Transocean Ltd. [RIG] Filings

10-Q 1 rig-20230331x10q.htm 10-Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended March 31, 2023

☐ 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 001-38373

Transocean Ltd.

(Exact name of registrant as specified in its charter)

Switzerland	98-0599916
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Turmstrasse 30 Steinhausen, Switzerland	6312
(Address of principal executive offices)	(Zip Code)


+41 (41) 749-0500
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol	Name of each exchange on which registered
Shares, CHF 0.10 par value	RIG	New York Stock Exchange

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ◻

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

Large accelerated filer þ Accelerated filer ◻ Non-accelerated filer ◻ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

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 25, 2023, 766,448,046 shares were outstanding.

Table of Contents

TRANSOCEAN LTD. AND SUBSIDIARIES

INDEX TO QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED March 31, 2023


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Operations	1
	Condensed Consolidated Statements of Comprehensive Loss	2
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 6.	Exhibits	25

Table of Contents

PART I. FINANCIAL INFORMATION

Item I.

Financial Statements

TRANSOCEAN LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(Unaudited)


	Three months ended
	March 31,
	2023		2022

Contract drilling revenues	$	649	$	586

Costs and expenses
Operating and maintenance		409		412
Depreciation and amortization		182		183
General and administrative		45		42
		636		637

Gain (loss) on disposal of assets, net		(170)		1
Operating loss		(157)		(50)

Other income (expense), net
Interest income		19		2
Interest expense, net of amounts capitalized		(249)		(102)
Loss on retirement of debt		(32)		—
Other, net		5		1
		(257)		(99)
Loss before income tax expense		(414)		(149)
Income tax expense		51		26

Net loss		(465)		(175)
Net income attributable to noncontrolling interest		—		—
Net loss attributable to controlling interest	$	(465)	$	(175)

Loss per share, basic and diluted	$	(0.64)	$	(0.26)
Weighted-average shares, basic and diluted		728		664

See accompanying notes.

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TRANSOCEAN LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in millions)

(Unaudited)


	Three months ended
	March 31,
	2023		2022

Net loss	$	(465)	$	(175)
Net income attributable to noncontrolling interest		—		—
Net loss attributable to controlling interest		(465)		(175)

Components of net periodic benefit costs before reclassifications		(11)		(11)
Components of net periodic benefit costs reclassified to net loss		—		1

Other comprehensive loss before income taxes		(11)		(10)
Income taxes related to other comprehensive loss		—		—
Other comprehensive loss		(11)		(10)
Other comprehensive income attributable to noncontrolling interest		—		—
Other comprehensive loss attributable to controlling interest		(11)		(10)

Total comprehensive loss		(476)		(185)
Total comprehensive income attributable to noncontrolling interest		—		—
Total comprehensive loss attributable to controlling interest	$	(476)	$	(185)

See accompanying notes.

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TRANSOCEAN LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

(Unaudited)


	March 31,		December 31,
	2023		2022
Assets
Cash and cash equivalents	$	747	$	683
Accounts receivable, net of allowance of $2 at March 31, 2023 and December 31, 2022		499		485
Materials and supplies, net of allowance of $201 and $199 at March 31, 2023 and December 31, 2022, respectively		390		388
Restricted cash and cash equivalents		208		308
Other current assets		187		144
Total current assets		2,031		2,008

Property and equipment		23,996		24,217
Less accumulated depreciation		(6,876)		(6,748)
Property and equipment, net		17,120		17,469
Contract intangible assets		38		56
Deferred tax assets, net		17		13
Other assets		988		890
Total assets	$	20,194	$	20,436

Liabilities and equity
Accounts payable	$	246	$	281
Accrued income taxes		28		19
Debt due within one year		283		719
Other current liabilities		496		539
Total current liabilities		1,053		1,558

Long-term debt		7,342		6,628
Deferred tax liabilities, net		533		493
Other long-term liabilities		941		965
Total long-term liabilities		8,816		8,086

Commitments and contingencies

Shares, CHF 0.10 par value, 905,094,091 authorized, 142,362,093 conditionally authorized, 797,245,335 issued
and 731,847,899 outstanding at March 31, 2023, and 905,093,509 authorized, 142,362,675 conditionally
authorized, 797,244,753 issued and 721,888,427 outstanding at December 31, 2022		72		71
Additional paid-in capital		13,992		13,984
Accumulated deficit		(3,544)		(3,079)
Accumulated other comprehensive loss		(196)		(185)
Total controlling interest shareholders’ equity		10,324		10,791
Noncontrolling interest		1		1
Total equity		10,325		10,792
Total liabilities and equity	$	20,194	$	20,436

See accompanying notes.

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TRANSOCEAN LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in millions)

(Unaudited)


	March 31,
	2023		2022
Shares
Balance, beginning of period	$	71	$	64
Issuance of shares		1		3
Balance, end of period	$	72	$	67

Additional paid-in capital
Balance, beginning of period	$	13,984	$	13,683
Share-based compensation		9		7
Issuance of shares		(1)		100
Balance, end of period	$	13,992	$	13,790

Accumulated deficit
Balance, beginning of period	$	(3,079)	$	(2,458)
Net loss attributable to controlling interest		(465)		(175)
Balance, end of period	$	(3,544)	$	(2,633)

Accumulated other comprehensive loss
Balance, beginning of period	$	(185)	$	(84)
Other comprehensive loss attributable to controlling interest		(11)		(10)
Balance, end of period	$	(196)	$	(94)

Total controlling interest shareholders’ equity
Balance, beginning of period	$	10,791	$	11,205
Total comprehensive loss attributable to controlling interest		(476)		(185)
Share-based compensation		9		7
Issuance of shares		—		103
Balance, end of period	$	10,324	$	11,130

Noncontrolling interest
Balance, beginning of period	$	1	$	1
Balance, end of period	$	1	$	1

Total equity
Balance, beginning of period	$	10,792	$	11,206
Total comprehensive loss		(476)		(185)
Share-based compensation		9		7
Issuance of shares		—		103
Balance, end of period	$	10,325	$	11,131

See accompanying notes.

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TRANSOCEAN LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)


	Three months ended
	March 31,
	2023		2022
Cash flows from operating activities
Net loss	$	(465)	$	(175)
Adjustments to reconcile to net cash used in operating activities:
Contract intangible asset amortization		18		29
Depreciation and amortization		182		183
Share-based compensation expense		9		7
(Gain) loss on disposal of assets, net		170		(1)
Fair value adjustment to bifurcated compound exchange feature		133		—
Loss on retirement of debt		32		—
Deferred income tax expense		36		23
Other, net		27		21
Changes in deferred revenues, net		6		(11)
Changes in deferred costs, net		(24)		(4)
Changes in other operating assets and liabilities, net		(171)		(73)
Net cash used in operating activities		(47)		(1)

Cash flows from investing activities
Capital expenditures		(81)		(106)
Investments in equity of unconsolidated affiliates		(10)		(15)
Proceeds from disposal of assets, net		1		1
Net cash used in investing activities		(90)		(120)

Cash flows from financing activities
Repayments of debt		(1,564)		(165)
Proceeds from issuance of debt, net of issue costs		1,665		—
Proceeds from issuance of shares, net of issue costs		—		103
Other, net		—		(3)
Net cash provided by (used in) financing activities		101		(65)

Net decrease in unrestricted and restricted cash and cash equivalents		(36)		(186)
Unrestricted and restricted cash and cash equivalents, beginning of period		991		1,412
Unrestricted and restricted cash and cash equivalents, end of period	$	955	$	1,226

See accompanying notes.

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Table of Contents

TRANSOCEAN LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Business

Transocean Ltd. (together with its subsidiaries and predecessors, unless the context requires otherwise, “Transocean,” “we,” “us” or “our”) is a leading international provider of offshore contract drilling services for oil and gas wells. As of March 31, 2023, we owned or had partial ownership interests in and operated a fleet of 37 mobile offshore drilling units, consisting of 27 ultra-deepwater floaters and 10 harsh environment floaters. As of March 31, 2023, we were constructing one ultra-deepwater drillship and held a noncontrolling ownership interest in a company that is constructing one ultra-deepwater drillship.

Note 2—Significant Accounting Policies

Presentation—We prepared our accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“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. 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, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023, 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, 2022 and 2021, and for each of the three years in the period ended December 31, 2022, included in our annual report on Form 10-K filed on February 23, 2023.

Accounting estimates—To prepare financial statements in accordance with accounting principles generally accepted in the U.S., we must make judgments by applying 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 income taxes, property and equipment, equity investments, contingencies, allowance for excess materials and supplies, intangibles, postemployment benefit plans and share-based compensation. We base our estimates and assumptions on historical experience and other factors that we believe are reasonable. Actual results could differ from such estimates.

Fair value measurements—We estimate fair value at an exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. 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 a valuation requires multiple input levels, 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.

Note 3—Unconsolidated Affiliates

We hold noncontrolling equity investments in various unconsolidated companies. In February 2023, we made a cash contribution of $10 million and a non-cash contribution of the ultra-deepwater floater Ocean Rig Olympia, which had been cold stacked, and related assets, with an estimated fair value of $85 million (see Note 5—Long-lived assets), in exchange for a noncontrolling ownership interest in Global Sea Mineral Resources NV (together with its subsidiaries, “GSR”), a Belgian company and leading developer of nodule collection technology, which is engaged in the development and exploration of deep-sea polymetallic nodules that contain metals critical to the growing renewable energy market. We estimated the fair value of the rig using projected discounted cash flows, and our estimate required us to use significant unobservable inputs, representative of Level 3 fair value measurements, including assumptions related to the future performance of the rig, projected demand for its services, rig availability and dayrates. At March 31, 2023, the aggregate carrying amount of our investment in GSR was $95 million. At March 31, 2023 and December 31, 2022, the carrying amount of our investment in Liquila Ventures Ltd., the unconsolidated variable interest entity that is constructing the ultra-deepwater floater Deepwater Aquila, was $15 million, recorded in other assets. At March 31, 2023 and December 31, 2022, the aggregate carrying amount of all of our equity investments in unconsolidated affiliates was $194 million and $113 million, respectively, recorded in other assets.

During the three months ended March 31, 2023, we incurred costs of approximately $40 million for Transocean Norge, primarily for contract preparation and upgrade shipyard costs, which are reimbursable from Orion Holdings (Cayman) Limited, the owner of the rig, to prepare for its next contract, which is expected to commence in May 2023. At March 31, 2023 and December 31, 2022, our accounts receivable from affiliates was $75 million and $32 million, respectively, recorded in other current assets.

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TRANSOCEAN LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS─continued

(Unaudited)

Note 4—Revenues

Overview—Our drilling services represent a single performance obligation under most of our drilling contracts with customers that is satisfied over time, the duration of which varies by contract. As of March 31, 2023, the drilling contract with the longest expected remaining duration, excluding unexercised options, extends through July 2029.

Disaggregation—Our contract drilling revenues, disaggregated by asset group and by country in which they were earned, were as follows (in millions):


	Three months ended March 31, 2023						Three months ended March 31, 2022
	Ultra-		Harsh				Ultra-		Harsh
	deepwater		environment				deepwater		environment
	floaters		floaters		Total		floaters		floaters		Total
U.S.	$	352	$	—	$	352	$	268	$	—	$	268
Norway		—		148		148		—		193		193
Other countries (a)		132		17		149		122		3		125
Total contract drilling revenues	$	484	$	165	$	649	$	390	$	196	$	586

(a)The aggregate contract drilling revenues earned in other countries that individually represented less than 10 percent of total contract drilling revenues.

Contract liabilities—Contract liabilities for our contracts with customers were as follows (in millions):


	March 31,		December 31,
	2023		2022
Deferred contract revenues, recorded in other current liabilities	$	145	$	124
Deferred contract revenues, recorded in other long-term liabilities		189		204
Total contract liabilities	$	334	$	328

Significant changes in contract liabilities were as follows (in millions):


	Three months ended
	March 31,
	2023		2022
Total contract liabilities, beginning of period	$	328	$	348
Decrease due to recognition of revenues for goods and services		(34)		(26)
Increase due to goods and services transferred over time		40		15
Total contract liabilities, end of period	$	334	$	337

Pre-operating costs—In the three months ended March 31, 2023 and 2022, we recognized pre-operating costs of $10 million and $12 million, respectively, recorded in operating and maintenance costs. At March 31, 2023 and December 31, 2022, the carrying amount of our unrecognized pre-operating costs to obtain contracts was $52 million and $26 million, respectively, recorded in other assets.

Note 5—Long-Lived Assets

Construction work in progress—The changes in our construction work in progress were as follows (in millions):


	Three months ended
	March 31,
	2023		2022
Construction work in progress, beginning of period	$	1,195	$	1,017

Capital expenditures
Newbuild construction program		65		92
Other equipment and construction projects		16		14
Total capital expenditures		81		106
Changes in accrued capital additions		(4)		(12)

Property and equipment placed into service		(12)		(12)
Construction work in progress, end of period	$	1,260	$	1,099

Disposal—In February 2023, in connection with our investment in a noncontrolling ownership interest in GSR, we made a non-cash contribution of the cold stacked ultra-deepwater floater Ocean Rig Olympia and related assets, and in the three months ended March 31, 2023, we recognized a loss of $169 million ($0.23 per diluted share), which had no tax effect, associated with the disposal of the rig and related assets. See Note 3—Unconsolidated affiliates.

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TRANSOCEAN LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS─continued

(Unaudited)

Note 6—Debt

Overview

Outstanding debt—The aggregate principal amounts and aggregate carrying amounts, including the contractual interest payments of previously restructured debt, a bifurcated compound exchange feature, and unamortized debt-related balances, such as discounts, premiums and issue costs, were as follows (in millions):


	Principal amount				Carrying amount
	March 31,		December 31,		March 31,		December 31,
	2023		2022		2023		2022
0.50% Exchangeable Senior Bonds due January 2023	$	—	$	49	$	—	$	49
5.375% Senior Secured Notes due May 2023		—		243		—		242
5.875% Senior Secured Notes due January 2024		—		352		—		350
7.75% Senior Secured Notes due October 2024		—		240		—		238
6.25% Senior Secured Notes due December 2024		—		250		—		248
6.125% Senior Secured Notes due August 2025		—		336		—		332
7.25% Senior Notes due November 2025		354		354		351		351
4.00% Senior Guaranteed Exchangeable Bonds due December 2025		294		294		273		271
7.50% Senior Notes due January 2026		569		569		566		566
2.50% Senior Guaranteed Exchangeable Bonds due January 2027		238		238		262		265
11.50% Senior Guaranteed Notes due January 2027		687		687		973		1,008
6.875% Senior Secured Notes due February 2027		447		482		443		477
8.00% Senior Notes due February 2027		612		612		608		608
7.45% Notes due April 2027		52		52		52		52
8.00% Debentures due April 2027		22		22		22		22
4.50% Shipyard Loans due September 2027		439		439		393		389
8.375% Senior Secured Notes due February 2028		525		—		517		—
7.00% Notes due June 2028		261		261		264		264
4.625% Senior Guaranteed Exchangeable Bonds due September 2029		300		300		576		440
8.75% Senior Secured Notes due February 2030		1,175		—		1,150		—
7.50% Notes due April 2031		396		396		394		394
6.80% Senior Notes due March 2038		610		610		605		605
7.35% Senior Notes due December 2041		177		177		176		176
Total debt		7,158		6,963		7,625		7,347

Less debt due within one year
0.50% Exchangeable Senior Bonds due January 2023		—		49		—		49
5.375% Senior Secured Notes due May 2023		—		243		—		242
5.875% Senior Secured Notes due January 2024		—		83		—		81
7.75% Senior Secured Notes due October 2024		—		60		—		59
6.25% Senior Secured Notes due December 2024		—		62		—		61
6.125% Senior Secured Notes due August 2025		—		66		—		64
2.50% Senior Guaranteed Exchangeable Bonds due January 2027		—		—		6		6
11.50% Senior Guaranteed Notes due January 2027		—		—		71		70
6.875% Senior Secured Notes due February 2027		76		69		74		67
4.50% Shipyard Loans due September 2027		35		20		19		20
8.75% Senior Secured Notes due February 2030		117		—		113		—
Total debt due within one year		228		652		283		719
Total long-term debt	$	6,930	$	6,311	$	7,342	$	6,628

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TRANSOCEAN LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS─continued

(Unaudited)

Scheduled maturities—At March 31, 2023, scheduled maturities of our debt, including the principal installments and other installments, representing the contractual interest payments of previously restructured debt, were as follows (in millions):


	Principal		Other
	installments		installments		Total
Twelve months ending March 31,
2024	$	228	$	77	$	305
2025		355		77		432
2026		1,655		78		1,733
2027		2,147		78		2,225
2028		442		—		442
Thereafter		2,331		—		2,331
Total installments of debt	$	7,158	$	310		7,468
Total unamortized debt-related balances, net						(271)
Bifurcated compound exchange feature, at estimated fair value						428
Total carrying amount of debt					$	7,625

Credit agreement

Secured Credit Facility—As of March 31, 2023, we have a secured revolving credit facility established under a bank credit agreement (as amended from time to time, the “Secured Credit Facility”), which provides us with borrowing capacity of $774 million through June 22, 2023, which thereafter is reduced to $600 million through its scheduled maturity on June 22, 2025. We may borrow under the Secured Credit Facility at a forward-looking term rate based on the secured overnight financing rate (“Term SOFR”) plus a margin (the “Secured Credit Facility Margin”) and a Term SOFR spread adjustment of 0.10 percent. The Secured Credit Facility is subject to permitted extensions and certain early maturity triggers, including if on any date the aggregate amount of scheduled principal repayments of indebtedness, with certain exceptions, due within 91 days thereof is equal to or in excess of $200 million and available cash is less than $250 million. The Secured Credit Facility permits us to increase the aggregate amount of commitments by up to $250 million. At March 31, 2023, based on the credit rating of the Secured Credit Facility as of that date, the Secured Credit Facility Margin was 3.25 percent and the facility fee was 0.75 percent. At March 31, 2023, we had no borrowings outstanding, $8 million of letters of credit issued, and we had $765 million of available borrowing capacity under the Secured Credit Facility.

Exchangeable bonds

Exchange terms—At March 31, 2023, the (a) current exchange rates, expressed as the number of Transocean Ltd. shares per $1,000 note, (b) implied exchange prices per Transocean Ltd. share and (c) aggregate shares, expressed in millions, issuable upon exchange of our exchangeable bonds were as follows:


			Implied
	Exchange		exchange		Shares
	rate		price		issuable
4.00% Senior Guaranteed Exchangeable Bonds due December 2025		190.47620		5.25		56.0
2.50% Senior Guaranteed Exchangeable Bonds due January 2027		162.16260		6.17		38.6
4.625% Senior Guaranteed Exchangeable Bonds due September 2029		290.66180