Transocean Ltd

Three months ended September 30, 2024 compared to the three months ended September 30, 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.

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Contract drilling revenues—Contract drilling revenues increased for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to the following: (a) approximately $210 million resulting from increased utilization, (b) approximately $55 million resulting from improved average daily revenues, (c) approximately $35 million resulting from operations of our newbuild ultra-deepwater floaterDeepwater Aquila and (d) approximately $10 million resulting from decreased amortization of contract intangible assets. These increases were partially offset by the following: (a) approximately $55 million resulting from rigs sold or classified as held for sale, (b) approximately $15 million resulting from early termination fees in the three months ended September 30, 2023 with no comparable activity in the current-year period and (c) approximately $5 million resulting from lower reimbursement revenues.

Costs and expenses—Operating and maintenance costs and expenses increased for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to the following: (a) approximately $95 million resulting from increased operating activity, (b) approximately $20 million resulting from the operations of our newbuild ultra-deepwater floaterDeepwater Aquila, (c) approximately $20 million resulting from incremental in-service costs related to additional services and (d) approximately $15 million resulting from the effect of inflation on personnel and other operating costs. These increases were partially offset by the following: (a) approximately $55 million resulting from rigs sold or classified as held for sale, (b) approximately $40 million resulting from lower costs incurred during contract preparation, (c) approximately $10 million resulting from the operations of the harsh environment floaterTransocean Norge and (d) approximately $5 million resulting from lower reimbursable costs.

Depreciation and amortization expense decreased for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to decreases of (a) $7 million resulting from rigs sold or classified as held for sale and (b) $5 million resulting from assets that had reached the end of their useful lives, had been retired or from other operating activities, partially offset by an increase of (c) $10 million resulting from three newbuild ultra-deepwater floaters, one acquired harsh environment floater and other property and equipment placed into service.

General and administrative costs and expenses increased for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to approximately $5 million resulting from increased personnel costs.

Loss on impairment of assets—In the three months ended September 30, 2024, we recognized a loss of $629 million associated with the impairment ofDevelopment Driller III and* Discoverer Inspiration* together with related assets.

Other income and expense—Interest expense, net of amounts capitalized, decreased in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to the following: (a) $167 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 (“4.625% Senior Guaranteed Exchangeable Bonds”) and (b) $23 million decreased interest resulting from debt repaid as scheduled or early retired, partially offset by, (c) $44 million increased interest resulting from debt issued.

In the three months ended September 30, 2024, we recognized a net gain of $21 million associated with the redemption of $91 million aggregate principal amount of the 11.50% Senior Guaranteed Notes.

Other income, net, decreased in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, primarily due to (a) decreased income of $8 million related to our dual-activity patent, partially offset by (c) decreased losses of $3 million related to our equity investments in unconsolidated affiliates.

Income tax benefit—In the three months ended September 30, 2024 and 2023, our effective tax rate was 6.0 percent and 16.3 percent, respectively, based on loss before income tax benefit. In the three months ended September 30, 2024 and 2023, the effect of various discrete period tax items was a net tax benefit of $50 million and $65 million, respectively. In the three months ended September 30, 2024, such discrete items included changes to deferred taxes resulting from asset impairments and changes to valuation allowances. In the three months ended September 30, 2023, such discrete items included settlement of various uncertain tax positions and changes to valuation allowances. In the three months ended September 30, 2024 and 2023, our effective tax rate, excluding discrete items, was 22.5 percent and (8.7) percent, respectively, based on loss before income tax benefit.

Due to our operating activities and organizational structure, our income tax expense does not change proportionally with our income before income taxes. We may have subsidiaries with tax expense on taxable earnings that exceeds the tax benefits in other jurisdictions, or vice versa, which sometimes results in a negative effective tax rate or unusually high effective tax rates relative to consolidated losses before income taxes. Our earnings are unevenly distributed across jurisdictions and may experience variability in timing among interim periods throughout the year and such variability may influence the allocation of income tax expense or benefit to the respective interim period. The annual effective tax rate used to allocate income tax expense or benefit to interim periods may also be influenced by the removal of loss jurisdictions from the calculations. 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.

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Nine months ended September 30, 2024 compared to the nine months ended September 30, 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 nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to the following: (a) approximately $305 million resulting from increased utilization, (b) approximately $215 million resulting from improved average daily revenues, (c) approximately $100 million resulting from the operations of our newbuild ultra-deepwater floatersDeepwater Titan andDeepwater Aquila, (d) approximately $60 million resulting from increased activity for the operations of the harsh environment floaterTransocean Norge and (e) approximately $40 million resulting from decreased amortization of contract intangible assets. These increases were partially offset by the following: (a) approximately $185 million resulting from rigs sold or classified as held for sale, (b) approximately $35 million resulting from early termination fees in the nine months ended September 30, 2023 with no comparable activity in the current-year period and (c) approximately $20 million resulting from decreased revenue efficiency for the comparable active fleet.

Costs and expenses—Operating and maintenance costs and expenses increased for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to the following: (a) approximately $150 million resulting from increased operating activity, (b) approximately $55 million resulting from the effect of inflation on personnel and other operating costs, (c) approximately $50 million resulting from the operations of our newbuild ultra-deepwater floatersDeepwater Titan andDeepwater Aquila, (d) approximately $50 million resulting from incremental in-service costs related to additional services, (e) approximately $40 million resulting from the operations of the harsh environment floaterTransocean Norge, (f) approximately $25 million resulting from increased in-service maintenance costs for the comparable fleet, (g) approximately $15 million resulting from out-of-service costs and (h) approximately $10 million resulting from increased costs associated with early retirement of certain personnel. These increases were partially offset by the following: (a) approximately $140 million resulting from rigs sold or classified as held for sale, (b) approximately $25 million resulting from lower costs incurred during contract preparation, (c) approximately $15 million resulting from favorable settlements of various litigation and contingencies and (d) approximately $10 million resulting from favorable currency exchange rates.

Depreciation and amortization expense decreased for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to decreases of (a) $18 million resulting from rigs sold or classified as held for sale and (b) $9 million resulting from assets that had reached the end of their useful lives, had been retired or from other operating activities, partially offset by an increase of (c) $27 million resulting from three newbuild ultra-deepwater floaters, one acquired harsh environment floater and other property and equipment placed into service.

General and administrative costs and expenses increased for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to (a) approximately $16 million resulting from increased personnel costs, primarily resulting from costs associated with the early retirement of certain personnel, and (b) approximately $10 million resulting from increased legal and professional fees.

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Loss on impairment or disposal of assets—In the nine months ended September 30, 2024, we recognized a loss of $772 million associated with the impairment ofDeepwater Nautilus,* Development Driller III* andDiscoverer Inspiration, together with related assets. In the nine months ended September 30, 2023, we recognized a loss of $58 million associated with the impairment ofPaul B. Loyd, Jr. andTransocean Leader, together with related assets.

In the nine months ended September 30, 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 an unconsolidated affiliate. In the nine months ended September 30, 2024 and 2023, we recognized an aggregate net loss of $10 million and $4 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 nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to the following: (a) $425 million decreased interest resulting from the fair value adjustment of the bifurcated compound exchange feature embedded in the indenture governing the 4.625% Senior Guaranteed Exchangeable Bonds and (b) approximately $51 million decreased interest resulting from debt repaid as scheduled or early retired, partially offset by, (c) approximately $95 million increased interest resulting from debt issued and (d) $18 million increased interest resulting from reduced interest costs capitalized for our newbuild construction program.

In the nine months ended September 30, 2024, we recognized a net gain on retirement of debt as follows: (a) a net gain of $144 million resulting from retirement of notes validly tendered in the Tender Offers and (b) a net gain of $17 million associated with the redemption of $852 million aggregate principal amount of our debt securities. In the nine months ended September 30, 2023, we recognized a net loss of $32 million associated with the redemption of $1.38 billion aggregate principal amount of our debt securities.

Other income, net, decreased in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily due to (a) decreased income of $18 million related to our dual-activity patent, partially offset by (b) decreased losses of $11 million related to our equity investments in unconsolidated affiliates.

Income tax benefit—In the nine months ended September 30, 2024 and 2023, our effective tax rate was 11.3 percent and 0.9 percent, respectively, based on loss before income tax benefit. In the nine months ended September 30, 2024 and 2023, the effect of various discrete period tax items was a net tax benefit of $178 million and $77 million, respectively. In the nine months ended September 30, 2024, such discrete items included changes to deferred taxes resulting from operational and structural changes related to rig movements and asset impairments, changes to valuation allowances and settlements of various uncertain tax positions. In the nine months ended September 30, 2023, such discrete items included settlement and expirations of various uncertain tax positions, changes to valuation allowance and changes to deferred taxes due to new rig operations. In the nine months ended September 30, 2024 and 2023, our effective tax rate, excluding discrete items, was 364.0 percent and (11.7) percent, respectively, based on loss before income tax benefit.

Due to our operating activities and organizational structure, our income tax expense does not change proportionally with our income before income taxes. We may have subsidiaries with tax expense on taxable earnings that exceeds the tax benefits in other jurisdictions, or vice versa, which sometimes results in a negative effective tax rate or unusually high effective tax rates relative to consolidated losses before income taxes. Our earnings are unevenly distributed across jurisdictions and may experience variability in timing among interim periods throughout the year and such variability may influence the allocation of income tax expense or benefit to the respective interim period. The annual effective tax rate used to allocate income tax expense or benefit to interim periods may also be influenced by the removal of loss jurisdictions from the calculations. 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

In the nine months ended September 30, 2024, our primary sources of cash were net cash proceeds from issuance of debt, disposal of assets and cash provided by operating activities. Our primary uses of cash were debt repayments and capital expenditures.

Net cash provided by operating activities increased primarily due to increased cash collected from customers, partially offset by increased cash paid to suppliers.

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Net cash used in investing activities decreased primarily due to increased proceeds from disposal of one ultra-deepwater floater and two harsh environment floaters in the nine months ended September 30, 2024.

Net cash used in financing activities increased primarily due to (a) increased net cash used to early retire $1.70 billion aggregate principal amount of certain of our debt securities in the nine months ended September 30, 2024 compared to $1.38 billion aggregate principal amount of certain of our debt securities in the prior-year period, partially offset by (b) increased net cash proceeds from the issuance of $900 million aggregate principal amount of 8.25% Senior Notes and $900 million aggregate principal amount of 8.50% Senior Notes in the nine months ended September 30, 2024 compared to 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 prior-year period.