has~~Bridge ~~been~~Loan ~~cold-stacked~~Facility requires mandatory prepayments of outstanding borrowings in ~~Invergordon,~~an ~~Scotland~~amount ~~since~~equal ~~May~~to ~~2003.~~100% Weof ~~expect~~the net cash proceeds resulting from any of the following (in each case subject to ~~spend~~certain ~~approximately~~agreed ~~$19.6~~exceptions): ~~million~~(A) the tosale ~~reactivate~~or ~~this~~other ~~rig,~~disposition ~~approximately~~of ~~$3.3~~any ~~million~~property or assets of ~~which~~Transocean isor ~~included~~its insubsidiaries ~~the~~above ~~$38.1~~a ~~million~~predetermined ~~for~~threshold; ~~major~~(B) the ~~upgrades~~receipt toof ~~our~~certain ~~rig~~net ~~fleet~~insurance ~~discussed~~or ~~above.~~condemnation Weproceeds; ~~currently~~(C) certain ~~expect~~issuances ~~this~~of ~~reactivation~~equity securities ~~program~~of toTransocean beor ~~completed~~its insubsidiaries; and (D) the ~~third~~incurrence ~~quarter~~ of ~~2005~~indebtedness for borrowed money by Transocean or its subsidiaries.

InThe ~~August~~Bridge Loan ~~2002,~~Facility ~~our~~contains ~~Board~~certain ofcovenants ~~Directors~~that ~~authorized~~are usapplicable toduring ~~repurchase~~the upperiod toin ~~$150 million~~which ofany ~~our~~borrowings ~~ordinary~~are ~~shares~~outstanding, ~~from~~including ~~time~~a tomaximum ~~time~~leverage ~~depending~~ratio onand ~~market~~covenants ~~conditions,~~restricting the ~~share~~combined ~~price~~company’s ~~and~~ability ~~other~~to ~~factors~~pay dividends. NoBorrowings under ~~repurchases~~the ~~were~~Bridge ~~made~~Loan inFacility ~~the~~are ~~six~~subject ~~months~~to ~~ended~~acceleration ~~June~~upon ~~30,~~the ~~2005.~~occurrence Atof ~~June~~events ~~30,~~of ~~2005,~~default ~~$98.6~~during ~~million~~the ofperiod ~~this~~in ~~authorized~~which ~~amount~~any ~~remained available~~borrowings ~~for~~are ~~future purchases~~outstanding.

WeThe ~~have~~obligation ~~various~~of ~~commitments~~each ~~primarily~~lender ~~related~~ to ~~our~~make ~~debt~~loans ~~and~~under ~~capital~~the ~~lease~~Bridge ~~obligations~~Loan Facility is subject to the satisfaction of certain conditions, ~~leases~~including ~~for~~the ~~office~~execution ~~space~~of ~~and~~satisfactory ~~other~~documentation, ~~property~~the absence of a material adverse effect (as defined in the Merger Agreement) and ~~equipment.~~the Weconsummation, ~~expect~~or tosubstantially ~~fund~~concurrent ~~these~~consummation, ~~commitments~~of ~~from~~the ~~our~~Transactions. ~~existing~~There ~~cash~~can ~~and~~be ~~cash~~no ~~equivalents~~assurance ~~and~~that ~~future~~these ~~cash~~conditions ~~flow~~will ~~from~~be ~~operations~~met.

AsWe ~~part~~believe ofTransocean ~~our~~will ~~goal~~likely ofseek ~~enhancing long-term shareholder value, we have from time~~ to ~~time considered~~refinance ~~and~~the ~~actively~~Bridge ~~pursued~~Loan ~~business~~Facility ~~combinations,~~in ~~the~~whole ~~acquisition~~ or ~~construction~~in ofpart ~~suitable~~prior ~~additional~~to ~~drilling rigs and other assets or~~ the ~~possible~~expiration ~~sale~~ of ~~existing~~its ~~assets~~one-year term. IfSuch werefinancing ~~decide~~may tobe ~~undertake~~effected athrough ~~business~~borrowings ~~combination~~under ornew ~~an acquisition~~bank ~~or additional construction projects~~facilities, ~~the~~ issuance of ~~additional~~debt securities, including convertible debt securities, or ~~additional~~through ~~shares~~other ~~could~~financing ~~be required~~transactions.

We believe that we will be able to meet all of our current obligations, including working capital requirements, capital expenditures, lease obligations, construction and development commitments and debt service, from our existing cash, cash equivalents and total marketable securities balances, along with future cash flow from operations.

RECENT ACCOUNTING PRONOUNCEMENTS

In ~~December~~February ~~2004~~2007, the ~~Financial Accounting Standards Board (“~~FASB”) issued ~~a revision of~~ Statement of Financial Accounting Standards ~~No. 123, “Share-Based Payment”~~ (“~~SFAS123R~~SFAS”)~~. This statement revises FASB Statement~~ No. ~~123~~ 159, “~~Accounting~~The ~~for~~Fair ~~Stock-Based~~Value ~~Compensation”~~Option ~~and~~for ~~requires~~Financial ~~companies~~Assets ~~to recognize the cost of employee stock options~~ and ~~other~~Financial ~~awards of stock-based compensation based on the fair value of the award as of the grant date~~Liabilities.” This ~~statement supersedes Accounting Principles Board (“APB”) Opinion No. 25~~standard, which ~~allowed~~ ~~companies~~becomes to compute compensation cost for each employee stock option granted as the amount by which the quoted market price of the common stock on the date of grant exceeds the amount the employee must pay to acquire the stock. We currently account for our stock option and stock-based compensation plans using the intrinsic-value method under APB Opinion No. 25. The FASB has now deferred the effective ~~date~~at ~~of SFAS123R to~~ the beginning of the first ~~annual~~fiscal ~~period~~year that begins after ~~June~~ November 15, ~~2005.~~2007, ~~For~~provides acompanies ~~discussion~~with ofan option ~~the~~to ~~pro~~report ~~forma~~selected ~~effect~~financial onassets ~~our~~and ~~earnings~~liabilities ~~had~~at ~~compensation~~fair ~~cost~~value ~~for~~and ~~our~~establishes ~~stock-based~~presentation ~~compensation~~and ~~plans~~disclosure ~~been~~requirements ~~recognized~~designed ~~based~~to onfacilitate ~~fair~~comparisons. ~~values~~We asare ofstill ~~the~~evaluating ~~dates of grant for~~ the ~~three~~impact ~~and~~this ~~six~~statement ~~months~~will ~~ended~~have ~~June~~on ~~30,~~our ~~2005~~operations and ~~2004,~~ ~~see~~financial ~~“Stock-Based Compensation” in Note 1 of Notes to the Condensed Consolidated Financial Statements~~position.

~~RISK~~ADOPTION ~~FACTORS~~OF NEW ACCOUNTING PRONOUNCEMENTS

~~There~~Effective ~~are~~January 1, ~~many~~2007, ~~risk~~we ~~factors~~adopted ~~inherent~~FASB inInterpretation ~~our~~No. 48, ~~business~~“Accounting ~~and~~for Uncertainty in ~~the~~Income ~~oil~~Taxes—an ~~and~~Interpretation ~~gas~~of ~~industry~~FASB asStatement No. 109” a(“FIN ~~whole,~~48”). ~~many~~Please ofsee ~~which~~Note ~~are~~11 ~~beyond~~of ~~our~~Notes ~~control.~~to ~~For~~the aCondensed ~~discussion~~Consolidated ofFinancial ~~these~~Statements ~~risk factors,~~for ~~see~~a ~~“Risk~~description ~~Factors”~~of ~~under~~the ~~Items~~pronouncement 1 and 2the ineffects ~~our Annual Report~~ on ~~Form~~our ~~10-K~~results ~~for~~of ~~the~~operations ~~year~~and ~~ended~~financial ~~December 31, 2004~~position.

3336

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Other than our repurchase of substantially all of the Zero Coupon Convertible Debentures, there have been no material changes in circumstances affecting our exposure to commodity price, interest rate, fair value of our investments, foreign currency or credit risks since December 31, 2004. For a discussion of our exposure to these risks, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2004.

FAIR VALUE RISK

Long-term debt. Our long-term debt is subject to fair value risk due to changes in market interest rates.

The estimated fair value of our $300 million principal amount 7% Notes due 2028, based on quoted market prices, was $~~343~~315.06 million at ~~June~~ September 30, ~~2005~~2007, compared to the carrying amount of $297.14 million (net of discount). The estimated fair value of our $250 million principal amount 5% Notes due 2013, based on quoted market prices, was $~~252~~242.57 million at ~~June~~ September 30, ~~2005~~2007, compared to the carrying amount of $~~261~~253.01 million (net of discount). The carrying value of our 5% Notes due 2013 includes a mark-to-market adjustment of $113.56 million at ~~June~~ September 30, ~~2005~~ 2007, related to fixed-for-floating interest rate swaps discussed below. As of September 30, 2007 we did not have any amounts outstanding under our $500 million unsecured revolving credit facility.

WeThe estimated fair value of ~~have~~our ~~engaged~~$300 ~~third-party~~million ~~consultants~~principal toamount ~~assess~~7% Notes due 2028, based on quoted market prices, was $327.4 million at December 31, 2006, compared to the ~~impact~~carrying amount of ~~changes~~$297.3 inmillion ~~interest~~(net ~~rates~~of ondiscount). ~~the~~The estimated fair ~~values~~value of our ~~long-term~~$250 ~~debt~~million principal amount 5% Notes due 2013, based on aquoted ~~hypothetical~~market ~~ten-percent~~prices, ~~increase~~was in$238.0 ~~market~~million ~~interest~~at ~~rates~~December 31, 2006, compared to the carrying amount of $251.6 ~~Market~~million ~~interest~~(net ~~rate~~of ~~volatility~~discount). ~~are~~The ~~dependent~~carrying ~~on many~~value ~~factors~~of ~~that~~our ~~are~~5% ~~impossible~~Notes due 2013 includes a mark-to-market ~~forecast~~adjustment of $2.1 million at December 31, ~~and~~2006, ~~actual~~related to fixed-for-floating interest rate ~~increases~~swaps ~~could~~discussed bebelow. ~~more~~Due ~~severe~~to ~~than~~the short-term nature of our borrowings under our $500 million unsecured revolving credit facility, the estimated ~~hypothetical~~fair ~~ten-percent~~value ~~change~~of our outstanding borrowings at December 31, 2006 equaled the carrying amount of $75 million.

~~Based~~We ~~upon~~have ~~these~~engaged ~~sensitivity~~third-party consultants ~~analyses,~~to ifassess ~~prevailing~~the ~~market~~impact ~~interest~~of ~~rates~~changes ~~had~~in ~~been~~interest ~~ten~~rates ~~percent~~on ~~higher at June 30, 2005, and all other factors affecting our debt remained~~ the ~~same, the~~ fair ~~value~~values of our 7%long-term ~~Notes~~debt ~~due~~based ~~2028, as determined~~ on a ~~present~~hypothetical ten-~~value~~percent ~~basis~~increase ~~using~~in ~~prevailing~~ market interest rates,. ~~would~~Market ~~have~~interest ~~decreased~~rate byvolatility ~~$14.4~~is ~~million~~dependent oron ~~4.2%~~many ~~and~~factors ~~the~~that ~~fair~~are impossible ~~value~~to offorecast, ~~the~~and 5%actual ~~Notes~~interest ~~due~~rate ~~2013~~increases ~~would~~could ~~have~~be ~~decreased~~more bysevere ~~$3.7 million~~than orthe 1hypothetical ten-percent change.~~5%.~~

Based upon these sensitivity analyses, if prevailing market interest rates had been ten percent higher at September 30, 2007, and all other factors affecting our debt remained the same, the fair value of our 7% Notes due 2028, as determined on a present-value basis using prevailing market interest rates, would have decreased by $21.7 million or 6.9% and the fair value of the 5% Notes due 2013 would have decreased by $6.3 million or 2.6%. Under comparable sensitivity analysis as of December 31, 2006, the fair value of the 7% Notes due 2028 would have decreased by $17.3 million or 5.3% and the fair value of the 5% Notes due 2013 would have decreased by $7.2 million or 3.0%.

We manage our fair value risk related to our long-term debt by using interest rate swaps to convert a portion of our fixed-rate debt into variable-rate debt. Under these interest rate swaps, we agree with other parties to exchange, at specified intervals, the difference between the fixed-rate and floating-rate amounts, calculated by reference to an agreed-upon notional amount.

InAs ~~connection~~of ~~with~~September 30, ~~the~~2007 ~~sensitivity~~and ~~analyses~~December 31, ~~performed~~2006, ~~relative~~we tohad ~~the~~outstanding ~~fair~~fixed-for-floating ~~values~~interest ofrate ~~our~~swaps ~~long-term~~with ~~debt~~an ~~discussed~~aggregate ~~above,~~notional ~~similar~~amount ~~analyses~~of ~~were~~$175 ~~performed~~million, tothrough ~~assess~~February ~~the~~2013. ~~impact~~These ~~of market~~ interest rate ~~movements~~swaps are onintended ~~the~~to ~~fair~~manage ~~values~~a portion of the ~~fixed-for-floating~~ ~~swaps~~fair value risk related to our 5% Notes due 2013 (the “5% Notes”). ~~Based~~Under ~~upon~~the terms of these ~~analyses~~swaps, ifwe ~~prevailing~~have ~~market~~agreed ~~interest~~to ~~rates~~pay ~~had~~the ~~been~~counterparties ~~ten~~an ~~percent~~interest ~~higher~~rate atequal ~~June~~to ~~30,~~the ~~2005,~~six-month ~~and~~LIBOR ~~all~~rate ~~other~~less 0.247% ~~factors~~to ~~affecting~~0.5175% ~~these~~on ~~swaps had remained~~ the ~~same,~~notional ~~the~~amounts ~~aggregate~~and ~~fair value~~we ofwill receive the fixed~~-for-floating~~ ~~interest~~5.00% rate. ~~swaps,~~The astotal ~~determined~~estimated onaggregate afair ~~present-~~value ~~basis~~of ~~using~~these ~~prevailing~~swaps ~~market~~at ~~interest~~September 30, ~~rates~~2007 and December 31, ~~would~~2006 ~~have~~was ~~decreased~~an byasset of $53.26 million orand 42$2.3%1 million, respectively.

The change in the estimated fair values of our long-term debt from December 31, 2006 to September 30, 2007 is a result of changes in the market interest rate for new bonds with similar risk ratings. The change in the corresponding interest rate swaps from December 31, 2006 to September 30, 2007 is a result of changes in the 6 month LIBOR and 10-year Treasury bond rates.

In connection with the sensitivity analyses performed relative to the fair values of our long-term debt discussed above, similar analyses were performed to assess the impact of market interest rate movements on the fair values of the fixed-for-floating swaps related to the 5% Notes. Based upon these analyses, if prevailing market interest rates had been ten percent higher at September 30, 2007, and all other factors affecting these swaps had remained the same, the aggregate fair value of the fixed-for-floating interest rate swaps, as determined on a present-value basis using prevailing market interest rates, would have decreased by $3.6 million or 100%. Under comparable sensitivity analysis as of December 31, 2006, the fair value would have decreased by $4.6 million or 225%.

There have been no material changes in circumstances affecting our exposure to commodity price, interest rate, fair value of investments, foreign currency or credit risks since December 31, 2006. For a discussion of our exposure to these risks, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2006.

Item 4. Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including ~~the~~our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of ~~June~~ September 30, ~~2005~~2007, pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934. (the “Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures ~~are~~were effective inas ~~timely~~of ~~alerting~~September 30, ~~them~~2007, toin ~~material~~ ensuring that information ~~relating~~required to be disclosed by us ~~(including~~in ~~our~~the ~~consolidated~~reports ~~subsidiaries)~~that ~~required~~we tofile beor ~~included~~submit inunder ~~our~~the ~~periodic~~Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s ~~filings~~rules and forms, including ensuring that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

During the second quarter of 2005, management commenced replacement of its general ledger and consolidation software with SAP financial software in certain of the Company’s foreign offices. This conversion to SAP involves significant changes to internal processes and control procedures over financial reporting. Other than this software change, there have been no changes in our internal control over financial reporting that occurred during the second quarter 2005 that have materially affected, or are reasonably likely to materially affect, our control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

~~One~~LEGAL ofPROCEEDINGS our subsidiaries filed suit in February 2004 against its insurance underwriters in the Superior Court of San Francisco County, California, seeking a declaration as to its rights to insurance coverage and the proper allocation among its insurers of liability for claims payments in order to assist in the future management and disposition of certain claims described below. The subsidiary is continuing to receive payment from its insurers for claim settlements and legal costs, and expects to continue to receive such payments during the pendency of this action.

~~The insurance~~In ~~coverage~~August in2004, ~~question~~certain ~~relates~~of toour subsidiaries were named as defendants in six lawsuits filed ~~against~~in Mississippi, five of which are pending in the ~~subsidiary~~Circuit ~~arising~~Court ~~out~~of Jones County and one of ~~its~~which ~~involvement~~is pending in the ~~design~~Circuit Court of Jasper County, ~~construction~~Mississippi, ~~and~~alleging ~~refurbishment~~that ofcertain ~~major~~individuals ~~industrial~~aboard ~~complexes~~our offshore drilling rigs had been exposed to asbestos. ~~The~~These ~~operating~~six ~~assets~~lawsuits are part of ~~the~~a ~~subsidiary~~group ~~were~~of ~~sold~~23 ~~and~~lawsuits ~~its~~filed on behalf ~~operations~~of ~~discontinued~~approximately in800 ~~1989,~~plaintiffs ~~and~~against ~~the~~a ~~subsidiary~~large ~~has~~number noof ~~remaining~~defendants, ~~assets~~most ~~other~~of ~~than~~which ~~the~~are ~~insurance~~not ~~policies~~affiliated ~~involved~~with inus. ~~the~~Our ~~litigation~~subsidiaries ~~and~~have ~~funds~~not ~~received~~been ~~from~~named ~~the~~as ~~cancellation~~defendants in any of ~~certain~~the ~~insurance~~other ~~policies~~17 lawsuits. The ~~subsidiary~~lawsuits ~~has~~assert ~~been~~claims ~~named~~based ason atheories of ~~defendant~~unseaworthiness, ~~along~~negligence, ~~with~~strict ~~numerous~~liability ~~other~~and ~~companies,~~our insubsidiaries’ ~~lawsuits~~status ~~alleging~~as ~~personal~~Jones ~~injury~~Act asemployers aand ~~result~~seek ofunspecified ~~exposure~~compensatory and punitive damages. In general, the defendants are alleged to have manufactured, distributed or utilized products containing asbestos. ~~The~~In ~~subsidiary~~the ~~has~~case ~~been~~of our named assubsidiaries aand ~~defendant~~that inof ~~approximately~~several ~~4,640~~other ~~lawsuits~~offshore drilling companies named as defendants, the ~~first~~lawsuits ofallege ~~which~~those ~~was~~defendants ~~filed~~allowed insuch ~~1990,~~products ~~and~~to abe utilized aboard offshore drilling rigs. ~~substantial~~We ~~number~~have ofnot ~~which~~been ~~are~~provided ~~currently~~with ~~pending.~~sufficient ~~Approximately~~information ~~$31~~to ~~million~~determine ~~has~~the number of plaintiffs who claim to have been ~~expended~~exposed to ~~resolve~~asbestos ~~claims~~aboard ~~with~~our ~~the~~rigs, ~~subsidiary~~whether ~~having~~they ~~expended~~were $4employees ~~million~~nor their period of ~~that~~employment, ~~amount~~the ~~due~~period of their alleged exposure to ~~insurance~~asbestos, ~~deductible~~nor ~~obligations~~their medical condition. Accordingly, ~~all~~we ofare ~~which~~unable to estimate our potential exposure in these lawsuits. We historically have ~~now~~maintained ~~been~~insurance which we believe will be available to address any liability arising from these ~~satisfied~~claims. ~~Insurers~~We ~~have~~intend ~~funded~~to ~~the~~defend ~~balance~~these oflawsuits ~~the~~vigorously, ~~settlement~~but ~~costs~~there ~~and~~can ~~all~~be ~~legal~~no ~~costs~~assurance as to their ultimate outcome.

34One of our subsidiaries filed suit in February 2004 against its insurance underwriters in the Superior Court of San Francisco County, California, seeking a declaration as to its rights to insurance coverage and the proper allocation among its insurers of liability for claims payments in order to assist in the future management and disposition of certain claims described below. The subsidiary’s three primary insurers had historically paid settlement and defense costs for the subsidiary. One of these insurers was nearing insolvency and claimed exhaustion of its coverage limits, but following negotiations agreed to make a cash payment in exchange for a release of all further liability for the subsidiary’s asbestos liabilities. Both of the subsidiary’s other primary insurers have entered into settlement agreements with the subsidiary that will provide for limited additional funding of asbestos liabilities and attorneys’ fees and costs associated therewith. The subsidiary also intends to enter into discussions with its excess insurers. We believe that the subsidiary will continue to have funds from its insurers sufficient to meet its settlement and defense obligations for the foreseeable future.

The insurance coverage in question relates to lawsuits filed against the subsidiary arising out of its involvement in the design, construction and refurbishment of major industrial complexes. The operating assets of the subsidiary were sold and its operations discontinued in 1989, and the subsidiary has no remaining assets other than the insurance policies involved in the litigation and funds received from the cancellation of certain insurance policies. The subsidiary has been named as a defendant, along with numerous other companies, in lawsuits alleging personal injury as a result of exposure to asbestos. As of September 30, 2007, the subsidiary had been named as a defendant in approximately 4,300 lawsuits, the first of which was filed in 1990, and a substantial number of which are currently pending. We believe that as of January 1, 2007, from $40 million to $45 million had been expended to resolve claims (including both attorneys’ fees and expenses, and settlement costs), with the subsidiary having expended $4 million of that amount due to insurance deductible obligations, all of which have now been satisfied. Because we have had to rely on the insurers of our subsidiary for certain historical information regarding the amounts expended in settlement and defense of these lawsuits and are not able to verify or confirm the information, we do not know with precision the amounts expended. The subsidiary continues to be named as a defendant in additional lawsuits and we cannot predict the number of additional cases in which it may be named a defendant nor can we predict the potential costs to resolve such additional cases or to resolve the pending cases. However, the subsidiary has in

~~associated therewith. The subsidiary continues to be named as a defendant in additional lawsuits and we cannot predict~~ the number of additional cases in which it may be named a defendant nor can we predict the potential costs to resolve such additional cases or to resolve the pending cases. However, the subsidiary has in excess of $1 billion in insurance limits. Although not all of that will be available due to the insolvency of certain insurers, we believe that the subsidiary will have sufficient insurance available to respond to these claims. We do not believe that these claims will have ~~any~~a material impact on our consolidated financial position, results of operations or cash flows.

The same subsidiary ~~has~~was ~~been~~ a defendant in a lawsuit filed against it by Union Oil Company of California (“Union”) in the Circuit Court of Cook County, Illinois. That lawsuit ~~arises~~arose out of claims alleging personal injury caused by exposure to asbestos at a refinery owned by Union and constructed by ~~the~~our ~~Company’s~~ subsidiary. Union ~~has~~ alleged that the subsidiary iswas required to defend and indemnify it pursuant to the terms of contracts entered into for the construction of the refinery. OnGlobalSantaFe ~~March~~Corporation ~~24,~~was ~~2005,~~also ~~Union~~named ~~filed a motion requesting permission from the Court to add GlobalSantaFe Corporation~~ as a defendant in the pending litigation. Union ~~intends~~stated that it intended to attempt to establish liability against GlobalSantaFe Corporation as the alter ego of, and successor in interest to, its subsidiary and on the basis of a fraudulent conveyance of the subsidiary’s assets, and ~~seeks~~to seek to pierce the corporate veil between the subsidiary and GlobalSantaFe Corporation. We ~~believe~~The parties settled that ~~the~~lawsuit ~~allegations~~in ofJune ~~the~~2007, ~~lawsuit~~with ~~are~~our ~~without~~subsidiary ~~merit~~having ~~and~~agreed ~~intend~~ to ~~vigorously~~pay ~~defend~~an ~~against~~amount ~~the~~from ~~lawsuit,~~funds ~~but~~previously ~~cannot~~received ~~provide~~from ~~any~~insurance ~~assurance~~underwriters, asand towith ~~its~~no ~~ultimate~~contribution ~~outcome~~from GlobalSantaFe Corporation.

OnWe ~~July~~and ~~11,~~a ~~2005,~~number ~~one~~ of our subsidiaries ~~was~~were ~~served~~named ~~with~~as adefendants ~~lawsuit~~in ~~filed~~two onlawsuits ~~behalf~~claiming ofthat ~~three~~the ~~landowners~~GSF inAdriatic ~~Louisiana~~VII incaused ~~the~~damage ~~12th~~to ~~Judicial~~a ~~District~~platform ~~Court~~in ~~for~~ the ~~Parish~~South ofMarsh Island ~~Avoyelles,~~area ~~State~~ of ~~Louisiana~~the U.S. ~~The~~Gulf ~~lawsuit names nineteen other defendants, all~~ of ~~whom~~ ~~are~~Mexico ~~alleged~~when ~~to have contaminated~~ the ~~plaintiffs’~~rig ~~property~~broke ~~with~~free ~~naturally~~from ~~occurring~~its ~~radioactive~~location ~~material,~~during ~~produced~~Hurricane ~~water,~~Rita. ~~drilling~~On ~~fluids~~September 20, ~~chlorides~~2006, ~~hydrocarbons,~~Devon ~~heavy~~Energy ~~metals~~Corporation and ~~other~~Pogo ~~contaminants~~Producing asCompany afiled ~~result~~suit ofin ~~oil~~the ~~and~~United ~~gas~~States ~~exploration activities.~~District ~~The~~Court ~~lawsuit~~for ~~specifies~~the ~~sixty-five~~Southern District ~~wells~~of ~~drilled~~Texas, onHouston ~~the~~Division, ~~property~~claiming inthat ~~question~~the ~~beginning~~defendants incaused ~~1939,~~damage ~~and~~in ~~alleges~~an ~~that~~amount ~~our~~exceeding ~~subsidiary~~$75 ~~was~~million. On the ~~operator~~same orday ~~non-operating~~Apache ~~partner~~Corporation, inas ~~thirteen~~successor ofin ~~the~~interest ~~wells~~to ~~during~~BP ~~certain periods of time~~p.l.c., ~~The plaintiffs~~filed ~~allege~~suit ~~that~~against the defendants ~~are~~in ~~liable on~~ the ~~basis~~United ofStates District ~~strict~~Court ~~liability,~~for ~~breach~~the ofWestern ~~contract,~~District ~~breach~~ of ~~the mineral leases~~Louisiana, ~~negligence,~~Lafayette ~~nuisance~~Division, ~~trespass,~~claiming ~~improper~~damage ~~handling~~in ofan ~~toxic~~unspecified oramount. ~~hazardous~~The ~~substances,~~lawsuit ~~that~~filed ~~their~~by ~~storage~~Devon and ~~disposal of~~Pogo ~~toxic~~has ~~and~~now ~~hazardous~~been ~~substances~~transferred ~~constituted~~to anthe ~~ultra~~United ~~hazardous~~States ~~activity,~~District ~~and~~Court for the ~~violation~~Western District of Louisiana, ~~various~~Lafayette ~~state~~Division, ~~statutes.~~and ~~The~~consolidated with the lawsuit ~~seeks~~filed ~~unspecified~~by ~~amounts~~Apache ofCorporation. ~~compensatory~~We ~~and~~have ~~punitive~~not ~~damages,~~been ~~payment~~presented ofwith ~~funds~~evidence ~~sufficient~~indicating tothat ~~conduct~~the ~~an environmental~~GSF ~~assessment~~Adriatic ofVII caused the ~~property~~damage, inif ~~question~~any, ~~damages~~claimed ~~for~~by ~~diminution~~plaintiffs. ofIn ~~property~~any ~~value~~event, ~~and~~we believe ~~injunctive relief requiring~~ that ~~defendants~~we ~~restore~~will ~~the~~be ~~property~~entitled to ~~its~~the ~~prior~~benefits ~~condition~~of ~~and prevent~~ the ~~migration~~Act of ~~toxic~~God ~~and hazardous substances~~defense. We doAny ~~not~~liability ~~have~~arising ~~sufficient~~from ~~information at~~ this ~~time to form an opinion as to the merits of the~~ lawsuit, orincluding ~~its~~legal ~~potential~~fees ~~liability,~~and ~~if any~~expenses, ~~but~~will ~~intend~~be topaid ~~vigorously~~by ~~defend~~our ~~against~~insurance ~~the lawsuit~~underwriters.

35We and our subsidiaries are defendants or otherwise involved in a number of lawsuits in the ordinary course of business. In the opinion of management, our ultimate liability with respect to these pending lawsuits is not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

ENVIRONMENTAL MATTERS

One of our subsidiaries has recently been ordered by the California Regional Water Quality Control Board to develop a ~~Item~~testing 2plan for a site known as Campus 1000 Fremont in Alhambra, California. ~~Changes~~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 ~~Securities~~the range of $200,000. ~~Use~~We have also been advised that one or more of ~~Proceeds~~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 ~~Issuer~~whether ~~Purchases~~in fact any of ~~Equity~~our ~~Securities~~subsidiaries is a responsible party. The subsidiaries in question do not own any operating assets and have limited ability to respond to any liabilities.

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

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

•

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

•

appropriate investigatory and/or remedial actions; and

•

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

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

•

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

•

the numbers of other PRPs and their financial viability; and

•

the remediation methods and technology to be used.

enterprise doctrine is similar to corporate veil piercing doctrines. On August 16, 2006, Santa Fe Minerals, Inc. and its immediate parent company, 15375 Memorial Corporation, which is also an entity that no longer conducts operations or holds assets, filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. Later that day, the plaintiffs dismissed Santa Fe Minerals, Inc. 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 Corporation and two other subsidiaries in the lawsuit. We believe that these legal theories should not be applied against GlobalSantaFe Corporation 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 Corporation 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 Santa Fe Minerals, Inc. and other parties, including GlobalSantaFe Corporation and the other two subsidiaries, to the codefendant.

Item 1A. Risk Factors

Our Annual Report on Form 10-K for the year ended December 31, 2006 includes, under “Item 1A. Risk Factors,” a discussion of many of the risks inherent in our business and in the oil and gas industry as a whole, many of which are beyond our control. Additional information regarding certain of those risks is set forth in this Item 1A.

RIG UPGRADE, REFURBISHMENT AND CONSTRUCTION PROJECTS, INCLUDING OUR CURRENT SEMISUBMERSIBLE AND DRILLSHIP CONSTRUCTION PROJECTS, AND RIG MAINTENANCE AND REPAIRS ARE SUBJECT TO RISKS INCLUDING DELAYS AND COST OVERRUNS, WHICH COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR RESULTS OF OPERATIONS, AND NO CONTRACT HAS BEEN ENTERED INTO YET FOR THE DRILLSHIP UPON ITS DEPLOYMENT.

We currently have an ultra-deepwater semisubmersible rig under construction to be named the GSF Development Driller III and have also entered into an agreement with a shipyard for the construction of an ultra-deepwater exploration and development drillship. In addition, we are discussing other potential newbuild opportunities with certain of our oil and gas company clients. We may also enter into contracts for the construction of additional rigs and may make major upgrade and refurbishment expenditures for our fleet in the future. Rig upgrade, refurbishment and construction projects and rig repairs are subject to the risks of delay or cost overruns inherent in any large construction project, some of which currently may be exacerbated by increased drilling activity worldwide and the increase in construction and upgrade projects. Such risks include the following:

•

shipyard unavailability;

•

shortages of equipment, materials or skilled labor;

•

unscheduled delays in the delivery of ordered materials and equipment;

•

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

•

work stoppages;

•

client acceptance delays;

•

weather interference or storm damage;

•

unanticipated cost increases; and

•

difficulty in obtaining necessary permits or approvals.

These and other factors could cause delays in the delivery schedule and increases in the costs of upgrade or newbuild projects and materially and adversely affect our financial condition and results of operations. The GSF Development Driller III is subject to a seven-year drilling contract upon completion of construction, and a delay in the delivery of the rig would result in delay in contract commencement, resulting in a loss of revenue, and may also cause the customer to terminate or shorten the term of the drilling contract for the rig pursuant to the late delivery clause. In the event of termination of the contract, we may not be able to secure a replacement contract on as favorable terms. We have not yet secured a drilling contract for deployment of the drillship upon its completion. Historically, the industry has experienced prolonged periods of overcapacity, during which many rigs were idle for long periods of time. There can be no assurance that we will be able to obtain a contract for the drillship. If we are unable to secure a contractual commitment for the rig prior to the completion of construction, it may result in a material adverse effect on our financial condition or operating results.

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

OUR INTERNATIONAL OPERATIONS INVOLVE ADDITIONAL RISKS NOT GENERALLY ASSOCIATED WITH DOMESTIC OPERATIONS, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS OR FINANCIAL RESULTS.

Risks associated with our international operations, including drilling management services, any of which could limit or disrupt our markets or operations, include heightened risks of:

•

terrorist acts, war and civil disturbances;

•

expropriation or nationalization of assets;

•

renegotiation or nullification of existing contracts;

•

foreign taxation, including changes in law or interpretation of existing law;

•

assaults on property or personnel;

•

changing political conditions;

•

changing foreign and domestic monetary policies;

•

complexities relating to compliance with U.S. and local laws applicable to these operations; and

•

travel limitations or operational problems caused by public health threats.

In some foreign jurisdictions, compliance with the U.S. Foreign Corrupt Practices Act (“FCPA”), including on the part of local brokers and agents whose services we rely on, is of particular concern. In June 2007, our management retained independent outside counsel to conduct an internal investigation of our Nigerian and West African operations, focusing on brokers who handled customs matters with respect to our affiliates operating in those jurisdictions and whether those brokers have fully complied with the FCPA and local laws. We commenced our investigation following announcements by other oilfield service companies that they were independently investigating the FCPA implications of certain actions taken by third parties in respect of customs matters in connection with their operations in Nigeria, as well as another company’s recently announced settlement implicating a third party handling customs matters in Nigeria. In each case, the customs broker was reported to be Panalpina Inc., which we used to obtain temporary import permits for our rigs operating offshore Nigeria. We voluntarily disclosed our internal investigation to the U.S. Department of Justice and the U.S. Securities and Exchange

Commission and, at their request, have expanded our investigation to include the activities of our customs brokers in other West African countries and the activities of Panalpina Inc. worldwide. The investigation is focusing on whether the brokers have fully complied with the requirements of their contracts, local laws and the FCPA. Our legal representatives are keeping the DOJ and SEC apprised of the scope and details of their investigation and producing relevant information in response to their requests. The audit committee of our Board of Directors has had unfettered access to the independent outside counsel, and our general counsel and outside counsel have provided periodic updates to the committee during its meetings and to the chairman of the committee between such meetings as circumstances warrant. We cannot predict at this time the ultimate outcome of the investigation, the effect of implementing any further measures that may be necessary to ensure full compliance with applicable laws or to what extent, if at all, we could be subject to fines, sanctions or other penalties. Our investigation includes a review of amounts paid to and by customs brokers in connection with the obtaining of permits for the temporary importation of vessels and the clearance of goods and materials through customs into West African countries, including Nigeria. These permits and clearances are necessary in order for us to operate our drilling rigs in these jurisdictions. There is a risk that we may not be able to obtain import permits or renew temporary importation permits in West African countries, including Nigeria, in a manner that complies with the FCPA. As a result, we may not have the means to renew temporary importation permits for rigs located in the relevant jurisdictions as they expire or to send goods and equipment into those jurisdictions, in which event we may be forced to terminate the pending drilling contracts and relocate the rigs or leave the rigs in these countries and risk permanent importation issues, either of which could have an adverse effect on our financial results. In addition, termination of drilling contracts could result in damage claims by customers.

Additionally, our ability to compete in the international market may be adversely affected by non-U.S. governmental regulations favoring or requiring the awarding of drilling contracts to local contractors or requiring foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. Furthermore, foreign governmental regulations that may in the future become applicable to the oil and natural gas industry, could reduce demand for our services, or such regulations could directly affect our ability to compete for customers or significantly increase our costs.

Our non–U.S. contract drilling operations are subject to various laws and regulations in countries in which we operate, including laws and regulations relating to the equipment and operation of drilling units, currency conversions and repatriation, oil and gas exploration and development and taxation of offshore earnings and earnings of expatriate personnel. Governments in some foreign countries have become increasingly active in regulating and controlling the ownership of concessions and companies holding concessions, the exploration for oil and gas and other aspects of the oil and gas industries in their countries. In addition, government action, including initiatives by OPEC, may continue to cause oil or gas price volatility. In some areas of the world, this governmental activity has adversely affected the amount of exploration and development work done by major oil companies and may continue to do so.

OUR ABILITY TO OPERATE OUR RIGS IN THE U.S. GULF OF MEXICO COULD BE RESTRICTED BY GOVERNMENTAL REGULATION OR REQUIREMENTS OF OUR INSURANCE UNDERWRITERS.

Hurricanes Ivan, Katrina and Rita caused damage to a number of rigs in the U.S. Gulf of Mexico fleet and rigs that were moved off location by the storms may have damaged platforms, pipelines, wellheads and other drilling rigs during their movements. The Minerals Management Service of the U.S. Department of the Interior (“MMS”) has conducted hearings and is undertaking studies to determine methods to prevent or reduce the number of such incidents in the future. The MMS issued guidelines requiring jackup drilling rigs operating in the U.S. Gulf of Mexico to operate during hurricane season with a greater air gap between the hull of the rig and the water, effectively reducing the water depth in which the rigs can operate. The regulations also require operators to conduct more stringent subjective risk assessments of the soil conditions in which the rigs operate in order to increase the survivability of rigs in hurricane conditions. These regulations limit the areas in which particular jackup rigs can operate and expose operators to greater risk of a contracted rig not being able to operate at a specified location, and may reduce the marketability of certain rigs or generally decrease the demand for jackup rigs during hurricane season. In 2006, the MMS issued interim guidelines requiring that semisubmersibles operating in the U.S. Gulf of Mexico assess their mooring systems against stricter criteria. In 2007 additional guidelines were issued which impose stricter criteria, requiring rigs to meet 25-year storm conditions. Although all our semisubmersibles currently operating in the U.S. Gulf of Mexico meet the 2007 requirements, these guidelines may negatively impact our ability to operate our other semisubmersibles in the U.S. Gulf of Mexico in the future. Moreover, the MMS may issue additional regulations or underwriters may take steps that could increase the cost of operations or reduce the area of operations for our rigs in the future, thus reducing their marketability. Implementation of additional MMS regulations or requirements of our insurance underwriters may subject us to increased costs or limit the operational capabilities of our rigs and could materially and adversely affect our operations in the U.S. Gulf of Mexico.

WE ARE SUBJECT TO CHANGES IN TAX LAWS AND TAX TREATIES AND OUR TAX RETURNS ARE SUBJECT TO POSSIBLE REVIEW AND POSSIBLE ADJUSTMENTS.

We are a Cayman Islands company and we operate through our various subsidiaries in numerous countries throughout the world including the United States. Consequently, we are subject to tax laws, treaties and regulations in and between the countries in which we operate. A change in those tax laws, treaties or regulations could result in a higher or lower effective tax rate on our worldwide earnings.

One such treaty is currently in the process of being renegotiated. This renegotiation will likely result in a change in the terms of the treaty that is adverse to our structure, which in turn would increase our effective tax rate, and such increase could be material. We are monitoring the progress of the treaty renegotiation with a view to determining what, if any, steps are appropriate to mitigate any potential negative impact. We may not be able to fully, or partially, mitigate any negative impact of this treaty renegotiation or any other future changes in treaties.

Various proposals have been made in recent years that, if enacted into law, could have an adverse impact on us. Examples include, but are not limited to, proposals that would broaden the circumstances in which a non–U.S. company would be considered a U.S. resident and a proposal that could limit treaty benefits on certain payments by U.S. subsidiaries to non–U.S. affiliates. In addition, proposed legislation has been introduced in the U.S. Congress over the past several years that would limit the deductibility of certain interest expense on related-party indebtedness. A similar proposal has also been included in the President’s fiscal year 2008 budget proposals. The American Jobs Creation Act of 2004 mandated the U.S. Treasury to complete a study on the effect of certain deductions such as related-party interest. It is possible that the U.S. Congress will propose further legislation in this regard after the study has been completed. If any of these proposals were enacted, it could cause a material increase in our tax liability and effective tax rate.

Our income taxes are based upon the applicable tax laws and tax rates in effect in the countries in which we operate and upon how we are structured in these countries. Our income tax returns are subject to review and examination in such countries. If any tax authority successfully challenges our operational structure, intercompany pricing policies, or the tax presence of our entities in certain countries, or if the terms of certain income tax treaties are changed in a manner that is adverse to our structure, or if we lose a material dispute in any country, particularly in the United States, our effective tax rate on our worldwide earnings could increase substantially and our financial results could be materially adversely affected. For more information regarding these matters see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Operating Results—Income Taxes.”

Risks Relating to the Pending Transactions

In addition to the risks described in our Annual Report on Form 10-K for the year ended December 31, 2006 and above, we are subject to a number of additional risks relating to the pending business combination with Transocean, some of which are described below. See “Risk Factors” in the joint proxy statement we and Transocean filed with the Securities and Exchange Commission on October 3, 2007 for more information regarding risks relating to the Transactions and the combined business after giving effect to the Transactions.

FAILURE TO COMPLETE, OR DELAYS IN COMPLETING, THE TRANSACTIONS COULD NEGATIVELY IMPACT THE MARKET PRICE OF OUR ORDINARY SHARES AND FINANCIAL RESULTS.

Completion of the proposed Transactions is subject to various conditions, including, among others, approval by our shareholders and Transocean’s shareholders and obtaining regulatory clearances and financing sufficient to enable Transocean to deliver the cash consideration to our shareholders and the shareholders of Transocean payable by virtue of the Transactions. If these or other conditions are not satisfied, or if there is a delay in the satisfaction of such conditions, we may not be able to complete the Transactions timely or at all, and such failure or delay may have other adverse consequences. If the Transactions are not completed or are delayed, we will be subject to a number of risks, including the following:

•

we will not realize the expected benefits of the combined company;

•

the market price of our ordinary shares may decline to the extent that the current market price of our shares reflects a market assumption that the Transactions will be completed;

•

some costs relating to the Transactions, such as certain financial advisor, legal and financing fees, must be paid even if the Transactions are not completed; and

•

in specified circumstances, if the Transactions are not completed, we must pay Transocean either a termination fee of $300 million or up to $30 million in expense reimbursement instead of the termination fee.

WHILE THE TRANSACTIONS ARE PENDING, WE MAY EXPERIENCE DIMINISHED PRODUCTIVITY DUE TO THE IMPACT OF THE TRANSACTIONS ON CURRENT AND PROSPECTIVE EMPLOYEES, KEY MANAGEMENT, CUSTOMERS, SUPPLIERS AND BUSINESS PARTNERS, AND WE ARE SUBJECT TO RESTRICTIONS ON THE CONDUCT OF OUR BUSINESS.

Our management may be required to devote substantial time to activities related to the Transactions, which could otherwise be devoted to pursuing other beneficial business opportunities. Furthermore, our current and prospective employees may be uncertain about their future roles and relationships with us following the completion of the Transactions. This focus of management on the Transactions and employee uncertainty may also affect our productivity and this may adversely affect our ability to attract and retain key management and employees.

Our customers and business partners may not be as willing to continue business with us on the same or similar terms or may delay or defer decisions relating to their business relationships with us pending the completion of the Transactions, which could materially and adversely affect our business and results of operations.

In addition, the Merger Agreement restricts us, without Transocean’s approval, from taking actions outside the ordinary course of business or from taking specified actions including, among other things, making certain significant acquisitions, dispositions or investments, making certain significant capital expenditures, declaring dividends, and repurchasing shares, unless the Merger Agreement terminates. These restrictions may prevent us from taking actions that we might otherwise consider beneficial.

UNLESS THE MERGER AGREEMENT IS TERMINATED, WE MAY NOT BE ABLE TO ENTER INTO A MERGER OR BUSINESS COMBINATION WITH ANOTHER PARTY ON FAVORABLE TERMS BECAUSE OF RESTRICTIONS IN THE MERGER AGREEMENT.

Unless and until the Merger Agreement is terminated, subject to specified exceptions, we are restricted from soliciting, initiating or knowingly encouraging any inquiry, proposal or offer for an alternative transaction with any person or entity. We may terminate the Merger Agreement and enter into an agreement with respect to a superior proposal only if specified conditions have been satisfied, including our compliance in all material respects with these non–solicitation provisions, allowing Transocean seven days (or five days with respect to any material revision) to propose an adjustment to the terms and conditions of the Merger Agreement and paying a $300 million termination fee. These restrictions could affect the structure, pricing and other terms proposed by other parties seeking to enter into an alternate transaction with us and, as a result of these restrictions, we may not be able to enter into an agreement with respect to an alternative transaction on more favorable terms without incurring potentially significant liability to Transocean.

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

ISSUER REPURCHASES OF ORDINARY SHARES

The following table details our repurchases of ordinary shares for the three months ended ~~June~~ September 30, ~~2005~~2007:

Period	~~Total~~TotalNumber ~~Numberof SharesPurchased~~ofSharesPurchased		AveragePrice PerShare	~~AveragePrice PerShare~~		Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms	~~Total~~Maximum ~~Number~~ApproximateDollar ~~ofShares~~Value ~~Purchased~~of ~~asPart~~Shares ofthatMay ~~PubliclyAnnounced~~Yet be PurchasedUnder the Plans ~~orPrograms~~or Programs		~~Maximum ApproximateDollar Value of Sharesthat May Yet bePurchased Under thePlans or Programs~~
April 1 - 30, 2005	23,500,000	(1)		$	34.02	(1)	—		$	98.6 million	(2)
July 1 - 31, 2007	1,092,578		$	73.22		1,092,578	$	0.4 billion	(1)
May 1 - 31, 2005	—				—		—		$	98.6 million	(2)
August 1 - 31, 2007	0		$	—		0	$	0.4 billion	(1)
June 1-30, 2005	—				—		—		$	98.6 million	(2)
September 1 - 30, 2007	0		$	—		0	$	0.4 billion	(1)
Total	231,~~500~~092,~~000~~578		$	$73.22	~~34.02~~	1,092,578	—

(1) WeOn ~~purchased~~March 233,~~500~~ 2006,~~000~~ of our ~~shares~~Board ~~from~~of aDirectors ~~subsidiary~~authorized ofus ~~Kuwait~~to ~~Petroleum~~repurchase ~~Corporation~~up onto ~~April~~$2 ~~20,~~billion ~~2005,~~of ~~pursuant~~our toordinary ashares ~~privately~~from ~~negotiated~~time ~~stock~~to ~~purchase transaction~~time. WeAll ~~purchased~~of ~~these~~the shares ~~with~~repurchased during the ~~net~~third ~~proceeds~~quarter toof us2007 ~~from~~were arepurchased ~~concurrent~~pursuant ~~public~~to ~~offering~~this ofplan. anUnder ~~equivalent~~the ~~number~~terms of ~~shares.~~the ~~All~~Merger 23Agreement,~~500,000~~ ~~shares~~we ~~were~~have ~~purchased~~agreed atnot ato ~~price~~repurchase ofshares ~~$34.02~~pending ~~per~~completion ~~share,~~of ~~which~~the ~~was~~merger ~~the~~and ~~same~~accordingly ashave ~~the~~suspended ~~net~~our ~~price~~share ~~received~~repurchase byprogram usand inwill ~~the~~not ~~public~~make ~~offering~~further repurchases.

~~(2)~~In AsJuly ~~we announced on August 6~~2007, ~~2002,~~we terminated our ~~Board~~written ofplan ~~Directors~~entered ~~authorized~~into usin toMarch ~~repurchase~~2007 uppursuant to ~~$150~~Rule ~~million~~10b5-1 ofunder ~~our~~the ~~ordinary~~U.S. Securities ~~shares~~Exchange ~~from~~Act ~~time~~of to1934, ~~time~~which ~~depending~~provided onfor ~~market conditions,~~ the ~~share~~purchase ~~price~~of ~~and~~GlobalSantaFe ~~other~~ordinary ~~factors.~~shares Noin ~~repurchases~~support ~~were~~of ~~made~~our inpreviously ~~the~~announced ~~quarter~~share ~~ended~~repurchase ~~June 30, 2005~~program.

~~Item~~45 ~~4. Submission of Matters to a Vote of Security Holders~~

Our annual general meeting of shareholders was held on June 7, 2005. At the meeting, four Class II directors were elected, a proposal to amend the GlobalSantaFe 2003 Long-Term Incentive Plan was approved, and the appointment of PricewaterhouseCoopers LLP as our independent auditors for 2005 was ratified, each by a vote of holders of our Ordinary Shares, par value of US $.01 per share, as outlined in our proxy statement relating to the meeting. With respect to the election of directors, (a) proxies were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, (b) there was no solicitation in opposition to management’s nominees as listed in the proxy statement, and (c) all of such nominees were elected. The following numbers of votes were cast as to the Class II director nominees: Richard L. George, 223,513,604 votes for and 761,107 votes withheld; Robert E. Rose, 223,106,247 votes for and 1,168,464 votes withheld; Stephen J. Solarz, 222,369,759 votes for and 1,904,952 votes withheld; and Nadar H. Sultan, 178,932,565 votes for and 45,342,146 votes withheld. With respect to the amendment to the GlobalSantaFe 2003 Long-Term Incentive Plan to reduce the number of shares authorized for issuance under the plan and increase the number of shares available for full-value stock awards, 195,937,592 votes were cast in favor of approval, 4,483,999 votes were cast against approval, and there were 303,093 abstentions. With respect to the ratification of PricewaterhouseCoopers LLP as our independent auditors for 2005, 224,027,100 votes were cast in favor of ratification, 146,394 votes were cast against ratification, and there were 101,217 abstentions.

Item 5. Other Information

During the second quarter of 2005, the following individuals each adopted a written plan pursuant to Rule 10b5-1 under the U.S. Securities Exchange Act of 1934, which provided for the exercise of specified employee stock options granted to the individual by the company and the sale of the underlying shares of the company stock in “cashless” exercise transactions at specified per share market price targets: W. Matt Ralls, Executive Vice President, Operations; Michael R. Dawson, Senior Vice President and Chief Financial Officer; and Anil B. Shah, Vice President and Treasurer.

Also during the second quarter, Robert E. Rose, Chairman of the Board and a director, adopted a written plan pursuant to Rule 10b5-1 under the U.S. Securities Exchange Act of 1934, which provided for the sale of shares of company stock owned by the Rose Foundation at a specified per share market price target.

Item 6. Exhibits

10.1 Form of Underwriting Agreement for Ordinary Shares (incorporated herein by this reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 18, 2005).


Exhibit Number		Description
2.1		Agreement and Plan of Merger, dated as of July 21, 2007, among Transocean Inc., GlobalSantaFe Corporation and Transocean Worldwide Inc. (incorporated herein by this reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 23, 2007).

10.1⁺		Form of Amendment to Terms and Conditions of Performance-Awarded Restricted Stock Units and Terms and Conditions of Performance Units for 2005-2007 performance cycle granted under the GlobalSantaFe 2003 Long-Term Incentive Plan.

10.2⁺		Form of Amendment to Terms and Conditions of Performance-Awarded Restricted Stock Units granted under the GlobalSantaFe 2003 Long-Term Incentive Plan.

10.3⁺		Form of Amendment to Terms and Conditions of Non-Employee Director Restricted Stock Units granted in 2005 and 2006 under the GlobalSantaFe 2003 Long-Term Incentive Plan.

10.4⁺		GlobalSantaFe Corporation Key Employee Deferred Compensation Plan as amended and restated effective January 1, 2008.

10.5⁺		GlobalSantaFe Retention Program as amended and restated effective January 1, 2008.

10.6⁺		GlobalSantaFe Supplemental Executive Retirement Plan as amended and restated effective January 1, 2008.

10.7⁺		GlobalSantaFe Pension Equalization Plan as amended and restated effective January 1, 2008.

10.8		Commitment Letter, dated July 21, 2007, among Transocean Inc., GlobalSantaFe Corporation, Goldman Sachs Credit Partners L.P., Lehman Brothers Commercial Bank, Lehman Commercial Paper Inc. and Lehman Brothers Inc. (incorporated herein by this reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on July 23, 2007).

10.9		Amendment to GlobalSantaFe Corporation Severance Agreement with Jon A. Marshall (incorporated herein by this reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on July 23, 2007).

~~10.2~~46 Terms Agreement dated April 14, 2005 between the Company and Goldman Sachs & Co., as representative of the underwriters named therein (incorporated herein by this reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on April 18, 2005).

10.3 Share Purchase Agreement dated April 14, 2005, between the Company, Kuwait Petroleum Corporation and SFIC Holdings (Cayman), Inc. (incorporated herein by this reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on April 18, 2005).

10.4 GlobalSantaFe 2003 Long-Term Incentive Plan (as Amended and Restated Effective June 7, 2005).

10.5 Form Severance Agreement with Executive Officers (incorporated herein by this reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed with the Commission on July 26, 2005).

10.6 Change in Executive Officer Compensation (incorporated herein by this reference to the description set forth under Item 1.01 of the Company’s Current Report on Form 8-K filed with the Commission on June 8, 2005).

12.1 Statement setting forth detail of Computation of Ratios of Earnings to Fixed Charges.

15.1 Letter of Independent Registered Public Accounting Firm regarding Awareness of Incorporation by Reference.

31.1 Chief Executive Officer’s Certification pursuant to Rules 13a – 14(a) of the Securities Exchange Act of 1934.

31.2 Chief Financial Officer’s Certification pursuant to Rules 13a – 14(a) of the Securities Exchange Act of 1934.

32.1 Chief Executive Officer’s Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Chief Financial Officer’s Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


10.10		Form of Amendments to GlobalSantaFe Corporation Severance Agreements with W. Matt Ralls, Michael R. Dawson, James L. McCulloch, Roger B. Hunt, Cheryl D. Richard, R. Blake Simmons and Stephen E. Morrison (incorporated herein by this reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Commission on July 23, 2007).

12.1⁺		Statement setting forth detail of Computation of Ratios of Earnings to Fixed Charges

15.1⁺		Letter of Independent Registered Public Accounting Firm regarding Awareness of Incorporation by Reference

31.1⁺		Chief Executive Officer’s Certification pursuant to Rules 13a – 14(a) of the Securities Exchange Act of 1934

31.2⁺		Chief Financial Officer’s Certification pursuant to Rules 13a – 14(a) of the Securities Exchange Act of 1934

32.1⁺		Chief Executive Officer’s Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2⁺		Chief Financial Officer’s Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

⁺	Filed Herewith

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		GLOBALSANTAFE CORPORATION
		(Registrant)
Dated: August 5, 2005		/s/ Michael R. Dawson
Dated: November 1, 2007		/s/ Michael R. Dawson
		Michael R. Dawson
		Senior Vice President and Chief Financial Officer
		(Duly Authorized Officer and Principal Financial
		(Duly Authorized Officer and Principal Financial Officer of the Registrant)
		Officer of the Registrant)

3848

Table of Contents

Table of Contents

Table of Contents

Filing Compare · GLOBALSANTAFE CORP