form10_q1q2013.htm




 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
 
FORM 10-Q
           (Mark one)
 
þ  
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 

 
For the quarterly period ended March 31, 2013
 

 
                                   OR
 

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

 
For the transition period from _____ to _____
 
_________________________

 
Commission file number 000-53533
 

 
TRANSOCEAN LTD.
(Exact name of registrant as specified in its charter)
 
Transocean Logo

 

Zug, Switzerland
98-0599916
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
   
10 Chemin de Blandonnet
Vernier, Switzerland
1214
(Address of principal executive offices)
(Zip Code)
   
+41 (22) 930-9000
(Registrant’s telephone number, including area code)
   
    _________________________
 

 
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 þ   No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes þ   No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
     Large accelerated filer þ    Accelerated filer ¨    Non-accelerated filer (do not check if a smaller reporting company) ¨    Smaller reporting company ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨   No þ
 
 
As of April 30, 2013, 360,346,455 shares were outstanding.
 



 
 

 

 

TRANSOCEAN LTD. AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED MARCH 31, 2013

 
Page
 
 
 
 
 
 
 
 
     
 



 
 

 
 

 
PART I.                 FINANCIAL INFORMATION
 
Financial Statements
 

TRANSOCEAN LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)

   
Three months ended
March 31,
   
2013
 
2012
Operating revenues
               
Contract drilling revenues
 
$
2,145
   
$
2,014
 
Other revenues
   
52
     
96
 
     
2,197
     
2,110
 
Costs and expenses
               
Operating and maintenance
   
1,375
     
1,242
 
Depreciation
   
275
     
285
 
General and administrative
   
67
     
69
 
     
1,717
     
1,596
 
Loss on impairment
   
     
(140
)
Loss on disposal of assets, net
   
(7
)
   
(3
)
Operating income
   
473
     
371
 
                 
Other income (expense), net
               
Interest income
   
17
     
15
 
Interest expense, net of amounts capitalized
   
(157
)
   
(180
)
Other, net
   
(1
)
   
(18
)
     
(141
)
   
(183
)
Income from continuing operations before income tax expense
   
332
     
188
 
Income tax expense
   
19
     
34
 
Income from continuing operations
   
313
     
154
 
Loss from discontinued operations, net of tax
   
     
(136
)
                 
Net income
   
313
     
18
 
Net income (loss) attributable to noncontrolling interest
   
(8
)
   
8
 
Net income attributable to controlling interest
 
$
321
   
$
10
 
                 
Earnings (loss) per share-basic
               
Earnings from continuing operations
 
$
0.88
   
$
0.42
 
Loss from discontinued operations
   
     
(0.39
)
Earnings per share
 
$
0.88
   
$
0.03
 
                 
Earnings (loss) per share-diluted
               
Earnings from continuing operations
 
$
0.88
   
$
0.42
 
Loss from discontinued operations
   
     
(0.39
)
Earnings per share
 
$
0.88
   
$
0.03
 
                 
Weighted-average shares outstanding
               
Basic
   
360
     
350
 
Diluted
   
360
     
350
 

See accompanying notes.
 
- 1 -

 
TRANSOCEAN LTD. AND SUBSIDIARIES
(In millions)
(Unaudited)

   
Three months ended
March 31,
   
2013
 
2012
Net income
 
$
313
   
$
18
 
                 
Other comprehensive income (loss) before reclassifications
               
Components of net periodic benefit costs
   
(35
)
   
(28
)
Gain (loss) on derivative instruments
   
(5
)
   
3
 
                 
Reclassifications to net income
               
Components of net periodic benefit costs
   
14
     
13
 
(Gain) loss on derivative instruments
   
7
     
(3
)
                 
Other comprehensive loss before income taxes
   
(19
)
   
(15
)
Income taxes related to other comprehensive income (loss)
   
1
     
(3
)
Other comprehensive loss, net of income taxes
   
(18
)
   
(18
)
                 
Total comprehensive income
   
295
     
 
Total comprehensive income (loss) attributable to noncontrolling interest
   
(7
)
   
8
 
                 
Total comprehensive income (loss) attributable to controlling interest
 
$
302
   
$
(8
)

See accompanying notes.
 
- 2 -

 
TRANSOCEAN LTD. AND SUBSIDIARIES
(In millions, except share data)
(Unaudited)


   
March 31,
2013
 
December 31,
2012
Assets
         
Cash and cash equivalents
 
$
3,689
   
$
5,134
 
Accounts receivable, net of allowance for doubtful accounts
of $20 at March 31, 2013 and December 31, 2012
   
2,117
     
2,200
 
Materials and supplies, net of allowance for obsolescence
of $68 and $66 at March 31, 2013 and December 31, 2012, respectively
   
648
     
610
 
Assets held for sale
   
128
     
179
 
Deferred income taxes, net
   
151
     
142
 
Other current assets
   
400
     
382
 
Total current assets
   
7,133
     
8,647
 
                 
Property and equipment
   
27,404
     
26,967
 
Property and equipment of consolidated variable interest entities
   
1,071
     
1,092
 
Less accumulated depreciation
   
7,443
     
7,179
 
Property and equipment, net
   
21,032
     
20,880
 
Goodwill
   
2,987
     
2,987
 
Other assets
   
1,523
     
1,741
 
Total assets
 
$
32,675
   
$
34,255
 
                 
Liabilities and equity
               
Accounts payable
 
$
843
   
$
1,047
 
Accrued income taxes
   
111
     
116
 
Debt due within one year
   
236
     
1,339
 
Debt of consolidated variable interest entities due within one year
   
28
     
28
 
Other current liabilities
   
2,158
     
2,933
 
Total current liabilities
   
3,376
     
5,463
 
                 
Long-term debt
   
10,804
     
10,929
 
Long-term debt of consolidated variable interest entities
   
163
     
163
 
Deferred income taxes, net
   
350
     
366
 
Other long-term liabilities
   
1,955
     
1,604
 
Total long-term liabilities
   
13,272
     
13,062
 
                 
Commitments and contingencies
               
                 
Shares, CHF 15.00 par value, 402,282,355 authorized, 167,617,649 conditionally authorized, 373,830,649 issued at March 31, 2013 and December 31, 2012;  360,340,164 and 359,505,251 outstanding at March 31, 2013 and December 31, 2012, respectively
   
5,142
     
5,130
 
Additional paid-in capital
   
7,511
     
7,521
 
Treasury shares, at cost, 2,863,267 held at March 31, 2013 and December 31, 2012
   
(240
)
   
(240
)
Retained earnings
   
4,176
     
3,855
 
Accumulated other comprehensive loss
   
(540
)
   
(521
)
Total controlling interest shareholders’ equity
   
16,049
     
15,745
 
Noncontrolling interest
   
(22
)
   
(15
)
Total equity
   
16,027
     
15,730
 
Total liabilities and equity
 
$
32,675
   
$
34,255
 


See accompanying notes.
 
- 3 -

 
TRANSOCEAN LTD. AND SUBSIDIARIES
(In millions)
(Unaudited)


   
Three months ended
March 31,
 
Three months ended
March 31,
   
2013
 
2012
 
2013
 
2012
   
Shares
 
Amount
Shares
                               
Balance, beginning of period
   
360
     
350
   
$
5,130
   
$
4,982
 
Issuance of shares under share-based compensation plans
   
     
1
     
12
     
9
 
Balance, end of period
   
360
     
351
   
$
5,142
   
$
4,991
 
Additional paid-in capital
                               
Balance, beginning of period
                 
$
7,521
   
$
7,211
 
Share-based compensation
                   
21
     
23
 
Issuance of shares under share-based compensation plans
                   
(26
)
   
(17
)
Other, net
                   
(5
)
   
(1
)
Balance, end of period
                 
$
7,511
   
$
7,216
 
Treasury shares, at cost
                               
Balance, beginning of period
                 
$
(240
)
 
$
(240
)
Balance, end of period
                 
$
(240
)
 
$
(240
)
Retained earnings
                               
Balance, beginning of period
                 
$
3,855
   
$
4,180
 
Net income attributable to controlling interest
                   
321
     
10
 
Fair value adjustment of redeemable noncontrolling interest
                   
     
(106
)
Balance, end of period
                 
$
4,176
   
$
4,084
 
Accumulated other comprehensive loss
                               
Balance, beginning of period
                 
$
(521
)
 
$
(496
)
Other comprehensive loss attributable to controlling interest
                   
(19
)
   
(18
)
Reclassification from redeemable noncontrolling interest
                   
     
(17
)
Balance, end of period
                 
$
(540
)
 
$
(531
)
Total controlling interest shareholders’ equity
                               
Balance, beginning of period
                 
$
15,745
   
$
15,637
 
Total comprehensive income (loss) attributable to controlling interest
                   
302
     
(8
)
Share-based compensation
                   
21
     
23
 
Issuance of shares under share-based compensation plans
                   
(14
)
   
(8
)
Fair value adjustment of redeemable noncontrolling interest
                   
     
(106
)
Reclassification from redeemable noncontrolling interest
                   
     
(17
)
Other, net
                   
(5
)
   
(1
)
Balance, end of period
                 
$
16,049
   
$
15,520
 
Noncontrolling interest
                               
Balance, beginning of period
                 
$
(15
)
 
$
(10
)
Total comprehensive loss attributable to noncontrolling interest
                   
(7
)
   
(5
)
Balance, end of period
                 
$
(22
)
 
$
(15
)
Total equity
                               
Balance, beginning of period
                 
$
15,730
   
$
15,627
 
Total comprehensive income (loss)
                   
295
     
(13
)
Share-based compensation
                   
21
     
23
 
Issuance of shares under share-based compensation plans
                   
(14
)
   
(8
)
Fair value adjustment of redeemable noncontrolling interest
                   
     
(106
)
Reclassification from redeemable noncontrolling interest
                   
     
(17
)
Other, net
                   
(5
)
   
(1
)
Balance, end of period
                 
$
16,027
   
$
15,505
 


See accompanying notes.
 
- 4 -

 
TRANSOCEAN LTD. AND SUBSIDIARIES
(In millions)
(Unaudited)


   
Three months ended
March 31,
   
2013
 
2012
Cash flows from operating activities
               
Net income
 
$
313
   
$
18
 
Adjustments to reconcile to net cash provided by operating activities:
               
Amortization of drilling contract intangibles
   
(9
)
   
(11
)
Depreciation
   
275
     
285
 
Depreciation and amortization of assets in discontinued operations
   
     
70
 
Share-based compensation expense
   
21
     
23
 
Loss on impairment
   
     
140
 
Loss on impairment of assets in discontinued operations
   
     
93
 
Loss on disposal of assets, net
   
7
     
3
 
(Gain) loss on disposal of assets in discontinued operations, net
   
(15
)
   
1
 
Amortization of debt issue costs, discounts and premiums, net
   
     
18
 
Deferred income taxes
   
(28
)
   
(17
)
Other, net
   
15
     
15
 
Changes in deferred revenue, net
   
(6
)
   
(12
)
Changes in deferred expenses, net
   
17
     
(49
)
Changes in operating assets and liabilities
   
(484
)
   
(37
)
Net cash provided by operating activities
   
106
     
540
 
                 
Cash flows from investing activities
               
Capital expenditures
   
(488
)
   
(238
)
Capital expenditures for discontinued operations
   
     
(22
)
Proceeds from disposal of assets, net
   
1
     
7
 
Proceeds from disposal of assets in discontinued operations, net
   
63
     
34
 
Other, net
   
9
     
12
 
Net cash used in investing activities
   
(415
)
   
(207
)
                 
Cash flows from financing activities
               
Repayments of debt
   
(1,190
)
   
(147
)
Proceeds from restricted cash investments
   
128
     
108
 
Deposits to restricted cash investments
   
(59
)
   
(42
)
Distribution of qualifying additional paid-in capital
   
     
(278
)
Other, net
   
(15
)
   
(9
)
Net cash used in financing activities
   
(1,136
)
   
(368
)
                 
Net decrease in cash and cash equivalents
   
(1,445
)
   
(35
)
Cash and cash equivalents at beginning of period
   
5,134
     
4,017
 
Cash and cash equivalents at end of period
 
$
3,689
   
$
3,982
 



See accompanying notes.
 
- 5 -

 
TRANSOCEAN LTD. AND SUBSIDIARIES
 (Unaudited)

Note 1—Nature of Business
 
 
Transocean Ltd. (together with its subsidiaries and predecessors, unless the context requires otherwise, “Transocean,” the “Company,” “we,” “us” or “our”) is a leading international provider of offshore contract drilling services for oil and gas wells.  We specialize in technically demanding sectors of the offshore drilling business with a particular focus on deepwater and harsh environment drilling services.  Our mobile offshore drilling fleet is considered one of the most versatile fleets in the world.  We contract our drilling rigs, related equipment and work crews predominantly on a dayrate basis to drill oil and gas wells.  At March 31, 2013, we owned or had partial ownership interests in and operated 83 mobile offshore drilling units associated with our continuing operations.  As of this date, our fleet consisted of 48 High-Specification Floaters (Ultra-Deepwater, Deepwater and Harsh Environment semisubmersibles and drillships), 25 Midwater Floaters, and 10 High-Specification Jackups.  We also had six Ultra-Deepwater drillships and two High-Specification Jackups under construction or under contract to be constructed.  See Note 9—Drilling Fleet.
 
 
We also provide oil and gas drilling management services, drilling engineering and drilling project management services outside the United States (“U.S.”) through Applied Drilling Technology Inc., our wholly owned subsidiary, and through ADT International, a division of one of our United Kingdom (“U.K.”) subsidiaries (together, “ADTI”).  ADTI conducts drilling management services primarily either on a dayrate or on a completed-project, fixed-price or turnkey basis.
 
 
In November 2012, in connection with our efforts to dispose of non-strategic assets and to reduce our exposure to low-specification drilling units, we completed the sale of 38 drilling units to Shelf Drilling Holdings, Ltd. (together with its affiliates, “Shelf Drilling”).  See Note 7—Discontinued Operations.
 
 
Note 2—Significant Accounting Policies
 
 
Basis of presentation—We have prepared our accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the U.S. for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”).  Pursuant to such rules and regulations, these financial statements do not include all disclosures required by accounting principles generally accepted in the U.S. for complete financial statements.  The condensed consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods.  Such adjustments are considered to be of a normal recurring nature unless otherwise noted.  Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013 or for any future period.  The accompanying condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto as of December 31, 2012 and 2011 and for each of the three years in the period ended December 31, 2012 included in our annual report on Form 10-K filed on March 1, 2013.
 
 
Accounting estimates—To prepare financial statements in accordance with accounting principles generally accepted in the U.S., we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities.  On an ongoing basis, we evaluate our estimates and assumptions, including those related to our discontinued operations, allowance for doubtful accounts, materials and supplies obsolescence, property and equipment, investments, notes receivable, goodwill, income taxes, contingencies, share-based compensation, defined benefit pension plans and other postretirement benefits.  We base our estimates and assumptions on historical experience and on various other factors we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources.  Actual results could differ from such estimates.
 
 
Fair value measurements—We estimate fair value at a price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market for the asset or liability.  Our valuation techniques require inputs that we categorize using a three-level hierarchy, from highest to lowest level of observable inputs, as follows: (1) significant observable inputs, including unadjusted quoted prices for identical assets or liabilities in active markets (“Level 1”), (2) significant other observable inputs, including direct or indirect market data for similar assets or liabilities in active markets or identical assets or liabilities in less active markets (“Level 2”) and (3) significant unobservable inputs, including those that require considerable judgment for which there is little or no market data (“Level 3”).  When multiple input levels are required for a valuation, we categorize the entire fair value measurement according to the lowest level of input that is significant to the measurement even though we may have also utilized significant inputs that are more readily observable.
 
Consolidation—We consolidate entities in which we have a majority voting interest and entities that meet the criteria for variable interest entities for which we are deemed to be the primary beneficiary for accounting purposes.  We eliminate intercompany transactions and accounts in consolidation.  We apply the equity method of accounting for an investment in an entity if we have the ability to exercise significant influence over the entity that (a) does not meet the variable interest entity criteria or (b) meets the variable interest entity criteria, but for which we are not deemed to be the primary beneficiary.  We apply the cost method of accounting for an investment in an entity if we
do not have the ability to exercise significant influence over the unconsolidated entity.  See Note 4—Variable Interest Entities.
 
 
 
- 6 -

 
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued
 (Unaudited)

    
     Share-based compensation—In the three months ended March 31, 2013 and 2012, we recognized share-based compensation expense of $21 million and $23 million, respectively.
 
 
Capitalized interest—We capitalize interest costs for qualifying construction and upgrade projects.  In the three months ended March 31, 2013 and 2012, we capitalized interest costs on construction work in progress of $21 million and $13 million, respectively.
 
 
Reclassifications—We have made certain reclassifications, which did not have an effect on net income, to prior period amounts to conform with the current period’s presentation, including certain reclassifications to our consolidated statements of operations and cash flows to present discontinued operations (see Note 7—Discontinued Operations).  Other reclassifications did not have a material effect on our condensed consolidated statement of financial position, results of operations or cash flows.
 
 
Subsequent events—We evaluate subsequent events through the time of our filing on the date we issue our financial statements.
 
 
Note 3—New Accounting Pronouncements
 
 
Recently adopted accounting standards
 
Balance sheet—Effective January 1, 2013, we adopted the accounting standards update that expands the disclosure requirements for the offsetting of assets and liabilities related to certain financial instruments and derivative instruments.  The update requires disclosures to present both gross information and net information for financial instruments and derivative instruments that are eligible for net presentation due to a right of offset, an enforceable master netting arrangement or similar agreement.  Our adoption did not have a material effect on our disclosures contained in our notes to condensed consolidated financial statements.
 
 
Accumulated other comprehensive income—Effective January 1, 2013, we adopted the accounting standards update that requires disclosure of additional information about reclassifications out of accumulated other comprehensive income and to present reclassifications by component when reporting changes in accumulated other comprehensive income balances.  For significant amounts that are reclassified out of accumulated other comprehensive income to net income in their entirety during the reporting period, the update requires disclosure, either on the face of the statement or in the notes, of the effect on the line items in the statement where net income is presented.  For significant amounts that are not required to be reclassified in their entirety to net income during the reporting period, the update requires cross-references in the notes to other disclosures that provide additional information about those amounts.  Our adoption did not have a material effect on our condensed consolidated statement of other comprehensive income or the disclosures contained in our notes to condensed consolidated financial statements.
 
 
Note 4—Variable Interest Entities
 
 
Consolidated variable interest entities—The carrying amounts associated with our consolidated variable interest entities, after eliminating the effect of intercompany transactions, were as follows (in millions):
 
 
March 31, 2013
   
December 31, 2012
 
 
Assets
   
Liabilities
   
Net carrying amount
   
Assets
   
Liabilities
   
Net carrying amount
 
Variable interest entity
                                             
ADDCL
$
972
   
$
296
   
$
676
   
$
954
   
$
296
   
$
658
 
TDSOI
 
274
     
15
     
259
     
277
     
15
     
262
 
Total
$
1,246
   
$
311
   
$
935
   
$
1,231
   
$
311
   
$
920
 
 
 
Angola Deepwater Drilling Company Limited (“ADDCL”), a consolidated Cayman Islands company, and Transocean Drilling Services Offshore Inc. (“TDSOI”), a consolidated British Virgin Islands company, are variable interest entities for which we are the primary beneficiary.  Accordingly, we consolidate the operating results, assets and liabilities of ADDCL and TDSOI.
 
 
Unconsolidated variable interest entities—As holder of two notes receivable, we hold a variable interest in Awilco Drilling plc (“Awilco”), a U.K. company listed on the Oslo Stock Exchange.  We determined that Awilco met the definition of a variable interest entity since its equity at risk was insufficient to permit it to carry on its activities without additional subordinated financial support.  We believe that we are not the primary beneficiary since we do not have the power to direct the activities that most significantly impact the entity’s economic performance.
 
The notes receivable were originally accepted in exchange for, and are secured by, two drilling units.  The notes receivable have stated interest rates of nine percent and are payable in scheduled quarterly installments of principal and interest through maturity in January 2015.  We evaluate the credit quality and financial condition of Awilco quarterly.  At March 31, 2013 and December 31, 2012, the aggregate carrying amount of the notes receivable was $98 million and $105 million, respectively.  At March 31, 2013, our aggregate exposure to loss on the notes receivable was $98 million.
 

 
- 7 -

 
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued
 (Unaudited)

 
Note 5—Intangible Asset Impairments
 
 
Goodwill—During the three months ended March 31, 2012, we completed the measurement of the impairment that resulted from our annual goodwill impairment test for our contract drilling services reporting unit, performed as of October 1, 2011.  In the three months ended March 31, 2012, we recognized an incremental adjustment to our original estimate in the amount of $118 million ($0.33 per diluted share from continuing operations), which had no tax effect.  We estimated the implied fair value of the goodwill using a variety of valuation methods, including cost, income and market approaches.  Our estimate of fair value required us to use significant unobservable inputs, representative of a Level 3 fair value measurement, including assumptions related to the future performance of our contract drilling services reporting unit, such as future commodity prices, projected demand for our services, rig availability and dayrates.
 
 
Definite-lived intangible assets—During the three months ended March 31, 2012, we determined that the customer relationships intangible asset associated with the U.K. operations of our drilling management services reporting unit was impaired due to the diminishing demand for our drilling management services.  We estimated the fair value of the customer relationships intangible asset using the multiperiod excess earnings method, a valuation methodology that applies the income approach.  We estimated fair value using significant unobservable inputs, representative of a Level 3 fair value measurement, including assumptions related to the future performance of the drilling management services reporting unit, such as future commodity prices, projected demand for our services, rig availability and dayrates.  In the three months ended March 31, 2012, as a result of our valuation, we determined that the carrying amount of the customer relationships intangible asset exceeded its fair value, and we recognized a loss on impairment of $22 million ($17 million, or $0.05 per diluted share from continuing operations, net of tax).
 
 
Note 6—Income Taxes
 
 
Tax rate—Transocean Ltd., a holding company and Swiss resident, is exempt from cantonal and communal income tax in Switzerland, but is subject to Swiss federal income tax.  At the federal level, qualifying net dividend income and net capital gains on the sale of qualifying investments in subsidiaries are exempt from Swiss federal income tax.  Consequently, Transocean Ltd. expects dividends from its subsidiaries and capital gains from sales of investments in its subsidiaries to be exempt from Swiss federal income tax.
 
 
Our provision for income taxes is based on the tax laws and rates applicable in the jurisdictions in which we operate and earn income.  The relationship between our provision for or benefit from income taxes and our income or loss before income taxes can vary significantly from period to period considering, among other factors, (a) the overall level of income before income taxes, (b) changes in the blend of income that is taxed based on gross revenues rather than income before taxes, (c) rig movements between taxing jurisdictions and (d) our rig operating structures.  Generally, our annual marginal tax rate is lower than our annual effective tax rate.
 
 
In the three months ended March 31, 2013 and 2012, our estimated annual effective tax rates were 19.2 percent and 19.7 percent, respectively.  These rates were based on estimated annual income before income taxes for each period after adjusting for various discrete items, including certain immaterial adjustments to prior period tax expense.
 
 
Deferred taxes—The valuation allowance for our non-current deferred tax assets was as follows (in millions):
 
   
March 31,
2013
   
December 31,
2012
 
Valuation allowance for non-current deferred tax assets
 
$
223
   
$
210
 
 

Unrecognized tax benefits—The liabilities related to our unrecognized tax benefits, including related interest and penalties that we recognize as a component of income tax expense, were as follows (in millions):
 
   
March 31,
2013
   
December 31,
2012
 
Unrecognized tax benefits, excluding interest and penalties
 
$
363
   
$
382
 
Interest and penalties
   
180
     
199
 
Unrecognized tax benefits, including interest and penalties
 
$
543
   
$
581
 
 
 
 
In the year ending December 31, 2013, it is reasonably possible that our existing liabilities for unrecognized tax benefits may increase or decrease, primarily due to the progression of open audits or the expiration of statutes of limitation.  However, we cannot reasonably estimate a range of potential changes in our existing liabilities for unrecognized tax benefits due to various uncertainties, such as the unresolved nature of various audits.
 
Tax returns—We file federal and local tax returns in several jurisdictions throughout the world.  With few exceptions, such as those noted below, we are no longer subject to examinations of our U.S. and non-U.S. tax matters for years prior to 2006.  In the three months ended March 31, 2013 and 2012, we recognized current tax benefit of $49 million and $48 million, respectively, associated with the settlement of disputes with tax authorities and from the expiration of statutes of limitations.
 

 
- 8 -

 
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued
 (Unaudited)

  
      Our tax returns in the major jurisdictions in which we operate, other than the U.S., Norway and Brazil, which are mentioned below, are generally subject to examination for periods ranging from three to six years.  We have agreed to extensions beyond the statute of limitations in two major jurisdictions for up to 18 years.  Tax authorities in certain jurisdictions are examining our tax returns and in some cases have issued assessments.  We are defending our tax positions in those jurisdictions.  While we cannot predict or provide assurance as to the final outcome of these proceedings, we do not expect the ultimate liability to have a material adverse effect on our consolidated statement of financial position or results of operations, although it may have a material adverse effect on our consolidated cash flows.
 
 
U.S. tax investigations—In February 2012, we received an assessment from the U.S. tax authorities related to our 2008 and 2009 U.S. federal income tax returns.  The significant issues raised in the assessment relate to transfer pricing for certain charters of drilling rigs between our subsidiaries and the creation of intangible assets resulting from the performance of engineering services between our subsidiaries.  With respect to transfer pricing issues related to certain charters of drilling rigs in 2008 and 2009, we reached an agreement with the U.S. tax authorities in December 2012, to settle this issue and other issues raised during the audit for $36 million, excluding interest and penalties.  The only remaining issue outstanding for these years relates to an asserted creation of intangible assets resulting from the performance of engineering services between our subsidiaries for which a royalty is asserted.  The initial assessment issued by the tax authorities on this item, if sustained, would result in net adjustments of approximately $363 million of additional taxes, excluding interest and penalties.  An unfavorable outcome on this adjustment could result in a material adverse effect on our consolidated statement of financial position, results of operations or cash flows.  Furthermore, if the authorities were to continue to pursue this position with respect to subsequent years and were successful in such assertion, our effective tax rate on worldwide earnings with respect to years following 2009 could increase substantially, and could have a material adverse effect on our consolidated results of operations and cash flows.  We believe our U.S. federal income tax returns are materially correct as filed, and we intend to continue to vigorously defend against all claims to the contrary.
 
 
Norway tax investigations and trial—Norwegian civil tax and criminal authorities are investigating various transactions undertaken by our subsidiaries in 1999, 2001 and 2002 as well as the actions of certain employees of our former external tax advisors on these transactions.  The authorities issued tax assessments of approximately $120 million, plus interest, related to the migration of a subsidiary that was previously subject to tax in Norway, approximately $72 million, plus interest, related to a 2001 dividend payment, and approximately $8 million, plus interest, related to certain foreign exchange deductions and dividend withholding tax.  We have provided a parent company guarantee in the amount of approximately $123 million with respect to one of these tax disputes.  Furthermore, we may be required to provide some form of additional financial security, in an amount up to $226 million, including interest and penalties, for other assessed amounts as these disputes are appealed and addressed by the Norwegian courts.  The authorities are seeking penalties of 60 percent on most but not all matters.  In November 2012, the Norwegian district court in Oslo heard the case regarding the disputed tax assessment of approximately $120 million related to the migration of our subsidiary.  On March 1, 2013, the Norwegian district court in Oslo overturned the tax assessment and ruled in our favor.  The tax authorities have filed an appeal.  We believe that our Norwegian tax returns are materially correct as filed, and we intend to continue to vigorously defend ourselves against all claims to the contrary.  In addition, we expect to file or have filed appeals to the two other tax assessments.
 
 
In June 2011, the Norwegian authorities issued criminal indictments against two of our subsidiaries alleging misleading or incomplete disclosures in Norwegian tax returns for the years 1999 through 2002, as well as inaccuracies in Norwegian statutory financial statements for the years ended December 31, 1996 through 2001.  The criminal trial commenced in December 2012.  Two employees of our former external tax advisors were also issued criminal indictments with respect to the disclosures in our tax returns, and our former external Norwegian tax attorney was issued criminal indictments related to certain of our restructuring transactions and the 2001 dividend payment.  We believe the charges brought against us are without merit and do not alter our technical assessment of the underlying claims.  In January 2012, the Norwegian authorities supplemented the previously issued criminal indictments by issuing a financial claim of approximately $322 million, jointly and severally, against our two subsidiaries, the two external tax advisors and the external tax attorney.  In February 2012, the authorities dropped the previously existing civil tax claim related to a certain restructuring transaction.  In April 2012, the Norwegian tax authorities supplemented the previously issued criminal indictments against our two subsidiaries by extending a criminal indictment against a third subsidiary, alleging misleading or incomplete disclosures in Norwegian tax returns for the years 2001 and 2002.  We believe our Norwegian tax returns are materially correct as filed, and we intend to continue to vigorously contest any assertions to the contrary by the Norwegian civil and criminal authorities in connection with the various transactions being investigated.  An unfavorable outcome on the Norwegian civil or criminal tax matters could result in a material adverse effect on our consolidated statement of financial position, results of operations or cash flows.
 
 
Brazil tax investigations—Certain of our Brazilian income tax returns for the years 2000 through 2004 are currently under examination.  The Brazilian tax authorities have issued tax assessments totaling $100 million, plus a 75 percent penalty in the amount of $75 million and interest through December 31, 2011 in the amount of $156 million.  We believe our returns are materially correct as filed, and we are vigorously contesting these assessments.  On January 25, 2008, we filed a protest letter with the Brazilian tax authorities, and we are currently engaged in the appeals process.  An unfavorable outcome on these proposed assessments could result in a material adverse effect on our consolidated statement of financial position, results of operations or cash flows.
 

 
- 9 -

 
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued
 (Unaudited)

   
 
     Other tax matters—We conduct operations through our various subsidiaries in a number of countries throughout the world.  Each country has its own tax regimes with varying nominal rates, deductions and tax attributes.  From time to time, we may identify changes to previously evaluated tax positions that could result in adjustments to our recorded assets and liabilities.  Although we are unable to predict the outcome of these changes, we do not expect the effect, if any, resulting from these adjustments to have a material adverse effect on our consolidated statement of financial position, results of operations or cash flows.
 
 
Note 7—Discontinued Operations
 
 
Summarized results of discontinued operations
 
The summarized results of operations included in income from discontinued operations were as follows (in millions):
 
   
Three months ended March 31,
 
   
2013
   
2012
 
Operating revenues
 
$
240
   
$
230
 
Operating and maintenance expense
   
(249
)
   
(223
)
Depreciation and amortization expense
   
     
(70
)
Loss on impairment of assets in discontinued operations, net
   
     
(93
)
Gain (loss) on disposal of assets in discontinued operations, net
   
15
     
(1
)
Income (loss) from discontinued operations before income tax expense
   
6
     
(157
)
Income tax benefit (expense)
   
(6
)
   
21
 
Income (loss) from discontinued operations, net of tax
 
$
   
$
(136
)
 

Assets and liabilities of discontinued operations
 
The carrying amounts of the major classes of assets and liabilities associated with our discontinued operations were classified as follows (in millions):
 
   
March 31,
   
December 31,
 
   
2013
   
2012
 
Assets
               
Rigs and related equipment, net
 
$
59
   
$
104
 
Materials and supplies
   
66
     
71
 
Other related assets
   
3
     
4
 
Assets held for sale
 
$
128
   
$
179
 
                 
Liabilities
               
Deferred revenues
 
$
62
   
$
32
 
Other liabilities
   
     
3
 
Other current liabilities
 
$
62
   
$
35
 
 

 
 
- 10 -

 
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued
 (Unaudited)

 
Standard Jackup and swamp barge contract drilling operations
 
Overview—In September 2012, in connection with our efforts to dispose of non-strategic assets and to reduce our exposure to low-specification drilling units, we committed to a plan to discontinue operations associated with the Standard Jackup and swamp barge asset groups, components of our contract drilling services operating segment.  At March 31, 2013, the remaining Standard Jackups, which were not sold in the sale transactions with Shelf Drilling, including GSF Rig 127, GSF Rig 134, Trident IV-A and Trident VI, and related equipment, were classified as held for sale with an aggregate carrying amount of $63 million, including $4 million in materials and supplies.  At December 31, 2012, the remaining Standard Jackups, which were not sold in the sale transactions with Shelf Drilling, including D.R. Stewart, GSF Adriatic VIII, GSF Rig 127, GSF Rig 134, Interocean III, Trident IV-A and Trident VI, and related equipment, were classified as held for sale with an aggregate carrying amount of $112 million, including $8 million in materials and supplies.
 
 
Impairment—During the three months ended March 31, 2012, we recognized a loss of $17 million ($0.05 per diluted share), which had no tax effect, associated with the impairment of GSF Rig 136, which was classified as an asset held for sale at the time of impairment.  We measured the impairment of the drilling unit and related equipment as the amount by which the carrying amount exceeded the estimated fair value less costs to sell.  We estimated the fair value of the assets using significant other observable inputs, representative of Level 2 fair value measurements, including a binding sale and purchase agreement for the drilling unit and related equipment.
 
 
Sale transactions with Shelf Drilling—In November 2012, we completed the sale of 38 drilling units to Shelf Drilling.  For a transition period following the completion of the sale transactions, we agreed to continue to operate a substantial portion of the Standard Jackups under operating agreements with Shelf Drilling and to provide certain other transition services to Shelf Drilling.  Under the operating agreements, we have agreed to remit the collections from our customers under the associated drilling contracts to Shelf Drilling, and Shelf Drilling has agreed to reimburse us for our direct costs and expenses incurred while operating the Standard Jackups on behalf of Shelf Drilling with certain exceptions.  Amounts due to Shelf Drilling under the operating agreements and transition services agreement may be contractually offset against amounts due from Shelf Drilling.  The costs to us for providing such operating and transition services, including allocated indirect costs, may exceed the amounts we receive from Shelf Drilling for providing such services.
 
 
Under the operating agreements, we agreed to continue to operate these Standard Jackups on behalf of Shelf Drilling for periods ranging from nine months to 27 months or until expiration or novation of the underlying drilling contracts by Shelf Drilling.  As of March 31, 2013, we operated 24 Standard Jackups under operating agreements with Shelf Drilling.  Until the expiration or novation of such drilling contracts, we retain possession of the materials and supplies associated with the Standard Jackups that we operate under the operating agreement.  At March 31, 2013 and December 31, 2012, the materials and supplies associated with the drilling units that we operated under operating agreements with Shelf Drilling had an aggregate carrying amount of $62 million and $63 million, respectively.  Under a transition services agreement, we agreed to provide certain transition services for a period of up to 18 months following the completion of the sale transactions.
 
 
For a period of up to three years following the closing of the sale transactions, we have agreed to provide to Shelf Drilling up to $125 million of financial support by maintaining letters of credit, surety bonds and guarantees for various contract bidding and performance activities associated with the drilling units sold to Shelf Drilling and in effect at the closing of the sale transactions.  At the time of the sale transactions, we had $113 million of outstanding letters of credit, issued under our committed and uncommitted credit lines, in support of rigs sold to Shelf Drilling.  Included within the $125 million maximum amount, we agreed to provide up to $65 million of additional financial support in connection with any new drilling contracts related to such drilling units.  Shelf Drilling is required to reimburse us in the event that any of these instruments are called.  At March 31, 2013 and December 31, 2012, we had $104 million and $113 million, respectively, of outstanding letters of credit, issued under our committed and uncommitted credit lines, in support of drilling units sold to Shelf Drilling.  See Note 13—Commitments and Contingencies.
 
 
Other dispositions—During the three months ended March 31, 2013, we completed the sale of the Standard Jackups D.R. Stewart, Interocean III and GSF Adriatic VIII along with related equipment.  In the three months ended March 31, 2013, in connection with the disposal of these assets, we received aggregate net cash proceeds of $63 million, and we recognized an aggregate net gain of $15 million ($0.04 per diluted share), which had no tax effect.
 
 
During the three months ended March 31, 2012, we completed the sale of the Standard Jackup GSF Rig 136 along with related equipment, and in the three months ended March 31, 2012, we received net cash proceeds of $34 million.  In the three months ended March 31, 2012, we recognized an aggregate loss on the disposal of unrelated assets in the amount of $1 million.
 
 
U.S. Gulf of Mexico drilling management services
Overview—In March 2012, we announced our intent to discontinue drilling management operations in the shallow waters of the U.S. Gulf of Mexico, a component of our drilling management services operating segment, upon completion of our then existing contracts.  We elected to exit this market based on the declining market outlook for these services in the shallow waters of the U.S. Gulf of Mexico as well as the more difficult regulatory environment for obtaining drilling permits.  In December 2012, we completed the final drilling management project and discontinued offering our drilling management services in this region.
 

 
- 11 -

 
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued
 (Unaudited)

 
Impairments—During the three months ended March 31, 2012, we determined that the customer relationships intangible asset associated with the U.S. operations of our drilling management services reporting unit was impaired due to the declining market outlook for these services in the shallow waters of the U.S. Gulf of Mexico as well as the increased regulatory environment for obtaining drilling permits and the diminishing demand for our drilling management services.  We estimated the fair value of the customer relationships intangible asset using the multiperiod excess earnings method, a valuation methodology that applies the income approach.  We estimated fair value using significant unobservable inputs, representative of a Level 3 fair value measurement, including assumptions related to the future performance of the drilling management services reporting unit, such as future commodity prices, projected demand for our services, rig availability and dayrates.  As a result of our valuation, we determined that the carrying amount of the customer relationships intangible asset exceeded its fair value, and in the three months ended March 31, 2012, we recognized a loss on impairment of $31 million ($20 million or $0.06 per diluted share, net of tax).
 
 
During the three months ended March 31, 2012, we determined that the trade name intangible asset associated with our drilling management services reporting unit was impaired due to the declining market outlook for these services in the shallow waters of the U.S. Gulf of Mexico as well as the increased regulatory environment for obtaining drilling permits and the diminishing demand for drilling management services.  We estimated the fair value of the trade name intangible asset using the relief from royalty method, a valuation methodology that applies the income approach.  We estimated fair value using significant unobservable inputs, representative of a Level 3 fair value measurement, including assumptions related to the future performance of the drilling management services reporting unit, such as future commodity prices, projected demand for drilling management services, rig availability and dayrates.  As a result of our valuation, we determined that the carrying amount of the trade name intangible asset exceeded its fair value, and in the three months ended March 31, 2012, we recognized a loss on impairment of $39 million ($25 million or $0.07 per diluted share, net of tax).
 
 
Oil and gas properties
 
Overview—In March 2011, in connection with our efforts to dispose of non-strategic assets, we engaged an unaffiliated advisor to coordinate the sale of the assets of our oil and gas properties reporting unit, formerly a component of our other operations segment, which comprised the exploration, development and production activities performed by Challenger Minerals Inc., Challenger Minerals (North Sea) Limited and Challenger Minerals (Ghana) Limited, our wholly owned oil and gas subsidiaries.  During the year ended December 31, 2012, we completed the sale of these assets.
 
 
Impairment—In the three months ended March 31, 2012, we recognized a loss of $6 million ($4 million or $0.01 per diluted share, net of tax) associated with the impairment of our oil and gas properties, which were classified as assets held for sale, since the carrying amount of the properties exceeded the estimated fair value less costs to sell the properties.  We estimated fair value based on significant other observable inputs, representative of a Level 2 fair value measurement, including a binding sale and purchase agreement for the properties.
 
 
Note 8—Earnings Per Share
 
 
The numerator and denominator used for the computation of basic and diluted per share earnings from continuing operations were as follows (in millions, except per share data):
 
   
Three months ended March 31,
 
   
2013
   
2012
 
   
Basic
   
Diluted
   
Basic
   
Diluted
 
Numerator for earnings per share
                           
Income from continuing operations attributable to controlling interest
 
$
321
   
$
321
   
$
146
   
$
146
 
Undistributed earnings allocable to participating securities
   
(3
)
   
(3
)
   
(1
)
   
(1
)
Income from continuing operations available to shareholders
 
$
318
   
$
318
   
$
145
   
$
145
 
                                 
Denominator for earnings per share
                               
Weighted-average shares outstanding
   
360
     
360
     
350
     
350
 
Effect of stock options and other share-based awards
   
     
     
     
 
Weighted-average shares for per share calculation
   
360
     
360
     
350
     
350
 
                                 
Per share earnings from continuing operations
 
$
0.88
   
$
0.88
   
$
0.42
   
$
0.42
 
 
 
In the three months ended March 31, 2013 and 2012, we excluded 1.7 million and 1.8 million share-based awards, respectively, from the calculation since the effect would have been anti-dilutive.
 
The 1.50% Series C Convertible Senior Notes did not have an effect on the calculation for the periods presented.  See Note 10—Debt.
 

 
- 12 -

 
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued
 (Unaudited)

Note 9—Drilling Fleet
 
 
Construction work in progress—Capital expenditures and other capital additions, including capitalized interest, for the three months ended March 31, 2013 and 2012 were as follows (in millions):
 
   
Three months ended March 31,
 
   
2013
     
2012
 
Construction work in progress, at beginning of period
 
$
1,972
   
$
1,360
 
                 
Newbuild construction program
               
Ultra-Deepwater Floater TBN1 (a)
   
79
     
 
Ultra-Deepwater Floater TBN2 (a)
   
26
     
 
Ultra-Deepwater Floater TBN3 (a)
   
2
     
 
Ultra-Deepwater Floater TBN4 (a)
   
2
     
 
Transocean Ao Thai (b)
   
5
     
2
 
Deepwater Asgard (c)
   
8
     
16
 
Deepwater Invictus (c)
   
8
     
10
 
Transocean Siam Driller (d) (e)
   
74
     
21
 
Transocean Andaman (b)
   
71
     
21
 
Transocean Honor (e) (f)
   
     
25
 
Other construction projects and capital additions
   
213
     
143
 
Total capital expenditures
   
488
     
238
 
Changes in accrued capital expenditures
   
(32
)
   
(26
)
                 
Property and equipment placed into service
               
Transocean Siam Driller (d)
   
(236
)
   
 
Other property and equipment
   
(248
)
   
(46
)
Construction work in progress, at end of period
 
$
1,944
   
$
1,526
 
___________________________________________________
(a)
Our four newbuild Ultra-Deepwater drillships, under construction at the Daewoo Shipbuilding & Marine Engineering Co. Ltd. shipyard in Korea, are expected to commence operations in the fourth quarter of 2015, the second quarter of 2016, the fourth quarter of 2016 and the first quarter of 2017.
 
(b)
Transocean Andaman and Transocean Ao Thai, two Keppel FELS Super B class design High-Specification Jackups under construction at Keppel FELS’ yard in Singapore, are expected to commence operations in the second quarter of 2013 and the fourth quarter of 2013, respectively.
 
(c)
Deepwater Asgard and Deepwater Invictus, two Ultra-Deepwater drillships under construction at the Daewoo Shipbuilding & Marine Engineering Co. Ltd. shipyard in Korea, are expected to commence operations in the first quarter of 2014 and second quarter of 2014, respectively.
 
(d)
Transocean Siam Driller, a Keppel FELS Super B class design High-Specification Jackup commenced operations in March 2013.
 
(e)
The accumulated construction costs of this rig are no longer included in construction work in progress, as the construction project has been completed as of March 31, 2013.
 
(f)
Transocean Honor, a PPL Pacific Class 400 design High-Specification Jackup, owned through our 70 percent interest in TDSOI, commenced operations in May 2012.  The costs presented above represent 100 percent of TDSOI’s expenditures in the construction of Transocean Honor.
 

 
- 13 -

 
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued
 (Unaudited)

 
Note 10—Debt
 
 
Debt, net of unamortized discounts, premiums and fair value adjustments, was comprised of the following (in millions):
 
 
March 31, 2013
   
December 31, 2012
 
 
Transocean
Ltd.
and
subsidiaries
   
Consolidated
variable
interest
entities
   
Consolidated
total
   
Transocean
Ltd.
and
subsidiaries
   
Consolidated
variable
interest
entities
   
Consolidated
total
 
5% Notes due February 2013
$
   
$
   
$
   
$
250
   
$
   
$
250
 
5.25% Senior Notes due March 2013 (a)
 
     
     
     
502
     
     
502
 
TPDI Credit Facilities due March 2015
 
385
     
     
385
     
403
     
     
403
 
4.95% Senior Notes due November 2015 (a)
 
1,118
     
     
1,118
     
1,118
     
     
1,118
 
Callable Bonds due February 2016
 
     
     
     
282
     
     
282
 
5.05% Senior Notes due December 2016 (a)
 
999
     
     
999
     
999
     
     
999
 
2.5% Senior Notes due October 2017 (a)
 
748
     
     
748
     
748
     
     
748
 
ADDCL Credit Facilities due December 2017
 
     
191
     
191
     
     
191
     
191
 
Eksportfinans Loans due January 2018
 
686
     
     
686
     
797
     
     
797
 
6.00% Senior Notes due March 2018 (a)
 
998
     
     
998
     
998
     
     
998
 
7.375% Senior Notes due April 2018 (a)
 
247
     
     
247
     
247
     
     
247
 
6.50% Senior Notes due November 2020 (a)
 
899
     
     
899
     
899
     
     
899
 
6.375% Senior Notes due December 2021 (a)
 
1,199
     
     
1,199
     
1,199
     
     
1,199
 
3.8% Senior Notes due October 2022 (a)
 
745
     
     
745
     
745
     
     
745
 
7.45% Notes due April 2027 (a)
 
97
     
     
97
     
97
     
     
97
 
8% Debentures due April 2027 (a)
 
57
     
     
57
     
57
     
     
57
 
7% Notes due June 2028
 
311
     
     
311
     
311
     
     
311
 
Capital lease contract due August 2029
 
654
     
     
654
     
657
     
     
657
 
7.5% Notes due April 2031 (a)
 
598
     
     
598
     
598
     
     
598
 
1.50% Series C Convertible Senior Notes due December 2037 (a)
 
     
     
     
62
     
     
62
 
6.80% Senior Notes due March 2038 (a)
 
999
     
     
999
     
999
     
     
999
 
7.35% Senior Notes due December 2041 (a)
 
300
     
     
300
     
300
     
     
300
 
Total debt
 
11,040
     
191
     
11,231
     
12,268
     
191
     
12,459
 
Less debt due within one year
                                             
5% Notes due February 2013
 
     
     
     
250
     
     
250
 
5.25% Senior Notes due March 2013 (a)
 
     
     
     
502
     
     
502
 
TPDI Credit Facilities due March 2015
 
70
     
     
70
     
70
     
     
70
 
Callable Bonds due February 2016
 
     
     
     
282
     
     
282
 
ADDCL Credit Facilities due December 2017
 
     
28
     
28
     
     
28
     
28
 
Eksportfinans Loans due January 2018
 
145
     
     
145
     
153
     
     
153
 
Capital lease contract due August 2029
 
21
     
     
21
     
20
     
     
20
 
1.50% Series C Convertible Senior Notes due December 2037 (a)
 
     
     
     
62
     
     
62
 
Total debt due within one year
 
236
     
28
     
264
     
1,339
     
28
     
1,367
 
Total long-term debt
$
10,804
   
$
163
   
$
10,967
   
$
10,929
   
$
163
   
$
11,092
 
_____________________________________________________________
 
(a)
Transocean Inc., a 100 percent owned subsidiary of Transocean Ltd., is the issuer of certain notes and debentures, which have been guaranteed by Transocean Ltd.  Transocean Ltd. has also guaranteed borrowings under the Five-Year Revolving Credit Facility and the Three-Year Secured Revolving Credit Facility.  Transocean Ltd. and Transocean Inc. are not subject to any significant restrictions on their ability to obtain funds from their consolidated subsidiaries by dividends, loans or return of capital distributions.  See Note 17—Condensed Consolidating Financial Information.
 

 
- 14 -

 
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued
 (Unaudited)

 
    Scheduled maturities—At March 31, 2013, the scheduled maturities of our debt were as follows (in millions):
 
   
Transocean
Ltd.
and subsidiaries
   
Consolidated
variable
interest
entities
   
Consolidated
total
 
Twelve months ending March 31,
                 
2014
 
$
236
   
$
28
   
$
264
 
2015
   
482
     
30
     
512
 
2016
   
1,269
     
61
     
1,330
 
2017
   
1,171
     
35
     
1,206
 
2018
   
1,887
     
37
     
1,924
 
Thereafter
   
5,988
     
     
5,988
 
Total debt, excluding unamortized discounts, premiums and fair value adjustments
   
11,033
     
191
     
11,224
 
Total unamortized discounts, premiums and fair value adjustments, net
   
7
     
     
7
 
Total debt
 
$
11,040
   
$
191
   
$
11,231
 
 

 
 
Five-Year Revolving Credit Facility—We have a $2.0 billion five-year revolving credit facility, established under a bank credit agreement dated November 1, 2011, as amended, that is scheduled to expire on November 1, 2016 (the “Five-Year Revolving Credit Facility”).  We pay a facility fee on the daily unused amount of the underlying commitment, which ranges from 0.125 percent to 0.325 percent, based on the credit rating of our non-credit enhanced senior unsecured long-term debt (“Debt Rating”), and was 0.275 percent at March 31, 2013.  At March 31, 2013, we had $24 million in letters of credit issued and outstanding, we had no borrowings outstanding, and we had $2.0 billion of available borrowing capacity under the Five-Year Revolving Credit Facility.
 
 
Three-Year Secured Revolving Credit Facility—We have a $900 million three-year secured revolving credit facility, established under a bank credit agreement dated October 25, 2012, that is scheduled to expire on October 25, 2015 (the “Three-Year Secured Revolving Credit Facility”).  We pay a facility fee on the daily unused amount of the underlying commitment, which ranges from 0.125 percent to 0.50 percent depending on our Debt Rating, and was 0.375 percent at March 31, 2013.  At March 31, 2013, we had no borrowings outstanding, and we had $900 million of available borrowing capacity under the Three-Year Secured Revolving Credit Facility.
 
 
Borrowings under the Three-Year Secured Revolving Credit Facility are secured by the Ultra-Deepwater Floaters Deepwater Champion, Discoverer Americas and Discoverer Inspiration.  At March 31, 2013 and December 31, 2012, the aggregate carrying amount of Deepwater Champion, Discoverer Americas and Discoverer Inspiration was $2.3 billion.
 
 
5% Notes—On February 15, 2013, we repaid the outstanding $250 million aggregate principal amount of the 5% Notes due February 2013 as of the stated maturity date.
 
 
5.25% Senior Notes—On March 15, 2013, we repaid the outstanding $500 million aggregate principal amount of the 5.25% Senior Notes due March 2013 as of the stated maturity date.
 
 
TPDI Credit Facilities—We have a $1.265 billion secured credit facility, comprised of a $1.0 billion senior term loan, a $190 million junior term loan and a $75 million revolving credit facility, established under a bank credit agreement dated October 28, 2008, that is scheduled to expire in March 2015 (the “TPDI Credit Facilities”).  One of our subsidiaries participates in the senior and junior term loans with an aggregate commitment of $595 million.  At March 31, 2013, $770 million was outstanding under the TPDI Credit Facilities, of which $385 million was due to one of our subsidiaries and was eliminated in consolidation.  On March 31, 2013, the weighted-average interest rate was 1.9 percent.  See Note 11—Derivatives and Hedging.
 
 
Borrowings under the TPDI Credit Facilities are secured by the Ultra-Deepwater Floaters Dhirubhai Deepwater KG1 and Dhirubhai Deepwater KG2.  At March 31, 2013 and December 31, 2012, the aggregate carrying amount of Dhirubhai Deepwater KG1 and Dhirubhai Deepwater KG2 was $1.3 billion and $1.4 billion, respectively.
 
 
Under the TPDI Credit Facilities, we are required to satisfy certain liquidity requirements, including a requirement to maintain certain cash balances in restricted accounts for the payment of scheduled installments.  At March 31, 2013 and December 31, 2012, we had restricted cash investments of $23 million.  At March 31, 2013 and December 31, 2012, we had an outstanding letter of credit in the amount of $60 million to satisfy additional liquidity requirements under the TPDI Credit Facilities.
 
Callable Bonds—Aker Drilling was the obligor for the FRN Aker Drilling ASA Senior Unsecured Callable Bond Issue 2011/2016 (the “FRN Callable Bonds”) and the 11% Aker Drilling ASA Senior Unsecured Callable Bond Issue 2011/2016 (the “11% Callable Bonds,” and together with the FRN Callable Bonds, the “Callable Bonds”), which were publicly traded on the Oslo Stock Exchange.  On March 6, 2013, we redeemed the FRN Callable Bonds and the 11% Callable Bonds with aggregate outstanding principal amounts of NOK 940 million and NOK 560 million, equivalent to $164 million and $98 million, respectively, using an exchange rate of NOK 5.73 to
 

 
- 15 -

 
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued
 (Unaudited)

 
 
$1.00.  In connection with the redemption, we made an aggregate cash payment of NOK 1,567 million, equivalent to $273 million, and recognized a loss on the retirement of debt in the amount of $1 million.  See Note 11—Derivatives and Hedging.
 
 
ADDCL Credit Facilities—ADDCL has a senior secured credit facility, comprised of Tranche A for $215 million and Tranche C for $399 million, established under a bank credit agreement dated June 2, 2008 that is scheduled to expire in December 2017 (the “ADDCL Primary Loan Facility”).  Unaffiliated financial institutions provide the commitment for and borrowings under Tranche A, and one of our subsidiaries provides the commitment for Tranche C.  At March 31, 2013, $163 million was outstanding under Tranche A at a weighted-average interest rate of 1.2 percent.  At March 31, 2013, $399 million was outstanding under Tranche C, which was eliminated in consolidation.
 
 
Borrowings under the ADDCL Primary Loan Facility are secured by the Ultra-Deepwater Floater Discoverer Luanda.  At March 31, 2013 and December 31, 2012, the carrying amount of Discoverer Luanda was $762 million and $786 million, respectively.
 
 
ADDCL also has a $90 million secondary credit facility, established under a bank credit agreement dated June 2, 2008 that is scheduled to expire in December 2015 (the “ADDCL Secondary Loan Facility” and together with the ADDCL Primary Loan Facility, the “ADDCL Credit Facilities”).  One of our subsidiaries provides 65 percent of the total commitment under the ADDCL Secondary Loan Facility.  At March 31, 2013, $80 million was outstanding under the ADDCL Secondary Loan Facility, of which $52 million was due to one of our subsidiaries and has been eliminated in consolidation.  On March 31, 2013, the weighted-average interest rate was 3.4 percent.
 
 
ADDCL is required to maintain certain cash balances in accounts restricted for the payment of the scheduled installments on the ADDCL Credit Facilities.  At March 31, 2013 and December 31, 2012, ADDCL had restricted cash investments of $31 million and $19 million, respectively.
 
 
Eksportfinans Loans—The Eksportfinans Loans require cash collateral to remain on deposit at a financial institution through expiration (the “Aker Restricted Cash Investments”).  At March 31, 2013 and December 31, 2012, the aggregate principal amount of the Aker Restricted Cash Investments was $690 million and $801 million, respectively.
 
 
1.50% Series C Convertible Senior Notes—In the three months ended March 31, 2013 and 2012, interest expense for our 1.50% Series C Convertible Senior Notes, excluding amortization of debt issue costs, was less than $1 million and $21 million, respectively.  At December 31, 2012, the aggregate carrying amount of the 1.50% Series C Convertible Senior Notes included a liability component and an equity component of $62 million and $10 million, respectively.  On February 7, 2013, we redeemed the remaining $62 million aggregate principal amount of the Series C Convertible Senior Notes for an aggregate cash payment of $62 million.
 
 
Note 11—Derivatives and Hedging
 
 
Derivatives designated as hedging instruments—We have interest rate swaps, which have been designated and qualify as a cash flow hedge, to reduce the variability of cash interest payments associated with the variable-rate borrowings under the TPDI Credit Facilities through December 31, 2014.  The aggregate notional amount corresponds with the aggregate outstanding amount of the borrowings under the TPDI Credit Facilities.
 
 
We previously had interest rate swaps, which were designated and qualified as fair value hedges, to reduce our exposure to changes in the fair values of the 5% Notes due February 2013 and the 5.25% Senior Notes due March 2013.  The interest rate swaps had aggregate notional amounts equal to the corresponding face values of the hedged instruments and have stated maturities that coincide with those of the hedged instruments.  During the three months ended March 31, 2013, these interest rate swaps expired.
 
 
Additionally, we had cross-currency interest rate swaps, which were designated and qualified as a cash flow hedge, to reduce the variability of cash interest payments and the final principal payment due at maturity in February 2016 associated with the changes in the U.S. dollar to Norwegian krone exchange rate.  In March 2013, in connection with our redemption of the 11% Callable Bonds, we terminated these cross-currency interest rate swaps and the related security agreement with respect to Transocean Spitsbergen and Transocean Barents.  As a result of the termination, we made a cash payment of $128 million and received a cash payment of NOK 705 million, applied to the redemption of the 11% Callable Bonds.  See Note 10—Debt.
 
 
At March 31, 2013, the aggregate notional amounts and the weighted average interest rates associated with our derivatives designated as hedging instruments were as follows (in millions, except weighted average interest rates):
 
   
Pay
   
Receive
   
Aggregate
notional
amount
   
Fixed or variable rate
 
Weighted average
rate
     
Aggregate
notional
amount
   
Fixed or variable rate
 
Weighted average
rate
 
Interest rate swaps, cash flow hedges
 
$
368
   
fixed
   
2.4
%
   
$
368
   
variable
   
0.3
%
 
 
 
- 16 -

 
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued
 (Unaudited)

 
The effect on our condensed consolidated statements of operations resulting from changes in the fair values of derivatives designated as cash flow hedges was as follows (in millions):
 
       
Three months ended
March 31,
 
   
Statement of operations classification
 
2013
   
2012
 
Loss associated with effective portion
 
Interest expense, net of amounts capitalized
 
$
2
   
$
2
 
Gain associated with ineffective portion
 
Interest expense, net of amounts capitalized
   
     
(1
)
(Gain) loss associated with effective portion
 
Other, net
   
5
     
(5
)
 
 
The balance sheet classification and aggregate carrying amount of our derivatives designated as hedging instruments, measured at fair value, were as follows (in millions):
 
   
Balance sheet classification
 
March 31,
2013
   
December 31,
2012
 
Interest rate swaps, fair value hedges
 
Other current assets
 
$
   
$
6
 
Interest rate swaps, cash flow hedges
 
Other long-term liabilities
   
11
     
13
 
Cross-currency swaps, cash flow hedges
 
Other current assets
   
     
1
 
Cross-currency swaps, cash flow hedges
 
Other assets
   
     
1
 
 
 
Derivatives not designated as hedging instruments—In connection with our sale transactions with Shelf Drilling, we received non-cash proceeds in the form of preference shares with a liquidation value of $195 million.  The preference shares contain two embedded derivatives, which are not designated and do not qualify as hedging instruments for accounting purposes, including (a) a ceiling dividend rate indexed to the price of Brent Crude oil and (b) a dividend rate premium triggered in the event of credit default.  See Note 7—Discontinued Operations.
 
 
The balance sheet classification and aggregate carrying amount of our derivatives not designated as hedging instruments, measured at fair value, were as follows (in millions):
 
   
Balance sheet classification
 
March 31,
2013
   
December 31,
2012
 
Embedded derivatives not designated as hedging instruments
 
Other long-term liabilities
 
$
2
   
$
2
 
 

 
 
Note 12—Postemployment Benefit Plans
 
 
We have several defined benefit pension plans, both funded and unfunded, covering substantially all of our U.S. employees, including certain frozen plans, assumed in connection with our mergers, that cover certain current employees and certain former employees and directors of our predecessors (the “U.S. Plans”).  We also have various defined benefit plans in the U.K., Norway, Nigeria, Egypt and Indonesia that cover our employees in those areas (the “Non-U.S. Plans”).  Additionally, we offer several unfunded contributory and noncontributory other postretirement employee benefit plans covering substantially all of our U.S. employees (the “OPEB Plans”).
 
 
The components of net periodic benefit costs, before tax, and funding contributions for these plans were as follows (in millions):
 
   
Three months ended March 31, 2013
   
Three months ended March 31, 2012
 
   
U.S.
Plans
   
Non-U.S.
Plans
   
OPEB
Plans
   
Total
   
U.S.
Plans
   
Non-U.S.
Plans
   
OPEB
Plans
   
Total
 
Net periodic benefit costs
                                               
Service cost
 
$
14
   
$
7
   
$
   
$
21
   
$
12
   
$
7
   
$
   
$
19
 
Interest cost
   
15
     
6
     
1
     
22
     
14
     
5
     
1
     
20
 
Expected return on plan assets
   
(17
)
   
(6
)
   
     
(23
)
   
(15
)
   
(5
)
   
     
(20
)
Settlements and curtailments
   
     
     
     
     
2
     
     
     
2
 
Actuarial losses, net
   
13
     
1
     
     
14
     
10
     
1
     
     
11
 
Prior service cost, net
   
     
     
     
     
     
     
     
 
Transition obligation, net
   
     
     
     
     
     
     
     
 
Net periodic benefit costs
 
$
25
   
$
8
   
$
1
   
$
34
   
$
23
   
$
8
   
$
1
   
$
32
 
                                                                 
Funding contributions
 
$
1
   
$
17
   
$
1
   
$
19
   
$
3
   
$
8
   
$
1
   
$
12
 
 
 
 
- 17 -

 
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued
 (Unaudited)

 
Note 13—Commitments and Contingencies
 
 
Macondo well incident settlement obligations
 
Overview—On April 22, 2010, the Ultra-Deepwater Floater Deepwater Horizon sank after a blowout of the Macondo well caused a fire and explosion on the rig.  Eleven persons were declared dead and others were injured as a result of the incident.  At the time of the explosion, Deepwater Horizon was located approximately 41 miles off the coast of Louisiana in Mississippi Canyon Block 252 and was contracted to BP America Production Co. (together with its affiliates, “BP”).
 
 
On January 3, 2013, we reached an agreement with the U.S. Department of Justice (“DOJ”) to resolve certain outstanding civil and potential criminal charges against us arising from the Macondo well incident.  As part of this resolution, we agreed to a criminal plea (“Plea Agreement”) and a civil consent decree (“Consent Decree”) by which, among other things, we agreed to pay $1.4 billion in fines, recoveries and civil penalties, excluding interest, in scheduled payments over a five-year period through 2017.  In the three months ended March 31, 2013, we paid $400 million, plus interest, representing the initial installment required under the Consent Decree.
 
 
At March 31, 2013, our outstanding settlement obligations under the Consent Decree and the Plea Agreement, excluding interest, were as follows (in millions):
 
   
Consent
Decree
   
Plea
Agreement
   
Settlement
obligations
 
Twelve months ending March 31,
                   
2014
 
$
400
   
$
220
   
$
620
 
2015
   
200
     
60
     
260
 
2016
   
     
60
     
60
 
2017
   
     
60
     
60
 
Total settlement obligations
 
$
600
   
$
400
   
$
1,000
 
 
 
The resolution with the DOJ of such civil and criminal claims, as discussed, does not include potential claims arising from the False Claims Act investigation.  As part of the settlement discussions, however, we inquired whether the U.S. intends to pursue any actions under the False Claims Act.  In response, the DOJ sent us a letter stating that the Civil Division of the DOJ, based on facts then known, is no longer pursuing any investigation or claims, and did not have any present intention to pursue any investigation or claims, under the False Claims Act against the various Transocean entities for their involvement in the Macondo well incident.
 
 
We also have agreed that any payments made pursuant to the Plea Agreement or the Consent Decree are not deductible for tax purposes and that we will not use payments pursuant to the Consent Decree as a basis for indemnity or reimbursement from non-insurer defendants named in the complaint by the U.S.
 
 
Consent Decree obligations—Pursuant to the Consent Decree, which was approved by the court on February 19, 2013, we agreed to pay a civil penalty totaling $1.0 billion, plus interest, according to the following schedule: (a) $400 million, plus interest, on or before April 19, 2013; (b) $400 million, plus interest, on or before February 19, 2014; and (c) $200 million, plus interest, on or before February 19, 2015.  Our civil penalty obligations under the Consent Decree bear interest at 2.15 percent.  As of the date of the court approval, we reclassified the noncurrent portion of these obligations from other current liabilities to other long-term liabilities on our condensed consolidated balance sheets.
 
 
In addition, we agreed to take specified actions relating to operations in U.S. waters, including, among other things, the design and implementation of, and compliance with, additional systems and procedures; blowout preventer certification and reports; measures to strengthen well control competencies, drilling monitoring, recordkeeping, incident reporting, risk management and oil spill training, exercises and response planning; communication with operators; alarm systems; transparency and responsibility for matters relating to the Consent Decree; and technology innovation, with a first emphasis on more efficient, reliable blowout preventers.  We have agreed to submit a performance plan (the “Performance Plan”) for approval by the U.S. within 120 days after the date of entry of the Consent Decree.  The Performance Plan will include, among other things, interim milestones for actions in specified areas and a proposed schedule for reports required under the Consent Decree.
 
 
The Consent Decree also provides for the appointment of (i) an independent auditor to review, audit and report on our compliance with the injunctive provisions of the Consent Decree and (ii) an independent process safety consultant to review, report on and assist with respect to the process safety aspects of the Consent Decree, including operational risk identification and risk management.  The Consent Decree requires certain plans, reports and submissions be made and be acceptable to the U.S. and also requires certain publicly available filings.
 
Under the terms of the Consent Decree, the U.S. has agreed not to sue Transocean Ltd. and certain of our subsidiaries and certain related individuals for civil or administrative penalties for the Macondo well incident under specified provisions of the CWA, the Outer Continental Shelf Lands Act (“OSCLA”), the Endangered Species Act, the Marine Mammal Protection Act, the National Marine

 
- 18 -

 
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—continued
 (Unaudited)

 
Sanctuaries Act, the federal Oil and Gas Royalty Management Act, the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the Emergency Planning and Community Right to Know Act and the Clean Air Act.  In addition, the Consent Decree resolves our appeal of the incidents of noncompliance under the OSCLA issued by the Bureau of Safety and Environmental Enforcement (“BSEE”) on October 12, 2011 without any admission of liability by us.
 
 
The Consent Decree does not resolve the rights of the U.S. with respect to all other matters, including certain liabilities under the Oil Pollution Act of 1990 (“OPA”) for removal costs or natural resources damages.  However, the district court previously held that we are not liable under the OPA for damages caused by subsurface discharge from the Macondo well.  If this ruling is upheld on appeal, our natural resources damage assessment liability would be limited to any such damages arising from the above-surface discharge.
 
 
We may request termination of the Consent Decree after we have: (i) completed timely the civil penalty payment requirements of the Consent Decree; (ii) operated under a fully approved Performance Plan required under the Consent Decree through February 2017; (iii) complied with the terms of the Performance Plan and certain provisions of the Consent Decree, generally relating to a framework and outline of measures to improve performance, for at least 12 consecutive months; and (iv) complied with the other requirements of the Consent Decree, including payment of any stipulated penalties and compliant reporting.
 
 
Plea Agreement obligations—Pursuant to the Plea Agreement, one of our subsidiaries pled guilty to one misdemeanor count of negligently discharging oil into the U.S. Gulf of Mexico, in violation of the Clean Water Act (“CWA”).  The court accepted the guilty plea on February 14, 2013 and imposed the agreed-upon sentence.  Pursuant to the Plea Agreement, the court imposed a criminal fine of $100 million to be paid on or before April 15, 2013, and also entered an order requiring us to pay a total of $150 million to the National Fish & Wildlife Foundation, as follows: $58 million on or before April 15, 2013, $53 million on or before February 14, 2014, and an additional $39 million on or before February 13, 2015.  Such order also requires us to pay $150 million to the National Academy of Sciences as follows: $2 million on or before May 14, 2013, $7 million on or before February 14, 2014, $21 million on or before February 13, 2015, $60 million on or before February 12, 2016, and a final payment of $60 million on or before February 14, 2017.  As of the date of the court approval, we reclassified the noncurrent portion of these obligations from other current liabilities to other long-term liabilities on our condensed consolidated balance sheets.  Our subsidiary has also agreed to five years of probation.  The DOJ has agreed, subject to the provisions of the Plea Agreement, not to further prosecute us for certain conduct generally regarding matters under investigation by the DOJ’s Deepwater Horizon Task Force.  In addition, we have agreed to continue to cooperate with the Deepwater Horizon Task Force in any ongoing investigation related to or arising from the accident.
 
 
EPA Agreement—On February 25, 2013, we and the U.S. Environmental Protection Agency (“EPA”) entered into an administrative agreement (the “EPA Agreement”), which has a five-year term.  The EPA Agreement resolves all matters relating to suspension, debarment and statutory disqualification arising from the matters contemplated by the Plea Agreement.  Subject to our compliance with the terms of the EPA Agreement, the EPA has agreed that it will not suspend, debar or statutorily disqualify us and will lift any existing suspension, debarment or statutory disqualification.
 
 
In the EPA Agreement, we agreed to, among other things, (1) comply with our obligations under the Plea Agreement and the Consent Decree; (2) continue the implementation of certain programs and systems, including the scheduled revision of our environmental management system and maintenance of certain compliance and ethics programs; (3) comply with certain employment and contracting procedures; (4) engage independent compliance auditors and a process safety consultant to, among other things, assess and report to the EPA on our compliance with the terms of the Plea Agreement, the Consent Decree and the EPA Agreement; and (5) give reports and notices with respect to various matters, including those relating to compliance, misconduct, legal proceedings, audit reports, the EPA Agreement, Consent Decree and Plea Agreement.  Subject to certain exceptions, the EPA Agreement prohibits us from entering into or engaging in certain business relationships with individuals or entities that are debarred, suspended, proposed for debarment or similarly restricted.
 
 
Macondo well incident contingencies
 
Overview—We have recognized a liability for estimated loss contingencies that we believe are probable and for which a reasonable estimate can be made.  This liability takes into account certain events related to the litigation and investigations arising out of the incident.  There are loss contingencies related to the Macondo well incident that we believe are reasonably possible and for which we do not believe a reasonable estimate can be made.  These contingencies could increase the liabilities we ultimately recognize.  During the three months ended March 31, 2013, our estimated loss contingencies decreased by $1.4 billion as a result of our settlement with the DOJ (see “—Macondo well incident settlement obligations”).  At March 31, 2013 and December 31, 2012, the liability for estimated loss contingencies that we believe are probable and for which a reasonable estimate can be made was $505 million and $1.9 billion, respectively, recorded in other current liabilities.
 
We have also recognized an asset associated with the portion of our estimated losses, primarily related to the personal injury and fatality claims of our crew and vendors, that we believe is probable of recovery from insurance.  Although we have available policy limits that could result in additional amounts recoverable from insurance, recovery of such additional amounts is not probable and we are not currently able to estimate such amounts (see “—Insurance coverage”).  Our estimates involve a significant amount of judgment.  As a result of new information or future developments, we may adjust our estimated loss contingencies arising out of the Macondo well incident
 

 
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or our estimated recoveries from insurance, and the resulting losses could have a material adverse effect on our consolidated statement of financial position, results of operations and cash flows.  At March 31, 2013 and December 31, 2012, the insurance recoverable asset related to estimated losses primarily for additional personal injury and fatality claims of our crew and vendors that we believe are probable of recovery from insurance was $85 million and $153 million, respectively, recorded in other assets.
 
 
Multidistrict Litigation proceeding—Many of the Macondo well related claims are pending in the U.S. District Court, Eastern District of Louisiana (the “MDL Court”).  In March 2012, BP and the Plaintiff’s Steering Committee (the “PSC”) announced that they had agreed to a partial settlement related primarily to private party environmental and economic loss claims as well as response effort related claims (the “BP/PSC Settlement”).  The BP/PSC Settlement agreement provides that (a) to the extent permitted by law, BP will assign to the settlement class certain of BP’s claims, rights and recoveries against us for damages with protections such that the settlement class is barred from collecting any amounts from us unless it is finally determined that we cannot recover such amounts from BP, and (b) the settlement class releases all claims for compensatory damages against us but purports to retain claims for punitive damages against us.
 
 
On December 21, 2012, the MDL Court granted final approval of the economic and property damage class settlement between BP and the PSC.  In December 2012, in response to the settlements, we filed three motions seeking partial summary judgment on various claims, including punitive damages claims.  If successful, these motions would eliminate or reduce our exposure to punitive damages.  In the first motion, we sought judgment on both compensatory and punitive damages claims, as well as any contribution claims, based on oil discharged below the surface of the water, on the grounds that the MDL Court had ruled in the suit brought by the U.S that we were not a responsible party under OPA for this subsurface discharge (see “—U.S. Department of Justice claims”).  In the second motion, we sought judgment on claims for punitive damages by all members of the settlement classes on the grounds that these plaintiffs cannot pursue punitive damages because they no longer have compensatory damages claims against us.  We further argued that even if these settling class members could seek punitive damages, the MDL Court cannot rely on the value of any settlement payments in making any punitive damages award.  In the third motion, we sought judgment on all claims for contribution that BP purported to assign to the settlement classes as part of the settlement on the grounds that this type of assignment is invalid because, inter alia, BP did not obtain a complete release of claims against us and the contribution claim would result in an impermissible double recovery by class members.  The MDL Court has not ruled on these motions.
 
 
The first phase of the trial commenced on February 25, 2013.  Pursuant to the MDL Court’s order, the trial will address fault issues that have not previously been disposed of or resolved by settlement, summary judgment, or stipulation and that may properly be tried by the MDL Court without a jury, including negligence, gross negligence, or other bases of liability of the various defendants with respect to the issues, and limitation of liability issues.  The MDL Court has stated that, after this phase of the trial is concluded, the MDL Court will ask the parties to submit post-trial briefs and proposed findings of fact and conclusions of law.  The MDL Court has ordered post-trial briefs be submitted by June 21, 2013, and that reply briefs be filed by July 12, 2013.
 
 
If the MDL Court finds in this phase of the trial that we were grossly negligent, we will be exposed to at least three litigation risks: (1) the MDL Court could award punitive damages under general maritime law to plaintiffs who own property damaged by oil and to plaintiffs who are commercial fishermen; (2) the MDL Court could find that our gross negligence voids the release BP gave us in the drilling contract for direct claims by BP, which BP has assigned to the plaintiffs in the BP/PSC settlement; and (3) we could be liable for all other oil pollution damages claims, including claims for natural resource damages, if the MDL Court were to go beyond gross negligence and find a “core breach” of the drilling contract, or if the court of appeals were to reverse a prior ruling that BP owes us indemnity for these claims even in the event of gross negligence.  Our three pending motions for partial summary judgment, if successful, could reduce or eliminate our exposure to these claims.
 
 
The MDL Court has scheduled a trial date of September 16, 2013 for the second phase of the trial, which will address conduct related to stopping the release of hydrocarbons between April 22, 2010 and approximately September 19, 2010 and seek to determine the amount of oil actually released during the period.  We can provide no assurances as to the outcome of the trial, as to the timing of any upcoming phase of trial, that we will not enter into additional settlements as to some or all of the matters related to the Macondo well incident, including those to be determined at a trial, or the timing or terms of any such settlements.
 
 
Notices of alleged non-compliance—The BSEE issued four notices of alleged non-compliance with regulatory requirements to us on October 12, 2011, from which we appealed.  The Consent Decree resolved the appeal of the incidents of noncompliance under the OSCLA issued by the BSEE on October 12, 2011 without any admission of liability by us.  Therefore, pursuant to the Consent Decree, we have dismissed our appeal.  See “—Macondo well incident settlement obligations.”
 
 
Litigation—As of March 31, 2013, 388 actions or claims were pending against us, along with other unaffiliated defendants, in state and federal courts.  Additionally, government agencies have initiated investigations into the Macondo well incident.  We have categorized below the nature of the legal actions or claims.  We are evaluating all claims and intend to vigorously defend any claims and pursue any and all defenses available.  In addition, we believe we are entitled to contractual defense and indemnity for all wrongful death and personal injury claims made by non-employees and third-party subcontractors’ employees as well as all liabilities for pollution or contamination, other than for pollution or contamination originating on or above the surface of the water.  See “—Contractual indemnity.”
 

 
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    Wrongful death and personal injury—As of March 31, 2013, we have been named, along with other unaffiliated defendants, in nine complaints that were pending in state and federal courts in Louisiana and Texas involving multiple plaintiffs that allege wrongful death and other personal injuries arising out of the Macondo well incident.  Per the order of the Multidistrict Litigation Panel (“MDL”), these claims have been centralized for discovery purposes in the MDL Court.  The complaints generally allege negligence and seek awards of unspecified economic damages and punitive damages.  BP, MI-SWACO, Weatherford International Ltd. and Cameron International Corporation (“Cameron”) and certain of their affiliates, have, based on contractual arrangements, also made indemnity demands upon us with respect to personal injury and wrongful death claims asserted by our employees or representatives of our employees against these entities.  See “—Contractual indemnity.”
 
 
Economic loss—As of March 31, 2013, we and certain of our subsidiaries were named, along with other unaffiliated defendants, in 161 pending individual complaints as well as 190 putative class-action complaints that were pending in the federal and state courts in Louisiana, Texas, Mississippi, Alabama, Georgia, Kentucky, South Carolina, Tennessee, Florida and possibly other courts.  The complaints generally allege, among other things, potential economic losses as a result of environmental pollution arising out of the Macondo well incident and are based primarily on the OPA and state OPA analogues.  The plaintiffs are generally seeking awards of unspecified economic, compensatory and punitive damages, as well as injunctive relief.  These actions have been transferred to the MDL.  See “—Contractual indemnity.”
 
 
Cross-claims, counter-claims, and third party claimsIn April 2011, several defendants in the MDL litigation filed cross-claims or third-party claims against us and certain of our subsidiaries, and other defendants.  BP filed a claim seeking contribution under the OPA and maritime law, subrogation and claimed breach of contract, unseaworthiness, negligence and gross negligence.  BP also sought a declaration that it is not liable in contribution, indemnification, or otherwise to us.  Anadarko Petroleum Corporation (“Anadarko”), which owned a 25 percent non-operating interest in the Macondo well, asserted claims of negligence, gross negligence, and willful misconduct and is seeking indemnity under state and maritime law and contribution under maritime and state law as well as OPA.  MOEX Offshore 2007 LLC (“MOEX”), which owns a 10 percent non-operating interest in the Macondo well, filed claims of negligence under state and maritime law, gross negligence under state law, gross negligence and willful misconduct under maritime law and is seeking indemnity under state and maritime law and contribution under maritime law and OPA.  Cameron, the manufacturer and designer of the blowout preventer, asserted multiple claims for contractual indemnity and declarations regarding contractual obligations under various contracts and quotes and is also seeking non-contractual indemnity and contribution under maritime law and OPA.  As part of the BP/PSC Settlement, one or more of these claims against us and certain of our subsidiaries have been assigned to the PSC settlement class.  Halliburton Company (“Halliburton”), which provided cementing and mud-logging services to the operator, filed a claim against us seeking contribution and indemnity under maritime law, contractual indemnity and alleging negligence and gross negligence.  Additionally, certain other third parties filed claims against us for indemnity and contribution.
 
 
In April 2011, we filed cross-claims and counter-claims against BP, Halliburton, Anadarko, MOEX, certain of these parties’ affiliates, the U.S. and certain other third parties.  We seek indemnity, contribution, including contribution under OPA, and subrogation under OPA, and we have asserted claims for breach of warranty of workmanlike performance, strict liability for manufacturing and design defect, breach of express contract, and damages for the difference between the fair market value of Deepwater Horizon and the amount received from insurance proceeds.  The Consent Decree limits our ability to seek indemnification or reimbursement with respect to certain of these matters against the owners of the Macondo well.  We are not pursuing arbitration on the key contractual issues with BP; instead, we are relying on the court to resolve the disputes.  With regard to the U.S., we are not currently seeking recovery of monetary damages, but rather a declaration regarding relative fault and contribution via credit, setoff, or recoupment.
 
 
Federal securities claims—A federal securities class action is currently pending in the U.S. District Court, Southern District of New York, naming us and former chief executive officers of Transocean Ltd. and one of our acquired companies as defendants.  In the action, a former shareholder of the acquired company alleges that the joint proxy statement related to our shareholder meeting in connection with our merger with the acquired company violated Section 14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), Rule 14a-9 promulgated thereunder and Section 20(a) of the Exchange Act.  The plaintiff claims that the acquired company’s shareholders received inadequate consideration for their shares as a result of the alleged violations and seeks compensatory and rescissory damages and attorneys’ fees.  In addition, we are obligated to pay the defense fees and costs for the individual defendants, which may be covered by our directors’ and officers’ liability insurance, subject to a deductible.  On October 4, 2012, the court denied our motion to dismiss the action.  On October 5, 2012, we asked the court to stay the action pending a decision by the Second Circuit Court of Appeals in an unrelated action involving other parties on the grounds that the Second Circuit’s decision could be relevant to the disposition of this case.  On October 10, 2012, the court stayed discovery pending a decision on the motion to stay.  On February 19, 2013, the court granted our motion to stay the action pending the decision of the Second Circuit Court of Appeals.  On March 27, 2013, this matter was reassigned to the Southern District of New York.  The parties have been directed to submit a joint summary of the case during the second quarter of 2013.
 
 
Other federal statutes—Several of the claimants have made assertions under the statutes, including the CWA, the Endangered Species Act, the Migratory Bird Treaty Act, the CERCLA and the Emergency Planning and Community Right-to-Know Act.
 

 
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    Shareholder derivative claims—In June 2010, two shareholder derivative suits were filed by our shareholders naming us as a nominal defendant and certain of our current and former officers and directors as defendants in state district court in Texas.  These cases allege breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement and waste of corporate assets in connection with the Macondo well incident.  The plaintiffs are generally seeking to recover, on behalf of us, damages to the corporation and disgorgement of all profits, benefits, and other compensation from the individual defendants.  Any recovery of the damages or disgorgement by the plaintiffs in these actions would be paid to us.  If the plaintiffs prevail, we could be required to pay plaintiffs’ attorneys’ fees.  In addition, we are obligated to pay the defense fees and costs for the individual defendants, which may be covered by our directors’ and officers’ liability insurance, subject to a deductible.  The two actions have been consolidated before a single judge.  In August 2012, the defendants filed a motion to dismiss the complaint on the ground that if the actions are to proceed they must be maintained in the courts of Switzerland and on the ground that the plaintiffs lack standing to assert the claims alleged.  In December 2012, in response to defendants' motion to dismiss for lack of standing, the plaintiffs dismissed their action without prejudice.  In January 2013, one of the plaintiffs re-filed a complaint that was previously dismissed seeking to recover damages to the corporation and disgorgement of all profits, benefits, and other compensation from the individual defendants.  Defendants filed a motion to dismiss in March 2013.
 
 
U.S. Department of Justice claims—On December 15, 2010, the DOJ filed a civil lawsuit against us and other unaffiliated defendants.  The complaint alleged violations under OPA and the CWA, including claims for per barrel civil penalties of up to $1,100 per barrel or up to $4,300 per barrel if gross negligence or willful misconduct is established, and the DOJ reserved its rights to amend the complaint to add new claims and defendants.  The U.S. government has estimated that up to 4.1 million barrels of oil were discharged and subject to penalties.  The complaint asserted that all defendants named are jointly and severally liable for all removal costs and damages resulting from the Macondo well incident.  On December 6, 2011, the DOJ filed a motion for partial summary judgment seeking a ruling that we were jointly and severally liable under OPA, and liable for civil penalties under the CWA, for all of the discharges from the Macondo well on the theory that discharges not only came from the well but also from the blowout preventer and riser, appurtenances of Deepwater Horizon.
 
 
On January 9, 2012, we filed our opposition to the motion and filed a cross-motion for partial summary judgment seeking a ruling that we are not liable for the subsurface discharge of hydrocarbons.  On February 22, 2012, the MDL Court ruled that we are not liable as a responsible party for damages under OPA with respect to the below surface discharges from the Macondo well.  The court also ruled that the below surface discharge was discharged from the well facility, and not from the Deepwater Horizon vessel, within the meaning of the CWA, and that we therefore are not liable for such discharges as an owner of the vessel under the CWA.  However, the court ruled that the issue of whether we could be held liable for such discharge under the CWA as an “operator” of the well facility could not be resolved on summary judgment.  The court did not determine whether we could be liable for removal costs under OPA, or the extent of such removal costs.  On August 27, 2012, Anadarko filed a notice of appeal seeking to appeal to the Fifth Circuit Court of Appeals that portion of the MDL Court’s February 22, 2012 ruling concerning liability under the CWA.  On September 18, 2012, BP and the U.S. also filed notices of appeal seeking to appeal to the Fifth Circuit Court of Appeals the MDL Court’s February 22, 2012 ruling without limiting the notice of appeal to the CWA aspects of the ruling.  We filed a motion to dismiss the appeals, and on February 5, 2013, the Fifth Circuit Court of Appeals denied our motion to dismiss the appeals by Anadarko, BP and the U.S. regarding the February 22, 2012 ruling of the MDL Court.  The Fifth Circuit Court of Appeals set a briefing schedule providing for briefing to be completed by May 2013.  On February 21, 2013, the U.S. moved to voluntarily dismiss its appeal, and the Fifth Circuit Court of Appeals granted that motion.  Because we were designated solely as a cross-appellee in the cross-appeal filed by the U.S., its dismissal of the appeal resulted in the Fifth Circuit Court of Appeals removing us as a cross-appellee.  BP and Anadarko’s opening briefs were due to be filed on April 26, 2013.
 
 
In addition to the civil complaint, the DOJ served us with civil investigative demands on December 8, 2010.  These demands were part of an investigation by the DOJ to determine if we made false claims, or false statements in support of claims, in violation of the False Claims Act, in connection with the operator’s acquisition of the leasehold interest in the Mississippi Canyon Block 252, Gulf of Mexico and drilling operations on Deepwater Horizon.  As part of the settlement discussions, we inquired whether the U.S. intends to pursue any actions under the False Claims Act.  In response, the DOJ sent us a letter stating that the Civil Division of the DOJ, based on facts then known, is no longer pursuing any investigation or claims, and did not have any present intention to pursue any investigation or claims, under the False Claims Act against the various Transocean entities for their involvement in the Macondo well incident.
 
 
As noted above, the DOJ also conducted a criminal investigation into the Macondo well incident.  On March 7, 2011, the DOJ announced the formation of the Deepwater Horizon Task Force to lead the criminal investigation.  The task force investigated possible violations by us and certain unaffiliated parties of the CWA, the Migratory Bird Treaty Act, the Refuse Act, the Endangered Species Act, and the Seaman’s Manslaughter Act, among other federal statutes, and possible criminal liabilities, including fines under those statutes and under the Alternative Fines Act.  As discussed above, on January 3, 2013, we entered into the Plea Agreement with the DOJ resolving these claims.  See “—Macondo well incident settlement obligations.”
 
 
State and other government claims—In June 2010, the Louisiana Department of Environmental Quality (the “LDEQ”) issued a consolidated compliance order and notice of potential penalty to us and certain of our subsidiaries asking us to eliminate and remediate discharges of oil and other pollutants into waters and property located in the State of Louisiana, and to submit a plan and report in
 

 
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response to the order.  In October 2010, the LDEQ rescinded its enforcement actions against us and our subsidiaries but reserved its rights to seek civil penalties for future violations of the Louisiana Environmental Quality Act.
 
 
In September 2010, the State of Louisiana filed a declaratory judgment seeking to designate us as a responsible party under OPA and the Louisiana Oil Spill Prevention and Response Act for the discharges emanating from the Macondo well.
 
 
Additionally, suits have been filed by the State of Alabama and the cities of Greenville, Evergreen, Georgiana and McKenzie, Alabama in the U.S. District Court, Middle District of Alabama; the Mexican States of Veracruz, Quintana Roo and Tamaulipas in the U.S. District Court, Western District of Texas; and the City of Panama City Beach, Florida in the U.S. District Court, Northern District of Florida.  Suits were also filed by the City of New Orleans, by and on behalf of multiple Parishes, and by or on behalf of the Town of Grand Isle, Grand Isle Independent Levee District, the Town of Jean Lafitte, the Lafitte Area Independent Levee District, the City of Gretna, the City of Westwego, and the City of Harahan in the MDL Court.  Additional suits were filed by or on behalf of other Parishes in the respective Parish courts and were removed to federal court.  A local government master complaint also was filed in which cities, municipalities, and other local government entities can and have joined.  Generally, these governmental entities allege economic losses under OPA and other statutory environmental state claims and also assert various common law state claims.  The claims have been centralized in the MDL.  The city of Panama City Beach’s claim was voluntarily dismissed.
 
 
On August 26, 2011, the MDL Court ruled on the motion to dismiss certain economic loss claims.  The court ruled that state law, both statutory and common law, is preempted by maritime law, notwithstanding OPA’s savings provisions.  Accordingly, all claims brought under state law were dismissed.  Secondly, general maritime law claims that do not allege physical damage to a proprietary interest were dismissed, unless the claim falls into the commercial fisherman exception.  The court ruled that OPA claims for economic loss do not require physical damage to a proprietary interest.  Third, the MDL Court ruled that presentment under OPA is a mandatory condition precedent to filing suit against a responsible party.  Finally, the MDL Court ruled that claims for punitive damages may be available under general maritime law in claims against responsible parties and non-responsible parties.  Certain Louisiana parishes have appealed portions of this ruling.  The appeal was argued to the Fifth Circuit Court of Appeals on March 5, 2013.  The court has not ruled on this appeal.
 
 
The Mexican States’ OPA claims were dismissed for failure to demonstrate that recovery under OPA was authorized by treaty or executive agreement.  However, the Court preserved some of the Mexican States’ negligence and gross negligence claims, but only to the extent there has been a physical injury to a proprietary interest.  As such, the ruling as to the Mexican States is not yet final and not subject to appeal at this time.
 
 
By letter dated May 5, 2010, the Attorneys General of the five Gulf Coast states of Alabama, Florida, Louisiana, Mississippi and Texas informed us that they intend to seek recovery of pollution clean-up costs and related damages arising from the Macondo well incident.  In addition, by letter dated June 21, 2010, the Attorneys General of the 11 Atlantic Coast states of Connecticut, Delaware, Georgia, Maine, Maryland, Massachusetts, New Hampshire, New York, North Carolina, Rhode Island and South Carolina informed us that their states have not sustained any damage from the Macondo well incident but they would like assurances that we will be responsible financially if damages are sustained.  We responded to each letter from the Attorneys General and indicated that we intend to fulfill our obligations as a responsible party for any discharge of oil from Deepwater Horizon on or above the surface of the water, and we assume that the operator will similarly fulfill its obligations under OPA for discharges from the undersea well.
 
 
Wreck removal—By letter dated December 6, 2010, the U.S. Coast Guard requested us to formulate and submit a comprehensive oil removal plan to remove any diesel fuel contained in the sponsons and fuel tanks that can be recovered from Deepwater Horizon. We have conducted a survey of the rig wreckage and have confirmed that no diesel fuel remains on the rig.  The U.S. Coast Guard has not requested that we remove the rig wreckage from the sea floor.  In October 2012, a new sheen was reported and preliminarily determined to have originated from the Macondo well.  Sources state that BP was notified of the sheen in early September 2012 and had commenced an investigation to determine the source, whether the oil and mud were from the sea floor, the rig or rig equipment, or other sources.  In February 2013, the U. S. Coast Guard submitted a request seeking analysis and recommendations as to the potential life of the rig’s riser and cofferdam resting on the seafloor and potential remediation or removal options.  We have insurance coverage for wreck removal for up to 25 percent of Deepwater Horizon’s insured value, or $140 million, with any excess wreck removal liability generally covered to the extent of our remaining excess liability limits.
 
Insurance coverage—At the time of the Macondo well incident, our excess liability insurance program offered aggregate insurance coverage of $950 million, excluding a $15 million deductible and a $50 million self-insured layer through our wholly owned captive insurance subsidiary.  This excess liability insurance coverage consisted of a first and a second layer of $150 million each, a third and fourth layer of $200 million each and a fifth layer of $250 million.  The first four excess layers have similar coverage and contractual terms, while the $250 million fifth layer is on a different policy form, which varies to some extent from the underlying coverage and contractual terms.  Generally, we believe that the policy forms for all layers include coverage for personal injury and fatality claims of our crew and vendors, actual and compensatory damages, punitive damages and related legal defense costs and that the policy forms for the first four excess layers provide coverage for fines; however, we do not expect payments deemed to be criminal in nature to be covered by any of the layers.
 

 
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    In May 2010, we received notice from BP maintaining that it believes that it is entitled to additional insured status under our excess liability insurance program.  Our insurers have also received notices from Anadarko and MOEX advising of their intent to preserve any rights they may have to our insurance policies as an additional insured under the drilling contract.  In response, our wholly owned captive insurance subsidiary and our first four excess layer insurers filed declaratory judgment actions in the Houston Division of the U.S. District Court for the Southern District of Texas in May 2010 seeking a judgment declaring that they have limited additional insured obligations to BP, Anadarko and MOEX.  We are parties to the declaratory judgment actions, which were transferred to the MDL Court for discovery and other purposes.  On November 15, 2011, the MDL Court ruled that BP’s coverage rights are limited to the scope of our indemnification of BP in the drilling contract.  A final judgment was entered against BP, Anadarko and MOEX, and BP appealed.  On March 1, 2013, the U.S. Court of Appeals for the Fifth Circuit reversed the decision of the MDL Court, and held that BP is an unrestricted additional insured under the policies issued by our wholly owned captive insurance company and the first four excess layer insurers.  We believe that additional insured coverage for BP, Anadarko or MOEX under the $250 million fifth layer of our insurance program is limited to the scope of our indemnification of BP under the drilling contract.  We and the insurers filed petitions for rehearing en banc with the Fifth Circuit.  The court has not yet issued a ruling on the petitions.  While we cannot predict the outcome of the petitions for rehearing of the Fifth Circuit’s decision, we do not expect it to have a material adverse effect on our consolidated statement of financial position, results of operations or cash flows.
 
 
Our first layer and second layer of excess insurers, each representing $150 million of insurance coverage, filed interpleader actions on June 17, 2011 and July 31, 2012, respectively.  The insurers contend that they face multiple, and potentially competing, claims to the relevant insurance proceeds.  In these actions, the insurers effectively ask the court to manage disbursement of the funds to the alleged claimants, as appropriate, and discharge the insurers of any additional liability.  The parties to the interpleader actions have executed protocol agreements to facilitate the reimbursement and funding of settlements of personal injury and fatality claims of our crew and vendors using insurance funds and claims have been submitted to the court for review.  Pending the court’s determination of the parties’ claims, and with the court’s approval, th