Transocean Ltd

Three months ended March 31, 2024 compared to the three months ended March 31, 2023

The following is an analysis of our operating results. See “—Performance and Other Key Indicators” for definitions of operating days, average daily revenue, revenue efficiency and rig utilization.

“nm” means not meaningful.

Contract drilling revenues—Contract drilling revenues increased for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to the following: (a) approximately $80 million resulting from higher average daily revenues, (b) approximately $35 million resulting from increased activity for the operations of the harsh environment floaterTransocean Norge, (c) approximately $25 million resulting from the operations of our newbuild ultra-deepwater floaterDeepwater Titan placed into service in May 2023 and (d) approximately $10 million resulting from higher reimbursement revenues. These increases were partially offset by the following: (a) approximately $20 million resulting from decreased utilization, (b) approximately $10 million resulting from lower revenue efficiency for the rest of the fleet and (c) approximately $5 million resulting from the sale of the harsh environment floaterPaul B. Loyd, Jr. in the three months ended March 31, 2024.

Costs and expenses—Operating and maintenance costs and expenses increased for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to the following: (a) approximately $30 million resulting from increased activity for the operations and leasing ofTransocean Norge, (b) approximately $15 million resulting from higher contract preparation costs, (c) approximately $15 million resulting from the operations of our newbuild ultra-deepwater floaterDeepwater Titan, (d) approximately $15 million resulting from the effect of inflation on personnel and other operating costs, (e) approximately $15 million resulting from incremental in-service costs related to additional services and contract preparation cost recognition and (f) approximately $10 million resulting from higher reimbursable costs.

General and administrative costs and expenses increased for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to $5 million of increased personnel costs.

Loss on disposal of assets—In the three months ended March 31, 2023, we recognized a loss of $169 million associated with our non-cash contribution of the ultra-deepwater drillshipOcean Rig Olympia and related assets for a noncontrolling ownership interest in Global Sea Mineral Resources NV. In the three months ended March 31, 2024 and 2023, we recognized an aggregate net loss of $6 million and $1 million, respectively, associated with the disposal of assets unrelated to rig sales.

Other income and expense—Interest expense, net of amounts capitalized, decreased in the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to the following: (a) $143 million decreased interest resulting from the change to the fair value of the bifurcated compound exchange feature embedded in the indenture governing the 4.625% senior guaranteed exchangeable bonds due September 2029 and (b) $11 million decreased interest resulting from debt repaid as scheduled or early retired since January 1, 2023, partially offset by, (c) $14 million increased interest resulting from debt issued since January 1, 2023 and (d) $12 million increased interest resulting from reduced interest costs capitalized for our newbuild construction program.

In the three months ended March 31, 2023, we recognized an aggregate net loss of $32 million associated with the early retirement of $1.38 billion aggregate principal amount of our debt securities.

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Other income, net, increased in the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to (a) decreased loss of $11 million associated with equity in earnings of our equity investments and (b) an increased gain of $5 million resulting from net changes to currency exchange rates, partially offset by (c) reduced income of $7 million associated with management and service fees from our unconsolidated affiliates.

Income tax expense or benefit—In the three months ended March 31, 2024 and 2023, our effective tax rate was 206.0 percent and (12.3) percent, respectively, based on loss before income tax expense or benefit. In the three months ended March 31, 2024 and 2023, the effect of various discrete period tax items was a net tax benefit of $121 million and $11 million, respectively. In the three months ended March 31, 2024, such discrete items included changes to deferred taxes due to rig ownership changes, rig movement and contract expirations across multiple jurisdictions. In the three months ended March 31, 2023, such discrete items included expiration of various uncertain tax positions and changes to valuation allowances. In the three months ended March 31, 2024 and 2023, our effective tax rate, excluding discrete items, was 76.9 percent and (29.0) percent, respectively, based on loss before income tax expense or benefit.

Due to our operating activities and organizational structure, our income tax expense does not change proportionally with our income before income taxes. Significant decreases in our income before income taxes typically lead to higher effective tax rates, while significant increases in income before income taxes can lead to lower effective tax rates, subject to the other factors impacting income tax expense noted above. With respect to the effective tax rate calculation for the three months ended March 31, 2024, a significant portion of our income tax expense was generated in countries in which income taxes are imposed or treated to be imposed on gross revenues with the most significant of these countries being Angola and India. Conversely, the countries in which we incurred the most significant income taxes during this period that were based on income before income tax include the U.S., Hungary, Brazil, Cyprus, Australia, Norway and Switzerland. Our rig operating structures further complicate our tax calculations, especially in instances where we have more than one operating structure for the taxing jurisdiction and, thus, more than one method of calculating taxes depending on the operating structure utilized by the rig under the contract.

Liquidity and Capital Resources

Sources and uses of cash

At March 31, 2024, we had $446 million in unrestricted cash and cash equivalents and $270 million in restricted cash and cash equivalents. In the three months ended March 31, 2024, our primary sources of cash were net cash proceeds from disposal of assets. Our primary uses of cash were repayments of debt, net cash used in operating activities and capital expenditures.

Net cash used in operating activities increased primarily due to (a) increased cash paid to suppliers, (b) increased cash paid for interest and income taxes and (c) increased cash paid to employees, partially offset by (d) increased cash collected from customers.

Net cash used in investing activities decreased primarily due to (a) increased proceeds from disposal of assets and (b) reduced cash invested in the debt or equity of our unconsolidated affiliates.

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Net cash used in financing activities increased primarily due to (a) net cash proceeds from the issuance of $1.175 billion aggregate principal amount of 8.75% senior secured notes due February 2030 and $525 million aggregate principal amount of 8.375% senior secured notes due February 2028 in the three months ended March 31, 2023 and (b) cash used to redeem $1.38 billion aggregate principal amount of certain of our debt securities in the three months ended March 31, 2023.