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2019 Annual General Meeting
and Proxy Statement
2018 Annual Report
2/27/19 10:28 PM
C
O
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T
E
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S
LETTER TO SHAREHOLDERS
NOTICE OF 2019 ANNUAL GENERAL MEETING AND PROXY STATEMENT
COMPENSATION REPORT
2018 ANNUAL REPORT TO SHAREHOLDERS
ABOUT TRANSOCEAN LTD.
Transocean is a leading international provider of offshore contract drilling services for oil and gas wells. The
company specializes in technically demanding sectors of the global offshore drilling business with a particular
focus on ultra-deepwater and harsh environment drilling services, and believes that it operates one of the
most versatile offshore drilling fleets in the world. Transocean owns or has partial ownership interests in,
and operates a fleet of 48 mobile offshore drilling units consisting of 31 ultra-deepwater floaters, 13 harsh
environment floaters and four midwater floaters. In addition, Transocean is constructing four ultra-deepwater
drillships and one harsh environment semisubmersible in which the company holds a 33.0% interest.
Our shares are traded on the New York Stock Exchange under the symbol RIG.
ABOUT THE COVER
The front cover features one of our ultra-deepwater drillships, the Deepwater Asgard, currently operating in the Gulf of Mexico. The back cover features
two of our drillers.
FORWARD-LOOKING STATEMENTS
Any statements included in this Proxy Statement and 2018 Annual Report that are not historical facts, including, without limitation, statements regarding
future market trends and results of operations are forward-looking statements within the meaning of applicable securities law. Such statements are
subject to numerous risks and uncertainties beyond our control and our actual results may differ materially from our forward-looking statements.
934324cvr2 cc19.indd 1
OUR GLOBAL MARKET PRESENCEMidwaterUltra-Deepwater31134Harsh Environment March 11, 2019
Letter to Shareholders
To the owners of our company:
2018 will be remembered as a transformative year in Transocean’s long and storied history. Among other
things:
● We expanded and enhanced our fleet through three separate strategic acquisitions, further strengthening
our industry-leading position in the ultra-deepwater and harsh environment floater markets.
● We bolstered our backlog by booking 37 new floater fixtures in 2018, adding 19 rig years, and almost $2
billion in future work, our highest total since 2014.
● We entered into an agreement with Chevron to construct and operate the industry’s most technically
capable ultra-deepwater drillship, and the first equipped with subsea equipment rated to 20,000 psi.
● We continued to strengthen our balance sheet and extend our liquidity runway through five discrete
opportunistic financing transactions.
We accomplished all of this while delivering safe and efficient operations, including a full year without a single
lost time incident, and the highest Revenue, Adjusted EBITDA and Adjusted EBITDA Margin for 2018 among
all offshore drilling contractors.
We believe that 2018 may also be remembered as the start of the recovery in the offshore market. Buoyed by
strong and relatively stable oil prices over the first three quarters of 2018, many of our customers generated
record cash flows from operations, providing them with the liquidity that they needed to fund dividends,
repurchase their own shares, service debt and invest in longer cycle offshore projects. This incremental cash,
coupled with dramatically reduced breakeven costs per barrel for offshore projects, and rapidly declining
reserve replacement ratios, led to a tangible increase in year-over-year contracting activity.
Even though oil prices declined sharply in the fourth quarter of 2018, creating temporary uncertainty across the
industry, we continue to expect increased levels of contracting activity as we progress through 2019. Oil prices
have rebounded to start the year, with Brent crude trading above $60 per barrel, and our recent customer
engagements suggest that they are undeterred by the year-end volatility in commodity prices. However, we
remain acutely aware that price instability could delay offshore projects currently planned for the back half of
2019, 2020 and 2021. As such, we will maintain our disciplined approach as we continue to enhance our
leadership position and prepare Transocean to capitalize on the incremental demand that we expect to
ultimately materialize in the ultra-deepwater market.
In preparation for that recovery, we will continue to be prudent as we take the necessary actions to strategically
position Transocean to outperform throughout the cycle.
We continue to strengthen our fleet of high-specification assets through newbuilds, acquisitions and
divestitures – further enhancing our industry-leading harsh environment and ultra-deepwater fleet. In
February 2018, the Deepwater Poseidon, the fourth and final contract-backed Shell newbuild, commenced its
ten-year contract in the Gulf of Mexico. In addition to adding the Poseidon to our operating fleet during 2018,
we closed three significant transactions – the acquisitions of Songa Offshore SE and Ocean Rig UDW Inc and
an investment in a joint venture to acquire, complete, market and operate the Transocean Norge, a harsh
LETTER TO SHAREHOLDERS
environment semi-submersible drilling rig. The high-specification assets associated with all three of these
transactions are preferred by our customers and position us to best capitalize on a market recovery.
The Songa acquisition added four high-specification, fit-for-purpose harsh environment semi-submersible
drilling rigs to our fleet, while bolstering our backlog with $3.8 billion of long-term contracts.
The Ocean Rig acquisition added ten high-specification ultra-deepwater drillships to our fleet, including two
world-class assets currently under construction, with deliveries scheduled for 2019 and 2020. This provides us
with more of the highly efficient assets that our customers favor.
Lastly, our 33% investment in the joint venture that acquired the Transocean Norge secured us the exclusive
marketing and operating rights to one of the industry’s most capable harsh environment semi-submersibles.
We have now taken delivery of this rig, and she is scheduled to commence her maiden contract in the second
quarter of 2019.
We have also furthered the high-grading of our fleet through the recycling of ten older, less-competitive assets
since the beginning of 2018, bringing our total over the past five years to 48 floaters. When offset by the
newbuilds, and rigs added through acquisitions over those same five years, we now have a fleet of 48 floaters,
including 31 ultra-deepwater, 13 harsh environment, and four midwater floaters.
While we will continue to evaluate our fleet and consider opportunities to enhance it, we are pleased to have
assembled the largest and highest-specification ultra-deepwater and harsh environment floater fleet in the
industry.
We continue to add new contracts to our backlog, including a contract to construct and operate the
industry’s highest specification ultra-deepwater drillship. Over the course of 2018, Transocean added
almost $2 billion of new backlog by securing 37 awards. By comparison to the prior year, this represents a
222% increase in total dollars booked, and a 144% increase in total contracts awarded. Of note, our 37 new
fixtures in 2018 represented 21% of the total floater contracts awarded in 2018, the most of any offshore driller,
clearly suggesting that our customers prefer our high-specification assets, our history of performance in
challenging environments, and our flexible approach to contracting arrangements, including performance-
driven models. Importantly, because of Transocean’s global reach, during 2018, we secured contracts in every
major market, including the U.S. Gulf of Mexico, Canada, Brazil, West Africa, the United Kingdom, Norway,
India, Southeast Asia and Australia.
The most notable of those contract awards was realized in late December, when we entered into an agreement
with Chevron to construct and operate the industry’s most technically capable drillship, which will incorporate
state-of-the-art technology, including dual 20,000 psi blowout preventers, a first for ultra-deepwater
applications, a derrick with gross hoisting capacity of 3.4 million pounds, a variable deckload capacity of 24,000
metric tons, and an enhanced dynamic positioning system. The five-year drilling contract for this rig added an
estimated $830 million to our already industry-leading backlog and represents the largest single contract any
offshore driller has entered into since 2012. More than any other award, this contract is a testament to the
confidence that our customers have in Transocean’s ability to safely, efficiently and successfully deliver new
game-changing technology to the industry, enabling our customers to drill and complete wells in reservoirs
previously deemed inaccessible.
We remain committed to maintaining our balance sheet flexibility. In 2018, through various opportunistic
transactions, we issued approximately $3.0 billion of debt with maturities between 2023 and 2025, while retiring
$2.1 billion of debt with maturities primarily between 2018 and 2022. Additionally, we successfully entered into
a new $1 billion five-year undrawn revolving credit facility, including a $500 million accordion feature. As a direct
result of these transactions and outstanding operational performance, we exited 2018 with $2.2 billion in cash
and short-term investments and a $1 billion undrawn revolving credit facility. Therefore, we enter 2019 with
sufficient liquidity to continue to navigate the current market environment, while also continuing to invest in our
fleet, people and strategy.
LETTER TO SHAREHOLDERS
We continue to focus on differentiation and operational excellence. In 2018, we continued to make
advancements in the development of several new technologies designed to improve safety, equipment
reliability, and drilling efficiency. We also made progress in commercializing technology engineered to reduce
a rig’s fuel consumption and carbon footprint, which we will begin deploying to select rigs in 2019.
We fully recognize that we must continue to realize opportunities to improve our customers’ economics through
more efficient well delivery; thus, we continue to explore new technologies and processes to safely reduce the
time required to drill and complete wells.
Entering 2019, we are prepared to execute more rig reactivations and rig moves than we have in the recent
past; therefore, in addition to focusing on new technology and process redesign, we are thoroughly focused on
flawless and timely reactivations. This includes an acute focus on delivering incident-free operations and
superior uptime performance, beginning day one of the campaign. We believe that efficient reactivations will
be critical in differentiating Transocean in the eyes of our customers and are working intently with both the
shipyards and our equipment providers to thoughtfully plan and execute each project.
We remain committed to corporate sustainability. In 2018, we introduced the first sustainability report in
Transocean’s history. In this report, we captured our 2016 baseline performance and communicated our 2022
goals for: Personal Safety, Environmental Impact, Innovation and Technology, Operational and Financial
Performance, Diversity and Development, and Community Support. While our 2022 goals are ambitious, the
organization is committed to taking the actions required to deliver our stated objectives.
We look forward to 2019. While the volatility in oil prices over the final months of 2018 created some
uncertainty, we remain encouraged by the strategic direction we have taken at Transocean and the
opportunities we believe will continue to emerge in the offshore deepwater market. Supporting our position:
● Our customers generated record cash flows in 2018, providing them the flexibility to return capital to
shareholders, service debt and invest in longer cycle offshore projects.
● Offshore project breakeven costs per barrel continue to trend lower and are demonstrating superior
economics to other opportunities in our customers’ portfolios.
● Our customers need to replace their longer-term production and reserve base.
We believe that the combination of these three facts should drive a material increase in offshore drilling activity
in 2019 and beyond.
We also are pleased to announce that Chadwick C. “Chad” Deaton, a member of our Board since 2012, is
being nominated to succeed our current Chairman, Merrill A. “Pete” Miller, who will not stand for re-election to
the Board. Chad joined our Board before his retirement in 2013 from his role as Executive Chairman of Baker
Hughes, where he also served eight years as Chairman, President and Chief Executive Officer. Chad has more
than 30 years of experience in the oilfield service industry. We thank Pete for his significant contributions to the
success of Transocean over the past five years and look forward to Chad’s leadership going forward.
We thank you, our shareholders, on behalf of our entire team at Transocean, for your continued support and
trust. We look forward to further strengthening this great company as we enter the recovery.
Merrill A. “Pete” Miller, Jr.
Chairman of the Board of Directors
Jeremy D. Thigpen
President and Chief Executive Officer
TABLE OF CONTENTS
Notice to Shareholders
Proxy Statement Summary
Invitation to 2019 Annual General Meeting of Transocean Ltd.
Important Notice Regarding the Availability of Proxy Materials
Information About the Meeting and Voting
Agenda Item 1. Approval of the 2018 Annual Report, Including the Audited Consolidated Financial
Statements of Transocean Ltd. for Fiscal Year 2018 and the Audited Statutory Financial Statements
of Transocean Ltd. for Fiscal Year 2018
Agenda Item 2. Discharge of the Members of the Board of Directors and the Executive Management
Team from Liability for Activities During Fiscal Year 2018
Agenda Item 3. Appropriation of the Accumulated Loss for Fiscal Year 2018
Agenda Item 4. Reelection of 10 Directors, Each for a Term Extending Until Completion of the Next
Annual General Meeting
Skills & Experience Matrix for Independent Directors
Agenda Item 5. Election of the Chairman of the Board of Directors for a Term Extending Until
Completion of the Next Annual General Meeting
Agenda Item 6. Election of the Members of the Compensation Committee, Each for a Term
Extending Until Completion of the Next Annual General Meeting
Agenda Item 7. Reelection of the Independent Proxy for a Term Extending Until Completion of the
Next Annual General Meeting
Agenda Item 8. Appointment of Ernst & Young LLP as the Company’s Independent Registered
Public Accounting Firm for Fiscal Year 2019 and Reelection of Ernst & Young Ltd, Zurich, as the
Company’s Auditor for a Further One-Year Term
Agenda Item 9. Advisory Vote to Approve Named Executive Officer Compensation
Agenda Item 10. Prospective Votes on the Maximum Compensation of the Board of Directors and
the Executive Management Team
Corporate Governance
Board Meetings and Committees
2018 Director Compensation
Audit Committee Report
Security Ownership of Certain Beneficial Owners
Security Ownership of Directors and Executive Officers
Compensation Discussion and Analysis
Compensation Committee Report
Executive Compensation
Equity Compensation Plan Information
Other Matters
Appendix A. Non-GAAP Financial Information
ii
iv
P-1
P-6
P-7
P-12
P-13
P-14
P-15
P-22
P-24
P-25
P-26
P-27
P-29
P-31
P-37
P-45
P-50
P-51
P-53
P-54
P-55
P-80
P-81
P-89
P-90
AP-1
Transocean 2019 Proxy Statement
i
NOTICE TO SHAREHOLDERS
March 11, 2019
Dear Shareholder:
The 2019 annual general meeting of the shareholders (the “2019 Annual General Meeting”) of Transocean Ltd.
(the “Company”) will be held on Thursday, May 9, 2019, at 6:30 p.m., Swiss time, at our offices at Turmstrasse
30, CH-6312 Steinhausen, Switzerland. Information regarding the matters to be acted upon at the meeting is
set forth in the attached invitation to the 2019 Annual General Meeting and the proxy statement, which is
available at: www.deepwater.com by selecting Financial Reports, Annual and Quarterly Reports in the
dropdown of the Investors section.
At the 2019 Annual General Meeting, we will ask you to vote on the following items:
Board of
Directors
Recommendation
Agenda
Item
1
2
3
4
5
6
7
8
9
Description
Approval of the 2018 Annual Report, Including the Audited Consolidated
Financial Statements of Transocean Ltd. for Fiscal Year 2018 and the Audited
Statutory Financial Statements of Transocean Ltd. for Fiscal Year 2018
Discharge of the Members of the Board of Directors and Executive
Management Team from Liability for Activities During Fiscal Year 2018
Appropriation of the Accumulated Loss for Fiscal Year 2018
Reelection of 10 Directors, Each for a Term Extending Until Completion of the
Next Annual General Meeting
Election of the Chairman of the Board of Directors for a Term Extending Until
Completion of the Next Annual General Meeting
Election of the Members of the Compensation Committee, Each for a Term
Extending Until Completion of the Next Annual General Meeting
Reelection of the Independent Proxy for a Term Extending Until Completion of
the Next Annual General Meeting
Appointment of Ernst & Young LLP as the Company’s Independent Registered
Public Accounting Firm for Fiscal Year 2019 and Reelection of Ernst &
Young Ltd, Zurich, as the Company’s Auditor for a Further One-Year Term
Advisory Vote to Approve Named Executive Officer Compensation
10
Prospective Votes on the Maximum Compensation of the Board of Directors
and the Executive Management Team
FOR
FOR
FOR
FOR
FOR
FOR
FOR
FOR
FOR
FOR
It is important that your shares be represented and voted at the meeting, whether you plan to attend or not. If
you are a shareholder registered in our share register, you may submit voting instructions electronically over
the internet, by telephone or, if you request that the proxy materials be mailed to you, by completing, signing
and returning the proxy card enclosed with those materials. If you hold your shares in the name of a bank,
broker or other nominee, please follow the instructions provided by your bank, broker or nominee for submitting
voting instructions, including whether you may submit voting instructions by mail, telephone or over the internet.
ii
Transocean 2019 Proxy Statement
NOTICE TO SHAREHOLDERS
Under rules of the U.S. Securities and Exchange Commission (“SEC”), we have elected to provide access to
our proxy materials over the internet. Accordingly, we are sending a Notice of Internet Availability of Proxy
Materials (the “Notice”) to our shareholders as of the close of business on March 15, 2019. All shareholders
will have the ability to access the proxy materials on the website referred to in the Notice or to request to receive
a printed set of the proxy materials. Instructions on how to access the proxy materials over the internet or to
request a printed copy may be found in the Notice. The Notice also instructs you on how you may submit your
proxy over the internet, by telephone or via mail. If you receive the Notice, you will not receive a printed copy
of the proxy materials unless you request one in the manner set forth in the Notice or as otherwise described
in the proxy statement.
A copy of the proxy materials, including a proxy card or voting instruction form, will also be sent to any additional
shareholders who are registered in our share register as shareholders with voting rights, or who become
beneficial owners through a nominee registered in our share register as a shareholder with voting rights, as of
the close of business on April 22, 2019, and who were not registered as of March 8, 2019. The proxy statement
and form of proxy are first being mailed to shareholders on or about March 15, 2019.
A note to Swiss and other European investors: Transocean Ltd. is incorporated in Switzerland, has issued
registered shares and trades on the New York Stock Exchange; however, unlike some Swiss incorporated
companies, share blocking and re-registration are not requirements for any shares of Transocean Ltd.
to be voted at the meeting, and all shares may be traded after the record date.
Thank you in advance for your vote.
Sincerely,
Merrill A. “Pete” Miller, Jr.
Chairman of the Board of Directors
Jeremy D. Thigpen
President and Chief Executive Officer
Transocean 2019 Proxy Statement
iii
PROXY STATEMENT SUMMARY
2019 Annual General Meeting Details
Date and Time
Thursday, May 9, 2019
6:30 p.m., Swiss time
Place:
Offices of Transocean Ltd.
Turmstrasse 30
CH-6312 Steinhausen, Switzerland
Record Date:
April 22, 2019
Voting:
Internet
Telephone
Mail
In Person
Visit the website noted
on your proxy card to
vote online.
Use the toll-free
telephone number
noted on your proxy
card to vote by
telephone.
Sign, date and return
your proxy card in the
postage pre-paid
envelope provided to
vote by mail.
Cast your vote in
person at the 2019
Annual General
Meeting.
Shareholders registered in our share register on the record date have the right to attend the 2019 Annual
General Meeting and vote their shares. Such shareholders may designate proxies to vote their shares by
submitting their proxy electronically over the internet, by telephone or, if they request that the proxy materials
be mailed to them, by completing, signing and returning the proxy card enclosed with those materials. Please
review the voting instructions in the proxy statement for each of these methods. Shareholders who hold their
shares in the name of a bank, broker or other nominee should follow the instructions provided by their bank,
broker or nominee for voting their shares, including whether they may submit voting instructions by mail,
telephone or over the internet.
Shareholders who wish to attend and vote at the meeting in person are required to present either the Notice,
or any proxy card that is sent to them, or, if they hold their shares in the name of a bank, broker or other
nominee, a legal proxy issued by their bank, broker or other nominee in their name, each with proof of
identification.
Materials:
Our proxy statement and 2018 Annual Report are available at: www.deepwater.com by selecting Financial
Reports/Annual and Quarterly Reports in the dropdown of the Investors section.
iv
Transocean 2019 Proxy Statement
PROXY STATEMENT SUMMARY
Nominees to the Board of Directors
We are asking you to vote FOR all of the director nominees listed below. During 2018, each of the current
directors attended 100% of the Board of Directors’ meetings and committee meetings held by committees on
which he or she served during his or her elected term. Detailed information regarding the nominees for
reelection is provided under Agenda Item 4:
Directors for Reelection
Glyn A. Barker
Vanessa C.L. Chang
Frederico F. Curado
Chadwick C. Deaton
Vincent J. Intrieri
Samuel J. Merksamer
Frederik W. Mohn
Edward R. Muller
Tan Ek Kia
Jeremy D. Thigpen
Independent*
✓
✓
✓
✓
✓
✓
✓
✓
✓
* As determined by the Board of Directors in accordance with applicable rules and
regulations.
Swiss Minder Ordinance
Under the Swiss Ordinance Against Excessive Compensation At Public Companies (the “Minder Ordinance”)
and our Articles of Association, the authority to elect the Chairman of the Board of Directors and the members
of the Compensation Committee is vested in the general meeting of shareholders. The Board of Directors
recommends that you elect Chadwick C. Deaton as Chairman of the Board of Directors (Agenda Item 5) and
Frederico F. Curado, Vincent J. Intrieri and Tan Ek Kia as members of the Compensation Committee (Agenda
Item 6) to serve until completion of the 2020 annual general meeting of the shareholders (the “2020 Annual
General Meeting”). Note that under the Minder Ordinance and our Articles of Association, if any of these
individuals were to resign or there were vacancies in the office of the Chairman or the Compensation Committee
for other reasons, the Board of Directors would have the authority to replace him or her with another member
of the Board of Directors for a term expiring at the next annual general meeting.
Pursuant to the Minder Ordinance, the Company is not permitted to appoint a corporate representative to act
as the proxy for purposes of voting at the 2019 Annual General Meeting. Swiss companies may only appoint
an independent proxy for these purposes. At the 2018 annual general meeting of the shareholders (the “2018
Annual General Meeting”), shareholders elected Schweiger Advokatur / Notariat to serve as our independent
proxy for a term extending until the completion of the 2019 Annual General Meeting. Agenda Item 7 asks that
you again elect this firm to act as the independent proxy for the 2020 Annual General Meeting and any
extraordinary general meeting of shareholders of the Company that may be held prior to the 2020 Annual
General Meeting.
The Minder Ordinance and our Articles of Association also require that the shareholders ratify the maximum
aggregate amount of compensation of the Board of Directors for the period between the 2019 Annual General
Meeting and the 2020 Annual General Meeting (Agenda Item 10A) and the maximum aggregate amount of
compensation of the Executive Management Team for fiscal year 2020 (Agenda Item 10B). The shareholder
vote is binding.
Features of Executive Compensation Program
Our executive compensation program reflects a commitment to retain and attract highly qualified executives.
The elements of our program are designed to motivate our executives to achieve our overall business objectives
and create sustainable shareholder value in a cost-effective manner and reward executives for achieving
superior financial, safety and operational performance, each of which is important to the long-term success of
Transocean 2019 Proxy Statement
v
PROXY STATEMENT SUMMARY
the Company. We believe our executive compensation program includes key features that align the interests
of our executives with those of our shareholders and does not include features that could impair that alignment.
What We Do
✓ Conduct an annual review of our compensation
strategy, including a review of our compensation-
related risk profile
✓ Mandate meaningful share ownership
requirements for our executives
✓ Maintain a clawback policy that allows for the
forfeiture, recovery or adjustment of incentive
compensation (cash and equity)
✓ Base annual and long-term incentive payments
on quantitative, formulaic metrics
✓ Maintain compensation plans that are weighted
significantly toward variable pay to align our
executive compensation with long-term
shareholder interests
What We Don’t Do
Allow our executives to hedge, sell short or hold
derivative instruments tied to our shares (other
than employee stock options)
Allow our executives or directors to pledge
Company shares
Have pre-arranged individual severance
agreements or special change-in-control
compensation agreements with any Executive
Officers; however, to the extent permitted under
Swiss law, our executives are eligible for
severance and change-in-control provisions
pursuant to our policies, in exchange for
covenants that protect the Company
✓ Link long-term incentive compensation to relative
performance metrics to incent strong performance
Provide gross-ups for severance payments
Guarantee salary increases, non-performance
✓ Deliver at least 50% of long-term incentives in
performance-based equity awards
✓ Retain an independent consultant who does not
perform any services for management (i.e.,
retained by and reports only to our Compensation
Committee)
✓ Maintain double trigger change-in-control
provisions
based bonuses or unrestricted equity
compensation
Provide any payments or reimbursements for
tax equalization
Pay dividend equivalents on performance-based
equity that has not vested
Offer executive perquisites
vi
Transocean 2019 Proxy Statement
INVITATION TO 2019 ANNUAL GENERAL
MEETING OF TRANSOCEAN LTD.
Thursday, May 9, 2019
6:30 p.m., Swiss time
at the Offices of Transocean Ltd.
Turmstrasse 30
CH-6312 Steinhausen, Switzerland
Agenda Items
(1) Approval of the 2018 Annual Report, Including the Audited Consolidated Financial Statements
of Transocean Ltd. for Fiscal Year 2018 and the Audited Statutory Financial Statements of
Transocean Ltd. for Fiscal Year 2018.
Proposal of the Board of Directors
The Board of Directors proposes that the 2018 Annual Report, including the audited consolidated
financial statements for the year ended December 31 (“fiscal year”) 2018, and the audited statutory
financial statements for fiscal year 2018, be approved.
Recommendation
The Board of Directors recommends you vote “FOR” this proposal number 1.
(2) Discharge of the Members of the Board of Directors and the Executive Management Team from
Liability for Activities During Fiscal Year 2018.
Proposal of the Board of Directors
The Board of Directors proposes that the members of the Board of Directors and Messrs. Jeremy D.
Thigpen, Mark L. Mey, Keelan I. Adamson and John B. Stobart, who served as members of our
Executive Management Team in 2018, be discharged from liability for activities during fiscal year 2018.
Recommendation
The Board of Directors recommends you vote “FOR” this proposal number 2.
(3) Appropriation of Accumulated Loss for Fiscal Year 2018.
Proposal of the Board of Directors
The Board of Directors proposes that the accumulated loss of the Company be carried forward.
Appropriation of Accumulated Loss
Balance brought forward from previous years
Net loss of the year
Total accumulated loss
in CHF
thousands
(5,465,034)
(431,179)
(5,896,213)
Appropriation of accumulated loss
Balance to be carried forward on this account
(5,896,213)
Recommendation
The Board of Directors recommends you vote “FOR” this proposal number 3.
Transocean 2019 Proxy Statement P-1
INVITATION TO 2019 ANNUAL GENERAL MEETING OF TRANSOCEAN LTD.
(4) Reelection of 10 Directors, Each for a Term Extending Until Completion of the Next Annual General
Meeting.
Proposal of the Board of Directors
The Board of Directors proposes that the following 10 candidates be reelected to the Board of Directors,
each for a term extending until completion of the next annual general meeting.
4A
4B
4C
4D
4E
4F
4G
4H
4I
4J
Reelection of Glyn A. Barker as a director.
Reelection of Vanessa C.L. Chang as a director.
Reelection of Frederico F. Curado as a director.
Reelection of Chadwick C. Deaton as a director.
Reelection of Vincent J. Intrieri as a director.
Reelection of Samuel J. Merksamer as a director.
Reelection of Frederik W. Mohn as a director.
Reelection of Edward R. Muller as a director.
Reelection of Tan Ek Kia as a director.
Reelection of Jeremy D. Thigpen as a director.
Recommendation
The Board of Directors recommends you vote “FOR” the reelection of each of these nominees to the
Board of Directors.
(5) Election of the Chairman of the Board of Directors for a Term Extending Until Completion of the
Next Annual General Meeting.
Proposal of the Board of Directors
The Board of Directors proposes that Chadwick C. Deaton be elected as the Chairman of the Board of
Directors for a term extending until completion of the next annual general meeting, subject to his
reelection as a member of the Board of Directors.
Recommendation
The Board of Directors recommends you vote “FOR” this proposal number 5.
(6) Election of the Members of the Compensation Committee, Each for a Term Extending Until
Completion of the Next Annual General Meeting.
Proposal of the Board of Directors
The Board of Directors proposes that the following three candidates be reelected as members of the
Compensation Committee, each for a term extending until completion of the next annual general
meeting, subject in each case to such candidate’s reelection as a member of the Board of Directors:
6A Election of Frederico F. Curado as a member of the Compensation Committee.
6B Election of Vincent J. Intrieri as a member of the Compensation Committee.
6C Election of Tan Ek Kia as a member of the Compensation Committee.
Recommendation
The Board of Directors recommends you vote “FOR” the election of each of these nominees as
members of the Compensation Committee.
P-2 Transocean 2019 Proxy Statement
INVITATION TO 2019 ANNUAL GENERAL MEETING OF TRANSOCEAN LTD.
(7) Reelection of the Independent Proxy for a Term Extending Until Completion of the Next Annual
General Meeting.
Proposal of the Board of Directors
The Board of Directors proposes that Schweiger Advokatur / Notariat be reelected to serve as
independent proxy at (and until completion of) the 2020 Annual General Meeting and at any
extraordinary general meeting of shareholders of the Company that may be held prior to the 2020
Annual General Meeting.
Recommendation
The Board of Directors recommends you vote “FOR” this proposal number 7.
(8) Appointment of Ernst & Young LLP as the Company’s Independent Registered Public
Accounting Firm for Fiscal Year 2019 and Reelection of Ernst & Young Ltd, Zurich, as the
Company’s Auditor for a Further One-Year Term.
Proposal of the Board of Directors
The Board of Directors proposes that Ernst & Young LLP be appointed as the Company’s independent
registered public accounting firm for fiscal year 2019 and that Ernst & Young Ltd, Zurich, be reelected
as the Company’s auditor pursuant to the Swiss Code of Obligations for a further one-year term,
commencing on the date of the 2019 Annual General Meeting and terminating on the date of the 2020
Annual General Meeting.
Recommendation
The Board of Directors recommends you vote “FOR” this proposal number 8.
(9) Advisory Vote to Approve Named Executive Officer Compensation for Fiscal Year 2019.
Proposal of the Board of Directors
Pursuant to Section 14A of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange
Act”), shareholders are entitled to cast an advisory vote on the Company’s executive compensation
program for the Company’s Named Executive Officers. Detailed information regarding the Company’s
compensation program for its Named Executive Officers is set forth in the Compensation Discussion
and Analysis, the accompanying compensation tables and the related narrative disclosure in this proxy
statement. The Board of Directors believes the Company’s compensation program is designed to
reward performance that creates long-term value for the Company’s shareholders and has proposed
the following resolution to provide shareholders with the opportunity to endorse or not endorse the
Company’s Named Executive Officer compensation program by voting on the below resolution:
RESOLVED, that the compensation of the Company’s Named Executive Officers, as disclosed
pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and
Analysis, the accompanying compensation tables and the related narrative disclosure in the proxy
statement for the Company’s 2019 Annual General Meeting, is hereby APPROVED.
Recommendation
The Board of Directors recommends you vote “FOR” this proposal number 9.
Transocean 2019 Proxy Statement P-3
INVITATION TO 2019 ANNUAL GENERAL MEETING OF TRANSOCEAN LTD.
(10) Prospective Vote on the Maximum Compensation of the Board of Directors and the Executive
Management Team.
10A
Ratification of the Maximum Aggregate Amount of Compensation of the Board
of Directors for the Period Between the 2019 Annual General Meeting and the
2020 Annual General Meeting.
Proposal of the Board of Directors
The Board of Directors proposes that the shareholders ratify an amount of U.S. $4,121,000 as the
maximum aggregate amount of compensation of the Board of Directors for the period between the
2019 Annual General Meeting and the 2020 Annual General Meeting.
Recommendation
The Board of Directors recommends you vote “FOR” this proposal number 10A.
10B
Ratification of the Maximum Aggregate Amount of Compensation of the
Executive Management Team for Fiscal Year 2020.
Proposal of the Board of Directors
The Board of Directors proposes that the shareholders ratify an amount of U.S. $24,000,000 as the
maximum aggregate amount of compensation of the Executive Management Team for fiscal year 2020.
Recommendation
The Board of Directors recommends you vote “FOR” this proposal number 10B.
Organizational Matters
A copy of the Notice is being sent to each shareholder registered in Transocean Ltd.’s share register as of the
close of business on March 15, 2019. Any additional shareholders who are registered in Transocean Ltd.’s
share register as of the close of business on April 22, 2019, will receive after that date a copy of the proxy
materials, including a proxy card. Shareholders not registered in Transocean Ltd.’s share register as of April
22, 2019, will not be entitled to attend, vote or grant proxies to vote at the 2019 Annual General Meeting. While
no shareholder will be entered in Transocean Ltd.’s share register as a shareholder with voting rights between
the close of business on April 22, 2019, and the opening of business on the day following the 2019 Annual
General Meeting, share blocking and re-registration are not requirements for any shares of Transocean
Ltd. to be voted at the meeting, and all shares may be traded after the record date. Computershare, which
maintains Transocean Ltd.’s share register, will continue to register transfers of Transocean Ltd. shares in the
share register in its capacity as transfer agent during this period.
Shareholders registered in Transocean Ltd.’s share register as of April 22, 2019, have the right to attend the
2019 Annual General Meeting and vote their shares (in person or by proxy), or may grant a proxy to vote on
each of the proposals in this invitation and any modification to any agenda item or proposal identified in this
invitation or other matter on which voting is permissible under Swiss law and which is properly presented at the
2019 Annual General Meeting for consideration. Such shareholders may designate proxies to vote their shares
electronically over the internet, by telephone or, if they request that the proxy materials be mailed to them, by
completing, signing and returning the proxy card enclosed with those materials at the 2019 Annual General
Meeting. Even if you plan to attend the 2019 Annual General Meeting, we encourage you to submit your voting
instructions prior to the meeting.
We urge you to submit your voting instructions electronically over the internet or return the proxy card as soon
as possible. All electronic voting instructions or proxy cards must be received no later than 11:59 p.m. Eastern
P-4 Transocean 2019 Proxy Statement
INVITATION TO 2019 ANNUAL GENERAL MEETING OF TRANSOCEAN LTD.
Daylight Time on Wednesday, May 8, 2019 (5:59 a.m. Swiss time on Thursday, May 9, 2019) unless extended
by the Company.
If you have timely submitted electronic voting instructions, telephone instructions or a properly executed proxy
card, your shares will be voted by the independent proxy in accordance with your instructions. Holders of
shares who have timely submitted their proxy, but have not specifically indicated how to vote their
shares, will be deemed to have instructed the independent proxy to vote in accordance with the
recommendations of the Board of Directors with regard to the items listed in the notice of meeting. If
any modifications to agenda items or proposals identified in this invitation or other matters on which
voting is permissible under Swiss law are properly presented at the 2019 Annual General Meeting for
consideration, you will be deemed to have instructed the independent proxy, in the absence of other
specific instructions, to vote in accordance with the recommendations of the Board of Directors.
As of the date of this proxy statement, the Board of Directors is not aware of any such modifications or other
matters proposed to come before the 2019 Annual General Meeting.
Shareholders who hold their shares in the name of a bank, broker or other nominee should follow the
instructions provided by their bank, broker or nominee for voting their shares, including whether they may submit
voting instructions by mail, telephone or over the internet.
Shareholders may grant proxies to any third party. Such third party need not be a shareholder.
Directions to the 2019 Annual General Meeting can be obtained by contacting our Corporate Secretary at our
registered office, Turmstrasse 30, CH-6312 Steinhausen, Switzerland, telephone number +41 (41) 749-0500,
or Investor Relations at our offices in the United States, at 4 Greenway Plaza, Houston, Texas 77046, USA,
telephone number +1 (713) 232-7500. If you plan to attend and vote at the 2019 Annual General Meeting in
person, you are required to present either the Notice or any proxy card that is sent to you, together with proof
of identification, or, if you own shares held in the name of a bank, broker or other nominee, a legal proxy issued
by your bank, broker or other nominee in your name, together with proof of identification. If you plan to attend
the 2019 Annual General Meeting in person, we urge you to arrive at the meeting location no later than
5:30 p.m., Swiss time on Thursday, May 9, 2019. In order to determine attendance correctly, any shareholder
leaving the 2019 Annual General Meeting early or temporarily, will be requested to present such shareholder’s
admission card upon exit.
Annual Report, Consolidated Financial Statements, Statutory Financial Statements
A copy of the 2018 Annual Report (including the consolidated financial statements for fiscal year 2018, the
statutory financial statements of Transocean Ltd. for fiscal year 2018 and the audit reports on such consolidated
and statutory financial statements) and the 2018 Compensation Report is available for physical inspection at
Transocean Ltd.’s registered office, Turmstrasse 30, CH-6312 Steinhausen, Switzerland. Copies of these
materials may be obtained without charge by contacting our Corporate Secretary at our registered office,
Turmstrasse 30, CH-6312 Steinhausen, Switzerland, telephone number +41 (41) 749-0500, or Investor
Relations at our offices in the United States, at 4 Greenway Plaza, Houston, Texas 77046, USA, telephone
number +1 (713) 232-7500.
On behalf of the Board of Directors,
Merrill A. “Pete” Miller, Jr.
Chairman of the Board of Directors
Steinhausen, Switzerland
March 11, 2019
Transocean 2019 Proxy Statement P-5
YOUR VOTE IS IMPORTANT
You may designate a proxy to vote your shares by submitting your voting instructions
electronically over the internet, by calling the toll-free number or, if you requested a printed copy of
the proxy materials, by completing, signing and returning by mail the proxy card you will receive in
response to your request. Please review the instructions in the Notice of Internet Availability of
Proxy Materials and the proxy statement.
Shareholders who hold their shares in the name of a bank, broker or other nominee should follow
the instructions provided by their bank, broker or nominee for voting their shares, including
whether they may submit voting instructions by mail, telephone or over the internet.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
2019 ANNUAL GENERAL MEETING TO BE HELD ON MAY 9, 2019.
Our proxy statement and 2018 Annual Report are available at:
www.proxyvote.com
P-6 Transocean 2019 Proxy Statement
PROXY STATEMENT
FOR 2019 ANNUAL GENERAL MEETING OF SHAREHOLDERS OF TRANSOCEAN LTD.
MAY 9, 2019
INFORMATION ABOUT THE MEETING AND VOTING
This proxy statement is furnished in connection with the solicitation of proxies by Transocean Ltd., on behalf of
the Board of Directors, to be voted at our 2019 Annual General Meeting to be held on May 9, 2019 at 6:30 p.m.,
Swiss time, at our offices at Turmstrasse 30, CH-6312 Steinhausen, Switzerland. This proxy statement and
form of proxy are first being mailed to shareholders on or about March 15, 2019.
Record Date
Only shareholders of record on April 22, 2019, are entitled to notice of, to attend, and to vote or to grant proxies
to vote at, the 2019 Annual General Meeting. No shareholder will be entered in Transocean Ltd.’s share register
with voting rights between the close of business on April 22, 2019, and the opening of business on the day
following the 2019 Annual General Meeting.
While no shareholder will be entered in Transocean Ltd.’s share register as a shareholder with voting rights
between the close of business on April 22, 2019, and the opening of business on the day following the 2019
Annual General Meeting, share blocking and re-registration are not requirements for any shares of
Transocean Ltd. to be voted at the meeting, and all shares may be traded after the record date.
Computershare, which maintains Transocean Ltd.’s share register, will continue to register transfers of
Transocean Ltd. shares in the share register in its capacity as transfer agent during this period.
Quorum
Our Articles of Association provide that the presence of shareholders, in person or by proxy, holding at least a
majority of all the shares entitled to vote at the time the meeting proceeds to business constitutes a quorum for
purposes of convening the 2019 Annual General Meeting and voting on all of the matters described in the notice
of meeting. Abstentions and “broker non-votes” will be counted as present for purposes of determining whether
there is a quorum at the meeting, so long as the broker has discretion to vote the shares on at least one matter
before the 2019 Annual General Meeting.
Transocean 2019 Proxy Statement P-7
PROXY STATEMENT
Votes Required
The following table sets forth the applicable vote standard required to pass each enumerated agenda item:
Agenda
Item
1
2
3
4
5
6
7
8
9
Description
Approval of the 2018 Annual Report, Including the Audited
Consolidated Financial Statements and Audited Statutory
Financial Statements for Fiscal Year 2018 of Transocean Ltd.
Discharge of the Members of the Board of Directors and
Executive Management Team from Liability for Activities
During Fiscal Year 2018
Appropriation of the Accumulated Loss
Reelection of 10 Directors
Election of Chairman of the Board of Directors
Election of Members of the Compensation Committee
Reelection of Independent Proxy
Appointment of Ernst & Young as Independent Auditor
Advisory Vote
Compensation
to Approve Named Executive Officer
10
Prospective Votes on the Maximum Compensation of the
Board of Directors and the Executive Management Team
Plurality
of
Votes
Relative
Majority(1)
✓
✓
(2)(4)
✓
(2)
✓
(2)
✓
✓
✓
✓
✓
(3)
✓
(1) Affirmative vote of a simple majority of the votes cast in person or by proxy at the 2019 Annual General Meeting on
the applicable agenda item. Abstentions, broker non-votes (if any) or blank or invalid ballots are not counted for such
purposes and shall have no impact on the approval of such agenda item.
(2) Affirmative vote of a plurality of the votes cast in person or by proxy at the 2019 Annual General Meeting. The plurality
requirement means that the nominee who receives the largest number of votes for a position as a director, or the chair
or a position on the Compensation Committee, as applicable, is elected to that position. Only votes “FOR” are counted
in determining whether a plurality has been cast in favor of a nominee. Abstentions, broker non-votes, blank or invalid
ballots are not counted for such purposes and shall have no impact on the election of such nominees. As described
later in this proxy statement, our Corporate Governance Guidelines set forth our procedures if a nominee for director
is elected but does not receive more votes cast “FOR” than “AGAINST” the nominee’s election.
(3) The proposal is an advisory vote; as such, the vote is not binding on the Company.
(4) Even if a nominee receives a plurality of votes that nominee may not ultimately serve as a director if the nominee does
not receive more votes cast “FOR” than “AGAINST” the nominee’s election, and the Company’s Board of Directors
accepts the resignation of the nominee pursuant to the Company’s majority vote policy, as described later in this proxy
statement.
Outstanding Shares
As of March 1, 2019, there were 610,361,775 Transocean Ltd. shares outstanding, which exclude 219,902
issued shares that are held by the Company or our subsidiaries. Only registered holders of our shares on April
22, 2019, the record date established for the 2019 Annual General Meeting, are entitled to notice of, to attend
and to vote at, the meeting. Holders of shares on the record date are entitled to one vote for each share held.
Voting Procedures
A copy of the Notice of Internet Availability of Proxy Materials is being sent to each shareholder registered in
Transocean Ltd.’s share register as of the close of business on March 15, 2019. Any additional shareholders
P-8 Transocean 2019 Proxy Statement
PROXY STATEMENT
who are registered in Transocean Ltd.’s share register as of the close of business on April 22, 2019, but who
were not registered in the share register as of March 8, 2019, will receive a copy of the proxy materials, including
a proxy card, after April 22, 2019. Shareholders not registered in Transocean Ltd.’s share register as of
April 22, 2019, will not be entitled to attend, vote or grant proxies to vote at, the 2019 Annual General Meeting.
If you are registered as a shareholder in Transocean Ltd.’s share register as of April 22, 2019, or if you hold
shares of Transocean Ltd. in “street name” as of such date, you may grant a proxy to vote on each of the
proposals and any modification to any of the proposals or other matter on which voting is permissible under
Swiss law and which is properly presented at the meeting for consideration in one of the following ways:
By Internet: Go to www.proxyvote.com 24 hours a day, seven days a week, and follow the instructions. You
will need the 12-digit control number that is included in the Notice, proxy card or voting instructions form that is
sent to you. The internet system allows you to confirm that the system has properly recorded your voting
instructions. This method of submitting voting instructions will be available up until 11:59 p.m. Eastern Daylight
Time on Wednesday, May 8, 2019 (5:59 a.m. Swiss time on Thursday, May 9, 2019) unless extended by the
Company.
By Telephone: On a touch-tone telephone, call toll-free +1 (800) 690-6903, 24 hours a day, seven days a
week, and follow the instructions. You will need the 12-digit control number that is included in the Notice, proxy
card or voting instructions form that is sent to you. As with the internet system, you will be able to confirm that
the telephonic system has properly recorded your votes. This method of submitting voting instructions will be
available up until 11:59 p.m. Eastern Daylight Time on Wednesday, May 8, 2019 (5:59 a.m. Swiss time on
Thursday, May 9, 2019) unless extended by the Company. If you are a holder of record, you cannot vote by
telephone.
By Mail: Mark, date and sign your proxy card exactly as your name appears on the card and return it by mail
to:
Transocean 2019 AGM
Vote Processing
c/o Broadridge
51 Mercedes Way
Edgewood, NY 11717
USA
Or
Transocean 2019 AGM
Vote Processing
Schweiger Advokatur / Notariat
Dammstrasse 19
CH-6300 Zug
Switzerland
All proxy cards must be received no later than 11:59 p.m. Eastern Daylight Time on Wednesday, May 8, 2019
(5:59 a.m. Swiss time on Thursday, May 9, 2019) unless extended by the Company. Do not mail the proxy card
or voting instruction form if you are submitting voting instructions over the internet or by telephone.
Even if you plan to attend the 2019 Annual General Meeting, we encourage you to submit your voting
instructions over the internet or by mail prior to the meeting.
If you hold your shares in the name of a bank, broker or other nominee, you should follow the instructions
provided by your bank, broker or nominee for voting your shares, including whether you may submit voting
instructions by mail, telephone or over the internet.
Many of our shareholders hold their shares in more than one account and may receive more than one Notice.
To ensure that all of your shares are represented at the 2019 Annual General Meeting, please submit your
voting instructions for each account.
Under New York Stock Exchange (“NYSE”) rules, brokers who hold shares in street name for customers, such
that the shares are registered on the books of the Company as being held by the brokers, have the authority to
vote on “routine” proposals when they have not received instructions from beneficial owners, but are precluded
from exercising their voting discretion with respect to proposals for “non-routine” matters. Proxies submitted by
Transocean 2019 Proxy Statement P-9
PROXY STATEMENT
brokers without instructions from customers for these non-routine or contested matters are referred to as
“broker non-votes.” The following matters are non-routine matters under NYSE Rules:
● Agenda Item No. 2—Discharge of the Members of the Board of Directors and the Executive Management
Team from Liability for Activities During Fiscal Year 2018
● Agenda Item No. 4—Reelection of 10 Directors
● Agenda Item No. 5—Election of the Chairman of the Board of Directors
● Agenda Item No. 6—Election of the Members of the Compensation Committee
● Agenda Item No. 9—Advisory Vote to Approve Named Executive Officer Compensation
● Agenda Item No. 10A—Ratification of the Maximum Aggregate Compensation of the Board of Directors
for the Period Between the 2019 Annual General Meeting and the 2020 Annual General Meeting
● Agenda Item No. 10B—Ratification of the Maximum Aggregate Compensation of the Executive
Management Team for Fiscal Year 2020
If you hold your shares in “street name,” your broker will not be able to vote your shares on the agenda items
set forth above and may not be able to vote your shares on other matters at the 2019 Annual General Meeting
unless the broker receives appropriate instructions from you. We recommend that you contact your broker to
exercise your right to vote your shares.
If you have timely submitted electronic or telephonic voting instructions or a properly executed proxy card, your
shares will be voted by the independent proxy according to your instructions. Holders of shares who have timely
submitted their proxy but have not specifically indicated how to vote their shares will be deemed to have
instructed the independent proxy to vote in accordance with the recommendations of the Board of Directors
with regard to the items listed in the notice of meeting.
If any modifications to agenda items or proposals identified in this invitation or other matters on which
voting is permissible under Swiss law are properly presented at the 2019 Annual General Meeting for
consideration, you will be deemed to have instructed the independent proxy, in the absence of other
specific instructions, to vote in accordance with the recommendations of the Board of Directors.
As of the date of this proxy statement, the Board of Directors is not aware of any such modifications or other
matters to come before the 2019 Annual General Meeting.
You may revoke your proxy card at any time prior to its exercise by taking one of the following actions:
•
submitting a properly completed and executed proxy card with a later date and timely delivering it either
directly to the independent proxy or to Vote Processing, c/o Broadridge at the addresses indicated below
• giving written notice of the revocation prior to the meeting to:
P-10 Transocean 2019 Proxy Statement
PROXY STATEMENT
Transocean 2019 AGM
Vote Processing
c/o Broadridge
51 Mercedes Way
Edgewood, NY 11717
USA
Or
Transocean 2019 AGM
Vote Processing
Schweiger Advokatur / Notariat
Dammstrasse 19
CH-6300 Zug
Switzerland
• appearing at the meeting, notifying the independent proxy, with respect to proxies granted to the
independent proxy, and voting in person.
Your presence without voting at the meeting will not automatically revoke your proxy, and any revocation during
the meeting will not affect votes in relation to agenda items that have already been voted on. If you hold your
shares in the name of a bank, broker or other nominee, you should follow the instructions provided by your
bank, broker or nominee in revoking your previously granted proxy.
Shareholders may grant proxies to any third party. Such third party need not be a shareholder.
If you wish to attend and vote at the 2019 Annual General Meeting in person, you are required to present either
the Notice or any proxy card that is sent to you, together with proof of identification, or, if you own shares held
in the name of a bank, broker or other nominee, a legal proxy issued by your bank, broker or other nominee in
your name, together with proof of identification. If you plan to attend the 2019 Annual General Meeting in person,
we urge you to arrive at the meeting location no later than 5:30 p.m. Swiss time on Thursday, May 9, 2019. In
order to determine attendance correctly, any shareholder leaving the 2019 Annual General Meeting early or
temporarily will be requested to present such shareholder’s admission card upon exit.
References to “Transocean,” the “Company,” “we,” “us” or “our” include Transocean Ltd. together with its
subsidiaries and predecessors, unless the context requires otherwise.
Transocean 2019 Proxy Statement P-11
AGENDA ITEM 1
Approval of the 2018 Annual Report, Including the Audited Consolidated Financial Statements of
Transocean Ltd. for Fiscal Year 2018 and the Audited Statutory Financial Statements of
Transocean Ltd. for Fiscal Year 2018
Proposal of the Board of Directors
The Board of Directors proposes that the 2018 Annual Report, including the audited consolidated financial
statements of Transocean Ltd. for fiscal year 2018 and the audited statutory financial statements of
Transocean Ltd. for fiscal year 2018, be approved.
Explanation
The audited consolidated financial statements of Transocean Ltd. for fiscal year 2018 and the audited Swiss
statutory financial statements of Transocean Ltd. for fiscal year 2018 are contained in the 2018 Annual Report,
which, along with this proxy statement, is available at: www.deepwater.com by selecting Financial Reports,
Annual and Quarterly Reports in the Investors section dropdown. In addition, these materials will be available
for physical inspection at the Company’s registered office, Turmstrasse 30, CH-6312 Steinhausen, Switzerland.
The 2018 Annual Report also contains information on the Company’s business activities and the Company’s
business and financial situation, and the reports of Ernst & Young Ltd, Zurich, the Company’s auditors pursuant
to the Swiss Code of Obligations, on the Company’s consolidated financial statements for fiscal year 2018 and
statutory financial statements for fiscal year 2018. In its reports, Ernst & Young Ltd recommended without
qualification that the Company’s consolidated financial statements and statutory financial statements for
the year ended December 31, 2018, be approved. Ernst & Young Ltd expresses its opinion that the
“consolidated financial statements for the years ended December 31, 2018 and 2017 present fairly in all
material respects the consolidated financial position of Transocean Ltd. and subsidiaries at December 31, 2018
and 2017, and the consolidated results of operations and cash flows for each of the three years in the period
ended December 31, 2018, in accordance with accounting principles generally accepted in the United States
and comply with Swiss law.” Ernst & Young Ltd further expresses its opinion and confirms that the statutory
financial statements for fiscal year 2018 comply with Swiss law and the Articles of Association of the Company.
Under Swiss law, the annual report, the consolidated financial statements and Swiss statutory financial
statements must be submitted to shareholders for approval at each annual general meeting.
If the shareholders do not approve this proposal, the Board of Directors may call an extraordinary general
meeting of shareholders for reconsideration of this proposal by shareholders.
Recommendation
The Board of Directors recommends a vote “FOR” this Agenda Item 1.
P-12 Transocean 2019 Proxy Statement
AGENDA ITEM 2
Discharge of the Members of the Board of Directors and the Executive Management Team from
Liability for Activities During Fiscal Year 2018
Proposal of the Board of Directors
The Board of Directors proposes that the members of the Board of Directors and Messrs. Jeremy D. Thigpen,
Mark L. Mey, Keelan I. Adamson and John B. Stobart, who served as members of our Executive Management
Team in 2018, be discharged from liability for activities during fiscal year 2018.
Explanation
As is customary for Swiss corporations and in accordance with Article 698, subsection 2, item 5 of the Swiss
Code of Obligations, shareholders are requested to discharge the members of the Board of Directors and our
Executive Management Team from liability for their activities during the past fiscal year.
Discharge pursuant to the proposed resolution is only effective with respect to facts that have been disclosed
to shareholders (including through any publicly available information, whether or not included in our filings with
the SEC) and only binds shareholders who either voted in favor of the proposal or who subsequently acquired
shares with knowledge that the shareholders have approved this proposal. In addition, shareholders who vote
against this proposal, abstain from voting on this proposal, do not vote on this proposal, or acquire their shares
without knowledge of the approval of this proposal, may bring, as a plaintiff, any claims in a shareholder
derivative suit within six months after the approval of the proposal. After the expiration of the six-month period,
such shareholders will generally no longer have the right to bring, as a plaintiff, claims in shareholder derivative
suits against members of the Board of Directors or Executive Management Team with respect to activities
during fiscal year 2018.
Recommendation
The Board of Directors recommends a vote “FOR” this Agenda Item 2.
Transocean 2019 Proxy Statement P-13
AGENDA ITEM 3
Appropriation of the Accumulated Loss for Fiscal Year 2018
Proposal of the Board of Directors
The Board of Directors proposes that the accumulated loss of the Company be carried forward.
Appropriation of Accumulated Loss
Balance brought forward from previous years
Net loss of the year
Total accumulated loss
in CHF
thousands
(5,465,034)
(431,179)
(5,896,213)
Appropriation of accumulated loss
Balance to be carried forward on this account
(5,896,213)
Explanation
Under Swiss law, the appropriation of available earnings or accumulated loss, as the case may be, as set forth
in the Swiss statutory financial statements must be submitted to shareholders for approval at each annual
general meeting. The accumulated loss subject to the vote of the Company’s shareholders at the 2019 Annual
General Meeting is the accumulated loss of Transocean Ltd., on a standalone basis.
Recommendation
The Board of Directors recommends a vote “FOR” this Agenda Item 3.
P-14 Transocean 2019 Proxy Statement
AGENDA ITEM 4
Reelection of 10 Directors, Each for a Term Extending Until Completion of the Next Annual General
Meeting
Nominations of the Board of Directors
The Board of Directors has nominated Glyn A. Barker, Vanessa C.L. Chang, Frederico F. Curado, Chadwick
C. Deaton, Vincent J. Intrieri, Samuel J. Merksamer, Frederik W. Mohn, Edward R. Muller, Tan Ek Kia and
Jeremy D. Thigpen for reelection to the Board of Directors of the Company, each for a term extending until
completion of the next annual general meeting.
The Board of Directors does not have a specific policy regarding diversity in the selection of director nominees.
However, the Board of Directors does consider diversity in the director nominee selection process. The Board
of Directors takes an expansive view of the diversity of its members, with the goal of having directors who bring
diverse expertise in environmental, health, safety, industry, market and financial matters and who reflect the
global diversity of our workforce, our customers and the cultures in which we operate. We are a multinational
company with eight different nationalities represented in our director and executive officer group and over 55
in our global workforce. We have a presence in over 32 countries worldwide.
Voting Requirement to Elect Nominees
The election of each nominee requires the affirmative vote of a plurality of the votes cast in person or by proxy
at the 2019 Annual General Meeting. The plurality requirement means that the nominee who receives the
largest number of votes for a board seat is elected. Shareholders are entitled to one vote per share for each of
the directors to be elected.
We have adopted a majority vote policy in the election of directors as part of our Corporate Governance
Guidelines. This policy provides that the Board of Directors may nominate only those candidates for director
who have submitted an irrevocable letter of resignation, which would be effective upon and only in the event
that (1) such nominee fails to receive more votes cast “FOR” than “AGAINST” his or her election in an
uncontested election and (2) the Board of Directors accepts the resignation. If a nominee who has submitted
such a letter of resignation does not receive more votes cast for than against the nominee’s election, the
Corporate Governance Committee must promptly review the letter of resignation and recommend to the Board
of Directors whether to accept the tendered resignation or reject it. The Board of Directors must then act on the
Corporate Governance Committee’s recommendation within 90 days following the certification of the
shareholder vote. The Board of Directors must promptly disclose its decision regarding whether or not to accept
the nominee’s resignation letter in a Form 8-K furnished to the SEC or other broadly disseminated means of
communication. Full details of this policy are set out in our Corporate Governance Guidelines, which are
available on our website at: www.deepwater.com by selecting the Governance page in the Investors section
dropdown.
The Board of Directors has received from each nominee for election as a director at the 2019 Annual General
Meeting listed below an executed irrevocable letter of resignation consistent with these guidelines described
above. Each letter of resignation is effective only in the event that (1) such director fails to receive a sufficient
number of votes from shareholders in an uncontested election of such director and (2) the Board of Directors
accepts such resignation.
The information regarding the nominees presented below is as of March 8, 2019.
Transocean 2019 Proxy Statement P-15
AGENDA ITEM 4
Nominees for Director
GLYN A. BARKER
Background
AGE: 65
DIRECTOR
COMMITTEES:
Audit
Finance
AGE: 66
DIRECTOR
COMMITTEES:
Audit
Corporate Governance
U.K. citizen. Mr. Barker has served as a director of the Company since 2012. Mr. Barker served as
Vice Chairman-U.K. of PricewaterhouseCoopers LLP (PwC) from 2008 to 2011. He was also
responsible for PwC’s strategy and business development for the geographic areas of Europe, the
Middle East, Africa and India. Mr. Barker joined PwC in 1975 and became an audit partner in 1987.
He then established PwC’s private equity-focused Transactions Services business and led it
globally. He joined the Management Board of PwC in the United Kingdom as Head of the
Assurance Practice in 2002. In 2006, he became U.K. Managing Partner and served in that role
until 2008. Mr. Barker is a director of Berkeley Group Holdings plc (LON: BKG) (since 2012), Aviva
plc (LON: AV) (since 2012) and Interserve plc (LON: IRV) (since 2016), and the Chairman of Irwin
Mitchell Holdings Ltd (since 2012). He served as a director (from 2014 to 2016) and the Chairman
(from 2015 to 2016) of Transocean Partners LLC. Mr. Barker was Deputy Chairman of the English
National Opera Company from 2009 to 2016.
The Board of Directors has concluded that Mr. Barker should remain on the Board of Directors and
has recommended that he serve an additional term due to his experience in international business
and his expertise in finance. public company governance, corporate transactions, accounting and
auditing, and strategy.
Education
Mr. Barker received his Bachelor of Science degree in Economics & Accounting from the University
of Bristol in 1975 and is a Chartered Accountant.
VANESSA C.L. CHANG
Background
Canadian and U.S. citizen. Ms. Chang has served as a director of the Company since 2012.
Ms. Chang previously served as a Director and shareholder of EL & EL Investments, a privately
held real estate investment business, from 1998 to 2018, as the President and Chief Executive
Officer of ResolveItNow.com from 2000 until 2002 and was the Senior Vice President of Secured
Capital Corp in 1998. From 1986 until 1997, Ms. Chang was the West Coast partner in charge of
Corporate Finance for KPMG Peat Marwick LLP. Ms. Chang is a director or trustee of 17 funds
advised by Capital Group and its subsidiaries, seven of which are members of the American Funds
family and ten of which are members of Capital Group’s Private Client Services (since 2000).
Ms. Chang is also a director of Edison International (NYSE: EIX) and its wholly owned subsidiary,
Southern California Edison Company (each since 2007), and of Sykes Enterprises, Incorporated
(NASDAQ: SYKES) (since 2016). She is also a director of Forest Lawn Memorial Parks
Association, a non-profit organization (since 2005) and SCO America, Inc., a non-profit
organization (since 2013). She is a member of the American Institute of Certified Public
Accountants, the California State Board of Accountancy and Women Corporate Directors.
The Board of Directors has concluded that Ms. Chang should remain on the Board of Directors
and has recommended that she serve an additional term due to her experience in diverse
industries, along with her financial and accounting background, as well as her expertise in public
company governance, human capital management, corporate transactions and strategy.
Education
Ms. Chang received her Bachelor of Arts degree from the University of British Columbia in 1973
and is an inactive Certified Public Accountant.
P-16 Transocean 2019 Proxy Statement
AGENDA ITEM 4
FREDERICO F. CURADO
Background
AGE: 57
DIRECTOR
COMMITTEES:
Audit
Compensation
AGE: 66
DIRECTOR
COMMITTEES:
Corporate Governance
HSE
Brazilian citizen. Mr. Curado has served as a director of the Company since 2013. Mr. Curado is
the Chief Executive Officer of Ultrapar S.A. (NYSE: UGP) since 2017, and previously served as
President and Chief Executive Officer of Embraer S.A. (NYSE: ERJ) from 2007 to 2017. He joined
Embraer in 1984 and served in a variety of management positions during his career, including
Executive Vice President, Airline Market from 1998 to 2007 and Executive Vice President, Planning
and Organizational Development from 1995 to 1998. Mr. Curado has been a director of ABB Ltd
(NYSE: ABB) since 2016. Mr. Curado was a member of the Executive Board of the ICC -
International Chamber of Commerce from 2013 to 2018, a director of Iochpe-Maxion S.A. from
2015 to 2017, the President of the Brazilian Chapter of the Brazil-United States Business Council
from 2011 to 2016, a member of Brazil’s National Council for Industrial Development from 2011 to
2016 and was a director of the Smithsonian National Air and Space Museum from 2014 to 2017.
The Board of Directors has concluded that Mr. Curado should remain on the Board of Directors
and has recommended that he serve an additional term due to his CEO experience leading an
international corporation, including experience with Brazilian business and governmental sectors,
combined with his expertise in oil and gas, safety and environment, and operations and
engineering.
Education
Mr. Curado received his Bachelor of Science degree in Mechanical-Aeronautical Engineering from
the Instituto Tecnológico de Aeronáutica in Brazil in 1983 and an Executive Master’s in Business
Administration from the University of São Paulo, Brazil, in 1997.
CHADWICK C. DEATON
Background
U.S. citizen. Mr. Deaton has served as a director of the Company since 2012. Mr. Deaton served
as Executive Chairman of Baker Hughes Incorporated from 2012 to 2013, prior to which he served
as Chairman and Chief Executive Officer since 2004. He began his career with Schlumberger in
1976 and served in a variety of international capacities, including as Executive Vice President,
Oilfield Services from 1998 to 1999 and as a Senior Advisor from 1999 until 2001. From 2002 until
2004, Mr. Deaton was the President, Chief Executive Officer and Director of Hanover Compressor
Company. Mr. Deaton is a director of Air Products and Chemicals, Inc. (NYSE: APD) (since 2010),
CARBO Ceramics Inc. (NYSE: CRR) (since 2013; and previously from 2004 to 2009), and
Marathon Oil Corporation (NYSE: MRO) (since 2014). Mr. Deaton is a member of the Society of
Petroleum Engineers (since 1980) and has served on its Industrial Advisory Council. He is also a
director of the University of Wyoming Foundation and of the Houston Achievement Place.
Mr. Deaton served as co-chair of the Wyoming Governor’s Task Force for the build out of the
University of Wyoming’s new Engineering and Applied Sciences Center. He was a member of the
National Petroleum Council (from 2007 to 2013).
The Board of Directors has concluded that Mr. Deaton should remain on the Board of Directors
and has recommended that he serve an additional term due to his significant experience in the
oilfield services industry, including as CEO, his expertise in safety and environment, operations
and engineering, technology and research development, along with his human capital
management, strategy and corporate transactions experience.
Education
Mr. Deaton received his Bachelor of Science degree in Geology from the University of Wyoming in
1976.
Transocean 2019 Proxy Statement P-17
AGENDA ITEM 4
VINCENT J. INTRIERI
Background
AGE: 62
DIRECTOR
COMMITTEES:
Compensation
Corporate Governance
Finance
U.S. citizen. Mr. Intrieri has served as a director of the Company since 2014. Mr. Intrieri is the
Founder and CEO of VDA Capital Management LLC, a private investment fund founded in January
2017. Mr. Intrieri was previously employed by Carl C. Icahn-related entities in various investment-
related capacities from 1998 to 2016. From 2008 to 2016, Mr. Intrieri served as Senior Managing
Director of Icahn Capital LP, the entity through which Carl C. Icahn manages private investment
funds. In addition, from 2004 to 2016, Mr. Intrieri was a Senior Managing Director of Icahn Onshore
LP, the general partner of Icahn Partners LP, and Icahn Offshore LP, the general partner of Icahn
Partners Master Fund LP, entities through which Mr. Icahn invests in securities. Mr. Intrieri is a
director of Hertz Global Holdings, Inc. (NYSE: HTZ) (since 2014) and Navistar International
Corporation (NYSE: NAV) (since 2012). Mr. Intrieri previously served as a director of Energen
Corporation (NYSE: EGN) (from March 2018 until November 2018), Conduent Incorporated from
2017 to 2018, Chesapeake Energy Corporation from 2012 to 2016, CVR Refining, GP, LLC, the
general partner of CVR Refining, LP, from 2012 to 2014, Ferrous Resources Limited from 2015 to
2016, Forest Laboratories Inc. from 2013 to 2014, CVR Energy, Inc. from 2012 to 2014, Federal-
Mogul Holdings Corporation from 2007 to 2013, Icahn Enterprises L.P. from 2006 to 2012, and
was Senior Vice President of Icahn Enterprises L.P. from 2011 to 2012. Mr. Intrieri was also a
director of Dynegy Inc. from 2011 to 2012, and Chairman and a director of PSC Metals Inc. from
2007 to 2012. He served as a director of Motorola Solutions, Inc. from 2011 to 2012, XO Holdings
from 2006 to 2011, National Energy Group, Inc. from 2006 to 2011, American Railcar
Industries, Inc. from 2005 to 2011, WestPoint Home LLC from 2005 to 2011, and as Chairman and
a director of Viskase Companies, Inc. from 2003 to 2011. Ferrous Resources Limited, CVR
Refining, CVR Energy, American Railcar Industries, Federal-Mogul, Icahn Enterprises, XO
Holdings, National Energy Group, WestPoint Home, Viskase Companies and PSC Metals each
are or previously were indirectly controlled by Carl C. Icahn. Mr. Icahn also has or previously had
a noncontrolling interest in Dynegy, Hertz, Forest Laboratories, Navistar, Chesapeake Energy,
Motorola Solutions and Transocean through the ownership of securities.
The Board of Directors has concluded that Mr. Intrieri should remain on the Board of Directors and
has recommended that he serve an additional term due to his significant financial, corporate
transactions, executive management, research and development, safety and environment,
accounting and auditing and public company governance experience.
Education
Mr. Intrieri graduated, with Distinction, from The Pennsylvania State University (Erie Campus) with
a B.S. in Accounting in 1984. Mr. Intrieri was a certified public accountant.
P-18 Transocean 2019 Proxy Statement
AGENDA ITEM 4
SAMUEL J. MERKSAMER
Background
AGE: 38
DIRECTOR
COMMITTEES:
Finance
HSE
AGE: 42
DIRECTOR
COMMITTEES:
Audit
HSE
U.S. citizen. Mr. Merksamer has served as a director of the Company since 2013. Mr. Merksamer
is a Partner at Caligan Partners, L.P., an investment firm. He was a Managing Director of Icahn
Capital LP, a subsidiary of Icahn Enterprises L.P., from 2008 to 2016. From 2003 until 2008,
Mr. Merksamer was an analyst at Airlie Opportunity Capital Management. Mr. Merksamer
previously served as a director of American International Group, Inc. (NYSE: AIG) (from 2016 to
2018), Hertz Global Holdings, Inc. (NYSE: HTZ) from 2014 to 2017, Navistar International
Corporation (NYSE: NAV) from 2012 to 2017, Cheniere Energy Inc. (NYSE: LNG) from 2015 to
2017, Transocean Partners from 2014 to 2016, Hologic Inc. from 2013 to 2016, Talisman
Energy Inc. from 2013 to 2015, Ferrous Resources Limited from 2012 to 2016, CVR Refining, GP,
LLC, the general partner of CVR Refining, LP, from 2012 to 2014, CVR Energy, Inc. from 2012 to
2014, American Railcar Industries, Inc. from 2011 to 2013, Dynegy Inc. from 2011 to 2012, Viskase
Companies, Inc. from 2010 to 2013, Federal-Mogul Holdings Corporation from 2010 to 2014, and
PSC Metals Inc. from 2009 to 2012. Ferrous Resources Limited, CVR Refining, CVR Energy,
American Railcar Industries, Federal-Mogul, Viskase Companies and PSC Metals are each
indirectly controlled by Carl C. Icahn. Mr. Icahn also has or previously had a noncontrolling interest
in Dynegy, Hologic, Talisman Energy, Navistar, Hertz, Cheniere Energy, Transocean, Transocean
Partners and American International Group, Inc. through the ownership of securities.
The Board of Directors has concluded that Mr. Merksamer should remain on the Board of Directors
and has recommended that he serve an additional term due to his expertise in finance, strategy,
corporate transactions, accounting and public company governance.
Education
Mr. Merksamer received an A.B. in Economics from Cornell University in 2002.
FREDERIK W. MOHN
Background
Norwegian citizen. Mr. Mohn has served as a director of the Company since January 30, 2018,
when Transocean acquired Songa Offshore SE (OSE: SONG). Previously, Mr. Mohn served as a
director of Songa Offshore SE from 2013 to 2014, and as Chairman of the Songa Board from 2014
to 2018. Mr. Mohn is the sole owner and managing director of Perestroika, a Norwegian investment
company with investments in oil and gas, shipping, infrastructure, real estate development and
financial services. From 2011 to 2013, Mr. Mohn served as managing director of the worldwide
family business Frank Mohn AS, a supplier of pumping systems to the oil and gas industry.
Mr. Mohn also currently serves on the board of directors of public companies Dof ASA (OSE: DOF),
a Norwegian shipping company, and Fjord 1 (OSE: FJORD), a Norwegian transport company, and
private companies Viken Crude AS, Gjettumgrenda AS, Fornebu Sentrum AS, Fornebu Sentrum
Utvikling AS and Høvik Stasjonsby AS og KS.
Mr. Mohn was proposed as a nominee to serve on the Board of Directors by Perestroika pursuant
to the terms of the Transaction Agreement entered into between the Company and Songa Offshore
SE on August 13, 2017, pursuant to which the Company also acquired Songa. The Board of
Directors has concluded that Mr. Mohn should remain on the Board of Directors and has
recommended that he serve an additional term due to his knowledge of the oil and gas industry,
his previous position as Chairman of the Board of Songa Offshore SE and his expertise in finance,
strategy, accounting and auditing, and corporate transactions.
Education
Mr. Mohn received his Bachelor of Science degree from Royal Holloway, University of London in
2001.
Transocean 2019 Proxy Statement P-19
AGENDA ITEM 4
EDWARD R. MULLER
Background
AGE: 66
DIRECTOR
COMMITTEES:
Finance
HSE
AGE: 70
DIRECTOR
COMMITTEES:
Compensation
HSE
U.S. citizen. Mr. Muller has served as a director of the Company since 2007. He served as a director
of GlobalSantaFe Corporation from 2001 to 2007 and of Global Marine, Inc. from 1997 to 2001.
Mr. Muller served as Vice Chairman of NRG Energy, Inc. (NYSE: NRG) after the merger of NRG
Energy, Inc. with GenOn Energy, Inc. from 2012 until 2017. Prior to the merger, he served as
GenOn Energy, Inc.’s Chairman and Chief Executive Officer (since 2010) and President (since
2011). Mr. Muller previously served as Chairman, President and Chief Executive Officer of Mirant
Corporation from 2005 to 2010 when Mirant Corporation merged with RRI Energy, Inc. to form
GenOn Energy, Inc. Mr. Muller is a director of AeroVironment, Inc. (NASDAQ: AVAV) since 2013.
He was a private investor from 2000 until 2005. Mr. Muller served as President and Chief Executive
Officer of Edison Mission Energy, a wholly owned subsidiary of Edison International, from 1993
until 2000. During his tenure, Edison Mission Energy was engaged in developing, owning and
operating independent power production facilities worldwide. Since 2004, Mr. Muller has been a
trustee of the Riverview School and was its Chairman from 2008 to 2012 and from 2016 to 2018.
The Board of Directors has concluded that Mr. Muller, an attorney by education, should remain on
the Board of Directors and has recommended that he serve an additional term due to his extensive
executive experience in a capital-intensive energy business and previous experience as CEO,
safety and environment, finance, public company governance, strategy and accounting and
auditing.
Education
Mr. Muller received his Bachelor of Arts degree from Dartmouth College in 1973 and his law degree
from Yale Law School in 1976.
TAN EK KIA
Background
Malaysian citizen. Mr. Tan has served as a director of the Company since 2011. Mr. Tan is the
retired Vice President, Ventures and Developments, Asia Pacific and Middle East Region of Shell
Chemicals, a position in which he served from 2003 to 2006. Mr. Tan joined the Shell group of
companies in 1973 as an engineer and served in a variety of positions in Asia, the United States
and Europe during his career, including as Chairman, Shell Companies, Northeast Asia from 2000
to 2003, Managing Director of Shell Nanhai from 1997 to 2000 and Managing Director of Shell
Malaysia Exploration and Production from 1994 to 1997. Mr. Tan also served as the Interim Chief
Executive Officer of SMRT Corporation Ltd from January to October 2012. Mr. Tan is a director of
Dialog Systems Asia Pte Ltd (since 2008), Keppel Offshore & Marine Ltd (since 2009), SMRT
Corporation Ltd (since 2009), Keppel Corporation Ltd (SGX: KPELY) (since 2010), PT Chandra
Asri Petrochemical Tbk (IDX: TPIA) (since 2011) and Singapore LNG Corporation Pte Ltd. (since
2013). He is also a director (since 2013) and the Chairman of KrisEnergy Ltd (SGX: SK3) (since
2017), the Chairman of Star Energy Group Holdings Pte Ltd (since 2012) and a director of two of
Star Energy Group Holdings’ subsidiaries, Star Energy Oil and Gas Pte Ltd and Star Energy
Geothermal Pte Ltd. Mr. Tan served as Chairman of City Gas Pte Ltd from 2009 to 2015 and as a
director of City Spring Infrastructure Trust Pte Ltd. from 2010 to 2014, InterGlobal Offshore Pte Ltd
from 2007 to 2012 and PowerSeraya Ltd and Orchard Energy Pte Ltd from 2007 to 2009.
The Board of Directors has concluded that Mr. Tan should remain on the Board of Directors and
has recommended that he serve an additional term due to his significant experience as a CEO and
leading large projects, particularly in Asia, and his expertise in operations and engineering, safety
and environment, public company governance, and strategy.
Education
Mr. Tan received his Bachelor of Science degree in Mechanical Engineering from the University of
Nottingham in 1973. He is a Chartered Engineer with the UK Engineering Council and a Fellow of
the Institution of Engineers Malaysia.
P-20 Transocean 2019 Proxy Statement
AGENDA ITEM 4
JEREMY D. THIGPEN
Background
AGE: 44
DIRECTOR
Executive Member
U.S. citizen. Mr. Thigpen is President and Chief Executive Officer and a director of the Company
since 2015. Mr. Thigpen served as Senior Vice President and Chief Financial Officer at National
Oilwell Varco, Inc. (NYSE: NOV) from 2012 to 2015. During his tenure at National Oilwell Varco,
Mr. Thigpen spent five years from 2007 to 2012 as the company’s President of Downhole and
Pumping Solutions business, and four years from 2003 to 2007 as President of its Downhole Tools
group. He also served in various management and business development capacities, including
Director of Business Development and Special Assistant to the Chairman for National Oilwell
Varco.
The Board of Directors has concluded that Mr. Thigpen should remain on the Board of Directors
and has recommended that he serve an additional term. The Board of Directors believes that it is
important for the Chief Executive Officer of the Company to serve on the Board of Directors, as it
ensures an efficient flow of information between the Board of Directors and executive management.
In addition, Mr. Thigpen has substantial industry experience and a competitive perspective, which
assists the Board of Directors in considering strategic decisions for the Company.
Education
Mr. Thigpen earned a Bachelor of Arts degree in Economics and Managerial Studies from Rice
University in 1997, and he completed the Program for Management Development at Harvard
Business School in 2001.
Recommendation
The Board of Directors recommends you vote “FOR” the reelection of these candidates as directors.
Transocean 2019 Proxy Statement P-21
TRANSOCEAN LTD.
SKILLS EXPERIENCE MATRIX
INDEPENDENT DIRECTORS
Business or Professional
Experience/Skills/Attributes
Glyn A. Barker
Vanessa C.L. Chang
Frederico F. Curado
Chadwick C. Deaton
Vincent J. Intrieri
Samuel Merksamer
Frederik W. Mohn
Edward R. Muller
Tan Ek Kia
LEGEND:
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Oil & Gas (including
Oilfield Services)
Operations &
Engineering
Public Company Governance
Technology,
Research &
Development
Human Capital
Management
Mergers & Acquisitions
Safety & Environment
Finance, Debt & Capital
Markets
Public Company CEO
Global International
Strategy
Accounting & Auditing
P-22
Transocean 2019 Proxy Statement
OTHER ATTRIBUTES OF OUR INDEPENDENT DIRECTORS
Diversity
3 of 9 are female or ethnically diverse
Tenure
1-3 years:
4-6 years:
7-9 years:
10+ years:
Age
30s:
40s:
50s:
60s
70s:
5 of 9 are non-U.S. citizens
Average tenure: 5.4 years
Average age: 59.1
Transocean 2019 Proxy Statement P-23
AGENDA ITEM 5
Election of the Chairman of the Board of Directors for a Term Extending Until Completion of the Next
Annual General Meeting
Nomination of the Board of Directors
Pursuant to the Minder Ordinance and our Articles of Association, the authority to elect the Chairman of the
Board of Directors is vested with the general meeting of shareholders. The term of office of the Chairman of
the Board of Directors is the same as the other directors’ terms and extends until completion of the next annual
general meeting. The Chairman elected at the 2019 Annual General Meeting will have the powers and duties
as provided for in our Articles of Association and organizational regulations.
Upon the recommendation of the Corporate Governance Committee, the Board of Directors has nominated
Chadwick C. Deaton for election by the shareholders as the Chairman of the Board of Directors. Mr. Deaton
has served on the Board since May 2012. He is the chairman of the Board’s Health Safety and Environment
Committee and a member of the Corporate Governance Committee. If elected as Chairman, he will step down
from his committee assignments. Mr. Deaton’s biographical information may be found above under Agenda
Item 4.
Recommendation
The Board of Directors recommends a vote “FOR” the election of the nominee for the Chairman of the Board
of Directors.
P-24 Transocean 2019 Proxy Statement
AGENDA ITEM 6
Election of the Members of the Compensation Committee, Each for a Term Extending Until Completion
of the Next Annual General Meeting
Nominations of the Board of Directors
Pursuant to the Minder Ordinance and our Articles of Association, the authority to elect the members of the
Compensation Committee of the Board of Directors is vested with the general meeting of shareholders. The
term of office of the members of the Compensation Committee is the same as the other directors’ term and
extends until completion of the next annual general meeting.
Upon the recommendation of the Corporate Governance Committee, the Board of Directors has nominated for
election by the shareholders at the 2019 Annual General Meeting Frederico F. Curado, Vincent J. Intrieri and
Tan Ek Kia as members of the Compensation Committee of the Board of Directors. Biographical information
regarding the nominees may be found above under Agenda Item 4.
Recommendation
The Board of Directors recommends a vote “FOR” the election of the nominees of the Compensation Committee
of the Board of Directors.
Transocean 2019 Proxy Statement P-25
AGENDA ITEM 7
Reelection of the Independent Proxy for a Term Extending Until Completion of the Next Annual General
Meeting
Pursuant to the Minder Ordinance and our Articles of Association, the authority to elect the independent proxy
is vested with the general meeting of shareholders. The independent proxy elected at the 2019 Annual General
Meeting will serve as independent proxy at the 2020 Annual General Meeting and at any extraordinary general
meeting of shareholders of the Company that may be held prior to the 2020 Annual General Meeting.
The Board of Directors has nominated for reelection as independent proxy Schweiger Advokatur / Notariat,
Dammstrasse 19, CH-6300 Zug, Switzerland. Schweiger Advokatur / Notariat was elected at the 2018 Annual
General Meeting to serve as independent proxy at the 2019 Annual General Meeting and any extraordinary
general meeting of shareholders of the Company held prior to the 2019 Annual General Meeting.
Recommendation
The Board of Directors recommends a vote “FOR” this Agenda Item 7.
P-26 Transocean 2019 Proxy Statement
AGENDA ITEM 8
Appointment of Ernst & Young LLP as the Company’s Independent Registered Public Accounting Firm
for Fiscal Year 2019 and Reelection of Ernst & Young Ltd, Zurich, as the Company’s Auditor for a
Further One-Year Term
Proposal of the Board of Directors
The Board of Directors proposes that Ernst & Young LLP be appointed as Transocean Ltd.’s independent
registered public accounting firm for the fiscal year 2019 and that Ernst & Young Ltd, Zurich, be reelected as
Transocean Ltd.’s auditor pursuant to the Swiss Code of Obligations for a further one-year term, commencing
on the day of election at the 2019 Annual General Meeting and terminating on the day of the 2020 Annual
General Meeting.
Representatives of Ernst & Young Ltd will be present at the 2019 Annual General Meeting, will have the
opportunity to make a statement and will be available to respond to questions you may ask. Information
regarding the fees paid by the Company to Ernst & Young appears below.
Recommendation
The Board of Directors recommends a vote “FOR” this Agenda Item 8.
FEES PAID TO ERNST & YOUNG
Audit fees for Ernst & Young LLP and its affiliates for each of the fiscal years 2018 and 2017 and audit-related
fees, tax fees and total of all other fees for services rendered in 2018 and 2017 are as follows:
Fiscal year 2018
Fiscal year 2017
Audit
Fees(1)
U.S. $
5,062,709
6,179,212
Audit-Related
Fees(2)
U.S. $
526,289
345,008
Tax
Fees
U.S. $
25,132
12,580
Total of All
Other Fees(3)
U.S. $
4,931
2,160
(1) The audit fees include those associated with our annual audit, reviews of our quarterly reports on Form
10-Q, statutory audits of our subsidiaries, services associated with documents filed with the SEC and audit
consultations.
(2) The audit-related fees include services in connection with accounting consultations, employee benefit plan
audits and attest services related to financial reporting.
(3) All other fees were for other publications and subscription services.
Audit Committee Pre-Approval of Audit and Non-Audit Services
The Audit Committee pre-approves all auditing services, review or attest engagements and permitted non-audit
services to be performed by our independent registered public accounting firm. The Audit Committee has
considered whether the provision of services rendered in 2018 other than the audit of our financial statements
and reviews of quarterly financial statements was compatible with maintaining the independence of Ernst &
Young LLP and determined that the provision of such services was compatible with maintaining such
independence.
The Audit Committee has adopted policies and procedures for pre-approving all audit and non-audit services
performed by the independent registered public accounting firm. The policy requires advance approval by the
Audit Committee of all audit and non-audit work; provided, that the Chairman of the Audit Committee may grant
pre-approvals of audit or non-audit work, so long as such pre-approvals are presented to the full Audit
Committee at its next scheduled meeting. Unless the specific service has been previously pre-approved with
Transocean 2019 Proxy Statement P-27
AGENDA ITEM 8
respect to the 12-month period following the advance approval, the Audit Committee must approve a service
before the independent registered public accounting firm is engaged to perform the service. The Audit
Committee has given advance approval for specified audit, audit-related and other services for 2019. Requests
for services that have received this pre-approval are subject to specified fee or budget restrictions, as well as
internal management controls.
P-28 Transocean 2019 Proxy Statement
AGENDA ITEM 9
Advisory Vote to Approve Named Executive Officer Compensation
Proposal of the Board of Directors
At the Company’s 2017 Annual General Meeting, the Company’s shareholders followed the Board of Directors’
recommendation to hold an advisory vote on executive compensation every year for the Company’s Named
Executive Officers. In light of these results, the Board of Directors determined that the Company will hold an
advisory vote on executive compensation once every year until the next required vote on the frequency of
shareholder votes on compensation of Named Executive Officers of the Company, which in accordance with
applicable law, will occur no later than the Company’s annual general meeting of shareholders in 2023.
Accordingly, and as required by Section 14A of the Exchange Act, the Company is providing its shareholders
the opportunity to vote on an advisory basis to approve the compensation of the Company’s Named Executive
Officers. The Board of Directors recommends that you vote for the approval of the compensation of the Named
Executive Officers as described in this proxy statement.
Accordingly, you may vote on the following resolution:
RESOLVED, that the compensation of the Company’s Named Executive Officers, as disclosed pursuant to the
compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the
compensation tables, and the narrative disclosure in the proxy statement for the Company’s 2019 Annual
General Meeting is hereby APPROVED.
Our compensation program for our Named Executive Officers is designed to reward performance that creates
long-term value for the Company’s shareholders through the following features, which are discussed in more
detail in our Compensation Discussion and Analysis:
● Annual cash bonuses based on performance as measured against pre-determined performance goals;
● A compensation mix weighted toward long-term incentives to allow our Named Executive Officers to
participate in the long-term growth and profitability of the Company;
● Long-term incentives include performance share units that vest based upon the Company’s total
shareholder return compared to the companies in our performance peer group;
● Median pay positioning for target performance, above median pay for above target performance, and
below median pay for below target performance;
● A share ownership policy that requires our executive officers to build and maintain an appropriate equity
stake in the Company to further align our executive officers’ interests with the long-term interests of our
shareholders;
● Hedging and pledging policies that prohibit any of our executive officers from hedging or pledging our
shares or holding derivative instruments tied to our shares, other than derivative instruments issued by
us; and
● The Incentive Compensation Recoupment Policy, a clawback policy that allows the Company to recover
or adjust incentive compensation to the extent the Compensation Committee determines that payments
or awards have exceeded the amount that would otherwise have been received due to a restatement of
our financial results or if the Compensation Committee determines that an executive has engaged in, or
has knowledge of and fails to prevent or disclose, fraud or intentional misconduct pertaining to any
financial reporting requirements.
The vote on this proposal is advisory and therefore not binding on the Company, the Compensation Committee
or the Board of Directors. The Board of Directors and the Compensation Committee value the opinions of our
shareholders. Following the 2019 Annual General Meeting, we will consider our shareholders’ feedback and
the Compensation Committee will evaluate whether any actions are necessary to address this feedback.
Transocean 2019 Proxy Statement P-29
AGENDA ITEM 9
Recommendation
The Board of Directors recommends that you vote “FOR” approval of the compensation of the Company’s
Named Executive Officers, as disclosed pursuant to the compensation disclosure rules of the SEC, including
the Compensation Discussion and Analysis, the compensation tables, and the narrative disclosure in this proxy
statement.
P-30 Transocean 2019 Proxy Statement
AGENDA ITEM 10
Prospective Vote on the Maximum Compensation of the Board of Directors and the Executive
Management Team
10A Ratification of the Maximum Aggregate Amount of Compensation of the Board of Directors for
the Period Between the 2019 Annual General Meeting and the 2020 Annual General Meeting.
Proposal of the Board of Directors
The Board of Directors proposes that the shareholders ratify an amount of U.S. $4,121,000 as the maximum
aggregate amount of compensation of the Board of Directors for the period between the 2019 Annual General
Meeting and the 2020 Annual General Meeting.
Explanation
As required by our Articles of Association and the Minder Ordinance, the shareholders are provided the
opportunity to vote on the maximum aggregate amount of compensation that can be paid or granted to the
members of the Board of Directors for the period between the 2019 Annual General Meeting and the 2020
Annual General Meeting (the “2019/2020 Term”). The shareholder vote is of binding nature.
Directors’ Compensation Principles
The general principles of the compensation for our Board of Directors are described in article 29b of our Articles
of Association.
We use a combination of cash and equity compensation to attract and retain qualified candidates to serve on
our Board of Directors. Our directors’ compensation consists of (1) cash retainers, (2) grants of restricted share
units and (3) dividend equivalents on vested restricted share units.
Set forth below is an overview of the non-employee director compensation elements for the term of office
between the 2017 Annual General Meeting and the 2018 Annual General Meeting (the “2017/2018 Term”), and
the term of office between the 2018 Annual General Meeting and the 2019 Annual General Meeting (the
Transocean 2019 Proxy Statement P-31
AGENDA ITEM 10
“2018/2019 Term”). Additionally, the compensation elements currently contemplated for the 2019/2020 Term
are also provided:
Term of Office
2017 AGM – 2018 AGM
U.S.$
Term of Office
2018 AGM – 2019 AGM
U.S.$
Term of Office
2019 AGM – 2020 AGM
U.S.$
Cash Retainers
Retainer for non-executive
chairman
Retainer for non-executive vice
chairman(1)
Retainer for non-employee
directors (other than the
chairman and the vice
chairman)
Additional retainer for
Committee Chairmen:
Audit Committee
Compensation Committee
Corporate Governance
Committee, Finance
Committee, and Health,
Safety and Environment
Committee
Grant of Restricted Share
Units
Grant of restricted share units to
non-executive chairman
Grant of restricted share units to
non-executive vice chairman(1)
Grant of restricted share units to
non-employee directors
(other than the chairman and
the vice chairman)
325,000
250,000
325,000
250,000
325,000
250,000
100,000
100,000
100,000
35,000
20,000
35,000
20,000
35,000
20,000
10,000
10,000
10,000
325,000
210,000
325,000
210,000
325,000
210,000
210,000
210,000
210,000
Dividend equivalents on
vested restricted share units
Amount depends on (1) dividends paid and (2) the number of restricted share
units held by the respective director.
(1) Currently, the Company does not have any director serving in a Vice Chairman role.
A more detailed description of the compensation principles currently in effect for our Board of Directors can be
found under “Board Meetings and Committees—Director Compensation Strategy.” The actual amounts paid to
each member of the Board of Directors for fiscal year 2018 are disclosed under “2018 Director Compensation”
and in our Swiss Compensation Report under the caption “Board of Directors’ Compensation.”
Proposal for Ratification of Maximum Aggregate Amount
The Board of Directors proposes that the shareholders ratify an amount of U.S. $4,121,000 as the maximum
aggregate amount of compensation of the Board of Directors for the 2019/2020 Term. This amount is the
maximum amount that the Company can pay or grant to the members of the Board of Directors for the
2019/2020 Term. The proposed aggregate maximum amount has been calculated based on the directors’
compensation elements as outlined above.
The table below shows the aggregate compensation paid to our Board of Directors for the 2017/2018 Term,
and the shareholder-approved, maximum aggregate compensation payable to our Board of Directors for the
2018/2019 Term. The 2017/2018 and 2018/2019 Terms include ten non-employee directorships, one of whom
was Chairman of the Board of Directors. Further, the table explains our proposal for the maximum aggregate
amount of compensation for our Board of Directors for the 2019/2020 Term. This proposal is unchanged from
P-32 Transocean 2019 Proxy Statement
AGENDA ITEM 10
the maximum aggregate compensation proposed for the 2017/2018 Term and the 2018/2019 Term, as the
Board plans to maintain ten non-employee directorships long-term. Although nine non-employee candidates
are being nominated for election at this 2019 Annual General Meeting, the Board expects to identify and
nominate another candidate for election to the Board no later than the 2020 Annual General Meeting.
Term of Office
2017 AGM-2018 AGM
(based on 10 non-employee
directors and the
assumptions
described above)
U.S.$
1,510,000
Term of Office
2018 AGM-2019 AGM
Proposed Maximum
Aggregate Amount
U.S.$
1,510,000
Term of Office
2019 AGM-2020 AGM
Proposed Maximum
Aggregate Amount
U.S.$
1,510,000
2,575,000(2)(3)
2,575,000(2)(3)
2,575,000(2)(3)
300,000
4,121,000
300,000
4,121,000
300,000
4,121,000
Cash Retainers
Grant of Restricted
Share Units(1)
Dividend
Equivalents(4)
Total(5)
(1) Restricted share units are granted to each non-employee director annually immediately following the Board of Directors meeting held
in connection with our Annual General Meeting. On the date of grant, the restricted share units have an aggregate value equal to the
U.S. dollar figure indicated in “2018 Director Compensation” table, and the restricted share units vest on the date first to occur of (i)
the first anniversary of the date of grant or (ii) the Annual General Meeting next following the date of grant, subject to continued service
through the vesting date. Vesting of the restricted share units is not subject to any performance measures.
(2)
(3)
Aggregate grant date fair value under accounting standards for recognition of share-based compensation expense for restricted share
units granted to our non-employee directors, computed in accordance with FASB ASC Topic 718.
Aggregate target amount.
(4) Dividend equivalents paid or to be paid during the respective terms of office on all vested restricted share units. For an overview of
our directors’ vested and unvested restricted share units, please see Note 6—Share Ownership in the Company’s statutory financial
statements for fiscal year 2018.
(5) Mandatory employer-paid social taxes pursuant to applicable law are not included in the total amount. In 2018, employer-paid social
taxes totaled U.S. $41,184.
The aggregate compensation paid to date and expected to be paid to the members of the Board of Directors
during the 2018/2019 Term is within the maximum aggregate amount approved by shareholders at the 2018
Annual General Meeting. The actual payout and grants will be disclosed in the 2020 and 2021 Proxy
Statements, respectively, and the Swiss Compensation Report for fiscal years 2019 and 2020, respectively.
Recommendation
The Board of Directors recommends that you vote “FOR” this Agenda Item 10A.
10B Ratification of the Maximum Aggregate Amount of Compensation of the Executive
Management Team for Fiscal Year 2020.
Proposal of the Board of Directors
The Board of Directors proposes that the shareholders ratify an amount of U.S. $24,000,000 as the maximum
aggregate amount of compensation of the Executive Management Team for fiscal year 2020.
Explanation
As required by our Articles of Association and the Minder Ordinance, our shareholders are provided the
opportunity to vote on the maximum aggregate amount of compensation that can be paid or granted to the
members of the Executive Management Team for fiscal year 2020. The shareholder vote is of binding nature.
Transocean 2019 Proxy Statement P-33
AGENDA ITEM 10
Executive Management Team Compensation Principles
The general principles of the compensation for the Executive Management Team are described in article 29b
of our Articles of Association.
We use a combination of cash and equity compensation to attract, motivate and retain leaders from the global
executive talent market within and outside our highly competitive industry and to achieve our objective of pay
and performance alignment by delivering the vast majority of our Executive Management Team’s compensation
opportunity as performance-based, ‘at-risk’ compensation. Our Executive Management Team’s compensation
consists of (1) base salary, (2) annual performance bonus, (3) long-term incentives, which may comprise grants
of restricted share units, performance share units and stock options and (4) other compensation, including
Company contributions to savings and pension plans, life insurance premiums, dividend equivalents on vested
and unvested restricted share units, expatriate assignment allowances and expatriate relocation pay.
Our Executive Management Team comprises our President and Chief Executive Officer, our Executive Vice
President and Chief Financial Officer, and our Executive Vice President and Chief Operations Officer.
For a detailed description of our compensation principles currently in effect for the Executive Management
Team (and our other Named Executive Officers who are not members of the Executive Management Team),
please refer to the section of this proxy statement under the caption: “Compensation Discussion and Analysis.”
We recommend that our shareholders read our Articles of Association and the Compensation Discussion and
Analysis to understand our Executive Management Team compensation principles and process when
considering this proposal. The actual amounts paid to each member of the Executive Management Team for
fiscal years 2016-2018 are disclosed in this proxy statement under the caption: “Executive Compensation—
Summary Compensation Table,” and in our Swiss Compensation Report under the caption: “Executive
Management Team Compensation.”
In addition to this binding prospective vote on maximum Executive Management Team compensation,
shareholders have had the opportunity since 2011 under U.S. law, subject to an advisory vote by shareholders
and a determination by the Board of Directors as to the frequency of such opportunity, to cast a retrospective
advisory vote to approve the compensation paid to our Named Executive Officers (including our Executive
Management Team members) for the fiscal year preceding the Annual General Meeting. Since 2011, our
shareholders have consistently expressed their strong support for the Company’s executive compensation
principles. For fiscal years 2011, 2012, 2013, 2014, 2015, 2016, and 2017, the shareholder approval levels
have been 86%, 81%, 92%, 80%, 87%, 96% and 97%, respectively. Our shareholders are again provided the
opportunity to cast a retrospective advisory vote to approve the compensation paid to our Named Executive
Officers (including our Executive Management Team members) for fiscal year 2018, as is explained in detail in
Agenda Item No. 9.
The proposed maximum aggregate amount of compensation for the Executive Management Team for
fiscal year 2020 is derived substantially from the Company’s executive compensation principles receiving
strong historical shareholder support as noted above. Consistent with the Company’s historical practice in
setting executive compensation, as reflected in the Compensation Discussion and Analysis, we do not
anticipate that the aggregate amount actually paid to our Executive Management Team members for fiscal year
2020 will be at the proposed maximum aggregate amount.
Proposal for Ratification of Maximum Aggregate Amount
The Board of Directors proposes that the shareholders ratify an amount of U.S. $24,000,000, excluding
employer-paid social taxes, as the maximum aggregate amount of compensation of the Executive Management
Team for fiscal year 2020. This amount is unchanged from the approved maximum aggregate amount of
compensation for fiscal year 2019, and is the maximum amount that the Company can pay or grant to its
members of the Executive Management Team for fiscal year 2020, subject to the authority of the Board of
Directors to grant or pay a “supplementary amount” pursuant to article 29c of our Articles of Association without
additional shareholder ratification to persons who newly assume an Executive Management Team function
after the prospective vote at the 2019 Annual General Meeting.
P-34 Transocean 2019 Proxy Statement
AGENDA ITEM 10
The table below shows the maximum aggregate amount of compensation that could have been paid or granted
in the fiscal year 2018 under our compensation principles and plans, the maximum aggregate amount of
compensation available to be paid or granted for fiscal year 2019 under our compensation principles and plans
currently in effect, and our proposed maximum aggregate amount of compensation for fiscal year 2020.
The proposed maximum aggregate amount of compensation for fiscal year 2020 is based on our estimated
compensation levels and is unchanged from the maximum aggregate amount of compensation for fiscal year
2019, which was approved by shareholders at last year’s annual general meeting.
Base Salary
Annual Performance
Bonus(5)
Long-Term Incentives(6)
All Other Compensation(7)
Total
Fiscal Year 2018
Maximum Payable(1)
U.S.$
2,664,090(3)
Fiscal Year 2019
Proposed Maximum
Amount(1)(2)
U.S.$
2,750,000 (4)
Fiscal Year 2020
Proposed Maximum
Amount(1)(2)
U.S.$
2,750,000
6,250,000
12,500,000
2,500,000
23,914,090
6,250,000
12,500,000
2,500,000
24,000,000
6,250,000
12,500,000
2,500,000
24,000,000
(1) Assumes that the base salary, the annual performance bonus and all other compensation have been, or will be, paid or
granted at the maximum level as provided under our compensation principles and plans (e.g., in relation to the annual
performance bonus, assuming a payout of annual incentive bonuses at the maximum payout level of 200%). In relation
to the long-term incentive plans, the fair value calculations are based on an assumed achievement of performance
targets at 100%; see note 5 below for further information.
(2) The proposal of the Board of Directors for ratification by our shareholders only relates to the maximum aggregate amount
of total compensation as shown in the “Total” row. The subtotals shown for each compensation category are included
for illustration purposes only.
(3) Reflects actual base salaries paid to our Executive Management Team members.
(4) Reflects actual base salaries paid to, and base salaries for the remaining fiscal year to be paid to, our Executive
Management Team members, based on base salary levels effective for fiscal year 2018.
(5) Based on individual target award opportunities and maximum payout at 200%. As further described under
“Compensation Discussion and Analysis—Annual Performance Bonus,” the potential payout ranges from 0% to 200%
of the individual target award opportunity. Maximum payout is only available upon achievement of superior performance.
Individual target award opportunities ranged, and will range, between 75% and 125% of the base salary, depending on
the level of responsibility.
(6) Based on target amounts and fair value calculations. With regard to performance-based long-term incentives such as
performance share units, the fair value calculations are based on an assumed achievement of performance targets at
100%. For the 2020 grant cycle, the actual number of shares to be allocated under such long-term incentive plans will
be determined in 2023 depending on performance achievement over a three-year performance cycle and may range
between 0% to 200%.
(7) Assumes that all compensation has been paid or granted at the maximum level as provided under our compensation
principles and plans. Mandatory employer-paid social taxes pursuant to applicable law are excluded from the proposed
maximum amount. In 2018, employer-paid social taxes totaled U.S. $283,390.
Shareholder approval is based on the maximum aggregate amounts that could be payable in accordance with
our compensation principles as set out in the 2019 Proxy Statement’s “Compensation Discussion and Analysis.”
Therefore, actual aggregate amounts paid to our Executive Management Team members for fiscal year 2020
will fall within the range that may be payable. And although historical compensation paid to our Executive
Management Team, as disclosed in the Compensation Report, has been substantially less (2018: U.S.
$17,050,273) than the maximum amount payable (2018: U.S. $24,000,000) we request our shareholders
approve the proposed maximum aggregate amount in order to comply with our Articles of Association and to
ensure that the authorized compensation is set at a level that allows us to honor our compensation obligations
and promises under our compensation principles and plans if the Executive Management Team or its individual
members deliver superior performance and achieve all of the performance objectives at maximum performance
level.
The 2020 Executive Management Team compensation will be disclosed in the proxy statement for our 2021
annual general meeting and the Swiss Compensation Report for fiscal year 2020.
Transocean 2019 Proxy Statement P-35
AGENDA ITEM 10
Recommendation
The Board of Directors recommends that you vote “FOR” this Agenda Item 10B.
P-36 Transocean 2019 Proxy Statement
CORPORATE GOVERNANCE
We are committed to upholding high standards of corporate governance and business conduct and believe that
we have maintained good corporate governance practices for many years.
We regularly review and, as necessary, update our Code of Integrity. Accordingly, in November 2016, the Board
of Directors adopted a Code of Integrity that updated and replaced our previous Code of Integrity. We conduct
online mandatory training for our employees and officers on our Code of Integrity and other relevant compliance
topics. We also require all of our officers and managerial and supervisory employees to certify compliance with
our Code of Integrity each year and to proactively report any non-compliance they may discover.
The Corporate Governance Committee of the Board of Directors evaluates the Company’s and the Board of
Directors’ governance practices and formally reviews all committee charters along with recommendations from
the various committees of the Board of Directors and the Board of Directors’ governance principles at least
annually. The Corporate Governance Committee receives updates at each meeting regarding new
developments in the corporate governance arena. Our Corporate Governance Guidelines and committee
charters also require, among other things, that each committee and the Board of Directors annually conduct a
self-evaluation of their own performance. The evaluation provides an opportunity for an assessment of each
member of the Board of Directors.
Director Share Holding Requirement. We have equity ownership guidelines for directors that require each
current non-management director to acquire and retain a number of our shares, restricted share units and/or
deferred units at least equal in value to an amount five times the director’s annual cash retainer. Each new
director is required to acquire and retain such number of shares, restricted share units and/or deferred units
over his or her initial five years as a director. Jeremy D. Thigpen, our President and Chief Executive Officer, is
subject to separate officer share ownership guidelines providing for a more stringent requirement of six times
his base pay. In connection with such ownership requirement, the Board of Directors currently grants restricted
share units to each of our non-management directors. See “Compensation Discussion and Analysis” for more
information about these guidelines.
Restrictions on Pledging, Hedging and Margin Accounts. Pursuant to our Insider Trading Policy, employees,
officers and directors are restricted from pledging, hedging or holding shares in a margin account.
Transocean 2019 Proxy Statement P-37
CORPORATE GOVERNANCE
Our current governance documents may be found on our website at: www.deepwater.com by selecting the
Governance page in the Investors section dropdown. Among the information you can find there is the following:
● Articles of Association;
● Organizational Regulations;
● Corporate Governance Guidelines;
● Audit Committee Charter;
● Corporate Governance Committee Charter;
● Compensation Committee Charter;
● Finance Committee Charter;
● Health, Safety and Environment Committee Charter;
● Our Mission Statement;
● Our FIRST Shared Values;
● Code of Integrity;
● Gender Pay Gap Regulations;
● Our Modern Slavery and Human Trafficking Statement; and
● Our Tax Principles Statement.
Information contained on our website is not part of this proxy statement.
Transocean is committed to safely performing our operations while reducing our environmental footprint. Our
industry is reliant on the natural resources of our planet and we are keenly aware of our responsibility to
minimize our impact on the environment. Through Transocean’s continuous engagement with our stakeholders,
we incorporate feedback and set the course to tackle material issues that are important to our complex industry
and global community. Transocean is committed to serving our communities, supporting and participating in
industry associations, and engaging with our investors. For more information on our sustainability efforts, see
our inaugural sustainability report on our website by selecting the Health, Safety and Environment page from
the “About” tab on the homepage and scrolling down to the sustainability report.
We will continue to monitor our governance practices and update policies and procedures, as appropriate, in
order to maintain our high standards.
Board Leadership. Except during extraordinary circumstances, the Board of Directors has chosen not to
combine the positions of Chief Executive Officer and Chairman of the Board. The Board believes that separating
these positions allows our Chief Executive Officer to focus on our day-to-day business, while our Chairman of
the Board presides over the Board as it provides advice to, and independent oversight of, management and
the Company’s operations. The Board recognizes the time, effort, and energy that our Chief Executive Officer
is required to devote to his position and the additional commitment the position of Chairman of the Board of
Directors requires. The Board of Directors believes that having separate positions and having an independent
outside director serve as Chairman of the Board of Directors is the appropriate leadership structure for us at
this time and demonstrates our commitment to good corporate governance.
Risk Management. Executive management is responsible for the day-to-day management of the risks we face,
while the Board of Directors, as a whole and through its various committees, has responsibility for the oversight
P-38 Transocean 2019 Proxy Statement
CORPORATE GOVERNANCE
of risk management for the Company. Through the Board of Directors’ oversight role and review of
management’s active role, the directors satisfy themselves that the risk management processes designed and
implemented by management (as more particularly described below) are adapted to and integrated with the
Company’s corporate strategy, are functioning as designed and that steps are taken to foster a culture in which
each employee understands his or her impact on the assessment and management of risk, his or her
responsibility for acting within appropriate limits, and his or her ultimate accountability.
The Company has an enterprise risk management process and framework, which includes an Executive Risk
Management Committee and a risk committee working group. The Executive Risk Management Committee is
composed of members of senior management, including our Chief Executive Officer and other members of
management in key functions and selected divisions of the Company. The duties of the Executive Risk
Management Committee include the following: reviewing and approving appropriate changes to the Company’s
policies and procedures regarding risk management; identifying and assessing operational, commercial,
strategic, financial, macroeconomic and geopolitical risks facing the Company; identifying risks and taking
corrective actions, if appropriate; monitoring key indicators to assess the effectiveness and adequacy of the
Company’s risk management activities; and communicating with the Board of Directors at least once a year
with respect to risk management. The Executive Risk Management Committee and/or members of
management present a report on risk management activities to the Board of Directors at least annually. The
risk committee working group identifies risks facing the Company, makes an assessment of each risk, identifies
preventive and mitigating controls and then makes recommendations for improvement opportunities to the
Board of Directors or our Chief Executive Officer, as appropriate.
Compensation and Risk. We regularly assess risks related to our compensation programs, including our
executive compensation programs, and do not believe that the risks arising from our compensation policies and
practices are reasonably likely to have a material adverse effect on the Company. The Compensation
Committee reviews information and solicits input from an independent compensation consultant regarding
compensation factors, which could mitigate or encourage excessive risk-taking. In its review in 2018, the
Compensation Committee considered the attributes of our programs, including the metrics used to determine
incentive awards, the weight of each metric, the timing and processes for setting performance targets and
validating results, the performance measurement periods and time horizons, the total mix of pay and the
maximum compensation and incentive award payout opportunities.
Independence of Board Members. Our Corporate Governance Guidelines require that at least a majority of the
members of the Board of Directors meet the independence standards set by the NYSE. In order to meet the
NYSE’s independence standards, a member of the Board of Directors must not have a relationship with the
Company that falls within certain objective categories established by the NYSE. In addition, the Board of
Directors must then affirmatively determine, with respect to each director and nominee, that he or she did not
otherwise have a material relationship with the Company. There is no family relationship between any of our
directors.
The Board of Directors has determined that its current members, with the exception of Jeremy D. Thigpen (the
Company’s President and Chief Executive Officer), are independent and meet the applicable independence
standards set by the NYSE, the SEC and our guidelines. Additionally, our Compensation, Audit and Corporate
Governance Committees are composed solely of directors who meet the applicable NYSE and SEC
independence standards.
In making its independence determinations, the Board of Directors considered the fact that certain directors, as
described below, are or within the past three years have been directors or officers of companies with which we
conduct business in the ordinary course. After evaluating these relationships in light of applicable SEC and
NYSE standards, the Board of Directors concluded that they have no effect on the independence of these
directors.
The Board of Directors also considered the below transactions and believes they were on arm’s-length terms
that were reasonable and competitive. Accordingly, the Board of Directors concluded that the relationships
described below have no effect on the independence of these directors. Because of our extensive operations,
transactions and director relationships, transactions of this nature are expected to take place in the ordinary
course of business in the future.
Transocean 2019 Proxy Statement P-39
CORPORATE GOVERNANCE
● Since 2012, Mr. Barker has served as a non-executive director and as a member of the audit committee
of Aviva plc, a company that provides insurance-related services to the Company.
● Mr. Barker’s son was a Transaction Services strategy consultant at PwC UK, an assurance, advisory
and tax services firm that provides services to the Company, but is not the Company’s independent
registered public accounting firm. Although Mr. Barker’s son was employed by PwC until January 2019,
his son did not, directly or indirectly, provide any services to the Company or any of its affiliates, and his
son worked within a division of PwC that did not provide any services to the Company or any of its
affiliates. Moreover, Mr. Barker’s son was not a partner or principal of PwC, but was instead one of more
than 250,000 persons employed by PwC worldwide. Further, the Company’s relationship with PwC
predates both the Company’s relationship with Mr. Barker and PwC’s relationship with Mr. Barker’s son.
● Mr. Curado’s son began working in GE’s corporate audit department in 2017 and his son-in-law works
as an engineer for Mitsubishi Industries, both of which provide services or products to the Company.
● Since 2010, Mr. Deaton has served as a non-executive director of Air Products and Chemicals, Inc., from
which the Company rented and purchased rig-related products and equipment.
● From 2016 to 2018, Mr. Merksamer served as non-executive director of American International Group,
Inc., a company that provides insurance-related services to the Company.
● Since 2010, Mr. Tan has served as a non-executive director of Keppel Corporation, which provides the
Company with services related to rig construction and shipyard work.
● Upon and following the closing of the Company’s acquisition of Songa Offshore in January 2018, Mr.
Mohn became the beneficial owner of approximately 67,740,289 Company shares, consisting of
31,120,553 Company shares issued in connection with the acquisition, an additional 2,000,000 shares
purchased on the open market on or before March 12, 2018, and 34,619,736 Company shares that may
be issued in the future upon exchange of the 0.5% Exchangeable Senior Bonds due 2023 issued in
connection with the acquisition. As a result, assuming the conversion of the Exchangeable Bonds
beneficially owned by Mr. Mohn, he will possess voting rights with respect to approximately 10.50% of
the Company’s outstanding shares as of March 1, 2019. The Board of Directors evaluated Mr. Mohn’s
overall beneficial ownership of Company shares and concluded that his ownership of Company shares
is not a material relationship that would affect his independence or service as a director of the Company,
and that he meets the standards for independence adopted by the SEC and the NYSE.
Executive Sessions. Our independent directors met in executive session without management at each of the
regularly scheduled Board of Directors’ meetings held in 2018. During 2019, the independent directors are
again scheduled to meet in executive session at each regularly scheduled Board of Directors’ meeting. The
independent directors generally designate the Chairman of the Board of Directors to act as the presiding director
for executive sessions.
Director Nomination Process. The Board of Directors has designated the Corporate Governance Committee as
the committee authorized to consider and recommend nominees for the Board of Directors. The Board of
Directors believes that all members of the Corporate Governance Committee meet the applicable NYSE
independence requirements.
Our Corporate Governance Guidelines provide that the Corporate Governance Committee should periodically
assess the needs of the Company and the Board of Directors, so as to recommend candidates who will further
P-40 Transocean 2019 Proxy Statement
CORPORATE GOVERNANCE
our goals. In making that assessment, the Corporate Governance Committee has determined that a
recommended nominee must have the following minimum qualifications:
● High professional and personal ethics and values
● A record of professional accomplishment in his/her chosen field
● Relevant expertise and experience
● A reputation, both personal and professional, consistent with our FIRST Shared Values
In addition to these minimum qualifications, the Corporate Governance Committee considers other qualities in
nominees that may be desirable. In particular, the Board of Directors is committed to having a majority of
independent directors and, accordingly, the Corporate Governance Committee evaluates the independence
status of any potential director. The Corporate Governance Committee evaluates whether or not a candidate
contributes to the Board of Directors’ overall diversity, the candidate’s contribution to Board’s existing chemistry
and collaborative culture, and whether or not the candidate can contribute positively to the Board’s diverse
expertise in environmental, health, safety, industry, market and financial matters. The Corporate Governance
Committee also considers whether or not the candidate may have professional or personal experiences and
expertise relevant to our business (such as expertise in the industry and in critical health, safety and
environmental matters) and the Company’s position as the leading international provider of offshore drilling
services.
As described above, in accordance with the majority vote provisions of our Corporate Governance Guidelines,
the Board of Directors may nominate only those candidates for director who have submitted an irrevocable
letter of resignation, which would be effective upon and only in the event that (1) such nominee fails to receive
more votes cast “FOR” than “AGAINST” his or her election in an uncontested election and (2) the Board of
Directors accepts the resignation. The Board of Directors will also request a statement from any person
nominated as a director by anyone other than the Board of Directors as to whether that person will also submit
an irrevocable letter of resignation upon the same terms as a person nominated by the Board of Directors. For
purposes of our Corporate Governance Guidelines, an uncontested election occurs in an election of directors
that does not constitute a contested election, and a contested election occurs when (i) the Secretary of the
Company receives a notice that a shareholder has nominated a person for election to the Board of Directors in
compliance with the advance notice requirements for shareholder nominees for director set forth in our Articles
of Association and (ii) such nomination has not been withdrawn by such shareholder on or prior to the day next
preceding the date the Company first mails its notice of meeting for such meeting to the shareholders.
The Corporate Governance Committee has several methods of identifying Board of Directors candidates. First,
the Corporate Governance Committee considers and evaluates annually whether each director nominee is
qualified to be nominated for election or reelection to the Board of Directors. Second, the Corporate Governance
Committee requests from time to time that its members and the other Board members identify possible
candidates for any vacancies or potential vacancies. Third, the Corporate Governance Committee has the
authority to retain one or more executive search firms to aid in its search. Each executive search firm assists
the Corporate Governance Committee in identifying potential Board of Directors candidates, interviewing those
candidates and conducting investigations relative to their background and qualifications.
Transocean 2019 Proxy Statement P-41
CORPORATE GOVERNANCE
The Corporate Governance Committee considers nominees for director who are recommended by our
shareholders. Recommendations may be submitted in writing, along with:
● The name of and contact information for the candidate;
● A statement detailing the candidate’s qualifications and business and educational experience;
●
Information regarding the qualifications and qualities described under “Director Nomination Process”
above;
● A signed statement of the proposed candidate consenting to be named as a candidate and, if nominated
and elected, to serve as a director;
● A signed irrevocable letter of resignation from the proposed candidate that, in accordance with our
Corporate Governance Guidelines, would be effective upon and only in the event that (1) in an
uncontested election, such candidate fails to receive more votes cast “FOR” than “AGAINST” his or her
election and (2) the Board of Directors accepts the resignation;
● A statement that the writer is a shareholder and is proposing a candidate for consideration by the
Corporate Governance Committee;
● A statement detailing any relationship between the candidate and any customer, supplier or competitor
of ours;
● Financial and accounting experience of the candidate, to enable the Corporate Governance Committee
to determine whether the candidate would be suitable for Audit Committee membership; and
● Detailed information about any relationship or understanding between the proposing shareholder and
the candidate.
Shareholders may submit nominations to our Corporate Secretary, Transocean Ltd., Turmstrasse 30, CH-6312
Steinhausen, Switzerland. Unsolicited recommendations must contain all of the information that would be
required in a proxy statement soliciting proxies for the election of the candidate as a director. The extent to
which the Corporate Governance Committee dedicates time and resources to the consideration and evaluation
of any potential nominee brought to its attention depends on the information available to the Corporate
Governance Committee about the qualifications and suitability of the individual, viewed in light of the needs of
the Board of Directors, and is at the Corporate Governance Committee’s discretion. The Corporate Governance
Committee evaluates the desirability for incumbent directors to continue on the Board of Directors following the
expiration of their respective terms, taking into account their contributions as Board members and the benefit
that results from the increasing insight and experience developed over a period of time. Although the Corporate
Governance Committee will consider candidates for director recommended by shareholders, it may determine
not to recommend that the Board of Directors, and the Board of Directors may determine not to, nominate those
candidates for election to the Board of Directors.
In addition to recommending director nominees to the Corporate Governance Committee, any shareholder may,
in compliance with applicable requirements, nominate directors for election at annual general meetings of the
shareholders. For more information on this topic, see “Other Matters.”
Executive and Director Compensation Process. Our Compensation Committee has established an annual
process for reviewing and establishing executive compensation levels. An outside consultant, Pay Governance
LLC, retained by the Compensation Committee has provided the Compensation Committee with relevant
market data and alternatives to consider in determining appropriate compensation levels for each of our
executive officers. Pay Governance has served as the Compensation Committee’s outside consultant since
February 2011. Our Chief Executive Officer also assists the Compensation Committee in the executive
compensation setting process. For a more thorough discussion of the roles, responsibilities and process we
use for setting executive compensation, see “Compensation Discussion and Analysis.”
Director compensation is set by the Board of Directors upon a recommendation from the Compensation
Committee. Since 2015, director compensation is also subject to shareholder approval at the Company’s annual
general meetings. Each calendar year, the Compensation Committee reviews the compensation paid to our
P-42 Transocean 2019 Proxy Statement
CORPORATE GOVERNANCE
directors to be certain that it is competitive in attracting and retaining qualified directors. The Compensation
Committee has used its outside consultant, Pay Governance LLC, to gather data regarding director
compensation at (1) certain similar size companies in the general industry, as well as (2) the same peer group
of companies generally utilized in the consideration of executive compensation, as set forth in the
“Compensation Discussion and Analysis.” Based upon its review of the data and its own judgment, the
Compensation Committee develops a recommendation for consideration by the Board of Directors. If serving
as director on the Board of Directors, our Chief Executive Officer receives no additional compensation for such
service.
Process for Communication by Shareholders and Interested Parties with the Board of Directors. The Board of
Directors has established a process whereby interested parties may communicate with the Board of Directors
and/or with any individual director. Interested parties, including shareholders, may send communications in
writing, addressed to the Board of Directors or an individual director, c/o the Corporate Secretary, Transocean
Ltd., Turmstrasse 30, CH-6312 Steinhausen, Switzerland. The Corporate Secretary will forward these
communications, as appropriate, to the addressee depending on the facts and circumstances outlined in the
communication. The Board of Directors has directed the Corporate Secretary not to forward certain items, such
as: spam, junk mailings, product inquiries, resumes and other forms of job inquiries, surveys and business
solicitations. Additionally, the Board of Directors has advised the Corporate Secretary not to forward material
that is illegal or threatening, but to make the Board of Directors aware of such material, and may request it be
forwarded, retained or destroyed at the Board of Directors’ discretion.
Policies and Procedures for Approval of Transactions with Related Persons. The Board of Directors has a
written policy with respect to related person transactions pursuant to which such transactions are reviewed,
approved or ratified. The policy applies to any transaction in which (1) the Company is a participant, (2) any
related person has a direct or indirect material interest and (3) the amount involved exceeds U.S. $120,000,
but excludes any transaction that does not require disclosure under Item 404(a) of Regulation S-K. The Audit
Committee, with assistance from the Company’s General Counsel, is responsible for reviewing, approving
and/or ratifying any related person transaction.
To identify related person transactions, each year we distribute and require our directors and officers to
complete questionnaires identifying transactions with us in which the officer or director or their immediate family
members have an interest. Quarterly, our directors and officers must re-affirm in writing that the information
previously provided in their questionnaires remains accurate and complete, and provide updates regarding any
related person relationships that may have arisen. Our Code of Integrity further requires that an executive
officer inform the Company when the executive officer’s private interest interferes or appears to interfere in any
way with our interests. In addition, the Board of Directors’ Corporate Governance Guidelines require that a
director must immediately inform the Board of Directors or the Chairman of the Board of Directors in the event
that a director believes he or she has an actual or potential conflict with our interests. Furthermore, under our
Organizational Regulations, a director must disclose and abstain from voting with respect to matters that feature
unresolved conflicts of interest.
Under our related persons transaction policy, the Audit Committee considers all relevant facts and
circumstances available, including the related persons involved, their relationship to the Company, their interest
and role in the transaction, the proposed terms of the transaction (including expected aggregate value and
value to be derived by the related person), the benefits to the Company, the availability to the Company of
alternative means or transactions to obtain like benefits and the terms that would prevail in a similar transaction
with an unaffiliated third party. For related person transactions that do not receive prior approval from the Audit
Committee, the transactions are submitted to the Audit Committee to consider all relevant facts and
circumstances and, based on its conclusions, evaluate all options, including, but not limited to, ratification,
amendment or termination of the transaction. Since the beginning of 2018, there were no related person
transactions where such policies and procedures were not followed.
Certain Relationships and Related Party Transactions. From 2014 to 2017, Mr. Miller served as the Executive
Chairman of NOW Inc. (NYSE: DNOW). We regularly procure equipment and services from NOW Inc., at arm’s
length terms and within the ordinary course of business. In 2018, our purchasing activity with NOW Inc.
represented less than 2% of that company’s reported gross revenue for such period.
Transocean 2019 Proxy Statement P-43
CORPORATE GOVERNANCE
In connection with our acquisition of Songa Offshore, Mr. Mohn acquired beneficial ownership of U.S.
$355,813,000 aggregate principal amount of Transocean Inc.’s 0.5% Exchangeable Senior Bonds due 2023,
including exchangeable bonds acquired by Perestroika AS (an entity affiliated with Mr. Mohn) as part of our
private exchange offers undertaken to refinance certain of Songa Offshore’s previously outstanding
indebtedness. These exchangeable bonds bear interest at an annual rate of 0.5%, payable semiannually, and
are exchangeable into shares of Transocean Ltd. at any time at the option of the holder. In connection with our
acquisition of Songa Offshore, we also entered into a registration rights agreement with certain affiliates of Asia
Research & Capital Management and Perestroika AS, each of whom is one of our significant shareholders.
This registration rights agreement provides them with certain customary registration rights over the
exchangeable bonds they received as part of our private exchange offers undertaken to refinance certain of
Songa Offshore’s previously outstanding indebtedness and, in the case of Perestroika AS, any shares and
exchangeable bonds that Perestroika AS received in the acquisition as a former shareholder of Songa Offshore
or that it may acquire in the future.
Director Attendance at Annual General Meeting. We expect all of our directors to attend the 2019 Annual
General Meeting. At the 2018 Annual General Meeting, all directors were in attendance.
P-44 Transocean 2019 Proxy Statement
Board Meetings and Committees
During 2018, the Board of Directors of Transocean Ltd. held four meetings. The Board of Directors and the
committees of the Board of Directors met at least once a quarter and the quarterly meetings generally occurred
over a period of two days. Each of our directors attended 100% of the meetings following their election, including
meetings of committees on which the director served.
The Board of Directors has standing Audit, Compensation, Finance, Corporate Governance, and Health, Safety
and Environment Committees. As noted above, the charters for these committees may be found on our website
at: www.deepwater.com by selecting the Governance page in the Investors section dropdown. In addition, the
Board of Directors may from time to time form special committees to consider particular matters that arise.
Following the 2019 Annual General Meeting, the Board expects to complete its annual review of committee
assignments.
Compensation Committee. The purpose of the Compensation Committee is to assist the Board of Directors in
(1) developing an appropriate compensation program and benefit package for (a) members of the Executive
Management Team (as defined below), (b) persons defined as “officers” pursuant to section 16(a) of the
Exchange Act, and (c) any other person whose compensation is required to be disclosed by applicable
securities laws and regulations (collectively, the “Specified Executives”) and members of the Board of Directors;
and (2) complying with the Board of Directors’ legal and regulatory requirements as to Board member and
Specified Executives compensation in order to facilitate the Company’s ability to attract, retain and motivate
Transocean 2019 Proxy Statement P-45
BOARD MEETINGS AND COMMITTEES
qualified individuals in a system that aligns compensation with the Company’s business performance. The
authority and responsibilities of the Compensation Committee include, among others, the following:
● Annually review and recommend to the Board of Directors for submission to and ratification by the
shareholders pursuant to Swiss law and our Articles of Association the maximum aggregate amount of
compensation of the Board of Directors and the Executive Management Team for the period between
the Annual General Meeting at which ratification is sought and the next Annual General Meeting;
● Annually review and recommend to the Board for submission to and ratification by the shareholders the
maximum aggregate amount of compensation of the Specified Executives and each member of the
Board for the fiscal year commencing after the Annual General Meeting at which ratification is sought;
● Select appropriate peer groups and market reference points against which the Company’s Board of
Directors and executive compensation is compared;
● Annually recommend focus areas for our Chief Executive Officer for approval by members of our Board
of Directors who meet our independence and experience requirements;
● Annually review, with participation of our full Board of Directors, our Chief Executive Officer’s
performance in light of our established focus areas;
● Annually set our Chief Executive Officer’s compensation based, as appropriate, upon his performance
evaluation together with competitive data and subject to shareholder ratification requirements pursuant
to our Articles of Association and applicable law;
● Administer our long-term incentive plans, Performance Award and Cash Bonus Plan, Deferred
Compensation Plan, and any other compensation plans or arrangements providing for benefits primarily
to members of the Board of Directors and executive officers in accordance with goals and objectives
established by the Board of Directors, the terms of the plans, and any applicable rules and regulations;
● Consider and make recommendations to the Board of Directors, with guidance from an outside
compensation consultant, concerning the existing Board of Directors and executive compensation
programs and changes to such programs;
● Consider, with guidance from an outside compensation consultant, and approve the material terms of
any employment, severance, termination or other similar arrangements (to the extent permitted by
applicable law and our Articles of Association) that may be entered into with members of the Board of
Directors and Specified Executives; provided, however, that the Compensation Committee shall not
recommend and the Board of Directors shall not authorize “single-trigger” change of control agreements
for any of our officers or directors;
● Assess the risks, with the assistance of external resources as the Compensation Committee deems
appropriate, of the Company’s compensation arrangements applicable to members of the Board of
Directors and the Specified Executives; and
● Retain and approve the fees of legal, accounting or other advisors, including any compensation
consultant, employed by the Committee to assist it in the evaluation of executive and director
compensation.
See “Compensation Discussion and Analysis” for a discussion of additional responsibilities of the
Compensation Committee.
The Compensation Committee may delegate specific responsibilities to one or more individual committee
members to the extent permitted by law, NYSE listing standards and the Compensation Committee’s governing
documents. The Compensation Committee may delegate all or a portion of its powers and responsibilities with
respect to the compensation plans and programs described above and in our “Compensation Discussion and
Analysis” to one or more of our management committees; provided, that the Compensation Committee retains
all power and responsibility with respect to awards granted to our Board members and executive officers. The
Chief Executive Officer has been delegated authority to grant equity awards under the Company’s long-term
incentive plans to new and existing employees of the Company, excluding executive officers and other officers
P-46 Transocean 2019 Proxy Statement
BOARD MEETINGS AND COMMITTEES
above the Vice President level, provided that such awards shall not exceed U.S. $5,000,000 in grant value per
calendar year in aggregate and no such individual award shall exceed U.S. $350,000 in grant value.
The Compensation Committee has delegated to a subcommittee composed of its chairman and at least one
additional committee member the authority to approve interim compensation actions resulting from promotions,
competitive realignment, or the hiring of new executive officers (excluding the Chief Executive Officer), including
but not limited to establishing annual base salary, annual bonus targets, long-term bonus targets and the grant
of equity awards, subject to any required vote of the shareholders. The Compensation Committee has also
delegated authority to the Chief Executive Officer to, upon termination of service of an employee of the
Company (excluding executive officers and other officers at or above the Senior Vice President level),
accelerate vesting of awards granted under the Company’s long-term incentive plans and to extend
exercisability of options for a period of up to one year, but not beyond the original exercise period. The
Compensation Committee has further delegated authority to the Chief Executive Officer to determine whether
an individual is disabled and/or to set applicable criteria for making such determination for purposes of the
Company’s long-term incentives plans. The Compensation Committee is notified of compensation actions made
by the Chief Executive Officer or the subcommittee at the meeting following the end of each calendar quarter
in which such actions are taken.
The current members of the Compensation Committee are Mr. Tan, Chairman, and Messrs. Curado and Intrieri.
The Compensation Committee met four times during 2018.
Finance Committee. The Finance Committee approves our long-term financial policies, insurance programs
and investment policies. It also makes recommendations to the Board of Directors concerning the Company’s
dividend policy, securities repurchase actions, the issuance and terms of debt and equity securities and the
establishment of bank lines of credit. In addition, the Finance Committee approves the creation, termination
and amendment of certain of our employee benefit programs and periodically reviews the status of these
programs and the performance of the managers of the funded programs.
The current members of the Finance Committee are Mr. Muller, Chairman, and Messrs. Barker, Intrieri and
Merksamer. The Finance Committee met five times during 2018.
Corporate Governance Committee. The Corporate Governance Committee makes recommendations to the
Board of Directors with respect to the nomination of candidates for election to the Board of Directors, how the
Board of Directors should function and how the Board of Directors should interact with shareholders and
management. It also develops and recommends to the Board a set of corporate governance principles
applicable to the Company, coordinates the self-evaluation of the Board of Directors and its committees, and
reviews the qualifications of and proposes to the Board of Directors candidates to stand for election at the next
general meeting of shareholders.
The current members of the Corporate Governance Committee are Mr. Intrieri, Chairman, Ms. Chang and Mr.
Deaton. The Corporate Governance Committee met four times during 2018.
Health, Safety and Environment Committee. The Health, Safety and Environment Committee assists the Board
of Directors in fulfilling its responsibilities to oversee the Company’s management of risk in the areas of health,
safety and the environment. The Health, Safety and Environment Committee reviews and discusses with
management the status of key environmental, health and safety issues. Additionally, the Health, Safety and
Environment Committee regularly evaluates Company policies, practices and performance related to health,
safety and environmental issues and guides strategy decisions to promote company goals and compliance with
applicable rules and regulations. From 2013 to February 13, 2019, the Health, Safety and Environment
Committee assumed additional responsibility to oversee the Company’s implementation of certain requirements
of the Consent Decree by and among the U.S. Department of Justice and certain of the Company’s affiliates.
The Consent Decree was terminated on February 13, 2019. Accordingly, the Consent Decree has no further
force or effect on the Company.
The current members of the Health, Safety and Environment Committee are Mr. Deaton, Chairman, and
Messrs. Merksamer, Mohn, Muller and Tan. The Health, Safety and Environment Committee met four times
during 2018.
Transocean 2019 Proxy Statement P-47
BOARD MEETINGS AND COMMITTEES
Audit Committee. The Audit Committee is responsible for recommending the selection, retention and
termination of our independent registered public accountants and our auditor pursuant to the Swiss Code of
Obligations to the Board of Directors and to our shareholders for their approval at a general meeting of
shareholders. The Audit Committee is directly responsible for the compensation and oversight of our
independent registered public accountants and our auditor pursuant to the Swiss Code of Obligations. The
Audit Committee further advises as necessary in the selection of the lead audit partner. The Audit Committee
also monitors the integrity of our financial statements and the independence and performance of our auditors
and their lead audit partner and reviews our financial reporting processes. The Audit Committee reviews and
reports to the Board of Directors the scope and results of audits by our independent registered public accounting
firm, our auditor pursuant to the Swiss Code of Obligations and our internal auditing staff and reviews the audit
and other professional services rendered by the accounting firm. It also reviews with the accounting firm the
adequacy of our system of internal controls. It reviews transactions between us and our directors and officers
for disclosure in the proxy statement, our policies regarding those transactions and compliance with our
business ethics and conflict of interest policies.
The Board of Directors requires that all members of the Audit Committee meet the financial literacy standard
required under the NYSE rules and that at least one member qualifies as having accounting or related financial
management expertise under the NYSE rules. In addition, the SEC has adopted rules requiring that we disclose
whether or not the Audit Committee has an “audit committee financial expert” as a member. An “audit committee
financial expert” is defined as a person who, based on his or her experience, possesses all of the following
attributes:
● An understanding of generally accepted accounting principles and financial statements;
● The ability to assess the general application of such principles in connection with the accounting for
estimates, accruals, and reserves;
● Experience preparing, auditing, analyzing or evaluating financial statements that present a breadth of
complexity of accounting issues that are generally comparable to the breadth and level of complexity of
issues that can reasonably be expected to be raised by our financial statements, or experience actively
supervising one or more persons engaged in such activities;
● An understanding of internal control over financial reporting; and
● An understanding of audit committee functions.
The person must have acquired such attributes through one or more of the following:
● Education and experience as a principal financial officer, principal accounting officer, controller, public
accountant or auditor or experience in one or more positions that involve the performance of similar
functions;
● Experience actively supervising a principal financial officer, principal accounting officer, controller, public
accountant, auditor or person performing similar functions;
● Experience overseeing or assessing the performance of companies or public accountants with respect
to the preparation, auditing or evaluation of financial statements; or
● Other relevant experience.
The current members of the Audit Committee are Mr. Barker, Chairman, Ms. Chang, and Messrs. Curado and
Mohn. The Audit Committee met eight times during 2018.
The Board of Directors has reviewed the criteria set by the NYSE and SEC and determined that each of the
current members of the Audit Committee is “financially literate” and qualifies as an “audit committee financial
expert.” In addition, the Board of Directors has determined that all of the current members of the Audit
Committee qualify under NYSE rules as having accounting or related financial management expertise.
P-48 Transocean 2019 Proxy Statement
BOARD MEETINGS AND COMMITTEES
Mr. Barker is a chartered accountant, served as an audit partner in an accounting firm and served as the Vice
Chairman-U.K. of PricewaterhouseCoopers LLP from 2008 to 2011. Ms. Chang was previously partner in
charge of Corporate Finance for KPMG Peat Marwick LLP. Mr. Curado is the Chief Executive Officer of Ultrapar
S.A. and he has significant risk management and compliance experience. Mr. Mohn is the sole owner and
managing director of Perestroika, a Norwegian investment company, and served previously as a director of
Songa Offshore SE, Chairman of the Songa Board and as managing director of Frank Mohn AS.
In addition to Ms. Chang’s membership on the Audit Committee, she also serves on the audit committees of
Sykes Enterprises, Incorporated, Edison International and certain funds advised by the Capital Group of
Companies, Inc. and its subsidiaries. Pursuant to NYSE rules, the Board of Directors has determined that Ms.
Chang’s service on the audit committees of such companies would not impair her ability to effectively serve on
the Company’s Audit Committee.
Finally, NYSE rules restrict directors who have relationships with the Company that may interfere with the
exercise of their independence from management and the Company from serving on the Audit Committee. We
believe that the members of the Audit Committee have no such relationships and are therefore independent for
purposes of NYSE rules.
Director Compensation Strategy
Directors who are employees of the Company do not receive compensation for Board of Directors’ service. At
present, all of the directors except Mr. Thigpen, our President and Chief Executive Officer, are non-employees
and receive compensation for their service on the Board of Directors.
We use a combination of cash and equity compensation to attract and retain qualified candidates to serve on
the Board of Directors. The Board of Directors believes that any compensation method should be weighted
more toward compensation in the form of equity in order to more closely align director compensation with
shareholders’ interests.
In 2018, non-employee director compensation in U.S. dollars included the following fixed components:
Annual Retainer—non-employee Director
Annual Retainer—non-employee Vice Chairman(1)
Annual Retainer—non-employee Chairman
Additional Annual Retainer for Committee Chairmen
Audit Committee
Compensation Committee
Corporate Governance Committee, Finance Committee and Health,
Safety and Environment Committee
Grant of Restricted Share Units—non-employee Directors and Vice
Chairman(1)(2)
Grant of Restricted Share Units—non-employee Chairman(2)
100,000
250,000
325,000
35,000
20,000
10,000
210,000
325,000
(1) Currently, the Company does not have any director serving in a Vice Chairman role.
(2) Restricted share units are granted to each non-employee director and chairman annually and have an
aggregate value equal to U.S. $210,000 and U.S. $325,000 respectively, based upon the average of
the high and low sales prices of our shares for each of the 10 trading days immediately prior to the date
of grant. The restricted share units vest on the date first to occur of (1) the first anniversary of the date
of grant or (2) the Annual General Meeting next following the date of grant, subject to continued service
through the vesting date. Vesting of the restricted share units is not subject to any performance
measures.
In addition, we pay or reimburse our directors’ travel and incidental expenses incurred for attending Board of
Directors, committee and shareholder meetings and for other Company business-related purposes.
Transocean 2019 Proxy Statement P-49
2018 DIRECTOR COMPENSATION
In 2018, each non-employee member of the Board of Directors received the compensation described above.
At the Board of Directors meeting held immediately after the 2018 Annual General Meeting of our shareholders,
the Board of Directors granted 16,141 restricted share units to each non-employee director (other than the
Chairman) and 24,981 restricted share units to the non-employee Chairman in aggregate value equal to U.S.
$210,000 and U.S. $325,000, respectively, based upon the average of the high and low sales prices of our
shares for the 10 trading days immediately prior to the date of grant (calculated at U.S. $13.01 per share). Each
non-employee director is required to acquire and retain a number of our shares and/or restricted share units at
least equal in value to an amount five times the annual director retainer. Each non-employee director’s vested
restricted share units generally are not settled until the non-employee director’s service with the Company ends.
The following summarizes the compensation of our non-employee directors for 2018.
Name
Glyn A. Barker
Vanessa C. L. Chang
Frederico F. Curado
Chadwick C. Deaton
Vincent J. Intrieri
Samuel J. Merksamer
Merrill A. “Pete” Miller, Jr.
Frederik Mohn
Edward R. Muller
Tan Ek Kia
Martin B. McNamara
Fees Earned
or Paid in
Cash
(U.S.$)
135,000
100,000
100,000
110,000
109,167
100,000
325,000
91,667
110,000
120,000
9,167
Stock
Awards(1)
(U.S.$)
220,002
220,002
220,002
220,002
220,002
220,002
340,491
220,002
220,002
220,002
—
All Other
Compensation
—
—
—
—
—
—
—
—
—
—
Total
(U.S.$)
355,002
320,002
320,002
330,002
329,169
320,002
665,491
311,669
330,002
340,002
9,167
(1) This represents the aggregate grant-date fair value under accounting standards for recognition of share-
based compensation expense for restricted share units granted to our directors in 2018, computed in
accordance with FASB ASC topic 718. For a discussion of the valuation assumptions with respect to
these awards, please see Note 15 to our consolidated financial statements included in our Annual Report
on Form 10-K for the year ended December 31, 2018.
P-50 Transocean 2019 Proxy Statement
AUDIT COMMITTEE REPORT
The Audit Committee, consisting of four independent directors, operates under the Audit Committee Charter as
adopted by the Board, in overseeing:
● The integrity of the financial reporting process resulting in the Company’s financial statements;
● Compliance with legal and regulatory requirements;
● The independence, qualifications and performance of the Company’s independent registered
accountants, Ernst & Young LLP (“EY”); and
● The performance of the internal audit function.
The Committee complied in 2018 with all of the requirements described in its Charter, which is available on the
Governance page of the Company’s website: www.deepwater.com.
The Board has determined that all the members of the Committee are independent, in accordance with the
SEC definition, are financially literate and qualify as Audit Committee Financial Experts, as defined by SEC
rules.
Management is responsible for the Company’s disclosure controls and procedures, internal controls and the
financial reporting process, including the integrity and objectivity of the financial statements. The Committee:
● Reviewed the Company’s financial statements and financial reporting processes, including internal
controls over financial reporting;
● Reviewed and discussed with EY and management the Company’s audited financial statements
included in the Annual Report;
● Discussed various matters with EY, including matters required by the Public Company Accounting
Oversight Board’s (“PCAOB”) “Communications with Audit Committees”;
● Reviewed and discussed with EY its report on internal control over financial reporting;
● Oversaw the Company’s internal audit function, including the performance of the Chief Audit Executive,
internal audit plan, budget, resources and staffing;
● Oversaw the Company’s Legal, Compliance and Ethics program, including helpline calls and
investigations, and employee code of integrity; and
● Recommended to the Company’s Board of Directors that the Company’s audited financial statements
for the year ended December 31, 2018, be included in the annual report on Form 10-K filing with the
SEC.
The Committee is responsible for the appointment, compensation and oversight of the independent registered
accountant in accordance with SEC, PCAOB and the Swiss Code of Obligations. The Committee considered
several factors in determining whether to reappoint EY as the Company’s independent registered accountant,
such as:
● Qualifications including industry expertise, knowledge of the Company’s processes, and experience of
the audit team;
●
●
Performance including quality of communication, professional skepticism;
Independence;
Transocean 2019 Proxy Statement P-51
AUDIT COMMITTEE REPORT
Length of service, which began in 1999;
●
● Results from PCAOB inspections; and
●
EY’s internal quality control and tone at the top.
The Committee approves annually the scope, plans and fees for the annual audit, taking into consideration
several factors including a breakdown of the services to be provided, proposed staffing, changes in the
Company and industry from the prior year. The fee approval process balances the audit scope and hours
required for a high-quality audit and driving efficiencies from both the Company and EY while compensating
EY fairly. The Audit Committee pre-approved all audit related and non-audit related services.
Agendas for Audit Committee meetings are developed with input from the Committee, management, the Chief
Audit Executive and EY. The Committee met eight times in 2018 with regular executive sessions with EY and
management, including the Chief Audit Executive.
Members of the Audit Committee:
Glyn A. Barker, Chairman
Vanessa C.L. Chang
Frederico F. Curado
Frederik W. Mohn
P-52 Transocean 2019 Proxy Statement
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS
Listed below are the only persons who, to the knowledge of the Company, may be deemed to be beneficial
owners, as of March 1, 2019, of more than 5% of the Company’s shares.
Name and Address of Beneficial Owner
Perestroika AS, Perestroika (Cyprus)
Ltd.(2)
Statminister Michelsensvei 38
5320 Paradis, Norway
Frederik W. Mohn(2)
Statminister Michelsensvei 38
5320 Paradis, Norway
The Vanguard Group(3)
100 Vanguard Blvd.
Malvern, PA 19355
BlackRock, Inc.(4)
55 East 52nd Street
New York, NY 10055
PRIMECAP Management Co.(5)
177 E. Colorado Blvd.
11th Floor
Pasadena, CA 91105
Shares
Beneficially
Owned
67,740,289
Percent of
Class(1)
10.50%
48,849,557
8.00%
46,560,579
7.63%
33,891,839
5.55%
(1) The percentage indicated is based on 610,361,775 Company shares deemed to be outstanding as of March
1, 2019.
(2) The number of shares and associated percent of class is based on the Schedule 13D filed with the SEC on
February 5, 2018, as amended on September 4, 2018, by Mr. Frederik W. Mohn, Perestroika (Cyprus) Ltd.
and Perestroika AS. According to the filings, Mr. Mohn has sole voting power and sole dispositive power
with regard to 43,856 shares (which consists of (a) 22,148 shares and 18,000 shares issuable upon the
exchange of $185,000 aggregate principal amount of Exchangeable Bonds, in each case individually
owned by Mr. Mohn, and (b) 2,054 shares and 1,654 shares issuable upon the exchange of $17,000
aggregate principal amount of Exchangeable Bonds, in each case owned by Mr. Mohn’s spouse) and
shared voting power and shared dispositive power with the Perestroika entities with regard to 67,696,433
shares (which consists of 33,096,351 shares and 34,600,082 shares issuable upon the exchange of
$355,611,000 aggregate principal amount of Exchangeable Bonds, in each case held directly by
Perestroika (Cyprus) Ltd., a wholly owned subsidiary of Perestroika AS.
(3) The number of shares is based on the Schedule 13G/A filed with the SEC on February 12, 2019, by The
Vanguard Group. According to the filing, The Vanguard Group has sole voting power with regard to 63,738
shares, shared voting power with regard to 63,738 shares, sole dispositive power with regard to 48,590,693
shares and shared dispositive power with regard to 258,864 shares.
(4) The number of shares is based on the Schedule 13G/A filed with the SEC on January 10, 2019, by
BlackRock, Inc. According to the filing, BlackRock, Inc. has sole voting power with regard to 44,177,137
shares, and sole dispositive power with regard to 46,560,580 shares.
(5) The number of shares is based on the Schedule 13G/A filed with the SEC on February 8, 2019, by
PRIMECAP Management Company. According to the filing, PRIMECAP has sole voting power with regard
to 15,344,674 shares, and sole dispositive power with regard to 33,891,839 shares.
Transocean 2019 Proxy Statement P-53
SECURITY OWNERSHIP OF DIRECTORS AND
EXECUTIVE OFFICERS
The table below shows how many shares each of our directors and nominees, each of the Named Executive
Officers included in the summary compensation section below and all directors and executive officers as a
group beneficially owned as of March 1, 2019.
Name
Jeremy D. Thigpen
Mark L. Mey
Howard E. Davis
Brady K. Long
Keelan I. Adamson
Glyn A. Barker
Vanessa C.L. Chang
Frederico F. Curado
Chadwick C. Deaton
Vincent J. Intrieri
Samuel J. Merksamer
Merrill A. “Pete” Miller, Jr.
Frederik W. Mohn(4)
Edward R. Muller
Tan Ek Kia
John B. Stobart(5)
All of directors and executive officers as a group (17
persons)
* Less than 1%.
Shares
Subject to
Right to
Acquire
Beneficial
Ownership(2)
Total
Shares
Beneficially
Owned(3)
488,684 1,168,667
529,883
203,006
275,163
157,114
272,026
136,242
257,181
123,926
71,761
60,013
75,455
65,755
60,013
60,013
66,755
65,755
65,253
55,253
65,989
65,989
82,753
82,753
Percent
of
Class(3)
*
*
*
*
*
*
*
*
*
*
*
*
Shares
Owned(1)
679,983
326,877
118,049
135,784
133,255
11,748
9,700
0
1,000
10,000
0
0
33,120,553 34,619,736 67,740,289 10.50%
6,647
0
—
34,675,893
78,492
69,523
311,122
36,815,588
85,139
69,523
311,122
71,491,481
*
*
*
11.05%
(1) The business address of each director and executive officer is c/o Transocean Management Ltd., Turmstrasse 30, CH-6312
Steinhausen, Switzerland. None of the shares beneficially owned by our directors or executive officers are pledged as security.
(2) Includes shares that may be acquired within 60 days from March 1, 2019, through the exercise of options held by Messrs. Thigpen
(448,684), Mey (203,006), Davis (157,114), Long (136,242), Stobart (242,438) and all executive officers as a group (1,523,622). Also
includes vested restricted share units held by Messrs. Barker (60,013), Curado (60,013), Deaton (65,755), Intrieri (55,253), Merksamer
(65,989), Miller (82,753), Muller (78,492) and Tan (69,523), and Ms. Chang (65,755) and all directors and executive officers as a group
(603,546).
(3) As of March 1, 2019, each listed individual (with the exception of Mr. Mohn) and our directors and executive officers as a group
(excluding Mr. Mohn) beneficially owned less than 1% of the Company’s outstanding shares.
(4) The number of shares and associated percent of class is based on the Schedule 13D filed with the SEC on February 5, 2018, as
amended on September 4, 2018, by Mr. Frederik W. Mohn, Perestroika (Cyprus) Ltd. and Perestroika AS. According to the filings, Mr.
Mohn has sole voting power and sole dispositive power with regard to 43,856 shares (which consists of (a) 22,148 shares and 18,000
shares issuable upon the exchange of $185,000 aggregate principal amount of Exchangeable Bonds, in each case individually owned
by Mr. Mohn, and (b) 2,054 shares and 1,654 shares issuable upon the exchange of $17,000 aggregate principal amount of
Exchangeable Bonds, in each case owned by Mr. Mohn’s spouse) and shared voting power and shared dispositive power with the
Perestroika entities with regard to 67,696,433 shares (which consists of 33,096,351 shares and 34,600,082 shares issuable upon the
exchange of $355,611,000 aggregate principal amount of Exchangeable Bonds, in each case held directly by Perestroika (Cyprus)
Ltd., a wholly owned subsidiary of Perestroika AS.
(5) Mr. Stobart retired from the position of Executive Vice President and Chief Operating and Performance Officer effective June 1, 2018.
P-54 Transocean 2019 Proxy Statement
COMPENSATION DISCUSSION AND
ANALYSIS
This Compensation Discussion and Analysis provides an overview and analysis of Transocean’s executive
compensation programs and policies, material compensation decisions for 2018, and the key factors we
considered in making those decisions. It includes specific information about the compensation paid, earned or
granted to the following persons who constitute our Named Executive Officers for 2018:
●
Jeremy D. Thigpen, President and Chief Executive Officer
● Mark L. Mey, Executive Vice President and Chief Financial Officer
●
Keelan Adamson, Executive Vice President and Chief Operations Officer
● Howard E. Davis, Executive Vice President and Chief Administrative and Information Officer
●
●
Brady K. Long, Executive Vice President and General Counsel
John B. Stobart, Former Executive Vice President and Chief Operating and Performance Officer
For purposes of this Compensation Discussion and Analysis, the term “Executive Officer” is as defined by Rule
3b-7 of the Exchange Act, and the term “Executive Management Team” refers to designations made by the
Board of Directors under Swiss law and the Company’s organizational documents with respect to Messrs.
Thigpen, Mey, Adamson and Stobart.
Transocean 2019 Proxy Statement P-55
COMPENSATION DISCUSSION AND ANALYSIS
Executive Summary
Our executive compensation program reflects our commitment to best practices in compensation governance
and strongly aligning pay with Company performance while allowing us to attract and retain highly qualified
executives. The program is designed to motivate our executives to achieve important business objectives and
to reward them for creating long-term value for our shareholders by delivering superior financial, safety and
operational performance.
We feel strongly that our executive compensation program includes features that align the interests of our
senior management with those of our shareholders and excludes features that may result in misalignment.
Important features of our executive compensation programs and practices are provided in the following table:
What We Do
✓ Conduct an annual review of our compensation
strategy, including a review of our compensation-
related risk profile
✓ Mandate meaningful share ownership
requirements for our executives
✓ Maintain a clawback policy that allows for the
forfeiture, recovery or adjustment of incentive
compensation (cash and equity)
✓ Base annual and long-term incentive payments
on quantitative, formulaic metrics
✓ Maintain compensation plans that are weighted
significantly toward variable pay to align our
executive compensation with long-term
shareholder interests
What We Don’t Do
Allow our executives to hedge, sell short or hold
derivative instruments tied to our shares (other
than employee stock options)
Allow our executives or directors to pledge
Company shares
Have pre-arranged individual severance
agreements or special change-in-control
compensation agreements with any Executive
Officers; however, to the extent permitted under
Swiss law, our executives are eligible for
severance and change-in-control provisions
pursuant to our policies, in exchange for
covenants that protect the Company
✓ Link long-term incentive compensation to relative
performance metrics to incent strong performance
Provide gross-ups for severance payments
Guarantee salary increases, non-performance
✓ Deliver at least 50% of long-term incentives in
performance-based equity awards
✓ Retain an independent consultant who does not
perform any services for management (i.e.,
retained by and reports only to our Compensation
Committee)
✓ Maintain double trigger change-in-control
provisions
based bonuses or unrestricted equity
compensation
Provide any payments or reimbursements for
tax equalization
Pay dividend equivalents on performance-based
equity that has not vested
Offer executive perquisites
P-56 Transocean 2019 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
2018 Business Overview
Transocean continued reshaping its offshore drilling fleet in 2018 by closing three significant transactions that
transformed our fleet to be much younger and more technologically advanced, with a focus on ultra-deepwater
and harsh environments, the two most promising sectors of the offshore drilling market.
2018 was a transformative year at Transocean. We acquired Songa Offshore SE and Ocean Rig UDW Inc.,
and invested in a joint venture to acquire, complete construction of and operate the Transocean Norge, a
technologically advanced harsh environment semisubmersible drilling rig. These strategic acquisitions and
investments during the downturn for offshore drilling position Transocean for a market recovery and
demonstrate our commitment to remaining the industry’s leading offshore driller.
During 2018, we strengthened our liquidity and financial position through solid operating results and
executing multiple financing transactions. This included delivering the highest Adjusted Normalized
EBITDA margin among offshore drillers and issuing approximately $3.0 billion of debt with maturities between
2023 and 2025, while retiring $2.1 billion of debt with maturities primarily between 2018 and 2022. Additionally,
we further bolstered our liquidity by successfully securing a new $1.0 billion, five-year undrawn revolving credit
facility with an accordion feature offering an additional $500 million of capacity.
Importantly, we added more than $2.0 billion in backlog in 2018 – the most since 2014. This amount
equates to approximately 19 rig years of backlog. As of February 11, 2019, our contract backlog totaled U.S.
$12.2 billion, approximately four times our nearest competitor. Transocean owns or has partial ownership
interests in, and operates a fleet of 48 mobile offshore drilling units consisting of 31 ultra-deepwater floaters,
13 harsh environment floaters, and four midwater floaters. Transocean is also constructing four ultra-deepwater
drillships; and recently accepted delivery of the newbuild, Transocean Norge, in which the Company has a
33.0% interest.
We delivered these strong results during a year when volatility continued in the offshore drilling sector.
This was accomplished by maintaining our financial discipline and efficient operations with a constant focus on
the safety of our workforce and the protection of the environments in which we operate. As a result of this we
were able to generate revenue of approximately $3.0 billion and Adjusted Normalized EBITDA of approximately
$1.0 billion and an Adjusted Normalized EBITDA margin of approximately 36%. Our fleet was also strengthened
in 2018, as it has been in previous years during the downturn, by the retirement of eight older, less competitive
rigs that were unlikely to be marketable going forward.
The business highlights below demonstrate our Company’s commitment to near-term performance, while
preparing for a market recovery:
●
●
●
●
In January, we acquired Songa Offshore SE, adding seven semisubmersibles to our fleet, including four
high-specification, harsh environment CAT D rigs – the Transocean Equinox, Transocean Endurance,
Transocean Encourage and Transocean Enabler – on long-term contracts with Equinor ASA
(“Equinor”).
In February, the newbuild ultra-deepwater drillship Deepwater Poseidon commenced operations on its
10-year contract with Shell in the U.S. Gulf of Mexico. The seventh generation dynamically positioned
ultra-deepwater drillship can operate in water depths of 12,000 feet and can drill to depths of 40,000
feet.
In May, through a joint venture with funds managed and/or advised by Hayfin Capital Management LLP,
we purchased a 33.0% interest in a newbuild harsh environment semisubmersible. The rig, named the
Transocean Norge, is a Moss Maritime CS60 design vessel and is considered to be among the most
capable newbuild semisubmersibles in the world. In the third quarter of 2018, the Transocean Norge
received her maiden contract with Equinor in the Norwegian Continental Shelf. The contract is expected
to commence in July 2019.
In December, we acquired Ocean Rig UDW Inc., adding nine high-specification ultra-deepwater
drillships, two harsh environment semisubmersibles and two high-specification ultra-deepwater
Transocean 2019 Proxy Statement P-57
COMPENSATION DISCUSSION AND ANALYSIS
●
drillships currently under construction to Transocean’s existing fleet. This acquisition improves our
position to capitalize on an ultra-deepwater market recovery.
Also, in December, we entered into an agreement with Chevron to enhance, complete, and operate one
of our ultra-deepwater drillships that is currently under construction at the Jurong shipyard. The to-be-
named drillship will be the industry’s most capable, offering state-of-the-art technology, including dual
20,000 psi blowout preventers, a first for an ultra-deepwater application; a derrick with gross hoisting
capacity of 3.4 million pounds; and variable deckload capacity of 24,000 metric tons. The 5-year drilling
contract for this rig added an estimated $830 million to our already industry-leading backlog. This was
the largest contract we’ve executed since 2013.
Throughout 2018, Transocean secured additional liquidity to withstand the downturn while
opportunistically enhancing its fleet in anticipation of a market recovery. Given our Company’s long
history as an industry-leading provider of offshore drilling services, we believe and continue to demonstrate that
we have the experience, expertise and financial discipline necessary to effectively manage our business
throughout market cycles and deliver long-term value to our shareholders. With better visibility of improving
market fundamentals, we continue to take actions necessary to maintain our leadership position and
strategically position Transocean for a market recovery.
As illustrated in the chart below, the equity market valuations of offshore drillers reflect these market conditions.
Relative Performance of Crude Oil; Offshore Drillers; OSX Index
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
-60%
12/31/2017
1/31/2018
2/28/2018
3/31/2018
4/30/2018
5/31/2018
6/30/2018
7/31/2018
8/31/2018
9/30/2018
10/31/2018
11/30/2018
12/31/2018
Brent (19.5%)
OSX Index (46.1%)
RIG (35.0%)
Average Offshore Drillers (44.3%)
(Ensco, Rowan, Noble Corp., Diamond Offshore)
Executive Compensation Philosophy, Strategy and Design
The primary goal of our compensation program is to align pay with performance. We accomplish this goal by
providing our executives with a competitive compensation package that rewards performance against specific,
identified, financial, strategic and operational goals that the Compensation Committee of the Board (the
“Committee”) believes are critical to the Company’s long-term success and the achievement of sustainable
long-term shareholder returns.
In administering our executive compensation program, we are guided by the following principal objectives:
● Aligning annual incentive compensation with financial and strategic objectives; and
● Rewarding absolute share price appreciation and relative performance in total shareholder return (“TSR”)
through long-term equity incentive awards.
P-58 Transocean 2019 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
We deliver the vast majority of executive pay as performance-based, “at-risk” incentive compensation, which is
designed to balance short-term periodic results and long-term multi-year success of the Company and to build
long-term shareholder value without excessive risk-taking. We believe the approach achieves our objective of
aligning pay and performance.
2018 Target Compensation: CEO
89% Variable, At-Risk Pay
2018 Target Compensation: All Other NEOs
81% Variable, At-Risk Pay
Long-term
Incentive
76%
Base Salary
11%
Non-Equity
Incentive
13%
Long-term
Incentive
66%
Base Salary
19%
Non-Equity
Incentive
15%
Relationship Between Target and Realizable Pay
The Summary Compensation Table reflects the grant-date fair value for share awards, as required. However,
we believe that a better assessment of amounts earned through share awards can be made by considering our
executives’ realizable pay, which was significantly lower than the grant-date fair value. While our performance-
based equity program resulted in payouts in only three of the last nine performance cycles, and the majority of
outstanding stock options are currently underwater, the more recent, in-process long-term performance cycles,
reflect our recent superior performance relative to our offshore drilling peers.
The graph below illustrates the effect of our performance-based compensation programs on the total
compensation of our Chief Executive Officer and compares his targeted compensation to realizable pay as of
December 31, 2018.
$7,753,499
$8,151,252
$8,552,094
$5,847,407
$4,738,937
$5,097,679
n
o
i
t
a
s
n
e
p
m
o
C
$9,000,000
$8,000,000
$7,000,000
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$0
2016
Target
Comp
Value at
12/31/2018
2017
Target
Comp
Value at
12/31/2018
2018
Target
Comp
Value at
12/31/2018
2016 (Thigpen)
2017 (Thigpen)
2018 (Thigpen)
Base
Annual Bonus
Long-‐Term Incentives
At Risk PSUs
Transocean 2019 Proxy Statement P-59
COMPENSATION DISCUSSION AND ANALYSIS
●
Realized/realizable pay is defined as the compensation delivered or deliverable for each year calculated as of the end
of the fiscal year, including: base salary paid; annual incentive amount paid; value of performance share unit plan
(“PSUs”) payout and, for performance periods still in progress, amounts that would be received if the PSU performance
period ended 12/31/2018, the intrinsic (“in-the-money”) value of the stock options granted in the applicable year, and
the value of time-based restricted share units (“RSUs”) granted.
●
The value of stock options, PSUs and RSUs was calculated as of 12/31/2018 (the last trading day of the year).
P-60 Transocean 2019 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
2018 Compensation Program Overview
In 2018, the Company continued to reinforce the alignment between pay and performance through our
executive compensation programs and compensation award levels.
In recognition of the industry downturn, the Committee carefully considered appropriate 2018 target
compensation opportunities for our Named Executive Officers. In close consultation with their independent
compensation consultant, the Committee implemented the following executive compensation actions for our
Named Executive Officers:
● Modifications to our peer groups, to improve alignment between the Company and the peers against
whom the Committee’s compensation decisions are evaluated;
● Continuation of the freeze on base salaries for all Named Executive Officers who had no change in their
role or position, marking the fourth consecutive year of the salary freeze;
●
●
●
Limitation on performance share awards such that payouts can never exceed target in the event
absolute TSR performance is less than -15%;
Expansion of the Company’s clawback policy to cover both forms of incentive compensation (cash and
equity);
Broadening of the Company’s definition of “cause” to allow for the cancellation of outstanding incentive
compensation awards for actions that are inconsistent with our Code of Integrity; and
● Continuation of the abolishment of all executive perquisites, including financial planning, annual
physicals and club memberships, effective January 1, 2017.
These compensation actions reflect our focus on good governance, while maintaining prudently designed,
competitive compensation packages.
Executive Compensation Setting
We regularly review our executive compensation program to ensure that we provide the opportunity for each of
our Named Executive Officers to receive competitive compensation without providing an incentive for excessive
risk-taking. With support of its independent compensation consultant, the Committee annually reviews the total
compensation and each component of compensation that may be paid or awarded to each of our Named
Executive Officers and compares the total compensation and each component of compensation, as follows:
● Externally against the opportunities and amounts paid to executive officers holding comparable positions
at companies with which we compete for executive talent, positioning elements of total direct
compensation at approximately the median; and
●
Internally for purposes of ensuring internal equity and taking individual performance, skills, and
experience into account.
We assess our compensation programs to ensure they are appropriately aligned with our industry sector and
among companies in other industries of comparable size, international scope and organizational complexity.
We also seek to provide a direct link between pay and the enhancement of shareholder value while achieving
our vision and business strategy.
The Committee employs two peer groups for the purpose of setting executive compensation. The
“Compensation Peer Group” is used to assess the competitiveness of the compensation of our Named
Executive Officers, and the “Performance Peer Group” is used to evaluate the relative TSR performance of the
Company.
Transocean 2019 Proxy Statement P-61
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Peer Group
We compete for executive talent across many different sectors around the world. However, our primary
competitive market generally includes other companies in the energy industry (oil and gas companies, offshore
drilling companies and other energy services companies). In making compensation decisions for the Named
Executive Officers, the total and each element of their total direct compensation are compared against
published and publicly available compensation data.
Considering the current state of the industry and in consultation with the Committee’s independent
compensation consultant, the 2018 Compensation Peer Group was modified. Our Compensation Peer Group
review considered revenue size and market capitalization; both standard industry measures in developing
compensation peer groups, to ensure continued alignment. The following four companies were removed from
the 2018 compensation peer group due to concerns that they were too large, in terms of annual revenue and
market capitalization: Baker Hughes, a GE company; Canadian Natural Resources; EOG Resources and
Halliburton Company. They were replaced by the following three companies that are more comparable to the
Company: Hess Corporation, McDermott International and Murphy Oil Corporation. The net effect of these
changes to the 2018 Compensation Peer Group composition reduced the average revenue size and market
capitalization, thereby improving alignment with the Company’s current scope.
As a result of these changes, the Compensation Peer Group for 2018 comprised the following companies:
• Anadarko Petroleum Corporation
• Apache Corporation
• Chesapeake Energy Corporation
• Devon Energy Corporation
• Diamond Offshore Drilling, Inc.
• Encana Corporation
• Ensco plc
• Hess Corporation
• Marathon Oil Corporation
• McDermott International
• Murphy Oil Corporation
• Nabors Industries Ltd.
• National Oilwell Varco, Inc.
• Noble Corporation plc
• Noble Energy, Inc.
• Petrofac Limited
• Seadrill Limited
• TechnipFMC plc
• Weatherford International plc
In addition, we consider the compensation practices of general non-energy industry peers of comparable size
and international scope in setting executive compensation levels and use general industry data as a secondary
market reference to ensure that a comprehensive view of the market is considered. These non-energy general
industry peers are expected to vary from year-to-year based on changes in the marketplace and the availability
of published survey data for companies that meet the defined size, international scope and organizational
structure criteria.
Our target market position is determined based on the data believed to be most relevant for a given position.
For example, the Compensation Peer Group data are weighted more heavily for most positions, whereas
general industry data are also considered for executives overseeing corporate functions. However, in
accordance with our pay-for-performance philosophy, the Compensation Peer Group data is the primary
reference for assessing base salary, short-term incentive and long-term incentive compensation levels.
Performance Peer Group
The Committee establishes a Performance Peer Group to evaluate the Company’s TSR relative to that of
companies considered to be direct business competitors and competitors for investment capital. For 2016 and
2017, the Committee approved a Performance Peer Group focused on offshore drillers to best align with our
strategic business objectives. Beginning in 2018, the Committee expanded the Performance Peer Group by
adding certain oilfield services companies to the existing offshore drillers, acknowledging consolidation within
P-62 Transocean 2019 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
the offshore drilling sector and ensuring the Company’s performance peer group remained meaningfully large
in order to effectively assess relative TSR.
While the competition for executive talent spans a broader market as defined above in the Compensation Peer
Group section, our Performance Peer Group is specific to those companies with expertise in technically
demanding oilfield service operations. The Performance Peer Group for 2018 consisted of:
• Aker Solutions
• Diamond Offshore Drilling, Inc.
• Dril-Quip, Inc.
• Ensco plc
• Forum Energy Technologies, Inc.
• National Oilwell Varco, Inc.
• Noble Corporation plc
• Oceaneering International, Inc.
• Oil States International, Inc.
• Rowan Companies
• Saipem S.p.A.
• Subsea 7 S.A.
• TechnipFMC plc
We will continue to assess the composition of the Performance Peer Group for 2019 and beyond, with a sharp
focus on the impact of the current industry downturn and resulting consolidation.
Transocean 2019 Proxy Statement P-63
COMPENSATION DISCUSSION AND ANALYSIS
Executive Compensation Components
Our executive compensation program is designed to meet the objectives of our “pay for performance”
philosophy by linking a significant portion of each executive’s compensation to both Company and individual
performance. The following table summarizes the purpose and key characteristics of each of the primary
components of our executive compensation program.
Compensation Element
Purpose
Base Salary
Annual Cash Bonus
Long-Term Incentive –
Performance Units
Provide a base level of income,
targeting the market median for
executive talent.
Motivate executives to achieve our
short-term business objectives and
reward contributions toward the
achievement of pre-established
performance goals.
Align the interests of our executives
with those of our shareholders by
creating a direct correlation of realized
pay to key value drivers and
shareholder return performance
relative to peers over a three-year
performance period.
Key Characteristics
Fixed compensation. Reviewed
annually and adjusted as
appropriate.
Variable compensation. Based on
corporate performance compared to
pre-established performance goals.
Award potential ranges from 0% to
200% of target.
Variable compensation. The number
of earned units is based on total
shareholder return relative to
performance of drilling industry peers
during three-year performance
periods. Earned units can range from
0% to 200% of target. “Cliff” vesting
at the end of each three-year
performance period.
Motivate executives to contribute to
long-term increases in shareholder
value, build executive ownership and
retain executives through ratable
vesting.
Variable compensation. Long-term
award with ratable vesting over
three years that provides a direct
correlation of realized pay to
shareholder value.
Motivate executives to contribute to
long-term increases in shareholder
value, build executive ownership and
retain executives through ratable
vesting.
Assist expatriate executives with part
of the additional burden of an overseas
posting. Effective January 2019, none
of our Named Executive Officers will
receive expatriate benefits.
Variable compensation. Long-term
award with ratable vesting over
three years that provides a direct link
between realizable pay and stock
price appreciation.
Fixed compensation. Provided to
expatriate executives to assist with
living expenses (e.g., housing,
dependent education, cost of living
differentials and automobile
allowances).
Indirect compensation elements
consisting of health and welfare
plans and other broad-based
employee benefit plans.
Other Compensation
Provide benefits that promote
employee health and welfare and
assist executives in carrying out their
duties and increasing productivity.
Post-Employment
Retain executives by providing a
Fixed compensation. Severance
baseline of short-term compensation in
the event an executive’s employment is
terminated without cause.
benefits, to the extent permissible
under Swiss law, are provided
pursuant to the Executive Severance
Benefit Policy and are not payable in
the event of a termination for cause
or a voluntary resignation.
In assessing the reasonableness of the total direct compensation of the Named Executive Officers, particularly
the compensation of our Chief Executive Officer, the Committee considered the amount and mix of
compensation provided as a direct link to creating sustainable long-term shareholder value, achieving our vision
P-64 Transocean 2019 Proxy Statement
Long-Term Incentive
- Restricted Share Units
Long-Term Incentive
- Non-Qualified Stock
Options
Expatriate Benefits
COMPENSATION DISCUSSION AND ANALYSIS
and business strategy, and advancing the core principles of our compensation philosophy and objectives
without excessive risk.
Base Salary
Our Named Executive Officers receive base salaries constituting a basic level of compensation for services
rendered during the year. The base salaries of our Named Executive Officers are determined by the Committee
upon each officer’s initial hire and reviewed regularly, including in the context of promotions or other changes
in job responsibilities. Each base salary is also reviewed by the Committee annually, both individually and, for
internal pay equity purposes, relative to other Executive Officers.
As part of its base salary review, the Committee considers input from our Chief Executive Officer (except with
respect to his own compensation), competitive compensation data from our Compensation Peer Group and
other survey data, job responsibilities, individual skills, experience and expected future contributions of each
Named Executive Officer. The Committee also considers input from its independent compensation consultant
within the framework of the Company’s compensation philosophy and objectives.
In February 2018, the Committee, in consideration of the industry downturn, and with consultation from its
independent compensation consultant, elected to freeze base salaries for our Named Executive Officers, with
the exception of Mr. Long, who was promoted to Executive Vice President and General Counsel. Mr. Long is
the only individual who, while an Executive Officer, has received a base salary increase since 2015.
The following base salaries in U.S. dollars were approved by the Committee for the individuals listed below.
2018 Base Salary
Executive
Mr. Thigpen
Mr. Mey
Mr. Davis
Mr. Adamson(1)
Mr. Long
Mr. Stobart(2)
(1) Mr. Adamson was not an Executive Officer until his appointment as Executive Vice President and Chief
1,000,000
760,000
550,000
523,769
550,000
670,000
0%
0%
0%
N/A
5%
0%
Increase over 2017
Operations Officer in August 2018.
(2) Mr. Stobart retired as Executive Vice President and Chief Operating and Performance Officer in June 2018.
Annual Performance Bonus
Our Performance Award and Cash Bonus Plan (the “Bonus Plan”) is a formulaic, goal-driven plan that provides
participants, including the Named Executive Officers, with the opportunity to earn annual cash bonuses based
on performance as measured against predetermined performance objectives. Individual target award levels,
expressed as percentages of the participants’ base salaries, are established by the Committee at the beginning
of the year. The target award opportunities under the Bonus Plan, when combined with base salaries, are
intended to position the participants to earn total cash compensation approximating competitive market median
levels. Individual awards correlate to Company performance, so the executives achieve above-target awards
only when the Company achieves above-target performance. Further, the bonus opportunity is capped at a
maximum payout level as noted below.
Under the Bonus Plan for 2018, the Named Executive Officers had a potential payout range of 0% to 200% of
their individual target award opportunity. The 2018 target bonus opportunity for each Named Executive Officer,
expressed as a percentage of base salary, was as follows:
Executive
Mr. Thigpen
Mr. Mey
Mr. Adamson
Mr. Davis
Mr. Long
Mr. Stobart
Bonus Target
125%
85%
75%
75%
75%
100%
Transocean 2019 Proxy Statement P-65
COMPENSATION DISCUSSION AND ANALYSIS
2018 Bonus Structure and Achievement
The annual cash bonus structure was designed to recognize and incent strong financial, operational and safety
performance. These three focus areas have a direct line of sight to annual company operational and financial
results while maintaining a strong focus on personnel, industrial and environmental safety. This structure is
designed to focus on those areas where we can differentiate ourselves from our competitors during the industry
downturn and be well-positioned to outperform the competition in the market recovery.
Each measure, relative weighting, and the threshold-target maximum payout range was designed with
reference to our 2018 business plan, as presented to the Committee in early February 2018, and our 2017
performance results.
The following chart outlines the 2018 bonus performance measures and relative weightings. Each of the
measures is defined and discussed in more detail below.
Bonus Plan Performance Measure
Safety
EBITDA
Uptime
2018 Bonus Structure
2018
Weighting
20%
60%
20%
100%
Based on the performance measures described further below and using the pre-determined weightings
assigned to each measure by the Committee, the formulaic bonus outcome for each of our Named Executive
Officers was 77% of the targeted bonus opportunity under the Bonus Plan for 2018. The components of this
total bonus payout under the Bonus Plan for 2018 are as follows:
Performance
Measure
Safety
EBITDA
Uptime
2018 Bonus Plan Achievement
2018
Weighted
Achievement
0%
54%
23%
77%
For specific award amounts, see “Executive Compensation—Summary Compensation Table” below.
Safety Performance
Our business involves numerous operating hazards, and we are strongly committed to protecting our personnel,
our property and our environment. Our goal is expressed in our safety vision of “an incident-free workplace all
the time, everywhere.” Beginning in 2017, the safety component of the bonus structure has focused on Total
Recordable Incident Rate (“TRIR”). We establish threshold, target, and maximum levels of TRIR performance
for the purposes of assessing any incentive payout from this metric. In addition, the bonus structure provides
for a 25% reduction to the TRIR calculated payout for any Tier 1 Operational Integrity event (see definition
below). The Committee elected to carry forward this methodology and weighting for 2018.
Developing Our Total Recordable Incident Rate (TRIR) Target
TRIR is a safety performance metric recognized by the U.S. Occupational Safety & Health Administration and
is used by companies across an array of industries. We calculate TRIR based upon the guidelines set forth by
the industry’s International Association of Drilling Contractors (the “IADC”). The IADC methodology calculates
TRIR by taking the aggregate number of occurrences of work-related injuries or illnesses that result in any of
the following: death; a physician or licensed health care professional recommending days away from work due
to an injury or illness; an employee not being able to perform all routine job functions (but not resulting in days
away from work); or any other medical care or treatment beyond minor first aid. The TRIR is the number of
such occurrences for every 200,000 employee hours worked.
P-66 Transocean 2019 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
The Committee approved a TRIR target for 2018 of 0.25. In setting this target, the Committee received input
from the Board’s Health, Safety and Environment (HSE) Committee, comprised of independent directors.
Values above and below this target were calculated in accordance with the chart below, with outcomes falling
between the two boundaries interpolated on a straight-line basis:
TRIR Target and Performance Range
Maximum = 0.21
Target = 0.25
Minimum = 0.29
Bonus Payout
200%
100%
0%
As noted above, the year-end TRIR payout is reduced by 25% for any Tier 1 Operational Integrity event during
the year, regardless of formulaic performance achievement. Furthermore, the Committee evaluates whether to
apply discretion in response to unforeseen, extraordinary circumstances in considering overall bonus results.
In setting the 2018 TRIR threshold-target-maximum values, the Committee considered the following:
●
●
●
Integration of the Songa Offshore SE fleet following the January 2018 acquisition;
Planned and anticipated increases in rig startups and reactivations; and
An increase in rig crew hiring and the need to train these new employees in the Company’s safety
programs and processes.
With consideration given to these factors and the recognition that this increased activity would challenge the
Company’s ability to improve upon what was the lowest annual TRIR in the Company’s history, the Committee
approved the 2018 TRIR target at 0.25, which approximated the blending of the 2017 actual results for
Transocean and Songa Offshore SE. The target represented a challenging yet realistic goal as we integrated
the operations and practices of Songa Offshore within the safety management system of Transocean.
In setting the threshold and maximum values, the Committee applied a 15% range above and below the 0.25
target. This range created a minimum, or entry point, of 0.29 and a maximum of 0.21.
Further, the Committee recognized the impact of Operational Integrity on process safety performance.
Operational Integrity is an internally developed safety measure designed to prevent, or mitigate the impact of,
a significant event. We use industry standard definitions of significant events, which include:
● Fire, explosion, release of a hazardous substance with serious injury or fatality;
● Other circumstances resulting in serious injuries/fatalities;
● Major structural damage to Company property; and
● Uncontrolled release of hazardous fluids.
Consistent with our 2017 Bonus Plan design, a Tier 1 event, as defined in the Company’s Health and Safety
Policies and Requirements, is the most serious Operational Integrity event, requiring immediate and potentially
significant Company time and resources to rectify.
Measuring Total Recordable Incident Rate (TRIR) Results
The 2018 formulaic result for TRIR was 0.37, which fell below threshold performance and resulted in zero
payout for the safety component of the 2018 Bonus Plan. While we were disappointed that the Company did
not continue its track record of continuous improvement in TRIR, compared to prior years, we were encouraged
by the overall 2018 safety performance for the following reasons:
Transocean 2019 Proxy Statement P-67
COMPENSATION DISCUSSION AND ANALYSIS
● The Company experienced no Lost Time Incidents in 2018, a standard never previously achieved by the
Company for a full calendar year;
● The majority of incidents counted in TRIR did not present the potential of escalating to a Lost Time
Incident;
● Half our operating rigs did not experience any incidents counted in TRIR; and
● The Company experienced no Tier 1 events.
Despite these encouraging circumstances, the formulaic performance of TRIR, resulted in zero percent for
2018, as illustrated.
Total Recordable Incident Rate
2018 Target TRIR: 0.25
200%
150%
100%
50%
0%
2018 Actual TRIR
2018 Target TRIR
2018 Actual TRIR: 0.37
0.30
0.25
0.20
0.15
Financial Performance
Developing Our EBITDA Target
For the 2018 Bonus Plan, the Committee evaluated financial measures that would most closely align
management with the Company’s financial objectives. The Committee concluded that Earnings Before Interest,
Taxes, Depreciation and Amortization (“EBITDA”) would be the most appropriate measure, consistent with
2017, based on the following reasons:
●
It is commonly used by our shareholders to evaluate financial performance, in light of current market
conditions;
●
It is commonly used by our peers to evaluate their own financial performance; and
● While it is a non-GAAP financial measure, it is objective and reconcilable to the GAAP measures
reported in our financial statements.
The Committee weighted EBITDA at 60% of the total 2018 Bonus Plan opportunity.
In establishing the EBITDA target and range, the Committee considered the Company’s 2018 financial plan, as
presented by management in early February 2018. Threshold and maximum performance outcomes were then
set based on the potential for decreases or increases to financial outcomes tied to dynamic market conditions.
While the 2018 EBITDA target was set below the 2017 actual financial result, the target objectively reflected
the continuing industry downturn and related financial challenges, including uncertainties with respect to the
recontracting of rigs whose contracts were set to expire in 2018.
P-68 Transocean 2019 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
EBITDA Target and Performance Range
Threshold
Target
Maximum
Measuring EBITDA Results
Achievement (MM-$)
1,093
1,249
1,405
The Company delivered strong EBITDA results for 2018, despite limited demand for rigs and declining or flat
contract dayrates. Outstanding operating performance and revenue efficiency for deployed rigs, combined with
a strong focus on cost management, resulted in strong EBITDA results, relative to target performance and to
peers.
Included in this proxy statement, attached as Appendix A, is a reconciliation of EBITDA to net income, the most
directly comparable GAAP financial measure. The differential between actual EBITDA and EBITDA
performance achievement for the 2018 Bonus Plan is the result of a Committee-approved calculation of EBITDA
to reflect the following discrete items:
●
Purchase Price Accounting Adjustment. The transaction to acquire Songa Offshore closed on January
30, 2018. Consistent with US GAAP, management calculated the Purchase Price Adjustment
associated with this transaction as part of the next Form 10-Q filing in May 2018, and management
determined that the Company was required to make a purchase price adjustment in connection with
this acquisition. The entry could not have been included in the 2018 financial plan presented to the
Committee in February 2018, as it had not yet been calculated. If the acquisition had closed in late
2017, the adjustment would have been included in the 2018 financial plan, and the EBITDA target would
have been accordingly adjusted downward.
● Rig Reactivation. After management presented the 2018 financial plan to the Committee, an unexpected
contracting opportunity arose for the Development Driller III – a rig that had been idle. The opportunity
was for a strategic customer in West Africa, a critical market for ultra-deepwater rigs, and reactivating
idle rigs for promising commercial opportunities is a critical component to the Company’s plan for long-
term EBITDA growth. While the contract was scheduled to commence in 2019, the reactivation costs to
prepare the rig for the contract would be incurred in 2018. Management, in consultation with the
Committee, pursued and ultimately won the contract, despite the adverse impact on 2018 EBITDA. The
Committee believes that one of its duties is to make sure that the executive compensation program
does not lead to unintended adverse outcomes – i.e., results that are against the shareholders’ best
interests. Accordingly, the Committee evaluated the circumstances surrounding the contract and
determined that, were the reactivation costs included in the 2018 EBITDA performance calculation,
management would be improperly penalized for acting in the shareholders’ best interest. As a result,
the Committee concluded that the costs should be excluded from the calculation of 2018 EBITDA
performance. The Committee further determined that the revenue from the contract would be included
in the 2019 EBITDA target, so that the Executive Officers do not improperly benefit from this decision
in 2019.
● Contract Blend and Extend. In mid-2018, management was approached by a customer requesting a
“blend and extend” of its current contract. As background, a “blend and extend” is an exchange between
the customer and the Company: the customer reduces the dayrate in the short-term, but extends the
contract beyond its current term, adding critical backlog and financial security to the Company’s contract
portfolio. Not every “blend and extend” is in the Company’s best interest; the circumstances that dictate
whether such an arrangement is commercially viable vary (e.g., amount of the reduction in dayrate,
length of extended term, competing prospects for the rig). In consultation with the Committee,
management elected to enter into the arrangement, as doing so extended the term of the contract by
two years at a favorable dayrate. The Committee believes that had the reduction in the 2018 dayrate
not been addressed in the EBITDA performance calculation, management would have been improperly
penalized for making a commercial decision that was clearly in the shareholders’ best interests. As
noted above, the Committee works closely with management, in consultation with the Committee’s
independent compensation consultant, to make sure that the executive compensation program does
not lead to unintended adverse consequences. Calculating EBITDA to set aside the marginal impact of
the reduced dayrate in connection with this outstanding commercial opportunity is consistent with that
Transocean 2019 Proxy Statement P-69
COMPENSATION DISCUSSION AND ANALYSIS
priority. As with the rig reactivation noted above, the Committee further determined that the revenue
from the contract would be included in the EBITDA target for future periods so that the Executive Officers
do not improperly benefit from this decision in subsequent years.
As illustrated, even after adjustments, the EBITDA result fell short of our goal, performing at 90% to target, with
an associated weighted payout of 54% of the total target bonus opportunity for each of the Named Executive
Officers.
EBITDA
2018 Actual EBITDA
2018 Target EBITDA
2018 Target EBITDA: $1,249
2018 Actual EBITDA: $1,233
$1,249
$1,405
200%
150%
100%
50%
0%
$1,093
Operational Performance
Developing Our Uptime Target
In 2017, Uptime was identified as the operational performance measure that would best align with the interests
of our customers and, ultimately, our shareholders; therefore, we elected to maintain this measure for 2018.
This measure represented 20% of the 2018 total target annual bonus opportunity, reinforcing the importance
of maintaining excellence in our rig operations. We believe that Uptime is the best measure of operational
efficiency, which is imperative to our customers.
While Uptime is a common operational metric in our industry, it has no standard industry definition or reporting
structure. As a result, the Company has developed its own definition, in consultation with the Committee, and
that definition recognizes the key impediments to Uptime: equipment failures and human performance errors.
Uptime is measured as total operating hours, minus downtime hours, expressed as a percentage of the
maximum total operating hours. Operating hours are defined as the number of hours a rig is operating under a
contract. Downtime is defined as the number of hours the rig is not engaged in drilling activities, resulting from
mechanical failure or human performance error. Using this formula, zero mechanical failures and human
performance errors would result in a rig operating at 100% Uptime. Downtime events detract from optimal
performance and have a direct negative impact on the customer’s operational plan.
In setting the threshold-target-maximum range for this measure, the mathematical differential of 3% from
threshold to maximum is significant considering the total number of operating hours during a calendar year
(e.g., approximately 250,000 hours of operation in 2018).
The Committee approved the following Uptime target for 2018:
Uptime Target and Performance Range
Threshold
Target
Maximum
Achievement
94.5%
96.0%
97.5%
P-70 Transocean 2019 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
In setting the 2018 Uptime target, the Committee considered the Company’s outlook for 2018, which featured:
● The reactivation of three rigs and the start-up of one rig in the U.S. Gulf of Mexico;
● The mobilization of five rigs to new countries, with new customers; and
● The hiring of approximately 2,500 new employees, including approximately 900 employees joining the
Company through the acquisition of Songa Offshore SE.
These factors led the Committee to conclude that the risk of equipment failure and human performance errors
was elevated for 2018, compared to 2017. Despite this incremental risk, in support of its desire to drive
continuous improvement, the Committee decided to maintain the challenging target from 2017, and approved
the 2018 Uptime target at 96.0%.
Measuring Uptime Results
Based on this high level of operational efficiency, the Company achieved 96.2% Uptime performance in 2018.
This increase over target performance equates to approximately 500 hours, or 21 days, of additional operational
productivity across the fleet, resulting in greater customer satisfaction and higher earnings.
As illustrated, the formulaic performance of Uptime achieved 115% performance to target and an associated
weighted payout of 23% of the total target bonus opportunity for each of the Named Executive Officers.
Uptime
2018 Actual Uptime
2018 Target Uptime
2018 Actual Uptime: 96.2%
2018 Target Uptime: 96.0%
95.5
96.5
97.5
200%
150%
100%
50%
0%
94.5
Long-Term Incentives
The Committee establishes competitive long-term incentive (“LTI”) opportunities for our Named Executive
Officers that motivate them to increase total shareholder return, drive long-term sustainable value and align the
interests of participants with those of shareholders. LTI opportunities vary in the actual value delivered, based
on the Company’s actual total shareholder return.
Transocean 2019 Proxy Statement P-71
COMPENSATION DISCUSSION AND ANALYSIS
To provide an appropriate balance of incentives tied to performance, three types of long-term equity instruments
were used in 2018: Performance Units (“PSUs”), Restricted Share Units (“RSUs”) and Non-Qualified Stock
Options (“NQSOs”). The weighting of each instrument in our LTI program was as follows:
Long-Term Incentive Pay Mix
RSUs
25%
NQSOs
25%
PSUs
50%
This LTI mix is designed to ensure that a minimum of 50% of total LTI is conveyed through PSUs. RSUs are
included in the incentive mix to reinforce a direct relationship to the shareholder experience and to promote
ownership of Company equity. Stock Options only deliver value to the executive when the Company’s share
price appreciates following the grant date. All three equity instruments are also designed to be retentive in
nature through multi-year performance and vesting periods.
The following LTI award values were delivered to our Named Executive Officers in 2018.
Named Executive Officer
Mr. Thigpen
Mr. Mey
Mr. Adamson
Mr. Davis
Mr. Long
Mr. Stobart
2018 LTI Fair Value
U.S.$
6,302,094
2,430,805
1,205,748
1,935,647
1,800,590
2,439,821
Performance Units (PSU)
The target value of the 2018 PSU grants to each of the Named Executive Officers was approximately 50% of
each officer’s total 2018 LTI award target value.
Each PSU represents one share and is earned based on performance over a three-year cycle from January 1,
2018 through December 31, 2020. Performance is determined by comparing the Company’s TSR performance
relative to the Company’s Performance Peer Group over the three-year performance cycle.
In further recognition of the importance of shareholder alignment, the Committee capped the earning of PSUs
at target if the Company’s absolute TSR during the performance period is less than negative 15%. The
Committee set the cap at this level to ensure that management does not benefit disproportionately from
shareholder returns that are more than marginally negative.
P-72 Transocean 2019 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Actual results at the completion of the three-year performance cycle will be determined by the following
ranking of TSR performance:
Company Ranking
% of Target Performance Units
90th Percentile
or higher
200%
50th Percentile
100%
25th Percentile
50%
Less than 25th
Percentile
0%
Upon completion of the 2018 - 2020 PSU performance cycle, the Committee will determine final payout levels,
if any, and PSUs will be distributed to the Named Executive Officers, along with a cash payment equal to any
dividends or equivalents for earned shares that may have accrued during the performance cycle.
Restricted Share Units (RSU)
The target value of the 2018 RSU grants to each of the Named Executive Officers was approximately 25% of
each officer’s total 2018 LTI award target value.
Time-vested RSUs were granted to all Named Executive Officers as part of the 2018 annual long-term incentive
grants. Each RSU represents one share and vests over a three-year schedule (ratably one-third each year),
contingent upon continued service.
Non-Qualified Stock Options (NQSO)
The target value of the 2018 NQSO grants to each of the Named Executive Officers was approximately 25% of
each officer’s total 2018 LTI award target value.
Time-vested NQSOs were granted to each Named Executive Officers as part of the 2018 LTI grants. Each
NQSO represents the option to purchase one share and vests over a three-year schedule (ratably one-third
each year), contingent upon continued service.
Realized Long-Term Incentive Compensation for 2018
In 2019, the Committee evaluated the Company’s performance for the three-year performance period from
January 1, 2016 through December 31, 2018, and determined the performance to be 133% of target based on
the Company’s TSR relative to the Performance Peer Group. However, in recognition of the importance of
shareholder alignment, the Committee capped the earning of PSUs at target as a result of the Company’s
absolute TSR being less than negative 15% during the performance period. Thus, the actual payout was
reduced to 100%, or target.
Employment Agreements with Named Executive Officers
Employment agreements with our Executive Management Team comply with the Minder Ordinance, which
prohibits the payment of severance benefits to members of the Executive Management Team. Other than the
individual compensation terms applicable for each executive, the same basic form of employment agreement
was used for Named Executive Officers with agreements.
Transocean 2019 Proxy Statement P-73
COMPENSATION DISCUSSION AND ANALYSIS
Expatriate Benefits
For employees who accept an international assignment, we have provided certain expatriate benefits, including
housing, car, cost of living allowances and educational expenses for dependent children. These benefits are
designed to help defray the significant expense associated with expatriation. Beginning in 2014, we eliminated
the tax protection and tax equalization aspects of these benefits for our Named Executive Officers.
In 2018, Mr. Adamson was the only Named Executive Officer eligible for expatriate benefits, the value of which
is included in the Summary Compensation Table under “All Other Compensation” and described in the notes
to that table. Effective December 31, 2018, Mr. Adamson ceased to be eligible for any expatriate benefits and,
as a result, effective January 1, 2019, the Company has no Named Executive Officers receiving expatriate
benefits.
Indirect Compensation
In addition to base salary, annual and long-term incentive compensation, we offer limited indirect compensatory
arrangements to our executives. These indirect elements of executive compensation are not performance-
based and are offered as part of the overall compensation package to ensure that the package is competitive
with other companies with which we compete for talent. Below is a summary of the indirect elements of
compensation for our Named Executive Officers.
Health, Welfare and Retirement
Our Named Executive Officers are eligible for Company-wide benefits on substantially the same basis as other
full-time employees, including savings, frozen pension, medical and life insurance benefits. Our Named
Executive Officers also receive a supplemental life insurance benefit equal to four times base salary capped at
a maximum of U.S. $1 million. In addition, we make a supplemental non-qualified defined contribution
restoration plan available to employees (including the Named Executive Officers) to compensate for benefits
that otherwise would be unavailable due to U.S. Internal Revenue Service limits on qualified retirement plans.
Perquisites
The Committee elected to eliminate all executive perquisites for our Named Executive Officers, effective
January 1, 2017. As a result, none received perquisites in 2018.
Post-Employment Compensation
We believe that the competitive marketplace for executive talent and our desire to retain our Executive Officers
require us, subject to compliance with applicable law, to provide our Executive Officers with a severance
package. Each of our Executive Officers who are not members of our Executive Management Team is eligible
to receive severance benefits in the event we choose to terminate the Executive Officer at our convenience.
Subject to Committee approval, the benefits provided in the event of an involuntary termination under the terms
of our Executive Severance Benefit Policy include a cash severance benefit limited to 52 weeks of base salary;
a pro rata share of the termination year’s award under the Bonus Plan for such executive; treatment of
outstanding long-term incentive awards as provided for in the terms and conditions of each award (as more
fully described under “Executive Compensation—Potential Payments Upon Termination or Change of Control”);
and outplacement services not to exceed 5% of the base salary of the executive.
We also believe that the interests of our shareholders are served by including a double-trigger change-of-control
provision in the Bonus Plan and the Long-Term Incentive Plan for Named Executive Officers who would be
integral to the success of, and are most likely to be impacted by, a change of control. By requiring two triggering
events to occur, we believe that those Executive Officers who remain with us through a change of control will
be appropriately focused on the success of the combined enterprise while those who depart because of a
change of control will be appropriately compensated. The types of payments that will be made to our executives,
along with estimated values as of December 31, 2018, are described under “Executive Compensation-Potential
Payments Upon Termination or Change of Control.”
P-74 Transocean 2019 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
The Committee periodically reviews severance packages offered to the Executive Officers to ensure the
benefits are aligned with prevailing market practices. For a Named Executive Officer to receive the benefits
described above, the Named Executive Officer must first sign a release of all claims against the Company and
enter into a non-competition and confidentiality agreement covering our trade secrets and proprietary
information.
The Minder Ordinance prohibits certain types of compensation payments to members of the Executive
Management Team, including severance payments in any form. Therefore, members of the Executive
Management Team are not eligible to participate in the Executive Severance Benefit Policy.
In June 2018, Mr. Stobart announced his retirement from the position of Executive Vice President, Chief
Operating Officer and Chief Performance Officer and, in accordance with the terms of Mr. Stobart’s employment
agreement, has continued to receive his base salary plus an amount equal to the pro-rata portion of his target
bonus during the applicable 12-month notice period.
Executive Compensation Governance, Policy and Practice
The Committee is responsible for the executive compensation program design and decision-making process.
The Committee solicits input from independent members of the Board of Directors, the Chief Executive Officer,
other members of management, and the independent compensation consultant to assist with its responsibilities.
The following summarizes the roles of each of the key participants in the executive compensation decision-
making process.
Transocean 2019 Proxy Statement P-75
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Committee
The Committee is composed solely of members of the Board of Directors who (i) are not employees of the
Company, (ii) meet the independence requirements of the NYSE, and (iii) meet the qualifications of outside
directors under Section 162(m) of the U.S. Internal Revenue Code. The Committee is responsible for
overseeing our executive compensation and long-term incentive programs. Specifically, the Committee is
responsible for:
● Reviewing and approving the target and actual compensation paid and the benefit levels received by
our Executive Officers;
●
●
●
●
●
Annually recommending focus areas for our Chief Executive Officer for approval by the members of our
Board of Directors who meet the independence and experience requirements set forth in the Committee
charter;
Annually evaluating all aspects of our Chief Executive Officer’s performance in light of these focus areas
(with the participation of all non-executive members of the Board of Directors,) and setting our Chief
Executive Officer’s compensation based on this evaluation and after reviewing data concerning
compensation practices in the competitive market;
Establishing and approving our executive compensation plans and arrangements to provide benefits to
our Executive Officers in accordance with the goals and objectives of the Company, as established by
the Board of Directors;
Administering the Company’s LTI plans, including determining plan eligibility and approving individual
awards for all plan participants;
Administering the Company’s Performance Award and Cash Bonus Plan and approving individual
awards for all Executive Officers;
● Considering and approving executive employment and, to the extent permissible under Swiss law,
severance agreements or other contractual agreements that may be entered into with our Executive
Officers (that shall not include “single-trigger” change-in-control agreements);
● Reviewing and discussing this Compensation Discussion and Analysis, the Company’s Swiss statutory
compensation report and maximum aggregate compensation limits for the Board of Directors and
members of the Executive Management Team with our management and, based upon such review and
discussion, recommending to the Board of Directors that the Compensation Discussion and Analysis
be included in the proxy statement for our Annual General Meeting or our annual report, as applicable;
and
●
Assessing the risks associated with the Company’s compensation arrangements.
During 2018, the Compensation Committee consisted of three directors: Tan Ek Kia (Chairman), Frederico F.
Curado, and Vincent J. Intrieri.
Independent Compensation Consultant
To assist in discharging its responsibilities, the Committee engaged an independent executive compensation
consulting firm, Pay Governance LLC, which advised the Committee on executive compensation matters for
2018.
In order not to impair the independence of the Committee’s compensation consultant or create the appearance
of such an impairment, the Committee adopted a policy that any compensation consultant to the Committee
may not provide other services to the Company in excess of U.S. $100,000. Neither Pay Governance nor any
of its affiliates provided the Company with any other services in 2018. In May 2018, the Committee assessed
whether the work of Pay Governance for the Committee during 2018 raised any conflict of interest by conducting
a review of several independence factors, which included the factors set forth under Rule 10C-1 of the
P-76 Transocean 2019 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Exchange Act. The Committee concluded that no conflict of interest was raised that would prevent Pay
Governance from independently advising the Committee.
In advising the Committee, the compensation consultant reports to and acts at the direction of the Committee.
The Committee directs the compensation consultant in the performance of its duties under its engagement to
provide certain guidance on an ongoing basis, including:
●
●
Expertise on compensation strategy and program design;
Information relating to the selection of the Company’s peer groups;
● Relevant market data and alternatives to consider when making compensation decisions;
●
●
●
Assistance in establishing and updating annual and long-term incentive guidelines;
Periodic reviews of the total executive compensation program; and
Support and advice as the Committee conducts its analysis of and makes its decisions regarding
executive compensation.
The Committee does not necessarily adopt all recommendations given by the compensation consultant but
uses the consultant’s work as a reference in exercising its own judgment with respect to its own executive
compensation actions and decisions.
The compensation consultant participates in every meeting of the Committee and meets privately with the
Committee at the Committee’s request. Our management provides information to the consultant but does not
direct or oversee its activities with respect to our executive compensation program.
Other Advisors
From time-to-time, management engages other advisors to assist in providing advice to the Committee. Such
advisors have included, among others, an outside law firm to provide advice regarding various legal issues,
financial analysts to examine relevant performance metrics and an outside actuarial firm to evaluate benefit
programs. The Committee evaluates these advisors for independence, when retained. No advisors other than
Pay Governance were hired in 2018.
Management
Our Chief Executive Officer annually reviews the competitive pay position and the performance of each member
of senior management other than himself. Our Chief Executive Officer’s conclusions and recommendations,
including base salary adjustments and award amounts for the current year and target annual award amounts
for the next year under our Bonus Plan (other than for himself,) are presented to the Committee. The Committee
makes all compensation decisions and approves all share-based awards for the Named Executive Officers and
other Executive Officers. The Committee may exercise its discretion in modifying any compensation element
to any Executive Officer, including reducing or increasing the payment amount for one or more components of
such awards.
Officers and other employees in our Human Resources Department assist our Chief Executive Officer with his
recommendations and develop and present other recommendations regarding compensation to the Committee
as needed. Our officers and other employees participate in Committee discussions in an informational and
advisory capacity and have no authority in the Committee’s decision-making process.
Share Ownership Guidelines for Executives
We believe it is important for our Named Executive Officers to build and maintain an appropriate equity stake
in the Company. The Company’s share ownership guidelines for Named Executive Officers are intended to
further align executives’ interests with the interests of our shareholders. Under these guidelines, Named
Transocean 2019 Proxy Statement P-77
COMPENSATION DISCUSSION AND ANALYSIS
Executive Officers must retain 50% of any shares that vest (net of tax shares) until the ownership guidelines
are met. Each of our Named Executive Officers must own an amount of shares equivalent to the following:
CEO
6x Base Pay
Executive Vice President
3x Base Pay
Senior Vice President
2x Base Pay
Vice President
1x Base Pay
Compliance with this policy is reviewed by the Committee, and executives must certify their compliance on an
annual basis. The Committee may exercise its discretion in response to any non-compliance of this policy. The
Committee has determined that all executives meet or exceed their minimum ownership requirements.
Executive Compensation Recoupment/Clawback Policy
Under the Incentive Compensation Recoupment Policy, the Company is authorized to recover or adjust both
cash and equity incentive compensation to the extent the Committee determines that payments or awards have
exceeded the amount that would otherwise have been received, due to a restatement of financial results or if
the Committee determines that an executive has engaged in, or has knowledge of, and fails to prevent or
disclose, fraud or intentional misconduct pertaining to any financial reporting requirement.
No Hedging or Pledging of Company Shares
We have a policy that prohibits any employee, officer or director of the Company from engaging in short-term
or speculative transactions in the Company’s securities. It, therefore, is the Company’s policy that employees,
officers and directors and their family members or wholly-owned businesses not engage in any of the following
transactions:
● Short sales;
● Publicly Traded Options;
● Hedging Transactions; and
● Margin Accounts and Pledging.
Our Executive Officers and directors must certify compliance with the hedging and pledging provisions of our
Insider Trading Policy on an annual basis, and all have done so.
Use of Tally Sheets
The Committee reviews compensation tally sheets, prepared by management, that present comprehensive
data on the total compensation and benefits package for each of our Named Executive Officers. Tally sheets
include all current compensation obligations, as well as additional analyses with respect to payments at
hypothetical terminations to consider the Company’s obligations under such circumstances. The Committee
does not use the tally sheets to determine the various elements of compensation or the actual amounts of
compensation to be approved but, rather, to evaluate the Company’s obligations under the various programs.
Tax Impact on Compensation
Prior to 2018, Section 162(m) of the Internal Revenue Code (“Section 162(m)”) limited the annual tax deduction
to $1,000,000 for compensation paid by a publicly held company to its Chief Executive Officer and each of its
three other most highly compensated Named Executive Officers other than the Chief Financial Officer, unless
the compensation was designed to meet certain performance-based requirements. Under the Tax Cuts and
Jobs Act of 2017 (the “2017 Tax Act”), effective for our taxable year beginning January 1, 2018, the exception
under Section 162(m) for performance-based compensation is no longer available, subject to transition relief
P-78 Transocean 2019 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
for certain grandfathered arrangements in effect as of November 2, 2017. In addition, the “covered employees”
subject to Section 162(m) limitations will be expanded to include our Chief Financial Officer, and once one of
our Named Executive Officers is considered a covered employee for 2017 or later, the Named Executive Officer
will remain a covered employee so long as he or she receives compensation from the Company. To the extent
practicable, we intend to preserve future deductions related to existing compensation arrangements that are
eligible for transition relief under the 2017 Tax Act, but we reserve the right to use our judgment to authorize
compensation payments that are not deductible under Section 162(m) when we believe that such payments
are appropriate and in the best interest of shareholders, after taking into consideration changing business
conditions or the executive’s individual performance and/or changes in specific job duties and responsibilities.
Transocean 2019 Proxy Statement P-79
COMPENSATION DISCUSSION AND ANALYSIS
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors has reviewed and discussed the above Compensation
Discussion and Analysis with management. Based on such review and discussions, the Compensation
Committee recommended to the Company’s Board of Directors that the above Compensation Discussion and
Analysis be included in this proxy statement.
Members of the Compensation Committee:
Tan Ek Kia, Chairman
Frederico F. Curado
Vincent J. Intrieri
P-80 Transocean 2019 Proxy Statement
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows the compensation paid by the Company for the fiscal year ended December 31,
2018, to each of our Chief Executive Officer, Chief Financial Officer and the next three most highly compensated
Executive Officers as of December 31, 2018, who are collectively referred to herein as our Named Executive
Officers.
Name and
Principal Position
Jeremy D. Thigpen
President and Chief Executive
Officer
Mark L. Mey
Executive Vice President and
Chief Financial Officer
Howard E. Davis
Executive Vice President and
Chief Administrative and
Information Officer
Brady K. Long
Executive Vice President and
General Counsel
Keelan I. Adamson
Executive Vice President and
Chief Operations Officer
Year
2018
Salary
($)
1,000,000
Bonus
($)
--
2017
1,000,000
2016
1,000,000
2018
760,000
2017
760,000
2016
760,000
2018
550,000
2017
550,000
2016
550,000
2018
545,833
2017
525,000
2016
525,000
2018
523,769
Stock
Awards(1)
($)
4,818,543
Option
Awards(1)
($)
1,483,551
Non-Equity
Incentive Plan
Compensation(2)
($)
962,500
4,549,792
1,401,460
1,656,000
4,362,658
1,190,841
1,992,000
1,858,576
572,229
497,420
1,965,520
605,432
891,480
1,828,164
499,019
1,072,360
1,479,983
455,663
317,625
1,565,136
482,105
569,250
1,371,118
374,263
684,750
1,376,718
423,872
315,291
1,455,930
448,469
507,150
1,090,669
297,709
610,050
922,402
283,346
269,572
1,865,472
574,349
257,950
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings(3)
($)
--
--
--
--
--
--
--
--
--
--
--
--
--
--
All Other
Compensation(4)
($)
286,201
Total
($)
8,550,795
361,637
8,968,889
557,568
9,103,067
183,350
3,871,575
324,235
4,546,667
508,751
4,668,294
127,803
2,931,074
140,804
3,307,295
96,981
3,077,112
123,500
2,785,214
130,817
3,067,366
70,624
2,594,052
147,843
2,146,932
544,785
3,912,556
1,972,782
607,672
924,600
11,931
512,220
4,699,205
1,836,467
501,289
1,112,200
369
513,909
4,634,234
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
John B. Stobart
Former Executive Vice President
and Chief Operating and
Performance Officer
2018
670,000
2017
670,000
2016
670,000
(1) The Stock Awards column represents the aggregate grant date fair value of performance share units and restricted share units granted
in each year as shown in the “Grants of Plan-Based Awards for 2018” table and computed in accordance with the provisions of FASB
ASC Topic 718. The Option Awards column represents the aggregate dollar amount recognized for financial statement reporting
purposes. Regarding assumptions underlying the valuation of these equity awards, please see Note 15 to our consolidated financial
statements included in our Annual Report on Form 10-K for the year ended December 31, 2018.
(2) Non-Equity Incentive Plan Compensation includes annual cash bonuses payable to the Named Executive Officers based on service
during the year and awarded in the following year pursuant to the Performance Award and Cash Bonus Plan. The Performance Award
and Cash Bonus Plan, including the performance targets used for 2018, is described under “Compensation Discussion and Analysis—
2018 Bonus Structure.”
(3) There are no nonqualified deferred compensation earnings included in this column because no Named Executive Officers received
above-market or preferential earnings on such compensation during 2018, 2017 or 2016.
(4) All other compensation for 2018 consists of the following:
Company
Contributions
to Savings
Plans(1)
($)
Name
Jeremy D. Thigpen
265,600
Mark L. Mey
165,148
Life, Health
and Welfare
Insurance
Premiums
($)
20,601
18,202
Relocation
Expenses
($)
Other Benefits(2)
($)
--
--
--
--
All Other
Compensation
Total
($)
286,201
183,350
Transocean 2019 Proxy Statement P-81
EXECUTIVE COMPENSATION
Howard E. Davis
111,925
Brady K. Long
105,298
Keelan I. Adamson
89,659
John B. Stobart
159,460
15,878
18,202
20,601
19,402
--
--
--
30,923
--
--
37,583
335,000
127,803
123,500
147,843
544,785
(1) All Named Executive Officers participate in the U.S. 401(k) Savings Plan and Savings Restoration
Plan.
(2) Other benefits include dependent education reimbursement for Mr. Adamson and payments to
Mr. Stobart during his notice period, in accordance with the terms of his employment agreement.
Grants of Plan-Based Awards for 2018
The following table provides information concerning the annual performance bonus and long-term incentive
awards made to each of the Named Executive Officers in the fiscal year ended December 31, 2018.
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards(1)
Estimated Future Payouts Under
Equity Incentive Plan Awards(2)
Threshold
($)
--
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
1,250,000 2,500,000
--
307,557
615,114
--
646,000 1,292,000
--
118,629
237,258
--
412,500
825,000
--
94,464
188,928
--
409,469
818,938
--
87,873
175,746
--
350,096
700,192
--
58,875
117,750
--
332,247
664,493
--
119,069
238,138
Jeremy D. Thigpen
Mark L. Mey
Howard E. Davis
Brady K. Long
Keelan I. Adamson
John B. Stobart
Grant Date
--
2/8/2018
2/8/2018
2/8/2018
--
2/8/2018
2/8/2018
2/8/2018
--
2/8/2018
2/8/2018
2/8/2018
--
2/8/2018
2/8/2018
2/8/2018
--
2/8/2018
2/8/2018
2/8/2018
--
2/8/2018
2/8/2018
2/8/2018
Exercise
Price of
Option
Award(4)
($)
Grant Date
Fair Value
of Stock and
Option
Awards(5)
($)
All Other
Option
Awards:
Number
of Shares
of
Securities
Underlying
Options(3)
(#)
All Other
Stock
Awards:
Number
of Shares
of Stock
or Units(3)
(#)
163,399
328,947
9.18
126,880
9.18
101,034
9.18
93,985
9.18
62,970
9.18
127,350
9.18
63,025
50,187
46,685
31,279
63,259
3,318,540
1,500,003
1,483,551
1,280,007
578,570
572,229
1,019,267
460,717
455,663
948,150
428,568
423,872
635,261
287,141
283,346
1,284,755
580,718
574,349
(1) This column shows the potential payout opportunities to the Named Executive Officers for the 2018 performance period under our
Performance Award and Cash Bonus Plan. There is no payout at or below threshold under this plan for 2018. Actual amounts earned
by the Named Executive Officers under the plan appear in the Non-Equity Incentive Plan Compensation column of the “Summary
Compensation Table.” For more information regarding our Performance Award and Cash Bonus Plan, including the performance
targets used for 2018, see “Compensation Discussion Analysis—2018 Bonus Structure.”
(2) The February 8, 2018, performance share unit award is subject to a three-year performance period ending December 31, 2020. The
actual number of performance units received will be determined in the first 60 days of 2021 and is contingent on our performance in
total shareholder return relative to the Performance Peer Group. Any earned shares will vest on December 31, 2020. The amounts
shown under the Maximum column represent the payout level of 200%. There is no payout at or below threshold level under this plan
for 2018. For more information regarding long-term incentives plans, including the performance targets used for 2018 and the
contingent nature of the long-term incentives granted, please see “Compensation Discussion and Analysis—Long-Term Incentives.”
(3) These columns show the number of time-vested restricted share units and non-qualified stock options granted to the Named
Executive Officers under the long-term incentives plans. The units and options vest in one-third increments over a three-year period
commencing on March 1, 2019, and the anniversary of the date of grant, respectively.
(4) This column shows the exercise or base price of option awards granted to the Named Executive Officers. This is equal to the closing
market price of our common stock on the date of grant.
(5) This column represents the grant date fair value of these awards computed in accordance with FASB ASC Topic 718. The 2018
P-82 Transocean 2019 Proxy Statement
EXECUTIVE COMPENSATION
performance share unit fair value is calculated using the Monte Carlo simulation to value total shareholder return at the share price
on the grant date. The grant date fair value of stock option awards is measured using the Black-Scholes option-pricing model.
Outstanding Equity Awards at Year-End 2018
The following table sets forth certain information with respect to outstanding equity awards at December 31,
2018, for the Named Executive Officers.
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable(1)
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable(1)
155,971
72,539
-
77,986
145,079
328,947
Option
Exercise
Price
($/Share)
8.61
13.35
9.18
Option
Expiration
Date
2/10/2026
2/9/2027
2/7/2028
Name
Jeremy D.
Thigpen
Mark L. Mey
65,359
31,337
-
32,680
62,674
126,880
8.61
13.35
9.18
2/10/2026
2/9/2027
2/7/2028
Howard E.
Davis
Brady K.
Long
Keelan I.
Adamson
John B.
Stobart
49,019
24,953
-
24,510
49,908
101,034
8.61
13.35
9.18
2/10/2026
2/9/2027
2/7/2028
38,992
23,212
-
19,497
46,426
93,985
8.61
13.35
9.18
2/10/2026
2/9/2027
2/7/2028
3,492
8,455
15,767
29,412
15,552
-
-
-
-
14,706
31,105
62,970
78.76
50.79
59.30
8.61
13.35
9.18
2/9/2021
2/16/2022
2/13/2023
2/10/2026
2/9/2027
2/7/2028
38,597
65,656
31,453
-
-
32,829
62,906
127,350
59.30
8.61
13.35
9.18
2/13/2023
2/10/2026
2/9/2027
2/7/2028
Number of Shares
or
Units of Stock That
Have Not Vested(2)
(#)
Market Value of
Shares or Units
of Stock That
Have Not
Vested(3)
($)
Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units,
Other Rights
That Have Not
Vested(4)(5)
(#)
Equity Incentive
Plan Awards:
Market or Payout
Value of
Unearned
Shares, Units,
Other Rights
That Have Not
Vested
($)
45,716
75,265
163,399
317,269
522,339
1,133,989
19,157
32,515
63,025
132,950
225,654
437,394
274,295
187,238
307,557
1,903,607
1,299,432
2,134,446
114,943
80,887
118,629
797,704
561,356
823,285
14,368
25,892
50,187
99,714
179,690
348,298
86,207
64,410
94,464
598,277
447,005
655,580
11,429
24,085
46,685
79,317
167,150
323,994
68,574
59,916
87,873
475,904
415,817
609,839
8,621
16,137
31,279
59,830
111,991
217,076
51,724
40,144
58,875
358,965
278,599
408,593
19,244
32,635
63,259
133,553
226,487
439,017
115,465
81,186
119,069
801,327
563,431
826,339
Transocean 2019 Proxy Statement P-83
EXECUTIVE COMPENSATION
(1) Each option award has a 10-year term and vests in one-third increments over a three-year period.
(2) Represents time-vested restricted share units granted on February 11, 2016, February 10, 2017 and February 8, 2018. Restricted
share units vest in one-third increments over a three-year period.
(3) For purposes of calculating the amounts in these columns, the closing price of our shares on the NYSE on December 31, 2018, of
$6.94 was used.
(4) Represents performance share units, which are subject to a three-year performance period ending on December 31, 2018, December
31, 2019, and December 31, 2020. The actual number of performance share units received will be determined in the first 60 days
following the end of the performance period and is contingent on our performance as determined by comparing our total shareholder
return relative to the Performance Peer Group. Any shares earned will vest on the last day of the performance period. For more
information regarding long-term incentive plans, please see “Compensation Discussion and Analysis—Long-Term Incentives.”
(5) Performance share units are listed at the targeted number of units.
P-84 Transocean 2019 Proxy Statement
EXECUTIVE COMPENSATION
Option Exercises and Shares Vested for 2018
The following table sets forth certain information with respect to the exercise of options and the vesting of RSUs
and PSUs, as applicable, during 2018 for the Named Executive Officers.
Name
Jeremy D. Thigpen
Mark L. Mey
Howard E. Davis
Brady K. Long
Keelan I. Adamson
John B. Stobart
Number of Shares
Acquired on Exercise
(#)
--
--
--
--
Value Realized
on Exercise
($)
--
--
--
--
--
--
Number of
Shares Acquired on
Vesting
(#)
480,180
215,862
33,980
41,305
52,496
141,068
Value
Realized on
Vesting(1)
($)
4,782,616
2,214,737
327,387
407,481
486,039
1,304,709
(1) Value realized on vesting is calculated by multiplying the closing price of our shares on the NYSE on the date of vesting by the
number of gross shares that vested on such date, including any shares subsequently withheld in satisfaction of requisite tax
withholding.
Pension Benefits for 2018
We maintain the following pension plans for executive officers and other employees that provide for post-
retirement income based on age and years of service:
● Transocean Savings Restoration Plan
● Transocean U.S. Retirement Plan
● Transocean Pension Equalization Plan
The following table and narrative disclosure set forth certain information with respect to pension benefits
payable to the Named Executive Officers pursuant to these plans:
Name
Plan Name
Jeremy D. Thigpen
Transocean Savings Restoration Plan
Mark L. Mey
Transocean Savings Restoration Plan
Howard E. Davis
Transocean Savings Restoration Plan
Brady K. Long
Transocean Savings Restoration Plan
Keelan I. Adamson
John B. Stobart
Transocean Savings Restoration Plan
Transocean U.S. Retirement Plan
Transocean Pension Equalization Plan
Transocean Savings Restoration Plan
Transocean U.S. Retirement Plan
Transocean Pension Equalization Plan
Number of
Years Credited
Service
(#)
4
4
3
3
4
10
10
4
2
2
Present Value
of Accumulated
Benefit
($)
534,498
293,971
153,878
117,495
166,738
383,692
369,847
420,834
89,306
217,968
Payments
During
2017
($)
--
--
--
--
--
--
--
--
--
Transocean Savings Restoration Plan
The Company maintains the Transocean Savings Restoration Plan, a nonqualified, unfunded, defined
contribution plan for key management employees who earn compensation in excess of certain limits in the
Internal Revenue Code. All Named Executive Officers participate in this plan. Effective January 1, 2017, all
participants in this plan are fully vested. The plan provides that eligible participants receive an annual
contribution equal to 10% (or such other percentage as determined by the administrative committee) of the
compensation earned in a particular calendar year that is in excess of the Internal Revenue Code limits.
Transocean 2019 Proxy Statement P-85
EXECUTIVE COMPENSATION
Compensation considered under this plan includes basic salary and annual performance bonus. A participant
must be employed on the last day of the calendar year in order to receive a contribution for a particular year.
Benefits are payable upon a participant’s termination of employment, or six months after termination in the case
of certain officers.
Transocean U.S. Retirement Plan
The Transocean U.S. Retirement Plan is a tax-qualified pension plan. Benefit accruals under this plan were
frozen effective as of December 31, 2014. Messrs. Adamson and Stobart are the only Named Executive Officers
who participate in this plan.
The purpose of the plan is to provide post-retirement income benefits to employees in recognition of their long-
term service to the Company. Benefits available to executives are no greater than those offered to non-
executive participants. The plan is funded through cash contributions made by the Company based on actuarial
valuations and regulatory requirements. Employees working for the Company in the U.S. are fully vested after
completing five years of eligible employment. Employees earn the right to receive a benefit upon retirement at
the normal retirement age of 65 or upon early retirement (age 55 or older with five years of service).
Furthermore, employees earn the right to receive a benefit if they are active employees and age 65 or older
(with five years of service).
The elements of compensation included in computing the retirement benefit are basic salary and annual
performance bonuses earned prior to January 1, 2015. Retirement benefits are calculated as (i) the sum of 1%
of the employee’s compensation for each calendar year (or partial year) of employment, divided by (ii) twelve.
Certain assumptions and calculation methods were used to determine the values of the pension benefits
disclosed in the “Pension Benefits for 2018” table above. In particular, monthly accrued pension benefits,
payable at age 65, were determined as of December 31, 2018. The present value of these benefits was
calculated based on assumptions used in the Company’s financial statements for 2018.
Transocean Pension Equalization Plan
The Pension Equalization Plan (“PEP”) is a nonqualified, unfunded, noncontributory pension plan that was
frozen effective December 31, 2014. Messrs. Adamson and Stobart are the only Named Executive Officers with
a frozen benefit in the PEP.
Certain employees are eligible to receive a benefit under the PEP if the level of their compensation prior to
January 1, 2015, would otherwise cause them to exceed the Internal Revenue Code compensation limitations
imposed on the Transocean U.S. Retirement Plan. The purpose of the PEP is to provide supplemental post-
retirement income in recognition of service to the Company. Benefits are payable upon a participant’s
termination of employment, or six months after termination in the case of certain officers.
The plan recognizes the same forms of compensation and the same formula used to calculate the plan benefit
as the Transocean U.S. Retirement Plan however, earnings are not limited to the pay cap under the Internal
Revenue Code Section 401(a)(17) (U.S. $260,000 in 2014 when the PEP was frozen). Benefits are not earned
until the individual has five years of credited service with the Company.
Certain assumptions and calculation methods were used to determine the values of the pension benefits
disclosed in the “Pension Benefits for 2018” table above. In particular, monthly accrued pension benefits,
payable at age 65, were determined as of December 31, 2018. The present value of these benefits was
calculated based on assumptions used in the Company’s financial statements for 2018.
P-86 Transocean 2019 Proxy Statement
EXECUTIVE COMPENSATION
Potential Payments Upon Termination or Change of Control
The following table summarizes the treatment of outstanding awards as provided in the terms and conditions
of each award.
Event
Consequences
Voluntary not-for-cause termination
Restricted Share Units and Stock Options – executive’s right to unvested portion
of award terminates immediately
Involuntary not-for-cause termination or Retirement
Restricted Share Units – prorated portion of award vests
Performance Share Units – prorated portion of award vests based on actual
performance after the performance period ends
Stock Options – executive’s right to unvested portion of award terminates
Termination due to Death or Disability
Restricted Share Units and Stock Options – award vests
Performance Share Units – prorated portion of award vests based on actual
Involuntary termination not-for-cause after a Change of
Control
Restricted Share Units and Stock Options – award vests
Performance Share Units – award vests based on target performance
The following table sets forth certain information with respect to compensation that would be payable to the
Named Executive Officers, as of December 31, 2018, upon a variety of termination or change of control
scenarios.
As of December 31, 2018, the Named Executive Officers of the Company were eligible for the Executive
Severance Benefit Policy. However, members of the Executive Management Team are further subject to the
full limitations of the Minder Ordinance regarding severance.
Name
Jeremy D. Thigpen
Mark L. Mey
Howard E. Davis
Brady K. Long
Triggering Event(1)
Voluntary Not-for-Cause
Involuntary Not-for-Cause
Retirement
Death
Disability
Change of Control
Voluntary Not-for-Cause
Involuntary Not-for-Cause
Retirement
Death
Disability
Change of Control
Voluntary Not-for-Cause
Involuntary Not-for-Cause
Retirement
Death
Disability
Change of Control
Voluntary Not-for-Cause
Involuntary Not-for-Cause
Retirement
Death
Disability
Change of Control
Cash
Severance
Payment(2)
($)
--
--
--
--
--
--
--
--
--
--
--
--
--
577,500
--
--
--
577,500
--
577,500
--
--
--
577,500
Non-Equity
Incentive
Compensati
on(3)
--
962,500
962,500
962,500
962,500
962,500
--
497,420
497,420
497,420
497,420
497,420
--
317,625
317,625
317,625
317,625
317,625
--
315,291
315,291
315,291
315,291
315,291
Stock
Awards(4)
($)
--
2,461,657
2,461,657
3,481,342
3,481,342
5,407,475
--
1,013,760
1,013,760
1,416,873
1,416,873
2,180,638
--
801,434
801,434
1,122,104
1,122,104
1,730,288
--
732,798
732,798
1,030,367
1,030,367
1,596,117
Option
Awards(5)
($)
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
Retirement
Plan
Benefit(6)
($)
534,498
534,498
534,498
534,498
534,498
534,498
293,971
293,971
293,971
293,971
293,971
293,971
153,878
153,878
153,878
153,878
153,878
153,878
117,495
117,495
117,495
117,495
117,495
117,495
Total
($)
534,498
3,958,655
3,958,655
4,978,340
4,978,340
6,904,473
293,971
1,805,151
1,805,151
2,208,264
2,208,264
2,972,029
153,878
1,850,437
1,272,937
1,593,607
1,593,607
2,779,291
117,495
1,743,084
1,165,584
1,463,153
1,463,153
2,606,403
Transocean 2019 Proxy Statement P-87
EXECUTIVE COMPENSATION
Keelan I. Adamson
John B. Stobart
Voluntary Not-for-Cause
Involuntary Not-for-Cause
Retirement
Death
Disability
Change of Control
Voluntary Not-for-Cause
Involuntary Not-for-Cause
Retirement
Death
Disability
Change of Control
--
--
--
--
--
--
--
--
--
--
--
--
--
269,572
269,572
269,572
269,572
269,572
--
257,950
257,950
257,950
257,950
257,950
--
497,304
497,304
697,035
697,035
1,076,089
--
1,017,618
1,017,618
1,422,232
1,422,232
2,188,827
--
--
--
--
--
--
--
--
--
--
--
--
536,585
536,585
536,585
390,860
536,585
536,585
638,802
638,802
638,802
579,897
638,802
638,802
536,585
1,303,461
1,303,461
1,357,467
1,503,192
1,882,246
638,802
1,914,370
1,914,370
2,260,079
2,318,984
3,085,579
(1) Amounts in the table represent obligations of the Company under agreements currently in place and valued as of December 31,
2018.
(2) Amounts payable under the terms of the Executive Severance Benefit Policy. This includes a lump sum payment equal to 52
weeks of base salary as well as outplacement services (not to exceed 5% of the base salary) for Messrs. Davis and Long.
(3) Amounts payable for the 2018 annual cash bonus earned (these amounts are also reflected in the “Summary Compensation
Table”).
(4) Represents the value of restricted share units and performance share units that would vest upon the triggering event, based on
$6.94, the closing stock price on the last trading day of 2018.
(5) Represents the (“in-the-money”) value of vested and unvested stock options.
(6) Represents the present value of PEP and Savings Restoration Plan benefits which would have been payable as of December 31,
2018.
CEO Pay Ratio
Pursuant to the Securities Exchange Act of 1934, as amended, the Company is required to disclose in this
proxy statement the ratio of the total annual compensation of our CEO to the total annual compensation of our
median employee.
Based on SEC rules for this disclosure and applying the methodology described below, the Company
determined that our CEO’s total compensation in U.S. dollars for 2018 was $8,550,795, and the 2018 total
compensation of the median employee in U.S. dollars was $118,192. Accordingly, for 2018, the Company
estimates the ratio of our CEO’s total compensation to the median total compensation of all employees to be
72 to 1.
Due to acquisitions that occurred in 2018 that impacted our employee population, we are not using the same
median employee as prior year. In determining the applicable median salary, we first excluded 209 of our non-
U.S. employees located in Angola, Cyprus, Hungary, Malaysia, India, Cayman Islands, Nigeria, Singapore and
Thailand representing 4.2% of our workforce, a de minimis number of non-US employees as allowed under the
SEC rules. Next, for all other non-U.S. employees paid in local non-U.S. currency, salaries were denominated
in U.S. dollars by applying applicable currency exchange rates in place on December 31, 2018. This currency
exchange was necessary for comparison to our CEO pay which is denominated in U.S. dollars. We then
identified the median employee based on a tabulation of annualized base salary for all included employees on
December 31, 2018, the last day of our fiscal year.
Once the median employee was identified as described above, the total annual compensation for 2018 for that
employee was determined using the same rules that apply to reporting NEO compensation in the Total column
of the “Summary Compensation Table.”
P-88 Transocean 2019 Proxy Statement
EQUITY COMPENSATION PLAN
INFORMATION
The following table provides information concerning securities authorized for issuance under our equity
compensation plans as of December 31, 2018.
Plan Category
Equity compensation plans approved
by security holders (1)
Equity compensation plans not
approved by security holders
Total
Number of
Securities to be
Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
(a)
Weighted-Average
Exercise Price
of Outstanding
Options, Warrants
and Rights
(b) (U.S.$)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
(c)
3,767,483
—
3,767,483
21.56
—
21.56
21,450,598
—
21,450,598
(1) We may also grant restricted share units and other forms of share-based awards under our long-term incentive plans previously
approved by our shareholders. At December 31, 2018, we had 6,445,332 shares available for future issuance pursuant to grants of
restricted share units.
Transocean 2019 Proxy Statement P-89
OTHER MATTERS
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee of the Board of Directors during 2018 were Tan Ek Kia,
Chairman, Frederico F. Curado, and Vincent J. Intrieri. There are no matters relating to interlocks or insider
participation that we are required to report.
Section 16(a) Beneficial Ownership Reporting Compliance
Federal securities laws require the Company’s Executive Officers and directors, and persons who own more
than ten percent of the Company’s shares, to file initial reports of ownership and reports of changes in
ownership of the Company’s equity securities with the SEC. Based solely on a review of such reports furnished
to the Company and written representations that no report on Form 5 was required for 2018, the Company
believes that no director, officer or beneficial owner of more than ten percent of the Company’s shares failed to
file a report on a timely basis in 2018.
Householding
The SEC permits us, under certain circumstances, to send a single set of the Notice, proxy materials, and
annual reports to any household at which two or more shareholders reside if they appear to be members of the
same family. This procedure, referred to as householding, reduces the volume of duplicate information
shareholders receive and reduces mailing and printing expenses.
In order to take advantage of this opportunity, we have delivered only one copy of the Notice or, if you previously
requested to receive paper proxy materials by mail, one proxy statement and annual report to shareholders
who share an address (unless we received contrary instructions from one or more of the affected shareholders
prior to the mailing date). However, if any such shareholder residing at such an address wishes to receive a
separate copy of any of these documents either now or in the future, or if any such shareholder who elected to
continue to receive separate copies wishes to receive a single copy in the future, that shareholder should send
a request in writing to Investor Relations at our offices in the United States, at 4 Greenway Plaza, Houston,
Texas 77046 or by calling +1 (713) 232-7500. We will deliver, promptly upon written or oral request to Investor
Relations, a separate copy of the Notice, proxy materials or annual report, as applicable, to a shareholder at a
shared address to which a single copy of the documents was delivered.
A number of brokerage firms have instituted householding. If your family or others with a shared address have
one or more “street name” accounts under which you beneficially own shares, you may have received
householding information from your broker/dealer, financial institution or other nominee in the past. Please
contact the holder of record directly if you have questions, require additional copies of the proxy materials or
wish to revoke your decision to household and thereby receive multiple copies.
Proposals of Shareholders
Shareholder Proposals in the Proxy Statement. Rule 14a-8 under the Exchange Act addresses when a
company must include a shareholder’s proposal in its proxy statement and identify the proposal in its form of
proxy when the company holds an annual or special meeting of shareholders. Under Rule 14a-8, in order for
your proposals to be considered for inclusion in the proxy statement and proxy card relating to our 2020 Annual
General Meeting, your proposals must be received at our principal executive offices c/o Transocean
Management Ltd., Turmstrasse 30, CH-6312 Steinhausen, Switzerland by no later than 5:00 p.m. Swiss time
on November 9, 2019. However, if the date of the 2020 Annual General Meeting changes by more than 30
days from the anniversary of the 2019 Annual General Meeting, the deadline is a reasonable time before we
begin to print and mail our proxy materials. We will notify you of this deadline in a Quarterly Report on Form
10-Q, in a Current Report on Form 8-K or in another communication to you. Shareholder proposals must also
be otherwise eligible for inclusion.
P-90 Transocean 2019 Proxy Statement
OTHER MATTERS
Shareholder Proposals and Nominations for Directors to be Presented at Meetings. If you desire to bring a
matter before an annual general meeting and the proposal is submitted outside the process of Rule 14a-8, you
must follow the procedures set forth in our Articles of Association. Our Articles of Association provide generally
that, if you desire to propose any business at an annual general meeting (including the nomination of any
director), you must give us written notice at least 30 calendar days prior to the anniversary date of the proxy
statement in connection with Transocean’s last annual general meeting; provided, however, that if the date of
the annual general meeting is 30 calendar days before or after the anniversary date of the last annual general
meeting, such request must instead be made by the tenth day following the date on which we have made public
disclosure of the date of the annual general meeting. The deadline under our Articles of Association for
submitting proposals will be 5:00 p.m. Swiss time on February 7, 2020, for the 2020 annual meeting unless it
is more than 30 calendar days before or after May 9, 2020.
In order for the notice to be considered timely under Rule 14a-4(c) of the Exchange Act, proposals must be
received no later than 5:00 p.m. Swiss time on February 7, 2020. The request must specify the relevant agenda
items and motions, together with evidence of the required shareholdings recorded in the share register, as well
as any other information required to be included in a proxy statement pursuant to the rules of the SEC.
If you desire to nominate directors to be presented at an annual general meeting, you must give us written
notice within the time period described in the preceding paragraph. If you desire to nominate directors to be
presented at an extraordinary general meeting at which the Board of Directors has determined that directors
will be elected, you must give us written notice by the close of business on the tenth day following our public
disclosure of the meeting date. Notice for the nomination of directors at any general meeting must set forth:
● Your name and address and the name and address of the person or persons to be nominated;
● A representation that you are a holder of record of our shares entitled to vote at the meeting or, if the
record date for the meeting is subsequent to the date required for that shareholder notice, a
representation that you are a holder of record at the time of the notice and intend to be a holder of record
on the date of the meeting and, in either case, setting forth the class and number of shares so held,
including shares held beneficially;
● A representation that you intend to appear in person or by proxy as a holder of record at the meeting to
nominate the person or persons specified in the notice;
● A description of all arrangements or understandings between you and each nominee you propose and
any other person or persons under which the nomination or nominations are to be made by you;
● Any other information regarding each nominee you propose that would be required to be included in a
proxy statement filed pursuant to the proxy rules of the SEC; and
● The consent of each nominee to serve as a director if so elected.
The Board of Directors may refuse to transact any business you propose or to acknowledge your nomination
of any person if you fail to comply with the foregoing procedures. You may obtain a copy of our Articles of
Association and Organizational Regulations, in which these procedures are set forth, upon written request to
our Corporate Secretary, Transocean Ltd., Turmstrasse 30, CH-6312 Steinhausen, Switzerland.
Cost of Solicitation
The accompanying proxy is being solicited on behalf of the Board of Directors. The expenses of preparing,
printing and mailing the proxy and the materials used in the solicitation will be borne by us. We have retained
Georgeson LLC for a fee of $20,000, plus expenses, to aid in the solicitation of proxies. Proxies may be solicited
by personal interview, mail, telephone, facsimile, internet or other means of electronic distribution by our
directors, officers and employees, who will not receive additional compensation for those services.
Arrangements also may be made with brokerage houses and other custodians, nominees and fiduciaries for
the forwarding of solicitation materials to the beneficial owners of shares held by those persons, and we will
reimburse them for reasonable expenses incurred by them in connection with the forwarding of solicitation
materials.
Transocean 2019 Proxy Statement P-91
OTHER MATTERS
Forward-Looking Statements
The statements included in this proxy statement, including in the letter to shareholders and in the section entitled
“Compensation Discussion and Analysis—Executive Summary—2018 Business Overview,” regarding future
financial performance, results of operations, liquidity, stacking of assets and the market and other statements
that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Exchange Act. Forward-looking statements are subject to numerous risks,
uncertainties and assumptions, including, but not limited to, the future prices of oil and gas, operating hazards
and delays, actions by customers and other third parties, conditions in the drilling industry and in the capital
markets and those described under “Item 1A. Risk Factors” in the 2018 Annual Report and in our other filings
with the SEC. Should one or more of these risks or uncertainties materialize (or the other consequences of
such a development worsen), or should underlying assumptions prove incorrect, actual results may vary
materially from those indicated or expressed or implied by such forward-looking statements. All subsequent
written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly
qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on
forward-looking statements. Each forward-looking statement speaks only as of the date of the particular
statement, and we undertake no obligation to publicly update or revise any forward-looking statements, except
as required by law.
P-92 Transocean 2019 Proxy Statement
APPENDIX A
Transocean Ltd. and subsidiaries
Non-GAAP Financial Measures and Reconciliations
Earnings Before Interest, Taxes, Depreciation and Amortization and Related Margins
(in millions, except percentages)
Contract Drilling Revenues
Contract intangible amortization
Contract drilling revenues before amortization
Drilling contract termination fees
Adjusted Normalized Revenues
Net income (loss)
Interest expense, net of interest income
Income tax expense
Depreciation expense
Contract intangible amortization
EBITDA
Acquisition and restructuring costs
Loss on impairment of goodwill and other assets
Bargain purchase gain
Gain on disposal of assets, net
Loss on retirement of debt
Adjusted EBITDA
Drilling contract termination fees
Adjusted Normalized EBITDA
EBITDA margin
Adjusted EBITDA margin
Adjusted Normalized EBITDA margin
Year ended
12/31/18
$ 3,018
112
3,130
(124)
$ 3,006
$ (2,003)
567
228
818
112
(278)
34
1,464
(10)
7
3
1,206
(124)
$ 1,082
(9) %
39 %
36 %
Transocean 2019 Proxy Statement AP-1
TRANSOCEAN LTD.
COMPENSATION REPORT
For the years ended December 31, 2018 and 2017
Ernst & Young Ltd
Maagplatz 1
P.O. Box
8005 Zurich
Phone: +41 58 286 86 86
Fax: +41 58 286 30 04
www.ey.com/ch
To the General Meeting of
Transocean Ltd., Steinhausen
Zurich, March 8, 2019
Report of the statutory auditor on the compensation report
We have audited the compensation report (pages CR-2 to CR-6) of Transocean Ltd. for the year ended December 31, 2018.
Board of Directors’ responsibility
The Board of Directors is responsible for the preparation and overall fair presentation of the compensation report in accordance with Swiss
law and the Ordinance against Excessive Compensation in Stock Exchange Listed Companies (Ordinance). The Board of Directors is also
responsible for designing the compensation system and defining individual compensation packages.
Auditor’s Responsibility
Our responsibility is to express an opinion on the compensation report. We conducted our audit in accordance with Swiss Auditing Standards.
Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the compensation report complies with Swiss law and articles 14 – 16 of the Ordinance.
An audit involves performing procedures to obtain audit evidence on the disclosures made in the compensation report with regard to
compensation, loans and credits in accordance with articles 14 – 16 of the Ordinance. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatements in the compensation report, whether due to fraud or error. This
audit also includes evaluating the reasonableness of the methods applied to value components of compensation, as well as assessing the
overall presentation of the compensation report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the compensation report for the year ended December 31, 2018 of Transocean Ltd. complies with Swiss law and
articles 14 – 16 of the Ordinance.
Ernst & Young Ltd
/s/ Jolanda Dolente
Licensed audit expert
(Auditor in charge)
/s/ Jennifer Mathias
Certified public accountant
CR-1
TRANSOCEAN LTD.
COMPENSATION REPORT
General
Transocean Ltd. (“Transocean”, “we”, “us”, or “our”) is the parent company of Transocean Inc. and Transocean Management
Services GmbH., our direct wholly-owned subsidiaries. Transocean is registered with the commercial register in the canton of Zug, and its
shares are listed on the New York Stock Exchange (“NYSE”). We are thus bound by the legal and regulatory requirements of both the United
States of America (“U.S.”) and Switzerland.
This Compensation Report reflects the requirements of Articles 13–16 of the Swiss Federal Ordinance Against Excessive
Compensation in Public Corporations, and discloses any compensation paid to our members of the Board of Directors and the Executive
Management Team for the years ended December 31, 2018 and 2017. For a description of our governance framework relating to executive
and director compensation, please refer to page P-42 et seq. of our 2019 Proxy Statement under the caption "Executive and Director
Compensation Process." For a description of our directors' compensation principles, please refer to page P-49 et seq. of our 2019 Proxy
Statement under the captions "Director Compensation Strategy" and "2018 Director Compensation." For a description of our Executive
Management Team compensation principles, please refer to page P-55 et seq. of our 2019 Proxy Statement under the caption
"Compensation Discussion and Analysis."
For the years ended December 31, 2018 and 2017, we have presented all compensation amounts in U.S. dollars and Swiss francs
using the average annual currency exchange rate of USD 1.00 to CHF 0.98 and CHF 0.99, respectively.
Board of Directors’ Compensation
Our Board of Directors is paid in U.S. dollars and our non-employee directors were eligible to receive compensation as follows:
Annual retainer for non-executive chairman
Annual retainer for non-executive vice-chairman
Annual retainer for non-employee directors
Annual award of restricted share units for non-executive chairman
Annual award of restricted share units for non-executive vice-
chairman
Annual award of restricted share units for non-employee directors
USD
Additional annual retainer for committee chairmen:
Audit committee
Compensation committee
Corporate governance committee, finance committee,
and health, safety and environment committee
Year ended December 31, 2018
Payment
currency
Swiss franc
equivalent
Year ended December 31, 2017
Payment
currency
Swiss franc
equivalent
USD
325,000
—
100,000
325,000
—
210,000
35,000
20,000
10,000
CHF
317,753
—
97,770
317,753
—
205,317
34,220
19,554
9,777
325,000
—
100,000
325,000
—
210,000
35,000
20,000
10,000
CHF
320,905
—
98,740
320,905
—
207,354
34,559
19,748
9,874
In addition to the directors’ compensation, we pay or reimburse our directors for travel and incidental expenses incurred for
attending board, committee and shareholder meetings and for other company-related business purposes. Our directors who are our
employees do not receive compensation for board service. With the exception of Jeremy D. Thigpen, all of the directors on our Board of
Directors receive compensation as non-employees. No director served in the position of non-executive vice chairman for the years ended
December 31, 2018 and December 31, 2017.
We grant restricted share units to the non-executive chairman and each non-employee director annually with an aggregate value
of USD 325,000 and USD 210,000, respectively, based upon the average of the high and low market prices of our shares for each of the
10 trading days preceding the date of grant. The restricted share units vest on the date first to occur of (i) the first anniversary of the date of
grant or (ii) the Annual General Meeting next following the date of grant, subject to continued service through the vesting date. Vesting of
the restricted share units is not subject to any performance measures. Each director may elect to receive the shares upon vesting or to defer
shares until the director no longer serves on the board.
CR-2
TRANSOCEAN LTD.
COMPENSATION REPORT—continued
We paid to our non-employee directors total compensation as follows:
Year ended December 31, 2018
Year ended December 31, 2017
Total
compensation
for board
membership
CHF
USD
650,651
665,491
347,085
355,002
312,866
320,002
312,866
320,002
322,643
330,002
332,420
340,002
321,828
329,169
312,866
320,002
304,718
311,669
322,643
330,002
8,962
9,167
CHF
USD
Fees
earned
(a)
317,753
325,000
131,990
135,000
97,770
100,000
97,770
100,000
107,547
110,000
117,324
120,000
106,732
109,167
97,770
100,000
89,623
91,667
107,547
110,000
8,962
9,167
CHF
USD
332,898
340,491
215,096
220,002
215,096
220,002
215,096
220,002
215,096
220,002
215,096
220,002
215,096
220,002
215,096
220,002
215,096
220,002
215,096
220,002
Name and function
Merrill A. “Pete” Miller, Jr (c)
Chairman of the board
Glyn Barker (d)
Member of the board; chair of the audit committee;
member of the finance committee
Vanessa C.L. Chang (c)
Member of the board; member of the audit committee;
member of the corporate governance committee
since February 8, 2018; member of the finance
committee until February 8, 2018
Frederico F. Curado (e)
Member of the board; member of the compensation
committee; member of the audit committee
Chad Deaton (c)
Member of the board; chair of the health, safety and
environment committee; member of the corporate
governance committee
Tan Ek Kia (f)
Member of the board; chair of the compensation
committee; member of the health, safety and
environment committee
Vincent J. Intrieri (c)
Member of the board, chair of the corporate
governance committee since February 8, 2018 and
a prior member of such committee; member of the
compensation committee; member of the finance
committee
Samuel Merksamer (c)
Member of the board; member of the finance
committee; member of the health, safety and
environment committee
Frederik Mohn (g)
Member of the board; member of the audit
committee since February 8, 2018; member of the
health, safety and environment committee since
February 8, 2018
Edward R. Muller (c)
Member of the board; chair of the finance committee;
member of the health, safety and environment
committee
Martin B. McNamara (c)(h)
Member of the board; chair of the corporate
governance committee and member of the
compensation committee until January 30, 2018
Total (CHF)
Total (USD)
Restricted
share units
(value)
(b)
Restricted
share units
(quantity)
Total
compensation for
board
membership
Fees
earned
(a)
Restricted
share units
(value)
(b)
24,981 CHF
USD
16,141
16,141
16,141
16,141
16,141
16,141
634,138
642,230
335,693
339,977
301,134
304,977
301,134
304,977
311,008
314,977
320,882
324,977
301,134
304,977
CHF
USD
320,905
325,000
133,299
135,000
98,740
100,000
98,740
100,000
108,614
110,000
118,488
120,000
98,740
100,000
CHF
USD
313,233
317,230
202,394
204,977
202,394
204,977
202,394
204,977
202,394
204,977
202,394
204,977
202,394
204,977
Restricted
share units
(quantity)
29,871
19,301
19,301
19,301
19,301
19,301
19,301
16,141
301,134
304,977
98,740
100,000
202,394
204,977
19,301
16,141
―
―
―
―
―
―
―
16,141
―
―
―
311,008
314,977
311,008
314,977
108,614
110,000
108,614
110,000
202,394
204,977
202,394
204,977
19,301
19,301
CHF
USD
3,549,548
3,630,510
CHF
USD
1,280,788
1,310,001
CHF
USD
2,268,762
2,320,508
170,250
CHF
USD
3,428,272
3,472,020
1,293,494
1,310,000
2,134,778
2,162,020
203,580
_____________________________
(a) Fees earned include cash retainer fees.
(b) For the years ended December 31, 2018 and 2017, we estimated the fair value of restricted share units to be USD 13.63 and USD 10.62, respectively, equivalent to CHF 13.33
and CHF 10.49, respectively, based on the market price of our shares as reported on the NYSE on the grant date.
(c) Total compensation is not subject to employer-paid social taxes.
(d)
(e)
In addition to the total compensation presented above, Mr. Barker received compensation representing employer-paid U.K. social taxes. In the years ended December 31, 2018
and 2017, such employer-paid social taxes on Transocean compensation were USD 18,630 and USD 18,395, respectively, equivalent to CHF 18,215 and CHF 18,163,
respectively.
In addition to the total compensation presented above, Mr. Curado received compensation representing employer-paid Swiss social taxes. In the years ended December 31,
2018 and 2017, such employer-paid social taxes were USD 7,945 and USD 7,845, respectively, equivalent to CHF 7,768 and CHF 7,746, respectively.
In addition to the total compensation presented above, Mr. Tan received compensation representing employer-paid Swiss social taxes. In the years ended December 31, 2018
and 2017, such employer-paid social taxes were USD 7,327 and USD 7,247, respectively, equivalent to CHF 7,163 and CHF 7,156, respectively.
In addition to the total compensation presented above, Mr. Mohn received compensation representing employer-paid Swiss social taxes. In the year ended December 31, 2018,
such employer-paid social taxes were USD 7,283, equivalent to CHF 7,121.
(h) Effective January 30, 2018, Mr. McNamara retired from the Board of Directors.
(g)
(f)
CR-3
TRANSOCEAN LTD.
COMPENSATION REPORT—continued
Executive Management Team Compensation
Overview—We paid the members of our Executive Management Team total compensation as follows:
Name and function
Jeremy D. Thigpen
Chief Executive Officer since April 22, 2015
Mark-Anthony Lovell Mey
Executive Vice President and Chief Financial Officer since May 28, 2015
Keelan I. Adamson
Executive Vice President and Chief Operations Officer since August 10, 2018
John B. Stobart
Executive Vice President and Chief Operating and Performance Officer until June 1,
2018
Total (CHF)
Total (USD)
Year ended December 31, 2018
Year ended December 31, 2017
Total salary and
other non
share-based
compensation
Total
share-based
compensation
Total
compensation
Total salary and
other non
share-based
compensation
Total
share-based
compensation
Total
compensation
CHF
USD
2,320,443
2,373,369
1,475,839
1,509,501
452,127
462,439
1,498,075
1,532,244
CHF
USD
6,161,558
6,302,094
2,376,598
2,430,806
―
―
2,385,413
2,439,822
CHF
USD
8,482,001
8,675,463
3,852,437
3,940,307
452,127
462,439
3,883,488
3,972,066
CHF
USD
3,066,519
3,105,650
1,931,853
1,956,505
―
―
2,145,836
2,173,219
CHF
USD
5,876,266
5,951,252
2,538,557
2,570,951
―
―
2,547,940
2,580,454
CHF
USD
8,942,785
9,056,902
4,470,410
4,527,456
―
―
4,693,776
4,753,673
CHF
5,746,484
CHF
10,923,569
CHF
16,670,053
USD
5,877,553
USD
11,172,722
USD
17,050,275
CHF
USD
7,144,208
CHF
10,962,763 CHF
18,106,970
7,235,374
USD
11,102,657
USD
18,338,031
Salary and other non-share-based compensation—We paid members of our Executive Management Team total salary and
other non-share-based compensation, before deductions for employee social insurance and pension contributions, as follows:
Name
Jeremy D. Thigpen
Mark-Anthony Lovell Mey
Keelan I. Adamson (d)
John B. Stobart
Total (CHF)
Total (USD)
CHF
USD
Base
salary
977,700
1,000,000
743,052
760,000
228,870
234,090
655,059
670,000
CHF 2,604,681
USD 2,664,090
Bonus
(a)
CHF 941,036
USD 962,500
486,328
497,420
132,173
135,188
252,198
257,950
CHF 1,811,735
USD 1,853,058
Year ended December 31, 2018
Additional
compensation
(b)
CHF
USD
―
―
―
―
―
―
Employer’s
pension
contributions
CHF 259,677
USD 265,600
161,465
165,148
71,380
Retirement and
social security
benefits
(c)
CHF 142,030
USD 145,269
84,994
86,933
19,704
Total salary and
other non
share-based
compensation
CHF 2,320,443
USD 2,373,369
1,475,839
1,509,501
452,127
73,008
20,154
462,439
357,763
365,923
CHF 357,763
USD 365,923
155,904
159,460
CHF 648,426
USD 663,216
77,151
78,911
CHF 323,879
USD 331,267
1,498,075
1,532,244
CHF 5,746,484
USD 5,877,553
_____________________________
(a) Bonus represents the amount earned in the year ended December 31, 2018, but not paid as of December 31, 2018.
(b) Additional compensation for Mr. Stobart includes relocation expenses and payment for his notice period in accordance with the terms of his employment agreement.
Includes employer-paid social taxes and costs of health benefits, such as medical and dental insurance. Through December 31, 2018, Mr. Adamson has accrued
(c)
benefits of USD 369,847, equivalent to CHF 361,599 under the Transocean Ltd. Pension Equalization Plan and USD 383,692, equivalent to CHF 375,136 under the
Transocean U.S. Retirement Plan. Mr. Stobart has accrued benefits of USD 217,968, equivalent to CHF 213,107 under the Transocean Ltd. Pension Equalization
Plan and USD 89,306, equivalent to CHF 87,314 under the Transocean U.S. Retirement Plan.
(d) Mr. Adamson’s compensation is prorated for 2018 based on his August 10, 2018 appointment to the Executive Management Team.
Year ended December 31, 2017
Name
Jeremy D. Thigpen
Mark-Anthony Lovell Mey
John B. Stobart
Total (CHF)
Total (USD)
_____________________________
CHF
USD
Base
salary
987,400
1,000,000
750,424
760,000
661,558
670,000
Bonus
(a)
CHF
USD
1,635,134
1,656,000
880,247
891,480
912,950
924,600
Additional
compensation
(b)
40,978
41,501
CHF
USD
Employer’s
pension
contributions
295,430
299,200
CHF
USD
Retirement and
social security
benefits
(c)
107,576
108,949
CHF
USD
Total salary and
other non
share-based
compensation
CHF
USD
3,066,519
3,105,650
49,909
50,546
308,294
312,228
180,927
183,236
180,927
183,236
70,345
71,243
82,107
83,155
1,931,853
1,956,505
2,145,836
2,173,219
CHF
USD
2,399,382
2,430,000
CHF
USD
3,428,332
3,472,080
CHF
USD
399,181
404,275
CHF
USD
657,284
665,672
CHF
USD
260,029
263,347
CHF
USD
7,144,208
7,235,374
(a) Bonus represents the amount earned in the year ended December 31, 2017, but not paid as of December 31, 2017.
(b) Additional compensation includes relocation pay and moving expenses; housing, automobile, home leave and cost of living allowances; dividend equivalents; club
(c)
membership dues; and other company-reimbursed expenses and benefits provided to expatriate employees.
Includes employer-paid social taxes and costs of health benefits, such as medical and dental insurance. Additionally, beginning in 2015, amounts include service costs
under retirement plans accumulated in 2015. Through the end of fiscal year 2017, Mr. Stobart has accrued benefits of USD 240,381, equivalent to CHF 237,352,
under the Transocean Ltd. Pension Equalization Plan and USD 97,970, equivalent to CHF 96,736, under the Transocean U.S. Retirement Plan.
CR-4
TRANSOCEAN LTD.
COMPENSATION REPORT—continued
Share-based compensation—We granted to the members of our Executive Management Team share-based compensation
awards under our long-term incentive plans. As presented below, total share-based compensation represents the fair value of grants made
to the members of our Executive Management Team and does not represent actual income earned. Any income earned from subsequent
vesting of the awards will be subject to employer-paid social taxes at the statutory rate prevailing at the time income is earned.
To measure the fair values of stock options granted or modified, we use the Black-Scholes-Merton option-pricing model and apply
assumptions for the expected life, risk-free interest rate, dividend yield and expected volatility. To measure the fair values of granted or
modified service-based restricted share units, we use the market price of our shares on the grant date or modification date. To measure the
fair values of granted or modified performance share units that are subject to market factors, such as total shareholder return, we use a
Monte Carlo simulation model and, in addition to the assumptions applied for the Black-Scholes-Merton option-pricing model, we apply
assumptions using a risk neutral approach and the average price at the performance start date.
In the years ended December 31, 2018 and 2017, we granted performance share units to members of our Executive Management
Team. Such performance share units are subject to a three-year performance period during which the actual number of units remain
uncertain. The number of performance share units presented below represents the targeted number of shares awarded. The actual number
of share units earned will be determined in the first 60 days following the performance period based on performance thresholds and may
range between zero and two shares per performance share unit.
Share-based compensation awards were granted as follows:
Name
Options (a)
Fair value
Units (a)
Fair value
Units (a)(b)
Fair value
Stock options
Restricted share units
Performance share units
Year ended December 31, 2018
Jeremy D. Thigpen
Mark-Anthony Lovell Mey
Keelan I. Adamson (c)
John B. Stobart
Total (CHF)
Total (USD)
_____________________________
328,947
126,880
―
127,350
583,177
CHF
USD
1,450,468
1,483,551
559,468
572,229
—
―
561,541
574,349
CHF
USD
2,571,477
2,630,129
163,399
63,025
―
63,259
289,683
CHF
USD
1,466,553
1,500,003
565,667
578,570
―
―
567,768
580,718
CHF
USD
2,599,988
2,659,291
307,557
118,629
―
119,069
545,255
CHF
USD
CHF
USD
3,244,537
3,318,540
1,251,463
1,280,007
―
―
1,256,104
1,284,755
5,752,104
5,883,302
Total share-based
compensation
CHF
USD
6,161,558
6,302,094
2,376,598
2,430,806
―
―
2,385,413
2,439,822
CHF
USD
10,923,569
11,172,722
(a) We granted stock options, restricted share units and performance share units to the members of our Executive Management Team on February 8, 2018.
(b) The three-year performance period is January 1, 2018 to December 31, 2020 and is based on our total shareholder return relative to our performance peer group.
(c) Mr. Adamson did not receive any awards of share-based compensation at the time of his appointment to the Executive Management Team.
Name
Options (a)
Fair value
Units (a)
Fair value
Units (a)(b)
Fair value
Stock options
Restricted share units
Performance share units
Year ended December 31, 2017
Total
share-based
compensation
5,876,266
5,951,252
CHF
USD
217,618
94,011
94,359
CHF
USD
1,383,801
1,401,460
597,803
605,431
600,015
607,672
112,897
48,772
48,952
CHF
USD
1,488,184
1,507,175
187,238
CHF
USD
3,004,280
3,042,618
642,902
651,106
645,275
653,509
80,887
81,186
1,297,852
1,314,414
1,302,650
1,319,273
2,538,557
2,570,951
2,547,940
2,580,454
405,988
CHF
USD
2,581,619
2,614,563
210,621
CHF
USD
2,776,362
2,811,790
349,311
CHF
USD
5,604,782
5,676,304
CHF
USD
10,962,763
11,102,657
Jeremy D. Thigpen
Mark-Anthony Lovell Mey
John B. Stobart
Total (CHF)
Total (USD)
_________________________________
(a) We granted stock options, restricted share units and performance share units to the members of our Executive Management Team on February 10, 2017.
(b) The three-year performance period is January 1, 2017 to December 31, 2019 and is based on our total shareholder return relative to our performance peer group.
Credits and Loans Granted to Governing Bodies
In compliance with Article 29f paragraph 1 of our Articles of Association, which our shareholders adopted at the annual general
meeting held in May 2014, we did not grant credits or loans to active or former members of our Board of Directors, members of our
Executive Management Team or to any other related persons during the two-year period ended December 31, 2018. At December 31,
2018 and 2017, we had no outstanding credits or loans to active or former members of our Board of Directors, members of our
Executive Management Team or to any other related persons.
CR-5
TRANSOCEAN LTD.
COMPENSATION REPORT—continued
Compensation to Former Members of our Board of Directors or our Executive Management Team or to
Related Persons
During the year ended December 31, 2018 we paid former non-employee board member, Martin McNamara, USD 9,167,
equivalent to CHF 8,962, representing 2018 prorated fees prior to retirement. Additionally, we paid former Executive Management Team
member, John Stobart, USD 3,972,065, equivalent to CHF 3,883,488, which included compensation for his service as COO through
June 2018 as well as compensation for his notice period. These amounts for Mr. McNamara and Mr. Stobart are included in the total
compensation tables above.
During the year ended December 31, 2017 we did not pay or grant any compensation to former members of our Board of
Directors or our Executive Management Team or to related persons of active or former members of our Board of Directors or our Executive
Management Team.
CR-6
TRANSOCEAN LTD.
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018, 2017 and 2016
TRANSOCEAN LTD. AND SUBSIDIARIES
INDEX TO ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 2018
Item
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 5.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART III
Item 15. Exhibits and Financial Statement Schedules
PART IV
Page
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AR-21
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AR-23
AR-26
AR-27
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AR-46
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AR-91
AR-91
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AR-92
Forward-Looking Information
The statements included in this annual report regarding future financial performance and results of operations and other
statements that are not historical facts are forward-looking statements within the meaning of Section 27A of the United States (“U.S.”)
Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934. Forward-looking statements in this annual report
include, but are not limited to, statements about the following subjects:
our results of operations, our revenue efficiency and other performance indicators and our cash flow from operations;
the offshore drilling market, including the effects of declines in commodity prices, supply and demand, utilization rates, dayrates, customer
drilling programs, stacking and reactivation of rigs, effects of new rigs on the market, the impact of changes to regulations in jurisdictions
in which we operate and changes in the global economy or market outlook for our various geographical operating sectors and classes of
rigs;
customer drilling contracts, including contract backlog, force majeure provisions, contract awards, commencements, extensions,
terminations, renegotiations, contract option exercises, contract revenues, early termination payments, indemnity provisions and rig
mobilizations;
liquidity, including availability under our bank credit agreement, and adequacy of cash flows for our obligations;
regulatory or other limitations imposed as a result of the acquisition of Songa Offshore SE (“Songa”), a European public company limited
by shares, or societas Europaea, existing under the laws of Cyprus or the acquisition of Ocean Rig UDW Inc. (“Ocean Rig”), a Cayman
Islands exempted company with limited liability;
the success of our business following completion of the acquisition of Songa or Ocean Rig;
the ability to successfully integrate our business with the Songa and Ocean Rig businesses;
the risk that we may be unable to achieve expected synergies from the acquisitions of Songa or Ocean Rig or that it may take longer or
be more costly than expected to achieve those synergies;
debt levels, including impacts of a financial and economic downturn, and interest rates;
newbuild, upgrade, shipyard and other capital projects, including completion, delivery and commencement of operation dates, expected
downtime and lost revenue, the level of expected capital expenditures and the timing and cost of completion of capital projects;
the cost and timing of acquisitions and the proceeds and timing of dispositions;
the optimization of rig-based spending;
tax matters, including our effective tax rate, changes in tax laws, treaties and regulations, tax assessments and liabilities for tax issues,
including those associated with our activities in Brazil, Nigeria, Norway, the United Kingdom and the U.S.;
legal and regulatory matters, including results and effects of legal proceedings and governmental audits and assessments, outcomes and
effects of internal and governmental investigations, customs and environmental matters;
insurance matters, including adequacy of insurance, renewal of insurance, insurance proceeds and cash investments of our wholly owned
captive insurance company;
effects of accounting changes and adoption of accounting policies; and
investment in recruitment, retention and personnel development initiatives, defined benefit pension plan contributions, the timing of
severance payments and benefit payments.
Forward-looking statements in this annual report are identifiable by use of the following words and other similar expressions:
anticipates
believes
projects
scheduled
estimates
expects
forecasts
intends
budgets
could
plans
predicts
may
might
should
Such statements are subject to numerous risks, uncertainties and assumptions, including, but not limited to:
those described under “Item 1A. Risk Factors” in this annual report;
the adequacy of and access to sources of liquidity;
our inability to obtain drilling contracts for our rigs that do not have contracts;
our inability to renew drilling contracts at comparable dayrates;
operational performance;
the cancellation of drilling contracts currently included in our reported contract backlog;
losses on impairment of long-lived assets;
shipyard, construction and other delays;
the results of meetings of our shareholders;
changes in political, social and economic conditions;
the effect and results of litigation, regulatory matters, settlements, audits, assessments and contingencies; and
other factors discussed in this annual report and in our filings with the U.S. Securities and Exchange Commission (“SEC”), which are
available free of charge on the SEC website at www.sec.gov.
The foregoing risks and uncertainties are beyond our ability to control, and in many cases, we cannot predict the risks and
uncertainties that could cause our actual results to differ materially from those indicated by the forward-looking statements. Should one or
more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from
those indicated. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are
expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on forward-looking
statements. Each forward-looking statement speaks only as of the date of the particular statement. We expressly disclaim any obligations
or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in our expectations or
beliefs with regard to the statement or any change in events, conditions or circumstances on which any forward-looking statement is
based, except as required by law.
AR-1
Item 1.
Business
Overview
PART I
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. As of
February 11, 2019, we owned or had partial ownership interests in and operated a fleet of 49 mobile offshore drilling units, consisting of
31 ultra-deepwater floaters, 14 harsh environment floaters and four midwater floaters. As of February 11, 2019, we were constructing
(i) four additional ultra-deepwater drillships and (ii) one additional harsh environment semisubmersible, in which we hold a partial
ownership interest.
Our primary business is to contract our drilling rigs, related equipment and work crews predominantly on a dayrate basis to drill
oil and gas wells. We specialize in technically demanding regions of the global offshore drilling business with a particular focus on
ultra-deepwater and harsh environment drilling services. Our mobile offshore drilling fleet is one of the most versatile fleets in the world,
consisting of drillship and semisubmersible floaters used in support of offshore drilling activities and offshore support services on a
worldwide basis.
Transocean Ltd. is a Swiss corporation with its registered office in Steinhausen, Canton of Zug and with principal executive
offices located at Turmstrasse 30, 6312 Zug, Switzerland. Our telephone number at that address is +41 41 749-0500. Our shares are
listed on the New York Stock Exchange under the symbol “RIG.” For information about the revenues, operating income, assets and other
information related to our business, our segments and the geographic areas in which we operate, see “Part II. Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and “Part II. Item 8. Financial Statements and Supplementary
Data—Notes to Consolidated Financial Statements—Note 20—Operating Segments, Geographic Analysis and Major Customers.”
Recent Developments
Business combinations—On January 30, 2018, we acquired an approximate 97.7 percent ownership interest in Songa
Offshore SE, a European public company limited by shares, or societas Europaea, existing under the laws of Cyprus (“Songa”). On
March 28, 2018, we acquired the remaining shares not owned by us through a compulsory acquisition under Cyprus law, and as a result,
Songa became our wholly owned subsidiary. To complete these transactions, we issued 68.0 million shares and $863 million aggregate
principal amount of 0.50% exchangeable senior bonds due January 30, 2023. As a result of the acquisition, we acquired seven mobile
offshore drilling units, including five harsh environment floaters and two midwater floaters.
On December 5, 2018, we acquired Ocean Rig UDW Inc. (“Ocean Rig”), a Cayman Islands exempted company with limited
liability, in a merger transaction, and as a result, Ocean Rig became our wholly owned subsidiary. To complete the acquisition, we issued
147.7 million shares and made an aggregate cash payment of $1.2 billion. As a result of the acquisition, we acquired (i) 11 mobile offshore
drilling units, including nine ultra-deepwater floaters and two harsh environment floaters, and (ii) the contracts relating to the construction of
two ultra-deepwater drillships. In February 2019, we committed to plans to sell one ultra-deepwater floater and one harsh environment
floater acquired in the Ocean Rig acquisition.
See “Part II. Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 4—
Business Combinations.”
Drilling Fleet
Fleet overview—Our drilling fleet of floaters consists of drillships and semisubmersibles, which are mobile and can be moved to
new locations in response to customer demand. Our drilling equipment is suitable for both exploration and development, and we engage
in both types of drilling activity. Our mobile offshore drilling units are designed to operate in locations away from port for extended periods
of time and have living quarters for the crews, a helicopter landing deck and storage space for drill pipe, riser and drilling supplies.
Drillships are generally self-propelled vessels, shaped like conventional ships, and are the most mobile of the major rig types.
Our high-specification drillships are equipped with dynamic positioning thruster systems, which allows them to maintain position without
anchors through the use of onboard propulsion and station-keeping systems. Ultra-deepwater drillships typically have greater deck load
and storage capacity than early generation semisubmersible rigs, which provides logistical and resupply efficiency benefits for customers.
Drillships are generally better suited to operations in calmer sea conditions and typically do not operate in areas considered to be harsh
environments. We have 25 ultra-deepwater drillships that are, and four ultra-deepwater drillships under construction that will be, equipped
with our patented dual-activity technology. Dual-activity technology employs structures, equipment and techniques using two drilling
stations within a dual derrick to allow these drillships to perform simultaneous drilling tasks in a parallel, rather than a sequential manner,
which reduces critical path activity and improves efficiency in both exploration and development drilling. In addition to dynamic positioning
thruster systems, dual-activity technology and industry-leading hoisting capacity, one of our newbuild drillships under construction, which
was recently contracted, will be equipped with and another newbuild drillship will be equipped to accommodate two 20,000 pounds per
square inch (“psi”) blowout preventers.
AR-2
Semisubmersibles are floating vessels that can be partially submerged by means of a water ballast system such that the lower
column sections and pontoons are below the water surface during drilling operations. Semisubmersibles are known for stability, making
them well suited for operating in rough sea conditions. Semisubmersible floaters are capable of maintaining their position over a well
either through dynamic positioning or the use of mooring systems. Although most semisubmersible rigs are relocated with the assistance
of tugs, some units are self-propelled and move between locations under their own power when afloat on pontoons. Five of our
22 semisubmersibles are equipped with dual-activity technology and also have mooring capability. Two of these five dual-activity units are
custom-designed, high capacity semisubmersible drilling rigs, equipped for year-round operations in harsh environments, including those
of the Norwegian continental shelf and sub-Arctic waters.
Fleet categories—We further categorize the drilling units of our fleet as follows: (1) “ultra-deepwater floaters,” (2) “harsh
environment floaters” and (3) “midwater floaters”. Ultra-deepwater floaters are equipped with high-pressure mud pumps and are capable
of drilling in water depths of 4,500 feet or greater. Harsh environment floaters are capable of drilling in harsh environments in water depths
between 1,500 and 10,000 feet and have greater displacement, which offers larger variable load capacity, more useable deck space and
better motion characteristics. Midwater floaters are generally comprised of those non-high-specification semisubmersibles that have a
water depth capacity of less than 4,500 feet.
As of February 11, 2019, we owned and operated a fleet of 49 rigs, excluding five newbuilds under construction, as follows:
31 ultra-deepwater floaters;
14 harsh environment floaters; and
Four midwater floaters.
Fleet status—Depending on market conditions, we may idle or stack non-contracted rigs. An idle rig is between drilling
contracts, readily available for operations, and operating costs are typically at or near normal operating levels. A stacked rig typically has
reduced operating costs, is staffed by a reduced crew or has no crew and is (a) preparing for an extended period of inactivity, (b) expected
to continue to be inactive for an extended period, or (c) completing a period of extended inactivity. Stacked rigs will continue to incur
operating costs at or above normal operating levels for approximately 30 days following initiation of stacking. Some idle rigs and all
stacked rigs require additional costs to return to service. The actual cost to return to service, which in many instances could be significant
and could fluctuate over time, depends upon various factors, including the availability and cost of shipyard facilities, the cost of equipment
and materials and the extent of repairs and maintenance that may ultimately be required. We consider these factors, together with market
conditions, length of contract, dayrate and other contract terms, when deciding whether to return a stacked rig to service. We may not
return some stacked rigs to work for drilling services.
Drilling units—The following tables, presented as of February 11, 2019, provide certain specifications for our rigs. Unless
otherwise noted, the stated location of each rig indicates either the current drilling location, if the rig is operating, or the next operating
location, if the rig is in shipyard with a follow-on contract. The dates provided represent the expected time of completion, the year placed
into service, and, if applicable, the year of the most recent upgrade. As of February 11, 2019, we owned all of the drilling rigs in our fleet
noted in the tables below, except for the following: (1) the harsh environment floater Transocean Norge, which is under construction and
owned through our 33.0 percent ownership interest in Orion Holdings (Cayman) Limited, and (2) the ultra-deepwater floater
Petrobras 10000, which is subject to a capital lease through August 2029.
Rig category and name
Rigs under construction (5)
Ultra-deepwater floaters
Ocean Rig Santorini (a) (b) (c)
Ultra-deepwater drillship TBN1 (a) (b) (c) (d)
Ocean Rig Crete (a) (b) (c)
Ultra-deepwater drillship TBN2 (a) (b) (c) (e)
Harsh environment floater
Transocean Norge (a) (f)
Type
Expected
completion
Water
depth
capacity
(in feet) (in feet)
Drilling
depth
capacity
Contracted
location or
contracted
status
Drillship
Drillship
Drillship
Drillship
3Q 2019
2Q 2020
3Q 2020
4Q 2021
12,000
12,000
12,000
12,000
40,000
40,000
40,000
40,000
Uncontracted
Uncontracted
Uncontracted
U.S. Gulf
Semisubmersible
3Q 2019
10,000
40,000
Norwegian N. Sea
To be dynamically positioned.
To be equipped with our patented dual activity.
To be equipped with two blowout preventers.
(a)
(b)
(c)
(d) Designed to accommodate a future upgrade to 20,000 pounds psi blowout preventers.
(e)
(f)
To be equipped with two 20,000 pounds psi blowout preventers.
To be equipped with mooring equipment.
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Rig category and name
Ultra-deepwater floaters (31)
Deepwater Poseidon (a) (b) (c) (d)
Deepwater Pontus (a) (b) (c) (d)
Deepwater Conqueror (a) (b) (c) (d)
Deepwater Proteus (a) (b) (c) (d)
Deepwater Thalassa (a) (b) (c) (d)
Ocean Rig Apollo (a) (b)
Ocean Rig Athena (a) (b)
Deepwater Asgard (a) (b) (d)
Deepwater Invictus (a) (b) (d)
Ocean Rig Skyros (a) (b)
Ocean Rig Mylos (a) (b)
Deepwater Champion (a) (b)
Ocean Rig Corcovado (a) (b)
Ocean Rig Mykonos (a) (b)
Ocean Rig Poseidon (a) (b)
Ocean Rig Olympia (a) (b)
Discoverer India (a) (b) (e)
Discoverer Luanda (a) (b) (e)
Dhirubhai Deepwater KG2 (a)
Discoverer Inspiration (a) (b) (d) (e)
Discoverer Americas (a) (b) (e)
Development Driller III (a) (b) (f)
Petrobras 10000 (a) (b)
Discoverer Clear Leader (a) (b) (d) (e)
Dhirubhai Deepwater KG1 (a)
GSF Development Driller II (a) (b) (f)
GSF Development Driller I (a) (b) (f)
Discoverer Deep Seas (a) (b) (e)
Discoverer Spirit (a) (b) (e)
Deepwater Nautilus (f)
Discoverer Enterprise (a) (b) (e)
Harsh environment floaters (14)
Transocean Enabler (a) (f)
Transocean Encourage (a) (f)
Transocean Endurance (a) (f)
Transocean Equinox (a) (f)
Polar Pioneer (f)
Songa Dee (f)
Transocean Spitsbergen (a) (f) (g)
Transocean Barents (a) (f) (g)
Henry Goodrich (f)
Eirik Raude (a) (h)
Leiv Eiriksson (a) (f)
Transocean Leader (f)
Paul B. Loyd, Jr. (f)
Transocean Arctic (f)
Midwater floaters (4)
Sedco 714 (f)
Transocean 712 (f)
Actinia (f)
Sedco 711 (f)
Year
entered
service
Water
depth
capacity
(in feet) (in feet)
Drilling
depth
capacity
Contracted
location or
standby
status
Type
Drillship
Drillship
Drillship
Drillship
Drillship
Drillship
Drillship
Drillship
Drillship
Drillship
Drillship
Drillship
Drillship
Drillship
Drillship
Drillship
Drillship
Drillship
Drillship
Drillship
Drillship
Semisubmersible
Drillship
Drillship
Drillship
Semisubmersible
Semisubmersible
Drillship
Drillship
Semisubmersible
Drillship
2018
2017
2016
2016
2016
2015
2014
2014
2014
2013
2013
2011
2011
2011
2011
2011
2010
2010
2010
2010
2009
2009
2009
2009
2009
2005
2005
2001
2000
2000
1999
Semisubmersible
Semisubmersible
Semisubmersible
Semisubmersible
Semisubmersible
Semisubmersible
Semisubmersible
Semisubmersible
Semisubmersible
Semisubmersible
Semisubmersible
Semisubmersible
Semisubmersible
Semisubmersible
2016
2016
2015
2015
1985/2014
1984/2014
2010
2009
1985/2007
2002
2001
1987/1997
1990
1986
12,000
12,000
12,000
12,000
12,000
12,000
12,000
12,000
12,000
12,000
12,000
12,000
10,000
10,000
10,000
10,000
12,000
7,500
12,000
12,000
12,000
7,500
12,000
12,000
12,000
7,500
7,500
10,000
10,000
8,000
10,000
1,640
1,640
1,640
1,640
1,500
1,500
10,000
10,000
5,000
9,800
7,500
4,500
2,000
1,650
40,000
40,000
40,000
40,000
40,000
40,000
40,000
40,000
40,000
40,000
40,000
40,000
35,000
35,000
35,000
35,000
40,000
40,000
35,000
40,000
40,000
37,500
37,500
40,000
35,000
37,500
37,500
35,000
35,000
30,000
35,000
U.S. Gulf
U.S. Gulf
U.S. Gulf
U.S. Gulf
U.S. Gulf
Stacked
Stacked
Mexico Gulf
Trinidad
Angola
Stacked
Stacked
Idle
Idle
Angola
Stacked
Ivory Coast
Stacked
China
U.S. Gulf
Stacked
Equatorial Guinea
Brazil
Idle
India
Stacked
Australia
Stacked
Stacked
Brunei
Stacked
Stacked
Stacked
28,000 Norwegian N. Sea
28,000 Norwegian N. Sea
28,000 Norwegian N. Sea
28,000 Norwegian N. Sea
25,000
30,000
30,000 Norwegian N. Sea
30,000
30,000
30,000
25,000 Norwegian N. Sea
25,000
25,000
25,000 Norwegian N. Sea
Canada
Canada
Stacked
U.K. N. Sea
U.K. N. Sea
Semisubmersible
Semisubmersible
Semisubmersible
Semisubmersible
1983/1997
1983
1982
1982
1,600
1,600
1,500
1,800
25,000
25,000
25,000
25,000
Stacked
U.K. N. Sea
India
Stacked
(a) Dynamically positioned.
(b) Patented dual activity.
(c) Designed to accommodate a future upgrade to 20,000 pounds psi blowout preventers.
(d) Two blowout preventers.
(e) Enterprise-class or Enhanced Enterprise-class rig.
(f) Moored.
(g) Dual activity.
(h)
Later in February 2019, we committed to a plan to sell Eirik Raude and related assets.
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Markets
Our operations are geographically dispersed in oil and gas exploration and development areas throughout the world. We
operate in a single, global offshore drilling market, as our drilling rigs are mobile assets and are able to be moved according to prevailing
market conditions. We may mobilize our drilling rigs between regions for a variety of reasons, including to respond to customer contracting
requirements or to capture demand in another locale. Consequently, we cannot predict the percentage of our revenues that will be derived
from particular geographic areas in future periods. As of February 11, 2019, our drilling fleet, including stacked and idle rigs, but excluding
rigs under construction, was located in the Norwegian North Sea (nine units), the United States (“U.S.”) Gulf of Mexico (seven units),
Trinidad (six units), Greece (five units), United Kingdom
(“U.K.”) North Sea (five units), Angola (two units), Canada (two units),
India (two units), Spain (two units), Australia (one unit), Brazil (one unit), Brunei (one unit), China (one unit), Equatorial Guinea (one unit),
Ivory Coast (one unit), Malaysia (one unit), Mexican Gulf of Mexico (one unit) and Romania (one unit).
We categorize the market sectors in which we operate as follows: (1) ultra-deepwater and deepwater, (2) harsh environment and
(3) midwater. These market sectors, collectively known as the floater market, are serviced by our drillships and semisubmersibles, 14 of
which are suited to work in harsh environments. We generally view the ultra-deepwater and deepwater market sector as water depths
beginning at 4,500 feet and extending to the maximum water depths in which rigs are capable of drilling, which is currently up to
12,000 feet. The midwater market sector services water depths from approximately 300 feet to approximately 4,500 feet. The harsh
environment market sector services regions that are more challenged by lower temperatures, harsher weather conditions and water
currents.
The market for offshore drilling rigs and related services reflects oil companies’ demand for equipment for drilling exploration,
appraisal and development wells and for performing maintenance on existing production wells. Activity levels of exploration and
production (“E&P”) companies and their associated capital expenditures are largely driven by the worldwide demand for energy, including
crude oil and natural gas. Worldwide energy supply and demand drives oil and natural gas prices, which, in turn, impact E&P companies’
ability to fund investments in exploration, development and production activities.
In recent years, the industry has experienced a severe, prolonged cyclical downturn. Multiple years of volatile and generally
weak commodity prices have resulted in our customers delaying offshore investment decisions and postponing exploration and production
programs. Structural efficiency gains implemented by industry participants in reaction to the downturn have given customers more
flexibility to progress exploration and development plans in a lower commodity pricing environment, which resulted in increased customer
project sanctioning in 2018. We anticipate this trend of increased project sanctioning to continue in 2019 as our customers realize
improved offshore economics, making them less sensitive to market volatility, and sharpening their focus on exploration and reserve
replacement. In markets requiring harsh environment floating drilling rigs, such as the Norwegian North Sea and eastern Canada, the
limited supply of these specialized rigs has resulted in improved fleet utilization, which has caused increased dayrates on high-specification
rigs being tendered for new work over the past year. Outside of harsh environment markets, however, persistent excess supply of
ultra-deepwater floaters relative to demand has delayed improvement of dayrates. As the hydrocarbon supply-demand balance improves,
we expect sustained improvement of oil prices, ultimately resulting in greater demand for ultra-deepwater drilling rigs and improvement of
dayrates.
Our recent acquisitions of Songa and Ocean Rig have significantly enhanced our high-specification asset portfolio. The Songa
acquisition improved our fleet profile with harsh environment units for which we have already seen improved demand. The Ocean Rig
acquisition further improved our fleet profile by adding high-specification ultra-deepwater units that we expect to be in high demand as the
market improves and the offshore drilling industry continues to prioritize the most modern and capable assets. We have also made
concerted efforts since the beginning of the downturn to high-grade our fleet through divestment of lower-specification assets. During the
years ended December 31, 2018, 2017 and 2016, we sold for scrap value eight, three and 11 drilling units, respectively, and at
December 31, 2018, we had five additional rigs classified as held for sale for scrap value.
Longer term, our outlook for the offshore drilling sector remains positive, particularly for high-specification assets. Prior to the
downturn, Brazil, the U.S. Gulf of Mexico, and West Africa emerged as key ultra-deepwater market sectors, and licensing activity
demonstrated an increased interest in deepwater fields as E&P companies looked to explore new prospects. We expect deepwater oil and
gas production will continue to be a part of the long-term strategy for E&P companies as they strive to replace reserves to meet global
demand for hydrocarbons. As our customers implement the structural efficiency gains, we anticipate additional projects will be approved.
Typically, these projects are technically demanding due to factors such as water depth, complex well designs, deeper drilling depth, high
pressure and temperature, sub-salt, harsh environments, and heightened regulatory standards; therefore, they require sophisticated drilling
units. Generally, ultra-deepwater rigs are the most modern, technologically advanced class of the offshore fleet and have capabilities that
are attractive to E&P companies operating in deeper water depths, other challenging environments or with complex well designs. See
“Item 1A. Risk Factors—Risks related to our business.”
Contract Drilling Services
Our contracts to provide offshore drilling services are individually negotiated and vary in their terms and conditions. We obtain
most of our drilling contracts through competitive bidding against other contractors and direct negotiations with operators. Drilling contracts
generally provide for payment on a dayrate basis, with higher rates for periods while the drilling unit is operating and lower rates or
AR-5
zero rate for periods of mobilization or when drilling operations are interrupted or restricted by equipment breakdowns, adverse
environmental conditions or other conditions beyond our control. A dayrate drilling contract generally extends over a period of time
covering either the drilling of a single well or group of wells or covering a stated term. At December 31, 2018, our contract backlog was
approximately $12.5 billion, representing an increase of 32 percent and seven percent, respectively, compared to the contract backlog at
December 31, 2017 and 2016, which was $9.5 billion and $11.7 billion, respectively. See “Part II. Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Performance and Other Key Indicators.”
Certain of our drilling contracts may be cancelable for the convenience of the customer upon payment of an early termination
payment. Such payments, however, may not fully compensate us for the loss of the contract. Contracts also customarily provide for either
automatic termination or termination at the option of the customer, typically without the payment of any termination fee, under various
circumstances such as non-performance, in the event of extended downtime or impaired performance caused by equipment or operational
issues, or periods of extended downtime due to force majeure events. Many of these events are beyond our control. The contract term in
some instances may be extended by the customer exercising options for the drilling of additional wells or for an additional term. Our
contracts also typically include a provision that allows the customer to extend the contract to finish drilling a well-in-progress. During
periods of depressed market conditions, our customers may seek to renegotiate firm drilling contracts to reduce the term of their
obligations or the average dayrate through term extensions, or may seek to repudiate their contracts. Suspension of drilling contracts will
result in the reduction in or loss of dayrate for the period of the suspension. If our customers cancel some of our contracts and we are
unable to secure new contracts on a timely basis and on substantially similar terms, if contracts are suspended for an extended period of
time or if a number of our contracts are renegotiated, it could adversely affect our consolidated financial position, results of operations or
cash flows. See “Item 1A. Risk Factors—Risks related to our business—Our drilling contracts may be terminated due to a number of
events, and, during depressed market conditions, our customers may seek to repudiate or renegotiate their contracts.”
Under dayrate drilling contracts, consistent with standard industry practice, our customers, as the operators, generally assume,
and grant indemnity for, subsurface and well control risks, and their consequential damages. Under all of our current drilling contracts, our
customers, indemnify us for pollution damages in connection with reservoir fluids stemming from operations under the contract, and we
indemnify our customers for pollution that originates above the surface of the water from the rig from substances in our control, such as
diesel used onboard the rig or other fluids stored onboard the rig. Also, our customers indemnify us for consequential damages they incur,
damage to the well or reservoir, loss of subsurface oil and gas and the cost of bringing the well under control. However, our drilling
contracts are individually negotiated, and the degree of indemnification we receive from our customers for the risks discussed above may
vary from contract to contract, based on market conditions and customer requirements existing when the contract was negotiated. In some
instances, we have contractually agreed upon certain limits to our indemnification rights and can be responsible for damages up to a
specified maximum dollar amount. The nature of our liability and the prevailing market conditions, among other factors, can influence such
contractual terms. In most instances in which we are indemnified for damages to the well, we have the responsibility to redrill the well at a
reduced dayrate. Notwithstanding a contractual indemnity from a customer, there can be no assurance that our customers will be
financially able to indemnify us or will otherwise honor their contractual indemnity obligations. See “Item 1A. Risk Factors—Risks related
to our business—Our business involves numerous operating hazards, and our insurance and indemnities from our customers may not be
adequate to cover potential losses from our operations.”
The interpretation and enforceability of a contractual indemnity depends upon the specific facts and circumstances involved, as
governed by applicable laws, and may ultimately need to be decided by a court or other proceeding, which will need to consider the
specific contract language, the facts and applicable laws. The law generally considers contractual indemnity for criminal fines and
penalties to be against public policy. Courts also restrict indemnification for criminal fines and penalties. The inability or other failure of our
customers to fulfill their indemnification obligations, or unenforceability of our contractual protections could have a material adverse effect
on our consolidated financial position, results of operations or cash flows.
Significant Customers
We engage in offshore drilling services for most of the leading integrated oil companies or their affiliates, as well as for many
government-controlled oil companies and independent oil companies. For the year ended December 31, 2018, our most significant
customers were Royal Dutch Shell plc (together with its affiliates, “Shell”), Chevron Corporation (together with its affiliates, “Chevron”) and
Equinor ASA (together with its affiliates, “Equinor”), representing approximately 26 percent, 21 percent and 18 percent, respectively, of our
consolidated operating revenues. No other customers accounted for 10 percent or more of our consolidated operating revenues in the
year ended December 31, 2018. Additionally, as of February 11, 2019, the customers with the most significant aggregate amount of
contract backlog associated with our drilling contracts were Shell, Equinor and Chevron, representing approximately 45 percent,
28 percent and 15 percent, respectively, of our total contract backlog. See “Item 1A. Risk Factors—Risks related to our business—We rely
heavily on a relatively small number of customers and the loss of a significant customer or a dispute that leads to the loss of a customer
could have an adverse effect on our consolidated financial position, results of operations or cash flows.”
Employees
We require highly skilled personnel to operate our drilling units. Consequently, we conduct extensive personnel recruiting,
training and safety programs. At December 31, 2018, we had approximately 6,700 employees, including approximately 800 persons
engaged through contract labor providers. Approximately 34 percent of our total workforce, working primarily in Norway, Brazil, the U.K.
AR-6
and Australia are represented by, and some of our contracted labor work is subject to, collective bargaining agreements, substantially all of
which are subject to annual salary negotiation. These negotiations could result in higher personnel expenses, other increased costs or
increased operational restrictions, as the outcome of such negotiations affect the market for all offshore employees not just the union
members. Additionally, failure to reach agreement on certain key issues may result in strikes, lockouts or other work stoppages that may
materially impact our operations.
Joint Venture, Agency and Sponsorship Relationships and Other Investments
In some areas of the world, local customs and practice or governmental requirements necessitate the formation of joint ventures
with local participation since local laws or customs in those areas effectively mandate the establishment of a relationship with a local agent
or sponsor. When appropriate in these areas, we enter into agency or sponsorship agreements. We may also enter into joint ventures for
operational or investment purposes. We may or may not control these joint ventures. We participate in several joint venture companies,
principally in the Cayman Islands, Angola, Indonesia, Malaysia and Nigeria. At December 31, 2018, we held interests in certain joint
venture companies in the Cayman Islands, Angola, Indonesia, Malaysia, Nigeria and other countries, the most significant of which were as
follows:
We hold a 33.0 percent ownership interest in Orion Holdings (Cayman) Limited, an unconsolidated Cayman Islands exempted
company formed to construct and own the newbuild harsh environment semisubmersible Transocean Norge. Our partners, certain
affiliates of Hayfin Capital Management LLP, own the remaining 67.0 percent ownership interest not owned by us.
We hold a 24 percent direct interest and a 36 percent indirect interest in Indigo Drilling Limited (“Indigo”), a consolidated Nigerian
joint venture company formed to engage in drilling operations offshore Nigeria. Our local partners, Mr. Fidelis Oditah and
Mr. Chima Ibeneche, each hold a 12.5 percent direct interest, and our other partners, Mr. Joseph Obi and Mr. Ben Osuno, together own a
15 percent indirect interest in Indigo.
Technological Innovation
Since launching the offshore industry’s first jackup drilling rig in 1954, we have achieved a long history of technological
innovations, including the first dynamically positioned drillship, the first rig to drill year-round in the North Sea, the first 10,000-ft. rated
ultra-deepwater drillship and the first semisubmersible rig for year-round sub-Arctic operations. We have repeatedly achieved water depth
world records in the past. Twenty-five drillships and three semisubmersibles in our existing fleet are, and our four drillships that are under
construction will be, equipped with our patented dual-activity technology, and two of our semisubmersibles are equipped with another form
of dual-activity technology. Dual-activity allows our rigs to perform simultaneous drilling tasks in a parallel rather than sequential manner
and reduces critical path activity while improving efficiency in both exploration and development drilling.
We continue to develop and deploy industry-leading technology. In addition to our patented dual-activity drilling technology,
two of our drillships under construction will include industry-leading hookload capability, hybrid power systems for reduced fuel
consumption and reduced emissions as well as advanced generator protection for power plant reliability. We are focused on a
breakthrough drilling innovation program that includes a fault-resistant and fault-tolerant blowout preventer control system. Nine drillships
in our existing fleet are, and our four drillships that are under construction will be, outfitted with two blowout preventers and triple liquid mud
systems. Five drillships in our existing fleet are, and two of our drillships that are under construction will be, designed to accept 20,000 psi
blowout preventers in the future, and we recently contracted one of the drillships under construction to be equipped as such. Seven of our
harsh environment semi-submersibles are designed and constructed specifically to provide highly efficient performance in the Norwegian
North Sea and in the Barents Sea. We believe the continual improvement of, and effective use of, technology to meet or exceed our
customers’ requirements is critical to maintain our competitive position within the contract drilling services industry. Additionally, our digital
transformation program delivers real-time data feeds from equipment and processes, which is used to build machine health models.
These models allow us to systematically optimize equipment maintenance and achieve higher levels of operational efficiency. This
data-driven approach, augmented by the size of our fleet, is helping us build a knowledge framework for sustainable process optimization.
Environmental Compliance
Our operations are subject to a variety of global environmental regulations. We monitor our compliance with environmental
regulation in each country of operation and, while we see an increase in general environmental regulation, we have made and will continue
to make the required expenditures to comply with current and future environmental requirements. We make expenditures to further our
commitment to environmental improvement and the setting of global environmental standards. We assess the environmental impacts of
our business, focusing on the areas of greenhouse gas emissions, climate change, discharges and waste management. Our actions are
designed to reduce risk in our current and future operations, to promote sound environmental management and to create a proactive
environmental program. To date, we have not incurred material costs in order to comply with recent environmental legislation, and we do
not believe that our compliance with such requirements will have a material adverse effect on our competitive position, consolidated results
of operations or cash flows. For a discussion of the effects of environmental regulation, see “Item 1A. Risk Factors—Risks related to our
business—Compliance with or breach of environmental laws can be costly, expose us to liability and could limit our operations.”
AR-7
Available Information
Our website address is www.deepwater.com. Information contained on or accessible from our website is not incorporated by
reference into this annual report and should not be considered a part of this report or any other filing that we make with the U.S. Securities
and Exchange Commission (“SEC”). We make available on this website free of charge, our annual reports, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file
those materials with, or furnish those materials to, the SEC. You may also find on our website information related to our corporate
governance, board committees and company code of business conduct and ethics. The SEC also maintains a website, www.sec.gov,
which contains reports, proxy statements and other information regarding SEC registrants, including us. We intend to satisfy the
requirement under Item 5.05 of Form 8-K to disclose any amendments to our Code of Integrity and any waiver from any provision of our
Code of Integrity by posting such information in the Governance page on our website at www.deepwater.com.
Item 1A.
Risk Factors
Risks related to our business
Our business depends on the level of activity in the offshore oil and gas industry, which is significantly affected by volatile
oil and gas prices and other factors.
Our business depends on the level of activity in oil and gas exploration, development and production in offshore areas
worldwide. Demand for our services depends on oil and natural gas industry activity and expenditure levels that are directly affected by
trends in oil and, to a lesser extent, natural gas prices. Oil and gas prices are extremely volatile and are affected by numerous factors,
including the following:
worldwide demand for oil and gas, including economic activity in the U.S. and other large energy-consuming markets;
the ability of the Organization of the Petroleum Exporting Countries (“OPEC”) to set and maintain production levels, productive spare
capacity and pricing;
the level of production in non-OPEC countries;
the policies of various governments regarding exploration and development of their oil and gas reserves;
international sanctions on oil-producing countries, or the lifting of such sanctions;
advances in exploration, development and production technology;
the further development of shale technology to exploit oil and gas reserves;
the discovery rate of new oil and gas reserves;
the rate of decline of existing oil and gas reserves;
laws and regulations related to environmental matters, including those addressing alternative energy sources and the risks of global
climate change;
the development and exploitation of alternative fuels;
accidents, adverse weather conditions, natural disasters and other similar incidents relating to the oil and gas industry; and
the worldwide security and political environment, including uncertainty or instability resulting from an escalation or outbreak of armed
hostilities, civil unrest or other crises in the Middle East or other geographic areas or acts of terrorism.
Demand for our services is particularly sensitive to the level of exploration, development and production activity of, and the
corresponding capital spending by, oil and natural gas companies, including national oil companies. Prolonged reductions in oil and
natural gas prices could depress the immediate levels of exploration, development and production activity. Perceptions of longer-term
lower oil and natural gas prices by oil and gas companies could similarly reduce or defer major expenditures given the long-term nature of
many large-scale development projects. Lower levels of activity result in a corresponding decline in the demand for our services, which
could have a material adverse effect on our revenue and profitability. Oil and gas prices and market expectations of potential changes in
these prices significantly affect this level of activity. However, increases in near-term commodity prices do not necessarily translate into
increased offshore drilling activity since customers’ expectations of longer-term future commodity prices typically have a greater impact on
demand for our rigs. Consistent with this dynamic, customers may delay or cancel many exploration and development programs, resulting
in reduced demand for our services. Also, increased competition for customers’ drilling budgets could come from, among other areas,
land-based energy markets worldwide. The availability of quality drilling prospects, exploration success, relative production costs, the
stage of reservoir development and political and regulatory environments also affect customers’ drilling campaigns. Worldwide military,
political and economic events have often contributed to oil and gas price volatility and are likely to do so in the future.
The offshore drilling industry is highly competitive and cyclical, with intense price competition.
The offshore contract drilling industry is highly competitive with numerous industry participants, none of which has a dominant
market share. Drilling contracts are traditionally awarded on a competitive bid basis. Although rig availability, service quality and technical
capability are drivers of customer contract awards, bid pricing and intense price competition are often key determinants for which a
qualified contractor is awarded a job.
The offshore drilling industry is highly cyclical and is impacted by oil and natural gas price levels and volatility. Periods of high
customer demand, limited rig supply and high dayrates have been followed by periods of low customer demand, excess rig supply and low
dayrates. Changes in commodity prices can have a dramatic effect on rig demand, and periods of excess rig supply may intensify
competition in the industry and result in the idling of older and less technologically advanced equipment. We have idled and stacked rigs,
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and may in the future idle or stack additional rigs or enter into lower dayrate drilling contracts in response to market conditions. Idled or
stacked rigs may remain out of service for extended periods of time. During prior periods of high dayrates and rig utilization rates, we and
other industry participants have responded to increased customer demand by increasing the supply of rigs through ordering the
construction of new units. The number of new units expected to be delivered without contracts, combined with the expected increase in
the number of rigs in the global market completing contracts and becoming idle, has intensified and may further intensify price competition.
In periods of low oil and natural gas price levels, new construction has historically resulted in an oversupply of rigs and has caused a
subsequent decline in dayrates and rig utilization rates, sometimes for extended periods of time. Any further near-term increase in the
construction of new units would likely exacerbate the negative impact of increased supply on dayrates and rig utilization rates. Additional
rigs that remain under construction, and the entry into service of these new units will increase overall supply. In an oversupplied market,
we may have limited bargaining power to negotiate on more favorable terms. Additionally, lower market dayrates and intense price
competition may drive customers to seek to renegotiate existing contracts to lower dayrates in exchange for longer contract terms. Lower
dayrates and rig utilization rates could adversely affect our revenues and profitability.
As of February 11, 2019, we have 19 uncontracted rigs, including seven uncontracted rigs recently acquired in the Ocean Rig
acquisition. These rigs may remain out of service for extended periods of time. We also have three additional rigs under construction that
have not been contracted for work. If we are unable to obtain drilling contracts for our uncontracted rigs, whether due to a prolonged
offshore drilling market recovery or otherwise, it may have an adverse effect on our results of operations and cash flows, and we may not
be able to realize the expected synergies and other benefits of the acquisition on the timeline currently expected or at all.
Our current backlog of contract drilling revenue may not be fully realized.
At February 11, 2019, our contract backlog was approximately $12.2 billion. This amount represents the number of days
remaining in the firm term of the drilling contract multiplied by the maximum contractual operating dayrate, excluding revenues for
mobilization, demobilization and contract preparation or other incentive provisions, which are generally insignificant to our contract drilling
revenues. Our contract backlog includes amounts associated with our newbuild units that are currently under construction. The
contractual operating dayrate may be higher than the actual dayrate we ultimately receive or an alternative contractual dayrate, such as
waiting on weather rate, repair rate, standby rate or force majeure rate, may apply under certain circumstances. The contractual operating
dayrate may also be higher than the actual dayrate we ultimately receive due to a number of factors, including rig downtime or suspension
of operations. Several factors could cause rig downtime or a suspension of operations, including: equipment breakdowns and other
unforeseen engineering problems, labor strikes and other work stoppages, shortages of material and skilled labor, surveys by government
and maritime authorities, periodic classification surveys, severe weather or harsh operating conditions, and force majeure events.
In certain drilling contracts, the dayrate may be reduced to zero if, for example, repairs extend beyond a stated period of time.
Our contract backlog includes only firm commitments, which are represented by signed drilling contracts or, in some cases, other definitive
agreements awaiting contract execution. We may not be able to realize the full amount of our contract backlog due to events beyond our
control. In addition, some of our customers have experienced liquidity issues in the past and these liquidity issues could be experienced
again if commodity prices decline for an extended period of time. Liquidity issues and other market pressures could lead our customers to
seek bankruptcy protection or to seek to repudiate, cancel or renegotiate these agreements for various reasons (see “—Our drilling
contracts may be terminated due to a number of events, and, during depressed market conditions, our customers may seek to repudiate or
renegotiate their contracts”). Our inability to realize the full amount of our contract backlog may have a material adverse effect on our
consolidated financial position, results of operations or cash flows.
We may not be able to renew or obtain new drilling contracts for rigs whose contracts are expiring or obtain drilling
contracts for our stacked and idle rigs or our uncontracted newbuilds.
The offshore drilling markets in which we compete experience fluctuations in the demand for drilling services. Our ability to
renew expiring drilling contracts or obtain new drilling contracts depends on the prevailing or expected market conditions at the time of
expiration. As of February 11, 2019, we have 19 stacked or idle rigs and three ultra-deepwater drillships under construction that do not
have customer drilling contracts. We also have nine existing drilling contracts for our rigs that are currently operating, which are scheduled
to expire before December 31, 2019. We may be unable to obtain drilling contracts for our rigs that are currently operating upon the
expiration or termination of such contracts or obtain drilling contracts for our newbuilds, and there may be a gap in the operation of the rigs
between the current contracts and subsequent contracts. When oil and natural gas prices are low or it is expected that such prices will
decrease in the future, we may be unable to obtain drilling contracts at attractive dayrates or at all. We may not be able to obtain new
drilling contracts in direct continuation with existing contracts or for our uncontracted newbuild units, or depending on prevailing market
conditions, we may enter into drilling contracts at dayrates substantially below the existing dayrates or on terms otherwise less favorable
compared to existing contract terms, which may have an adverse effect on our consolidated financial position, results of operations or cash
flows.
Our drilling contracts may be terminated due to a number of events, and, during depressed market conditions, our
customers may seek to repudiate or renegotiate their contracts.
Certain of our drilling contracts with customers may be cancelable at the option of the customer upon payment of an early
termination payment. Such payments may not, however, fully compensate us for the loss of the contract. Drilling contracts also
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customarily provide for either automatic termination or termination at the option of the customer, typically without the payment of any
termination fee, under various circumstances such as non-performance, as a result of significant downtime or impaired performance
caused by equipment or operational issues, or sustained periods of downtime due to force majeure events. Many of these events are
beyond our control. During periods of depressed market conditions, we are subject to an increased risk of our customers seeking to
repudiate their contracts, including through claims of non-performance. We are at continued risk of experiencing early contract
terminations in a weak commodity price environment as operators look to reduce their capital expenditures. During the years ended
December 31, 2017 and 2016, our customers early terminated or cancelled contracts for one and eight of our rigs, respectively. Our
customers’ ability to perform their obligations under their drilling contracts, including their ability to fulfill their indemnity obligations to us,
may also be negatively impacted by an economic downturn. Our customers, which include national oil companies, often have significant
bargaining leverage over us. If our customers cancel some of our contracts, and we are unable to secure new contracts on a timely basis
and on substantially similar terms, if contracts are suspended for an extended period of time or if a number of our contracts are
renegotiated, it could adversely affect our consolidated financial position, results of operations or cash flows. See “Item 1. Business—
Contract Drilling Services.”
We must make substantial capital and operating expenditures to maintain our active fleet or to reactivate our stacked or idle
fleet, and we may be required to make significant capital expenditures to maintain our competitiveness, to execute our
growth plan and to comply with laws and applicable regulations and standards of governmental authorities and
organizations.
We must make substantial capital and operating expenditures to maintain our active fleet or to reactivate our stacked or idle fleet.
These expenditures could increase as a result of changes in the cost of labor and materials, requirements of customers, the size of our
fleet, the cost of replacement parts for existing rigs, the geographic location of the rigs and the length of drilling contracts. Changes in
offshore drilling technology, customer requirements for new or upgraded equipment and competition within our industry may require us to
make significant capital expenditures in order to maintain our competitiveness and to execute our growth plan. Changes in governmental
regulations, safety or other equipment standards, as well as compliance with standards imposed by maritime self-regulatory organizations,
may cause our capital expenditures to increase or require us to make additional unforeseen capital expenditures. As a result of these
factors, we may be required to take our rigs out of service for extended periods of time, with corresponding losses of revenues, in order to
make such alterations or to add such equipment. In the future, market conditions may not justify these expenditures or enable us to
operate our older rigs profitably during the remainder of their economic lives.
If we are unable to fund capital expenditures with our cash flows from operations or proceeds from sales of non-strategic assets,
we may be required to either incur additional borrowings or raise capital through the sale of debt or equity securities. Our ability to access
the capital markets may be limited by our financial condition at the time, perceptions of us or our industry, by changes in laws and
regulations or interpretation thereof and by adverse market conditions resulting from, among other things, general economic conditions and
contingencies and uncertainties that are beyond our control. If we raise funds by issuing equity securities, existing shareholders may
experience dilution. Our failure to obtain the funds for necessary future capital expenditures could have a material adverse effect on our
business and on our consolidated financial position, results of operations and cash flows.
We have a substantial amount of debt, including secured debt, and we may lose the ability to obtain future financing and
suffer competitive disadvantages.
At December 31, 2018 and 2017, our total debt was $10.0 billion and $7.4 billion, respectively, of which $2.6 billion and
$1.4 billion, respectively, was secured. This substantial level of debt and other obligations could have significant adverse consequences
on our business and future prospects, including the following:
we may be unable to obtain financing in the future for working capital, capital expenditures, acquisitions, debt service requirements,
distributions, share repurchases, or other purposes;
we may be unable to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these
funds to service the debt;
we could become more vulnerable to general adverse economic and industry conditions, including increases in interest rates, particularly
given our substantial indebtedness, some of which bears interest at variable rates;
we may be unable to meet financial ratios in the indentures governing certain of our debt or in our bank credit agreements or satisfy
certain other conditions included in our bank credit agreements, which could result in our inability to meet requirements for borrowings
under our credit agreements or a default under these indentures or agreements, impose restrictions with respect to our access to certain
of our capital, and trigger cross default provisions in our other debt instruments;
if we default under the terms of our secured financing arrangements, the secured debtholders may, among other things, foreclose on the
collateral securing the debt, including the applicable drilling units; and
we may be less able to take advantage of significant business opportunities and to react to changes in market or industry conditions than
our less levered competitors.
See “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Liquidity and Capital
Resources—Sources and uses of liquidity.”
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Various credit rating agencies have rated our debt below investment grade, which could limit our access to capital and have
an adverse effect on our business and financial condition.
Two credit rating agencies have rated our non-credit enhanced senior unsecured long-term debt (our “Debt Rating”) below
investment grade. Our Debt Ratings could have adverse consequences for our business and future prospects and could cause the
following:
limitations on our ability to access debt markets, including for the purpose of refinancing our existing debt or replacing our existing credit
agreement;
less favorable terms and conditions on any refinancing arrangements, debt issuances or bank credit agreements, some of which could
require collateral and restrict, among other things, our ability to pay distributions or repurchase shares;
increases to certain fees under our bank credit facilities and interest rates under indentures governing certain of our senior notes;
reduced willingness of current and prospective customers to transact business with us;
requirements from creditors or customers for additional insurance, guarantees and collateral;
limitations on our access to bank and third-party guarantees, surety bonds and letters of credit; and
reductions to or eliminations of the level of credit suppliers and financial institutions may provide through payment terms or intraday
funding when dealing with us thereby increasing the need for higher levels of cash on hand, which would decrease our ability to repay
debt balances.
Our Debt Ratings have caused some of the effects listed above, and any further downgrades may cause or exacerbate, any of
the effects listed above and could have an adverse effect on our business and financial condition.
We rely heavily on a relatively small number of customers and the loss of a significant customer or a dispute that leads to
the loss of a customer could have an adverse effect on our consolidated financial position, results of operations or cash
flows.
We engage in offshore drilling services for most of the leading integrated oil companies or their affiliates, as well as for many
government-controlled oil companies and independent oil companies. For the year ended December 31, 2018, our most significant
customers were Shell, Chevron and Equinor, accounting for approximately 26 percent, 21 percent and 18 percent, respectively, of our total
contract drilling revenues. As of February 11, 2019, the customers with the most significant aggregate amount of contract backlog were
Shell, Equinor and Chevron, representing approximately 45 percent, 28 percent and 15 percent, respectively, of our total contract backlog.
The loss of any of these customers or another significant customer, or a decline in payments under any of our drilling contracts, could, at
least in the short term, have an adverse effect on our business and on our consolidated financial position, results of operations or cash
flows.
In addition, our drilling contracts subject us to counterparty risks. The ability of each of our counterparties to perform its
obligations under a contract with us will depend on a number of factors that are beyond our control and may include, among other things,
general economic conditions, the condition of the offshore drilling industry, prevailing prices for oil and natural gas, the overall financial
condition of the counterparty, the dayrates received and the level of expenditures necessary to maintain drilling activities. In addition, in
depressed market conditions, such as we are currently experiencing, our customers may no longer need a drilling rig that is currently under
contract or may be able to obtain a comparable drilling rig at a lower dayrate. Should a counterparty fail to honor its obligations under an
agreement with us, we could sustain losses, which could have an adverse effect on our business and on our consolidated financial
position, results of operations or cash flows.
Worldwide financial, economic and political conditions could have a material adverse effect on our consolidated financial
position, results of operations or cash flows.
Worldwide financial and economic conditions could restrict our ability to access the capital markets at a time when we would like,
or need, to access such markets, which could have an impact on our flexibility to react to changing economic and business conditions.
Worldwide economic conditions have in the past impacted, and could in the future impact, the lenders participating in our credit facilities
and our customers, causing them to fail to meet their obligations to us. If economic conditions preclude or limit financing from banking
institutions participating in our credit facilities, we may not be able to obtain similar financing from other institutions. A slowdown in
economic activity could further reduce worldwide demand for energy and extend or worsen the current period of low oil and natural gas
prices. These potential developments, or market perceptions concerning these and related issues, could affect our consolidated financial
position, results of operations or cash flows. In addition, turmoil and hostilities in the Middle East, North Africa and other geographic areas
and countries are adding to overall risk. An extended period of negative outlook for the world economy could further reduce the overall
demand for oil and natural gas and for our services. A further decline in oil and natural gas prices or an extension of the current low oil and
natural gas prices could reduce demand for our drilling services and have a material adverse effect on our consolidated financial position,
results of operations or cash flows.
Our operating and maintenance costs will not necessarily fluctuate in proportion to changes in our operating revenues.
Our operating and maintenance costs will not necessarily fluctuate in proportion to changes in our operating revenues. Costs for
operating a rig are generally fixed or only semi-variable regardless of the dayrate being earned. In addition, should our rigs incur
unplanned downtime while on contract or idle time between drilling contracts, we will not always reduce the staff on those rigs because we
could use the crew to prepare the rig for its next contract. During times of reduced activity, reductions in costs may not be immediate
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because portions of the crew may be required to prepare rigs for stacking, after which time the crew members may be reassigned to active
rigs or released. As our rigs are mobilized from one geographic location to another, the labor and other operating and maintenance costs
can vary significantly. In general, labor costs increase primarily due to higher salary levels and inflation. Equipment maintenance costs
fluctuate depending upon the type of activity the unit is performing and the age and condition of the equipment, and these costs could
increase for short or extended periods as a result of regulatory or customer requirements that raise maintenance standards above
historical levels. The amount of contract preparation and reactivation costs vary based on the scope and length of the contract preparation
or reactivation project, and the recognition of such costs varies depending on the duration of the firm contractual period and other contract
terms.
Our shipyard projects and operations are subject to delays and cost overruns.
As of February 11, 2019, we had under construction four ultra-deepwater drillships and one harsh environment semisubmersible,
in which we have a partial ownership interest. We also have a variety of other more limited shipyard projects at any given time. These
shipyard projects are subject to the risks of delay or cost overruns inherent in any such construction project resulting from numerous
factors, including the following:
shipyard availability, failures and difficulties;
shortages of equipment, materials or skilled labor;
unscheduled delays in the delivery of ordered materials and equipment;
design and engineering problems, including those relating to the commissioning of newly designed equipment;
latent damages or deterioration to hull, equipment and machinery in excess of engineering estimates and assumptions;
unanticipated actual or purported change orders;
disputes with shipyards and suppliers;
failure or delayed deliveries of significant parts or equipment due to supplier shortages, constraints, disruption or quality issues;
availability of suppliers to recertify equipment for enhanced regulations;
strikes, labor disputes and work stoppages;
customer acceptance delays;
adverse weather conditions, including damage caused by such conditions;
terrorist acts, war, piracy and civil unrest;
unanticipated cost increases; and
difficulty in obtaining necessary permits or approvals.
These factors may contribute to cost variations and delays in the delivery of our newbuild units and other rigs undergoing
shipyard projects. Delayed delivery of these units would impact contract commencement, resulting in a loss of revenues we could earn,
and may also cause customers to terminate or shorten the term of the drilling contract for the rig pursuant to applicable late delivery
clauses. In the event of termination of any of these drilling contracts, we may not be able to secure a replacement contract on as favorable
terms, if at all.
Our operations also rely on a significant supply of capital and consumable spare parts and equipment to maintain and repair our
fleet. We also rely on the supply of ancillary services, including supply boats and helicopters. Our reliance on our suppliers,
manufacturers and service providers to secure equipment, parts, components and sub-systems used in our operations exposes us to
volatility in the quality, prices and availability of such items. Certain parts and equipment that we use in our operations may be available
only from a small number of suppliers, manufacturers or service providers, or in some cases must be sourced through a single supplier,
manufacturer or service provider. A disruption in the deliveries from our suppliers, manufacturers or service providers, capacity
constraints, production disruptions, price increases, quality control issues, recalls or other decreased availability of parts and equipment or
ancillary services could adversely affect our ability to meet our commitments to customers, adversely impact our operations, increase our
operating costs and result in increases in rig downtime and delays in the repair and maintenance of our fleet.
Compliance with or breach of environmental laws can be costly, expose us to liability and could limit our operations.
Our business in the offshore drilling industry is affected by laws and regulations relating to the energy industry and the
environment, including international conventions and treaties, and regional, national, state, and local laws and regulations. The offshore
drilling industry depends on demand for services from the oil and gas exploration and production industry, and, accordingly, we are directly
affected by the adoption of laws and regulations that, for economic, environmental or other policy reasons, curtail exploration and
development drilling for oil and gas. Compliance with such laws, regulations and standards, where applicable, may require us to make
significant capital expenditures, such as the installation of costly equipment or operational changes, and may affect the resale values or
useful lives of our rigs. We may also incur additional costs in order to comply with other existing and future regulatory obligations,
including, but not limited to, costs relating to air emissions, including greenhouse gases, the management of ballast waters, maintenance
and inspection, development and implementation of emergency procedures and insurance coverage or other financial assurance of our
ability to address pollution incidents. Offshore drilling in certain areas has been curtailed and, in certain cases, prohibited because of
concerns over protection of the environment. These costs could have a material adverse effect on our consolidated financial position,
results of operations or cash flows. A failure to comply with applicable laws and regulations may result in administrative and civil penalties,
criminal sanctions or the suspension or termination of our operations.
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To the extent new laws are enacted or other governmental actions are taken that prohibit or restrict offshore drilling or impose
additional environmental protection requirements that result in increased costs to the oil and gas industry, in general, or the offshore drilling
industry, in particular, our business or prospects could be materially adversely affected. The operation of our drilling rigs will require
certain governmental approvals, some of which may involve public hearings and costly undertakings on our part. We may not obtain such
approvals or such approvals may not be obtained in a timely manner. If we fail to timely secure the necessary approvals or permits, our
customers may have the right to terminate or seek to renegotiate their drilling contracts to our detriment. The amendment or modification
of existing laws and regulations or the adoption of new laws and regulations curtailing or further regulating exploratory or development
drilling and production of oil and gas and compliance with any such new legislation or regulations could have an adverse effect on our
business or on our consolidated financial position, results of operations or cash flows.
As contract driller with operations in certain offshore areas, we may be liable for damages and costs incurred in connection with
oil spills or waste disposals related to those operations, and we may also be subject to significant fines in connection with spills. For
example, an oil spill could result in significant liability, including fines, penalties and criminal liability and remediation costs for natural
resource damages, as well as third-party damages, to the extent that the contractual indemnification provisions in our drilling contracts are
not enforceable or otherwise sufficient, or if our customers are unwilling or unable to contractually indemnify us from these risks.
Additionally, we may not be able to obtain such indemnities in our future drilling contracts, and our customers may not have the financial
capability to fulfill their contractual obligations to us. Also, these indemnities may be held to be unenforceable in certain jurisdictions, as a
result of public policy or for other reasons. Laws and regulations protecting the environment have become more stringent in recent years,
and may in some cases impose strict liability, rendering a person liable for environmental damage without regard to negligence. These
laws and regulations may expose us to liability for the conduct of or conditions caused by others or for acts that were in compliance with all
applicable laws at the time they were performed. The application of these requirements or the adoption of new requirements or measures
could have a material adverse effect on our consolidated financial position, results of operations or cash flows.
The global nature of our operations involves additional risks.
We operate in various regions throughout the world, which may expose us to political and other uncertainties, including risks of:
terrorist acts, war, piracy and civil unrest;
seizure, expropriation or nationalization of our equipment;
expropriation or nationalization of our customers’ property;
repudiation or nationalization of contracts;
imposition of trade or immigration barriers;
import-export quotas;
wage and price controls;
changes in law and regulatory requirements, including changes in interpretation and enforcement;
involvement in judicial proceedings in unfavorable jurisdictions;
damage to our equipment or violence directed at our employees, including kidnappings;
complications associated with supplying, repairing and replacing equipment in remote locations;
the inability to move income or capital; and
currency exchange fluctuations and currency exchange restrictions, including exchange or similar controls that may limit our ability to
convert local currency into U.S. dollars and transfer funds out of a local jurisdiction.
Our non-U.S. contract drilling operations are subject to various laws and regulations in certain countries in which we operate,
including laws and regulations relating to the import and export, equipment and operation of drilling units, currency conversions and
repatriation, oil and gas exploration and development, taxation and social contributions of offshore earnings and earnings of expatriate
personnel. We are also subject to the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) and other U.S. and non-U.S.
laws and regulations governing our international operations. In addition, various state and municipal governments, universities and other
investors have proposed or adopted divestment and other initiatives regarding investments including, with respect to state governments, by
state retirement systems in companies that do business with countries that have been designated as state sponsors of terrorism by the
U.S. State Department. Failure to comply with applicable laws and regulations, including those relating to sanctions and export
restrictions, may subject us to criminal sanctions or civil remedies, including fines, denial of export privileges, injunctions or seizures of
assets. Investors could view any potential violations of OFAC regulations negatively, which could adversely affect our reputation and the
market for our shares.
Governments in some countries have become increasingly active in regulating and controlling the ownership of concessions and
companies holding concessions, the exploration for oil and gas and other aspects of the oil and gas industries in their countries, including
local content requirements for participating in tenders for certain drilling contracts. Many governments favor or effectively require the
awarding of drilling contracts to local contractors or require nonlocal contractors to employ citizens of, or purchase supplies from, a
particular jurisdiction or require use of a local agent. In addition, government action, including initiatives by OPEC, may continue to cause
oil or gas price volatility. In some areas of the world, this governmental activity has adversely affected the amount of exploration and
development work by major oil companies and may continue to do so.
Certain of our drilling contracts are partially payable in local currency. The amounts, if any, of local currency received under
these drilling contracts may exceed our local currency needs, leading to an accumulation of excess local currency balances, which, in
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certain instances, may be subject to either temporary blocking or other difficulties converting to U.S. dollars, our functional currency, or to
other currencies in which we operate. Excess amounts of local currency may be exposed to the risk of currency exchange losses.
The shipment of goods, services and technology across international borders subjects us to extensive trade laws and
regulations. Our import and export activities are governed by unique customs laws and regulations in each of the countries where we
operate. Moreover, many countries, including the U.S., control the import and export of certain goods, services and technology and
impose related import and export recordkeeping and reporting obligations. Governments also may impose economic sanctions against
certain countries, persons and other entities that may restrict or prohibit transactions involving such countries, persons and entities, and we
are also subject to the U.S. anti-boycott law.
The laws and regulations concerning import and export activity, recordkeeping and reporting, import and export control and
economic sanctions are complex and constantly changing. These laws and regulations may be enacted, amended, enforced or interpreted
in a manner materially impacting our operations. Ongoing economic challenges may increase some governments’ efforts to enact,
enforce, amend or interpret laws and regulations as a method to increase revenue. Shipments can be delayed and denied import or export
for a variety of reasons, some of which are outside our control and some of which may result from failure to comply with existing legal and
regulatory regimes. Shipping delays or denials could cause unscheduled operational downtime.
Our ability to operate worldwide depends on our ability to obtain the necessary visas and work permits for our personnel to travel
in and out of, and to work in, the jurisdictions in which we operate. Governmental actions in some of the jurisdictions in which we operate
may make it difficult for us to move our personnel in and out of these jurisdictions by delaying or withholding the approval of these permits.
If we are not able to obtain visas and work permits for the employees we need to conduct our operations on a timely basis, we might not be
able to perform our obligations under our drilling contracts, which could allow our customers to cancel the contracts. If our customers
cancel some of our drilling contracts, and we are unable to secure new drilling contracts on a timely basis and on substantially similar
terms, it could have a material adverse effect on our business and on our consolidated financial position, results of operations or cash
flows.
Our business involves numerous operating hazards, and our insurance and indemnities from our customers may not be
adequate to cover potential losses from our operations.
Our operations are subject to the usual hazards inherent in the drilling of oil and gas wells, such as, blowouts, reservoir damage,
loss of production, loss of well control, lost or stuck drill strings, equipment defects, craterings, fires, explosions and pollution. Contract
drilling requires the use of heavy equipment and exposure to hazardous conditions, which may subject us to liability claims by employees,
customers and other parties. These hazards can cause personal injury or loss of life, severe damage to or destruction of property and
equipment, pollution or environmental damage, claims by third parties or customers and suspension of operations. Our offshore fleet is
also subject to hazards inherent in marine operations, either while on site or during mobilization, such as capsizing, sinking, grounding,
collision, piracy, damage from severe weather and marine life infestations.
The South China Sea, the Northwest Coast of Australia and the U.S. Gulf of Mexico are areas subject to typhoons, hurricanes or
other extreme weather conditions on a relatively frequent basis, and our drilling rigs in these regions may be exposed to damage or total
loss by these storms, some of which may not be covered by insurance. The occurrence of these events could result in the suspension of
drilling operations, damage to or destruction of the equipment involved and injury to or death of rig personnel. Some experts believe global
climate change could increase the frequency and severity of these extreme weather conditions. Operations may also be suspended
because of machinery breakdowns, abnormal drilling conditions, failure of subcontractors to perform or supply goods or services, or
personnel shortages. We customarily provide contract indemnity to our customers for certain claims that could be asserted by us relating
to damage to or loss of our equipment, including rigs, and claims that could be asserted by us or our employees relating to personal injury
or loss of life.
Damage to the environment could also result from our operations, particularly through spillage of hydrocarbons, fuel, lubricants
or other chemicals and substances used in drilling operations, or extensive uncontrolled fires. We may also be subject to property
damage, environmental indemnity and other claims by oil and natural gas companies. Drilling involves certain risks associated with the
loss of control of a well, such as blowout, cratering, the cost to regain control of or redrill the well and remediation of associated pollution.
Our customers may be unable or unwilling to indemnify us against such risks. In addition, a court may decide that certain indemnities in
our current or future drilling contracts are not enforceable. The law generally considers contractual indemnity for criminal fines and
penalties to be against public policy, and the enforceability of an indemnity as to other matters may be limited.
Our insurance policies and drilling contracts contain rights to indemnity that may not adequately cover our losses, and we do not
have insurance coverage or rights to indemnity for all risks. We have two main types of insurance coverage: (1) hull and machinery
coverage for physical damage to our property and equipment and (2) excess liability coverage, which generally covers offshore risks, such
as personal injury, third-party property claims, and third-party non-crew claims, including wreck removal and pollution. We generally have
no hull and machinery insurance coverage for damages caused by named storms in the U.S. Gulf of Mexico. We maintain per occurrence
deductibles that generally range up to $10 million for various third-party liabilities, and we self-insure $50 million of the $750 million excess
liability coverage through our wholly owned captive insurance company. We also retain the risk for any liability that exceeds our excess
liability coverage. However, pollution and environmental risks generally are not completely insurable.
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If a significant accident or other event occurs that is not fully covered by our insurance or by an enforceable or recoverable
indemnity, the occurrence could adversely affect our consolidated financial position, results of operations or cash flows. The amount of our
insurance may also be less than the related impact on enterprise value after a loss. Our insurance coverage will not in all situations
provide sufficient funds to protect us from all liabilities that could result from our drilling operations. Our coverage includes annual
aggregate policy limits. As a result, we generally retain the risk for any losses in excess of these limits. We generally do not carry
insurance for loss of revenue, and certain other claims may also not be reimbursed by insurance carriers. Any such lack of reimbursement
may cause us to incur substantial costs. In addition, we could decide to retain more risk in the future, resulting in higher risk of losses,
which could be material. Moreover, we may not be able to maintain adequate insurance in the future at rates that we consider reasonable
or be able to obtain insurance against certain risks.
The continuing effects of the enhanced regulations enacted following the Macondo well incident and of agreements
applicable to us could have an adverse effect on our business and worldwide operations.
Following the Macondo well incident, enhanced governmental safety and environmental requirements applicable to our
operations were adopted for drilling in the U.S. Gulf of Mexico. In order to obtain drilling permits, operators must submit applications that
demonstrate compliance with the enhanced regulations, which require independent third-party inspections, certification of well design and
well control equipment and emergency response plans in the event of a blowout, among other requirements. Operators have had, and
may in the future have, difficulties obtaining drilling permits in the U.S. Gulf of Mexico. In addition, the oil and gas industry has adopted
new equipment and operating standards, such as the American Petroleum Institute Standard 53, related to the installation and testing of
well control equipment. These safety and environmental guidelines and standards and any new guidelines or standards the U.S.
government or industry may issue or any other steps the U.S. government or industry may take, could disrupt or delay operations, increase
the cost of operations, increase out-of-service time or reduce the area of operations for drilling rigs in the U.S. and non-U.S. offshore
areas.
Other governments could take similar actions related to implementing new safety and environmental regulations in the future.
Additionally, some of our customers have elected to voluntarily comply with some or all the inspections, certification requirements and
safety and environmental guidelines on rigs operating outside of the U.S. Gulf of Mexico. Additional governmental regulations and
requirements concerning licensing, taxation, equipment specifications and training requirements or the voluntary adoption of such
requirements or guidelines by our customers could increase the costs of our operations, increase certification and permitting requirements,
increase review periods and impose increased liability on offshore operations. The continuing effects of the enhanced regulations may
also decrease the demand for drilling services, negatively affect dayrates and increase out-of-service time, which could ultimately have an
adverse effect on our revenues and profitability.
Corporate restructuring activity, divestitures, acquisitions and other business combinations and reorganizations could
adversely affect our ability to achieve our strategic goals.
We have undertaken and continue to seek appropriate opportunities for restructuring our organization, engaging in strategic
divestitures, acquisitions and other business combinations in order to optimize our fleet and strengthen our competitiveness. We face risks
arising from these activities, which could adversely affect our ability to achieve our strategic goals, such as the following:
we may be unable to realize the growth or investment opportunities, improvement of our financial position and other expected benefits by
these activities in the expected time period or at all;
transactions may not be completed as scheduled or at all due to legal or regulatory requirements, market conditions or contractual and
other conditions to which such transactions are subject;
unanticipated adverse consequences could arise in the integration or separation processes, including unanticipated restructuring or
separation costs and liabilities, as well as delays or other difficulties in transitioning, coordinating, consolidating, replacing and integrating
personnel, information and management systems, and customer products and services; and
the diversion of management and key employees' attention may detract from our ability to increase revenues and minimize costs.
Failure to recruit and retain key personnel could hurt our operations.
We depend on the continuing efforts of key members of our management, as well as other highly skilled personnel, to operate
and provide technical services and support for our business worldwide. Historically, competition for the personnel required for drilling
operations has intensified as the number of rigs activated, added to worldwide fleets or under construction increased, leading to shortages
of qualified personnel in the industry and creating upward pressure on wages and higher turnover. We may experience a reduction in the
experience level of our personnel as a result of any increased turnover and ongoing staff reduction initiatives, which could lead to higher
downtime and more operating incidents, which in turn could decrease revenues and increase costs. If increased competition for qualified
personnel were to intensify in the future we may experience increases in costs or limits on operations.
Our labor costs and the operating restrictions under which we operate could increase as a result of collective bargaining
negotiations and changes in labor laws and regulations.
Approximately 34 percent of our total workforce, primarily employed in Norway, Brazil, the U.K. and Australia, are represented
by, and some of our contracted labor work is subject to, collective bargaining agreements, substantially all of which are subject to annual
salary negotiation. These negotiations could result in higher personnel expenses, other increased costs or increased operational
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restrictions as the outcome of such negotiations affect the market for all offshore employees not just the union members. Legislation has
been introduced in the U.S. Congress that could encourage additional unionization efforts in the U.S., as well as increase the chances that
such efforts succeed. Additional unionization efforts, if successful, new collective bargaining agreements or work stoppages could
materially increase our labor costs and operating restrictions.
Failure to comply with anti-bribery statutes, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010,
could result in fines, criminal penalties, drilling contract terminations and an adverse effect on our business.
The U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act 2010 (“Bribery Act”) and similar anti-bribery laws in other
jurisdictions, generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or
retaining business. We operate in many parts of the world that have experienced corruption to some degree and, in certain circumstances,
strict compliance with anti-bribery laws may conflict with local customs and practices. If we are found to be liable for violations under the
FCPA, the Bribery Act or other similar laws, either due to our acts or omissions or due to the acts or omissions of others, including our
partners in our various joint ventures, we could suffer from civil and criminal penalties or other sanctions, which could have a material
adverse effect on our business or our consolidated financial position and results of operations. In addition, investors could negatively view
potential violations, inquiries or allegations of misconduct under the FCPA, the Bribery Act or similar laws, which could adversely affect our
reputation and the market for our shares.
We could also face fines, sanctions and other penalties from authorities in the relevant jurisdictions, including prohibition of our
participating in or curtailment of business operations in those jurisdictions and the seizure of rigs or other assets. Additionally, we could
face claims by agents, shareholders, debt holders, or other interest holders or constituents of our company. Further, disclosure of the
subject matter of any investigation could adversely affect our reputation and our ability to obtain new business with potential customers or
retain existing business with our current customers, to attract and retain employees and to access the capital markets. Our customers in
relevant jurisdictions could seek to impose penalties or take other actions adverse to our interests, and we may be required to dedicate
significant time and resources to investigate and resolve allegations of misconduct, regardless of the merit of such allegations.
Regulation of greenhouse gases and climate change could have a negative impact on our business.
Scientific studies have suggested that emissions of certain gases, including greenhouse gases, carbon dioxide and methane,
contribute to warming of the earth’s atmosphere and other climatic changes. In response to such studies, the issue of climate change and
the effect of greenhouse gas emissions, in particular emissions from fossil fuels, is attracting increasing attention worldwide. For example,
in December 2015, 195 nations adopted the Paris Agreement, which went into effect in November 2016. The Paris Agreement aims to
limit increases in global temperatures to well below two degrees Celsius. While the greenhouse gas emission reductions called for by the
Paris Agreement are not binding, we expect continued and increased attention to climate change. This attention has led, and we expect it
to continue to lead, to additional regulations designed to reduce greenhouse gas emissions domestically and internationally. Because our
business depends on the level of activity in the offshore oil and gas industry, existing or future laws, regulations, treaties or international
agreements related to greenhouse gases and climate change, including incentives to conserve energy or use alternative energy sources,
could have a negative impact on our business if such laws, regulations, treaties or international agreements reduce the worldwide demand
for oil and gas or limit drilling opportunities. In addition, such laws, regulations, treaties or international agreements could result in
increased compliance costs or additional operating restrictions, which may have an adverse effect on our business.
We are subject to litigation that, if not resolved in our favor and not sufficiently insured against, could have a material
adverse effect on us.
We are subject to a variety of disputes, investigations and litigation. Certain of our subsidiaries are subject to and have been
involved in litigation with certain of our customers. We have subsidiaries that have issued debt under indentures that are subject to
covenant compliance, some of which have been accused of breaching certain requirements of such covenants (see “Part II. Item 8.
Financial Statements and Supplementary Data—Notes
to Consolidated Financial Statements—Note 13—Commitments and
Contingencies—Global Marine litigation”). Certain of our subsidiaries are named as defendants in numerous lawsuits alleging personal
injury as a result of exposure to asbestos or toxic fumes or resulting from other occupational diseases, such as silicosis, and various other
medical issues that can remain undiscovered for a considerable amount of time. Some of these subsidiaries that have been put on notice
of potential liabilities have no assets. Certain subsidiaries are subject to litigation relating to environmental damage. Our patent for
dual-activity technology has been successfully challenged in certain jurisdictions. We are also subject to a number of significant tax
disputes. We cannot predict the outcome of the cases involving those subsidiaries or the potential costs to resolve them. Insurance may
not be applicable or sufficient in all cases, insurers may not remain solvent and policies may not be located. Suits against
non-asset-owning subsidiaries have and may in the future give rise to alter ego or successor-in-interest claims against us and our
asset-owning subsidiaries to the extent a subsidiary is unable to pay a claim or insurance is not available or sufficient to cover the claims.
To the extent that one or more pending or future litigation matters is not resolved in our favor and is not covered by insurance, which could
have an adverse effect on our financial position, results of operations or cash flows.
Our information technology systems are subject to cybersecurity risks and threats.
We depend on digital technologies to conduct our offshore and onshore operations, to collect payments from customers and to
pay vendors and employees. Our data protection measures and measures taken by our customers and vendors may not prevent
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unauthorized access of information technology systems. Threats to our information technology systems, and the systems of our
customers and vendors, associated with cybersecurity risks and cyber-incidents or attacks continue to grow. Threats to our systems and
our customers’ and vendors’ systems may derive from human error, fraud or malice on the part of employees or third parties, or may result
from accidental technological failure. In addition, breaches to our systems and systems of our customers and vendors could go unnoticed
for some period of time. Risks associated with these threats include disruptions of certain systems on our rigs; other impairments of our
ability to conduct our operations; loss of intellectual property, proprietary information or customer and vendor data; disruption of our
customers’ and vendors’ operations; loss or damage to our customer and vendor data delivery systems; and increased costs to prevent,
respond to or mitigate cybersecurity events. If such a cyber-incident were to occur, it could have a material adverse effect on our business
or on our consolidated financial position, results of operations or cash flows.
In addition, new laws and regulations governing data privacy and the unauthorized disclosure of confidential information,
including the European Union General Data Protection Regulation and recent California legislation, pose increasingly complex compliance
challenges and potentially elevate our costs. Any failure by us to comply with these laws and regulations, including as a result of a security
or privacy breach, could result in significant penalties and liabilities for us. Additionally, if we acquire a company that has violated or is not
in compliance with applicable data protection laws, we may incur significant liabilities and penalties as a result.
Acts of terrorism, piracy and political and social unrest could affect the markets for drilling services, which may have a
material adverse effect on our results of operations.
Acts of terrorism and social unrest, brought about by world political events or otherwise, have caused instability in the world’s
financial and insurance markets in the past and may occur in the future. Such acts could be directed against companies such as ours. In
addition, acts of terrorism, piracy and social unrest could lead to increased volatility in prices for crude oil and natural gas and could affect
the markets for drilling services. Insurance premiums could increase and coverage may be unavailable in the future. Government
regulations may effectively preclude us from engaging in business activities in certain countries. These regulations could be amended to
cover countries where we currently operate or where we may wish to operate in the future. Our drilling contracts do not generally provide
indemnification against loss of capital assets or loss of revenues resulting from acts of terrorism, piracy or political or social unrest. We
have limited insurance for our assets providing coverage for physical damage losses resulting from risks, such as terrorist acts, piracy,
vandalism, sabotage, civil unrest, expropriation and acts of war, and we do not carry insurance for loss of revenues resulting from such
risks.
Public health threats could have a material adverse effect on our business and results of operations.
Public health threats, such as Severe Acute Respiratory Syndrome, severe influenza and other highly communicable viruses or
diseases, outbreaks of which have already occurred in various parts of the world in which we operate, could adversely impact our
operations, the operations of our customers and the global economy, including the worldwide demand for oil and natural gas and the level
of demand for our services. The quarantine of personnel or inability to access our offices or rigs could adversely affect our operations.
Travel restrictions or operational problems in any part of the world in which we operate, or any reduction in the demand for drilling services
caused by public health threats in the future, may materially impact our operations and have an adverse effect on our results of operations.
We may not realize the anticipated benefits of the acquisition of Songa or Ocean Rig.
We believe these acquisitions will provide benefits to the combined company as described in our other filings with the SEC.
However, there is a risk that some or all of the expected benefits of either or both acquisitions may fail to materialize, or may not occur
within the time periods anticipated. The realization of such benefits may be affected by a number of factors, many of which are beyond our
control, including but not limited to the strength or weakness of the economy and competitive factors in the areas where we do business,
the effects of competition in the markets in which we operate, and the impact of changes in the laws and regulations regulating the offshore
drilling industry or affecting domestic or foreign operations. The challenge of coordinating previously separate businesses makes
evaluating the business and future financial prospects of the combined company following the acquisition difficult. The success of the
acquisitions, including anticipated benefits and cost savings, will depend, in part, on our ability to successfully integrate the operations of
each of these companies in a manner that results in various benefits, including, among other things, an expanded market reach and
operating efficiencies, and that does not materially disrupt existing relationships nor result in decreased revenues or dividends. Failure to
realize the anticipated benefits of the acquisitions may impact the financial performance of the combined company.
We have incurred significant transaction and acquisition-related costs and may incur significant integration costs in
connection with the acquisitions.
We have incurred substantial costs in connection with the negotiation and completion of acquisitions of Songa and Ocean Rig.
We have incurred significant legal, advisory and financial services fees in connection with the process of negotiating and evaluating the
terms of each acquisition. Additional significant unanticipated costs may be incurred as we continue to combine and integrate the acquired
businesses. We also have incurred and will continue to incur transaction fees and costs related to formulating and implementing
integration plans, including facilities and systems consolidation costs and employment-related costs. We continue to assess the
magnitude of these costs, and additional unanticipated costs may be incurred as we continue to integrate the companies’ businesses.
Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the
businesses, which should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at
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all (see the risk factor titled “We may not realize the anticipated benefits of the acquisition of Songa or Ocean Rig” above). These costs
described above, as well as other unanticipated costs and expenses, could have an adverse effect on our consolidated financial position,
operating results and cash flows.
Other risks
We have significant carrying amounts of long-lived assets that are subject to impairment testing.
At December 31, 2018, the carrying amount of our property and equipment was $20.4 billion, representing 80 percent of our total
assets. In accordance with our accounting policies, we review our property and equipment for impairment when events or changes in
circumstances indicate that carrying amounts of our assets held and used may not be recoverable. We also review the carrying amounts
of assets at the time that we classify such assets as held for sale. In the year ended December 31, 2018, we recognized an aggregate
loss of $999 million associated with the impairment of certain assets that we determined were impaired at the time the assets were
classified as held for sale. In the year ended December 31, 2017, we recognized an aggregate loss of $1.4 billion associated with the
impairment of certain assets that we determined were impaired at the time the assets were classified as held for sale and an aggregate
loss of $94 million associated with the impairment of our midwater floater asset group. Future expectations of lower dayrates or rig
utilization rates or a significant change to the composition of one or more of our asset groups could result in the recognition of additional
losses on impairment of our long-lived asset groups if future cash flow expectations, based on information available to management at the
time of measurement, indicate that the carrying amount of our asset groups may be impaired.
A change in tax laws, treaties or regulations, or their interpretation, of any country in which we have operations, are
incorporated or are resident could result in a higher effective tax rate on our worldwide earnings, which could result in a
significant adverse effect on our earnings and cash flows from operations.
We are subject to changes in applicable tax laws, treaties or regulations in the jurisdictions in which we operate and earn
income, and such changes could include laws or policies directed toward companies organized in jurisdictions with low tax rates. A
material change in the tax laws, treaties or regulations, or their interpretation or application, of any country in which we have significant
operations, or in which we are incorporated or resident, could result in a higher effective tax rate on our worldwide earnings and such
change could be significant to our financial results. Switzerland, for example, has been carefully considering various tax reform proposals
in response to certain guidance from and demands by the European Union (“EU”) and the Organization for Economic Co-operation and
Development (the “OECD”). Some of these tax reform measures may be adopted into law and effective as early as 2019. Similarly, the
OECD issued its action plan of tax reform measures that called for member states to take action to prevent base erosion and profit shifting.
Some of these measures impact transfer pricing, requirements to qualify for tax treaty benefits, and the definition of permanent
establishments depending on each jurisdiction’s adoption and interpretation of such proposals. Respective countries have adopted various
measures into their own tax laws. In addition, the EU issued its Anti-Tax Avoidance Directive in 2016 that required its member states to
adopt specific tax reform measures by 2019. Other tax jurisdictions in which we operate may consider implementing similar legislation.
Any material change to tax laws or policies, their interpretation or the adoption of new interpretations of existing laws and rulings in any of
the jurisdictions in which we operate could result in a higher effective tax rate on our worldwide earnings and such change could have a
significant adverse effect on our consolidated financial position, results of operations or cash flows.
A loss of a major tax dispute or a successful tax challenge to our operating structure, intercompany pricing policies or the
taxable presence of our key subsidiaries in certain countries could result in a higher effective tax rate on our worldwide
earnings, which could result in a significant negative impact on our earnings and cash flows from operations.
We are subject to tax laws, treaties and regulations in the countries in which we operate and earn income. Our income taxes are
based on the applicable tax laws and tax rates in effect in the countries in which we operate and earn income as well as upon our
operating structures in these countries. Our income tax returns are subject to review and examination in these jurisdictions, and we do not
recognize the benefit of income tax positions we believe are more likely than not to be disallowed upon challenge by a tax authority. If any
tax authority successfully challenges our operational structure, intercompany pricing policies or the taxable presence of our key
subsidiaries in certain countries; or if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure; or
if we lose a material tax dispute in any country, particularly in the U.S., India, Brazil or Nigeria, our effective tax rate on our worldwide
earnings could increase substantially and our earnings and cash flows from operations could be materially adversely affected. For
example, we cannot be certain that the U.S. Internal Revenue Service (“IRS”) will not successfully contend that we or any of our key
subsidiaries were or are engaged in a trade or business in the U.S. or that we or any of our key subsidiaries maintained or maintain a
permanent establishment in the U.S. The determination of the aforementioned, among other things, involves considerable uncertainty. If
we or any of our key subsidiaries were determined to have been engaged in a trade or business in the U.S. through a permanent
establishment, then we could be subject to U.S. corporate income and additional branch profits taxes on the portion of our earnings
effectively connected to such U.S. business during the period in which this was considered to have occurred. If this occurs, our effective
tax rate on worldwide earnings for that period could increase substantially, and our earnings and cash flows from operations for that period
could be adversely affected.
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U.S. tax authorities could treat us as a passive foreign investment company, which would have adverse U.S. federal income
tax consequences to U.S. holders.
A foreign corporation will be treated as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes if
either (1) at least 75 percent of its gross income for any taxable year consists of certain types of passive income or (2) at least 50 percent
of the average value of the corporation's assets produce or are held for the production of those types of passive income. For purposes of
these tests, passive income includes dividends, interest and gains from the sale or exchange of investment property and certain rents and
royalties, but does not include income derived from performing services.
We believe that we have not been and will not be a PFIC with respect to any taxable year. Our income from offshore contract
drilling services should be treated as services income for purposes of determining whether we are a PFIC. Accordingly, we believe that
our income from our offshore contract drilling services should not constitute passive income, and the assets that we own and operate in
connection with the production of that income should not constitute passive assets. There is significant legal authority supporting this
position, including statutory provisions, legislative history, case law and IRS pronouncements concerning the characterization, for other tax
purposes, of income derived from services where a substantial component of such income is attributable to the value of the property or
equipment used in connection with providing such services. However, a prior case and an IRS pronouncement that relies on the case
characterize income from time chartering of vessels as rental income rather than services income for other tax purposes. The IRS has
subsequently formally announced that it does not agree with the decision in that case. Moreover, we believe that the terms of the time
charters in the prior case differ in material respects from the terms of our drilling contracts with customers. No assurance can be given that
the IRS or a court will accept our position, and there is a risk that the IRS or a court could determine that we are a PFIC.
If we were treated as a PFIC for any taxable year, our U.S. shareholders would face adverse U.S. tax consequences. Under the
PFIC rules, unless a shareholder makes certain elections available under the Internal Revenue Code of 1986, as amended, and such
elections could themselves have adverse consequences for the shareholder, the shareholder could be required to pay U.S. federal income
tax at the highest applicable income tax rates on ordinary income upon the receipt of excess distributions, as defined for U.S. tax
purposes, and upon any gain from the disposition of our shares, plus interest on such amounts, as if such excess distribution or gain had
been recognized ratably over the shareholder’s holding period of our shares. Additionally, under applicable statutory provisions, the
preferential tax rate on qualified dividend income, which applies to dividends paid to non-corporate shareholders, does not apply to
dividends paid by a foreign corporation if the foreign corporation is a PFIC for the taxable year in which the dividend is paid or the
preceding taxable year.
As a Swiss corporation, our flexibility may be limited with respect to certain aspects of capital management, and we may be
unable to make distributions or repurchase shares without subjecting our shareholders to Swiss withholding tax.
Under Swiss law, our shareholders may approve an authorized share capital that allows the board of directors to issue new
shares without additional shareholder approval within a period of up to two years. The authorized share capital is limited to a maximum of
50 percent of a company’s registered share capital. The authorized share capital approved by our shareholders at the May 2018 annual
general meeting will expire on May 18, 2020. Accordingly, shareholders at our annual general meeting in May 2019 are not expected to be
requested to approve an authorized share capital. Our current authorized share capital is limited to approximately five percent of our
registered share capital. Additionally, subject to certain exceptions, Swiss law grants preemptive rights to existing shareholders to
subscribe for new issuances of shares. Further, Swiss law does not provide as much flexibility in the various terms that can attach to
different classes of shares as the laws of some other jurisdictions. Swiss law also reserves for shareholder approval certain corporate
actions over which a board of directors would have authority in some other jurisdictions. For example, dividends must be approved by
shareholders. These Swiss law requirements relating to our capital management may limit our flexibility, and situations may arise where
greater flexibility would have provided substantial benefits to our shareholders.
Distributions to shareholders in the form of a par value reduction and dividend distributions out of qualifying additional paid-in
capital are not currently subject to the 35 percent Swiss federal withholding tax. However, the Swiss withholding tax rules could also be
changed in the future, and any such change may adversely affect us or our shareholders. In addition, over the long term, the amount of
par value available for us to use for par value reductions or the amount of qualifying additional paid-in capital available for us to pay out as
distributions is limited. If we are unable to make a distribution through a reduction in par value, or out of qualifying additional paid-in capital
as shown on Transocean Ltd.’s standalone Swiss statutory financial statements, we may not be able to make distributions without
subjecting our shareholders to Swiss withholding taxes.
Under Swiss tax law, repurchases of shares for the purposes of capital reduction are treated as a partial liquidation subject to a
35 percent Swiss withholding tax based on the difference between the repurchase price and the related amount of par value and the
related amount of qualifying additional paid-in capital, if any. At our 2009 annual general meeting, our shareholders approved the
repurchase of up to CHF 3.5 billion of our shares for cancellation under the share repurchase program. If we repurchase shares, we
expect to use an alternative procedure pursuant to which we repurchase shares via a “virtual second trading line” from market players,
such as banks and institutional investors, who are generally entitled to receive a full refund of the Swiss withholding tax. The use of such
“virtual second trading line” with respect to share repurchase programs is subject to the approval of the competent Swiss tax and other
authorities. We may not be able to repurchase as many shares as we would like to repurchase for purposes of capital reduction on the
“virtual second trading line” without subjecting the selling shareholders to Swiss withholding taxes.
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Swiss corporate governance may affect our business.
The Swiss Federal Council Ordinance Against Excessive Compensation at Public Companies (the “Ordinance”), among other
things, (a) requires a binding shareholder “say on pay” vote with respect to the compensation of members of our executive management
and board of directors, (b) generally prohibits the making of severance, advance, transaction premiums and similar payments to members
of our executive management and board of directors, and (c) requires the declassification of our board of directors and the amendment of
our articles of association to specify various compensation-related matters. At our annual general meetings, our shareholders are required
to approve the maximum aggregate compensation of (1) our board of directors for the period through the successive annual general
meeting and (2) our executive management team for the following year. The Ordinance further provides for criminal penalties against
directors and members of executive management in case of noncompliance with certain of its requirements. The Ordinance may
negatively affect our ability to attract and retain executive management and members of our board of directors.
As a Swiss corporation, we are subject to Swiss legal provisions that may limit our flexibility to swiftly implement certain
initiatives or strategies.
We are required, from time to time, to evaluate the carrying amount of our investments in affiliates, as presented on our Swiss
standalone balance sheet. If we determine that the carrying amount of any such investment exceeds its fair value, we may conclude that
such investment is impaired. The recognized loss associated with such a non-cash impairment could result in our net assets no longer
covering our statutory share capital and statutory capital reserves. Under Swiss law, if our net assets cover less than 50 percent of our
statutory share capital and statutory capital reserves, the board of directors must convene a general meeting of shareholders and propose
measures to remedy such a capital loss. The appropriate measures depend on the relevant circumstances and the magnitude of the
recognized loss and may include seeking shareholder approval for offsetting the aggregate loss, or a portion thereof, with our statutory
capital reserves including qualifying additional paid-in capital otherwise available for distributions to shareholders or raising new equity.
Depending on the circumstances, we may also need to use qualifying additional paid-in capital available for distributions in order to reduce
our accumulated net loss and such use might reduce our ability to make distributions without subjecting our shareholders to Swiss
withholding tax. These Swiss law requirements could limit our flexibility to swiftly implement certain initiatives or strategies.
We are subject to anti-takeover provisions.
Our articles of association and Swiss law contain provisions that could prevent or delay an acquisition of the company by means
of a tender offer, a proxy contest or otherwise. Actions taken under such provisions may adversely affect prevailing market prices for our
shares, and could, among other things:
provide that the board of directors is authorized, subject to obtaining shareholder approval every two years, at any time during a
maximum two-year period, which under our current authorized share capital will expire on May 18, 2020, to issue a specified number of
shares, which under our current authorized share capital is approximately five percent of the share capital registered in the commercial
register, and to limit or withdraw the preemptive rights of existing shareholders in various circumstances;
provide for a conditional share capital that authorizes the issuance of additional shares up to a maximum amount of approximately
24 percent of the share capital registered in the commercial register as of February 12, 2019, without obtaining additional shareholder
approval through: (1) the exercise of conversion, exchange, option, warrant or similar rights for the subscription of shares granted in
connection with bonds, options, warrants or other securities newly or already issued in national or international capital markets or new or
already existing contractual obligations by or of any of our subsidiaries; or (2) in connection with the issuance of shares, options or other
share-based awards;
provide that any shareholder who wishes to propose any business or to nominate a person or persons for election as director at any
annual meeting may only do so if we are given advance notice;
provide that directors can be removed from office only by the affirmative vote of the holders of at least 66 2/3 percent of the shares
entitled to vote;
provide that a merger or demerger transaction requires the affirmative vote of the holders of at least 66 2/3 percent of the shares
represented at the meeting and provide for the possibility of a so-called cash-out or squeeze-out merger if the acquirer controls
90 percent of the outstanding shares entitled to vote at the meeting;
provide that any action required or permitted to be taken by the holders of shares must be taken at a duly called annual or extraordinary
general meeting of shareholders;
limit the ability of our shareholders to amend or repeal some provisions of our articles of association; and
limit transactions between us and an “interested shareholder,” which is generally defined as a shareholder that, together with its affiliates
and associates, beneficially, directly or indirectly, owns 15 percent or more of our shares entitled to vote at a general meeting.
The results of the U.K.’s referendum on withdrawal from the European Union may have a negative effect on our business.
In June 2016, a majority of voters in the U.K. elected to withdraw from the European Union in a national referendum, and in
March 2017, the government of the U.K. formally initiated the process. The referendum was advisory, and the terms of any withdrawal are
subject to a negotiation period that could last at least two years after the March 2017 initiation. Though the U.K. withdrawal from the
European Union is scheduled to occur in March 2019, there is currently no agreement in place regarding the withdrawal, creating
significant uncertainty about the future relationship between the U.K. and the European Union, including with respect to the laws and
regulations that will apply as the U.K. determines which European Union-derived laws to replace or replicate in the event of a withdrawal.
The referendum has also given rise to calls for the governments of other European Union member states to consider withdrawal. These
developments, or the perception that any of them could occur, have had and may continue to have an adverse effect on global economic
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conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key
market participants to operate in certain financial markets. Any of these factors could depress economic activity and restrict our access to
capital, which could have a material adverse effect on our business and on our consolidated financial position, results of operations or cash
flows.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
The description of our property included under “Item 1. Business” is incorporated by reference herein. We maintain offices, land
bases and other facilities worldwide, including the following:
principal executive offices in Steinhausen, Switzerland; and
corporate offices in Houston, Texas; and the Cayman Islands.
Our remaining offices and bases are located in various countries in North America, South America, Europe, Africa and Asia. We
lease most of these facilities.
Item 3.
Legal Proceedings
We have certain actions, claims and other matters pending as discussed and reported in “Part II. Item 8. Financial Statements
and Supplementary Data—Notes to Consolidated Financial Statements—Note 13—Commitments and Contingencies” and “Part II. Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Other Matters—” in this annual report for the
year ended December 31, 2018. We are also involved in various tax matters as described in “Part II. Item 8. Financial Statements and
Supplementary Data—Notes to Consolidated Financial Statements—Note 10—Income Taxes” and in “Part II. Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Other Matters—Tax matters” in this annual report for the year
ended December 31, 2018. All such actions, claims, tax and other matters are incorporated herein by reference.
As of December 31, 2018, we were also involved in a number of other lawsuits, claims and disputes, which have arisen in the
ordinary course of our business and for which we do not expect the liability, if any, to have a material adverse effect on our consolidated
financial position, results of operations or cash flows. We cannot predict with certainty the outcome or effect of any of the matters referred
to above or of any such other pending or threatened litigation or legal proceedings. There can be no assurance that our beliefs or
expectations as to the outcome or effect of any lawsuit or claim or dispute will prove correct and the eventual outcome of these matters
could materially differ from management’s current estimates.
Item 4.
Mine Safety Disclosures
Not applicable.
AR-21
Executive Officers of the Registrant
We have included the following information, presented as of February 11, 2019, on our executive officers for purposes of U.S. securities
laws in Part I of this report in reliance on General Instruction G(3) to Form 10-K. The board of directors elects the officers of the Company,
generally on an annual basis. There is no family relationship between any of our executive officers.
Officer
Jeremy D. Thigpen (a)
Keelan Adamson (a)
Howard E. Davis
Brady K. Long
Mark L. Mey (a)
David Tonnel
Office
Age as of
February 11, 2019
President and Chief Executive Officer
Executive Vice President and Chief Operations Officer
Executive Vice President, Chief Administrative Officer and Chief Information Officer
Executive Vice President and General Counsel
Executive Vice President and Chief Financial Officer
Senior Vice President and Corporate Controller
44
49
60
46
55
49
(a) Member of our executive management team for purposes of Swiss law.
Jeremy D. Thigpen is President and Chief Executive Officer and a member of the Company’s board of directors. Before joining the
Company in this position in April 2015, Mr. Thigpen served as Senior Vice President and Chief Financial Officer at National Oilwell Varco, Inc.
from December 2012 to April 2015. At National Oilwell Varco, Inc., Mr. Thigpen also served as President, Downhole and Pumping Solutions from
August 2007 to December 2012, as President of the Downhole Tools Group from May 2003 to August 2007 and as manager of the Downhole
Tools Group from April 2002 to May 2003. From 2000 to 2002, Mr. Thigpen served as the Director of Business Development and Special
Assistant to the Chairman for National Oilwell Varco, Inc. Mr. Thigpen earned a Bachelor of Arts degree in Economics and Managerial Studies
from Rice University in 1997, and he completed the Program for Management Development at Harvard Business School in 2001.
Keelan Adamson is Executive Vice President and Chief Operations Officer of the Company. Before being named to his current position
in August 2018, Mr. Adamson served as Senior Vice President, Operations from October 2017 to July 2018 and as Senior Vice President,
Operations Integrity and HSE, from June 2015 to October 2017. Since 2010, Mr. Adamson served in multiple executive positions with
responsibilities spanning Engineering and Technical Services, Major Capital Projects, Human Resources, and more recently, Operations Integrity
and HSE. Mr. Adamson started his career as a drilling engineer with BP Exploration in 1991 and joined Transocean in July 1995. In addition to
several management assignments in the U.K., Asia, and Africa, he also held leadership roles in Sales and Marketing, Well Construction and
Technology, and as Managing Director for operations in North America, Canada and Trinidad. Mr. Adamson earned a Bachelor's degree in
Aeronautical Engineering from The Queens University of Belfast and completed the Advanced Management program at Harvard Business School
in 2016.
Howard E. Davis is Executive Vice President, Chief Administrative Officer and Chief Information Officer of the Company. Before joining
the Company in this position in August 2015, Mr. Davis served as Senior Vice President, Chief Administrative Officer and Chief Information Officer
of National Oilwell Varco, Inc. from March 2005 to April 2015 and as Vice President, Chief Administrative Officer and Chief Information Officer
from August 2002 to March 2005. Mr. Davis earned a Bachelor’s degree from University of Kentucky in 1980, and he completed the Advanced
Management Program at Harvard Business School in 2005.
Brady K. Long is Executive Vice President and General Counsel of the Company. Before being named to his current position in
March 2018, Mr. Long served as Senior Vice President and General Counsel from November 2015 to March 2018. From 2011 to
November 2015, when Mr. Long joined the Company, he served as Vice President—General Counsel and Secretary of Ensco plc, which acquired
Pride International, Inc. where he had served as Vice President, General Counsel and Secretary since August 2009. Mr. Long joined
Pride International, Inc. in June 2005 as Assistant General Counsel and served as Chief Compliance Officer from June 2006 to February 2009.
He was director of Transocean Partners LLC from May 2016 until December 2016. Mr. Long previously practiced corporate and securities law
with the law firm of Bracewell LLP. He earned a Bachelor of Arts degree from Brigham Young University in 1996 and a Juris Doctorate degree
from the University of Texas School of Law in 1999.
Mark L. Mey is Executive Vice President and Chief Financial Officer of the Company. Before joining the Company in this position in
May 2015, Mr. Mey served as Executive Vice President and Chief Financial Officer of Atwood Oceanics, Inc. from January 2015 to May 2015,
prior to which he served as Senior Vice President and Chief Financial Officer from August 2010. Mr. Mey was director of Transocean
Partners LLC from June 2015 until December 2016. He served as Director, Senior Vice President and Chief Financial Officer of
Scorpion Offshore Ltd. from August 2005 to July 2010. Prior to 2005, Mr. Mey held various senior financial and other roles in the drilling and
financial services industries, including 12 years with Noble Corporation. He earned an Advanced Diploma in Accounting and a Bachelor of
Commerce degree from the University of Port Elizabeth in South Africa in 1985, and he is a chartered accountant. Additionally, Mr. Mey
completed the Harvard Business School Executive Advanced Management Program in 1998.
David Tonnel is Senior Vice President and Corporate Controller of the Company. Before being named to his current position in
April 2017, he served as Senior Vice President, Supply Chain and Corporate Controller from October 2015 to April 2017, as Senior Vice
President, Finance and Controller from March 2012 to October 2015 and as Senior Vice President of the Europe and Africa Unit from June 2009
to March 2012. Mr. Tonnel served as Vice President of Global Supply Chain from November 2008 to June 2009, as Vice President of Integration
and Process Improvement from November 2007 to November 2008, and as Vice President and Controller from February 2005 to November 2007.
Prior to February 2005, he served in various financial roles, including Assistant Controller; Finance Manager, Asia Australia Region; and
Controller, Nigeria. Mr. Tonnel joined the Company in 1996 after working for Ernst & Young in France as Senior Auditor. Mr. Tonnel earned a
Master of Science degree in Management from HEC (Hautes Etudes Commerciales) in Paris, France in 1991.
AR-22
PART II
Item 5.
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities
Market for Shares of Our Common Equity
Our shares are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “RIG.” On February 11, 2019, we had
610,061,503 shares outstanding and 5,718 holders of record of our shares.
Shareholder Matters
Share issuance
In connection with the acquisition of Songa Offshore SE, a European public company limited by shares, or societas Europaea,
existing under the laws of Cyprus (“Songa”), shareholders at our extraordinary general meeting, held January 16, 2018, were requested to
consider the following: (1) the issuance of up to 68.6 million Transocean Ltd. shares, (2) an amendment of our articles of association to
create additional authorized share capital, (3) election of one new director to our board of directors and (4) issuance of consideration
shares of our authorized share capital and our shares issuable upon exchange of the 0.50% exchangeable senior bonds due January 2023
(the “Exchangeable Bonds”). On January 18, 2018, we announced that shareholders at our extraordinary general meeting approved all
proposals related to the Songa acquisition. On January 30, 2018, we completed the acquisition of an approximate 97.7 percent ownership
interest in Songa. On March 28, 2018, we acquired the remaining shares not owned by us through a compulsory acquisition under Cyprus
law and as a result, Songa became our wholly owned subsidiary. To complete these transactions, we issued 68.0 million shares and
$863 million aggregate principal amount of the Exchangeable Bonds and made an aggregate cash payment of $8 million.
In connection with the acquisition of Ocean Rig UDW Inc., a Cayman Islands exempted company with limited liability
(“Ocean Rig”), shareholders at our extraordinary general meeting, held November 29, 2018, were requested to consider the following:
(1) an amendment of our articles of association to create additional authorized share capital, (2) the issuance of up to 147.7 million
Transocean Ltd. (together with its subsidiaries and predecessors, unless the context requires otherwise, “Transocean,” the “Company,”
“we,” “us” or “our”) shares and (3) the deletion of the previously approved special purpose authorized share capital. On November 29,
2018, we announced that shareholders at our extraordinary general meeting approved all proposals related to the Ocean Rig acquisition.
On December 5, 2018, we completed the acquisition of Ocean Rig in a merger transaction and as a result, Ocean Rig became our wholly
owned subsidiary. To complete the acquisition, we issued 147.7 million Transocean Ltd. shares and made an aggregate cash payment of
$1.2 billion.
See “Part II. Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements and
4─Business Combinations.”
Swiss tax consequences to our shareholders
Overview—The tax consequences discussed below are not a complete analysis or listing of all the possible tax consequences
that may be relevant to our shareholders. Shareholders should consult their own tax advisors in respect of the tax consequences related
to receipt, ownership, purchase or sale or other disposition of our shares and the procedures for claiming a refund of withholding tax.
Swiss income tax on dividends and similar distributions—A non-Swiss holder is not subject to Swiss income taxes on
dividend income and similar distributions in respect of our shares, unless the shares are attributable to a permanent establishment or a
fixed place of business maintained in Switzerland by such non-Swiss holder. However, dividends and similar distributions are subject to
Swiss withholding tax, subject to certain exceptions. See “—Swiss withholding tax on dividends and similar distributions to shareholders.”
Swiss wealth tax—A non-Swiss holder is not subject to Swiss wealth taxes unless the holder’s shares are attributable to a
permanent establishment or a fixed place of business maintained in Switzerland by such non-Swiss holder.
Swiss capital gains tax upon disposal of shares—A non-Swiss holder is not subject to Swiss income taxes for capital gains
unless the holder’s shares are attributable to a permanent establishment or a fixed place of business maintained in Switzerland by such
non-Swiss holder. In such case, the non-Swiss holder is required to recognize capital gains or losses on the sale of such shares, which
are subject to cantonal, communal and federal income tax.
Swiss withholding tax on dividends and similar distributions to shareholders—A Swiss withholding tax of 35 percent is
due on dividends and similar distributions to our shareholders from us, regardless of the place of residency of the shareholder, subject to
the exceptions discussed under “—Exemption” below. We will be required to withhold at such rate and remit on a net basis any payments
made to a holder of our shares and pay such withheld amounts to the Swiss federal tax authorities.
Exemption—Distributions to shareholders in the form of a par value reduction or out of qualifying additional paid-in capital for
Swiss statutory purposes are exempt from Swiss withholding tax. On December 31, 2018, the aggregate amount of par value of our
outstanding shares was CHF 61 million, equivalent to approximately $62 million, and the aggregate amount of qualifying additional paid-in
AR-23
capital of our outstanding shares was CHF 13.4 billion, equivalent to approximately $13.7 billion. Consequently, we expect that a
substantial amount of any potential future distributions may be exempt from Swiss withholding tax.
Refund available to Swiss holders—A Swiss tax resident, corporate or individual, can recover the withholding tax in full if such
resident is the beneficial owner of our shares at the time the dividend or other distribution becomes due and provided that such resident
reports the gross distribution received on such resident’s income tax return, or in the case of an entity, includes the taxable income in such
resident’s income statement.
Refund available to non-Swiss holders—If the shareholder that receives a distribution from us is not a Swiss tax resident, does
not hold our shares in connection with a permanent establishment or a fixed place of business maintained in Switzerland, and resides in a
country that has concluded a treaty for the avoidance of double taxation with Switzerland for which the conditions for the application and
protection of and by the treaty are met, then the shareholder may be entitled to a full or partial refund of the withholding tax described
above. Switzerland has entered into bilateral treaties for the avoidance of double taxation with respect to income taxes with numerous
countries, including the U.S., whereby under certain circumstances all or part of the withholding tax may be refunded. The procedures for
claiming treaty refunds, and the time frame required for obtaining a refund, may differ from country to country.
Refund available to United States (“U.S.”) residents—The Swiss-U.S. tax treaty provides that U.S. residents eligible for benefits
under the treaty can seek a refund of the Swiss withholding tax on dividends for the portion exceeding 15 percent, leading to a refund of
20 percent, or a 100 percent refund in the case of qualified pension funds. As a general rule, the refund will be granted under the treaty if
the U.S. resident can show evidence of the following: (a) beneficial ownership, (b) U.S. residency and (c) meeting the U.S.-Swiss tax
treaty’s limitation on benefits requirements.
The claim for refund must be filed with the Swiss federal tax authorities (Eigerstrasse 65, 3003 Bern, Switzerland), not later than
December 31 of the third year following the year in which the dividend payments became due. The relevant Swiss tax form is Form 82C
for companies, 82E for other entities and 82I for individuals. These forms can be obtained from any Swiss Consulate General in the U.S.
or from the Swiss federal tax authorities at the above address or can be downloaded from the webpage of the Swiss federal tax
administration. Each form must be completed in triplicate, with each copy duly completed and signed before a notary public in the U.S.
Evidence that the withholding tax was withheld at the source must also be included.
Stamp duties in relation to the transfer of shares—The purchase or sale of our shares may be subject to Swiss federal stamp
taxes on the transfer of securities irrespective of the place of residency of the purchaser or seller if the transaction takes place through or
with a Swiss bank or other Swiss securities dealer, as those terms are defined in the Swiss Federal Stamp Tax Act and no exemption
applies in the specific case. If a purchase or sale is not entered into through or with a Swiss bank or other Swiss securities dealer, then no
stamp tax will be due. The applicable stamp tax rate is 0.075 percent for each of the two parties to a transaction and is calculated based
on the purchase price or sale proceeds. If the transaction does not involve cash consideration, the transfer stamp duty is computed on the
basis of the market value of the consideration.
Share repurchases
Repurchases of shares for the purposes of capital reduction are treated as a partial liquidation subject to a 35 percent Swiss
withholding tax based on the difference between the repurchase price and the related amount of par value and the related amount of
qualifying additional paid-in capital, if any. We would be required to remit on a net basis the purchase price with the Swiss withholding tax
deducted to a holder of our shares and pay the withholding tax to the Swiss federal tax authorities. However, for such repurchased shares,
the portions of the repurchase price that are attributable to the par value and the qualifying additional paid-in capital for Swiss statutory
reporting purposes are not subject to the Swiss withholding tax.
If we repurchase shares, we expect to use an alternative procedure pursuant to which we repurchase our shares via a "virtual
second trading line" from market players, such as banks and institutional investors, who are generally entitled to receive a full refund of the
Swiss withholding tax. The use of such “virtual second trading line” with respect to share repurchase programs is subject to approval of
the competent Swiss tax and other authorities. We may not be able to repurchase as many shares as we would like to repurchase for
purposes of capital reduction on the “virtual second trading line” without subjecting the selling shareholders to Swiss withholding taxes.
The repurchase of shares for purposes other than for cancellation, such as to retain as treasury shares for use in connection with stock
incentive plans, convertible debt or other instruments within certain periods, are not generally subject to Swiss withholding tax.
Under Swiss corporate law, the right of a company and its subsidiaries to repurchase and hold its own shares is limited. A
company may repurchase its shares to the extent it has freely distributable reserves as shown on its Swiss statutory balance sheet in the
amount of the purchase price and the aggregate par value of all shares held by the company as treasury shares does not exceed
10 percent of the company’s share capital recorded in the Swiss Commercial Register, whereby for purposes of determining whether the
10 percent threshold has been reached, shares repurchased under a share repurchase program for cancellation purposes authorized by
the company’s shareholders are disregarded. As of February 11, 2019, Transocean Inc., our wholly owned subsidiary, held as treasury
shares less than one percent of our issued shares. Our board of directors could, to the extent freely distributable reserves are available,
authorize the repurchase of additional shares for purposes other than cancellation, such as to retain treasury shares for use in satisfying
our obligations in connection with incentive plans or other rights to acquire our shares. Based on the current number of shares held as
treasury shares, approximately nine percent of our issued shares could be repurchased for purposes of retention as additional treasury
AR-24
shares. Although our board of directors has not approved such a share repurchase program for the purpose of retaining repurchased
shares as treasury shares, if it did so, any such shares repurchased would be in addition to any shares repurchased under the currently
approved program.
Issuer Purchases of Equity Securities
Period
October 2018
November 2018
December 2018
Total
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
— $
—
—
— $
—
—
—
—
Total
Number of Shares
Purchased as Part
of Publicly Announced
Plans or Programs (a)
Maximum Number
(or Approximate Dollar Value)
of Shares that May Yet Be Purchased
Under the Plans or Programs
(in millions) (a)
— $
—
—
— $
3,304
3,304
3,304
3,304
(a)
In May 2009, at our annual general meeting, our shareholders approved and authorized our board of directors, at its discretion, to repurchase for
cancellation any amount of our shares for an aggregate purchase price of up to CHF 3.5 billion. At December 31, 2018, the authorization remaining
under the share repurchase program was for the repurchase of our outstanding shares for an aggregate cost of up to CHF 3.2 billion, equivalent to
$3.3 billion. The share repurchase program could be suspended or discontinued by our board of directors or company management, as applicable,
at any time. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital
Resources—Sources and uses of liquidity.”
AR-25
Item 6.
Selected Financial Data
The selected financial data as of December 31, 2018 and 2017 and for each of the three years in the period ended
December 31, 2018 have been derived from the audited consolidated financial statements included in “Item 8. Financial Statements and
Supplementary Data.” The selected financial data as of December 31, 2016, 2015 and 2014, and for each of the two years in the period
ended December 31, 2015 have been derived from our accounting records. The following data should be read in conjunction with “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial
statements and the notes thereto included under “Item 8. Financial Statements and Supplementary Data.”
Statement of operations data
Operating revenues
Operating income (loss)
Income (loss) from continuing operations
Net income (loss)
Net income (loss) attributable to controlling interest
Per share earnings (loss) from continuing operations
Basic
Diluted
Balance sheet data (at end of period)
Total assets
Debt due within one year
Long-term debt
Total equity
Other financial data
Cash provided by operating activities
Cash used in investing activities
Cash provided by (used in) financing activities
Capital expenditures
Distributions of qualifying additional paid-in capital
Per share distributions of qualifying additional paid-in capital
2018 (a) (b)
Years ended December 31,
2017
2015
2016 (c)
(In millions, except per share data)
2014 (d)
$
$
$
$
$
$
$
3,018
(1,251)
(2,003)
(2,003)
(1,996)
$
2,973
(2,505)
(3,097)
(3,097)
(3,127)
4,161 $
1,106
827
827
778
7,386
1,365
895
897
865
(4.27) $
(4.27) $
(8.00) $
(8.00) $
2.08 $
2.08 $
2.36
2.36
$
$
25,665
373
9,605
13,114
558
(797)
(147)
184
—
$
$
22,410
250
7,146
12,711
1,170
(587)
(1,041)
497
—
26,889 $
724
7,740
15,805
26,431
1,093
7,397
15,000
1,980 $
(1,313)
176
1,344
—
3,445
(1,932)
(1,809)
2,001
381
$
$
$
$
$
9,185
(1,347)
(1,880)
(1,900)
(1,839)
(5.02)
(5.02)
28,676
1,032
9,019
14,104
2,220
(1,828)
(1,000)
2,165
1,018
— $
— $
— $
1.05
$
2.81
(a)
(b)
(c)
(d)
In December 2018, we acquired Ocean Rig UDW Inc. (“Ocean Rig”) in a merger transaction, and as a result, Ocean Rig became our wholly owned
subsidiary. To complete the acquisition, we issued 147.7 million shares and made an aggregate cash payment of $1.2 billion.
In January 2018, we acquired approximately 97.7 percent ownership interest in Songa Offshore SE (“Songa”). In March 2018, we acquired the
remaining shares not owned by us through a compulsory acquisition under Cyprus law and as a result Songa became our wholly owned subsidiary.
To complete these transactions, we issued 68.0 million shares and $863 million aggregate principal amount of the Exchangeable Bonds and made
an aggregate cash payment of $8 million.
In December 2016, Transocean Partners LLC (“Transocean Partners”) completed a merger with one of our subsidiaries as contemplated under the
merger agreement. Following the completion of the merger, Transocean Partners became our wholly owned subsidiary. Each Transocean Partners
common unit that was issued and outstanding immediately prior to the closing, other than units held by Transocean and its subsidiaries, was
converted into the right to receive 1.20 of our shares. To complete the merger, we issued 23.8 million shares from conditional capital.
In August 2014, we completed an initial public offering to sell a noncontrolling interest in Transocean Partners, which was formed on February 6,
2014, by Transocean Partners Holdings Limited, a Cayman Islands company and our wholly owned subsidiary.
AR-26
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with the information contained in “Part I. Item 1. Business,” “Part I.
Item 1A. Risk Factors” and the audited consolidated financial statements and the notes thereto included under “Item 8. Financial
Statements and Supplementary Data” elsewhere in this annual report.
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. As of
February 11, 2019, we owned or had partial ownership interests in and operated a fleet of 49 mobile offshore drilling units, including
31 ultra-deepwater floaters, 14 harsh environment floaters and four midwater floaters. As of February 11, 2019, we were constructing
(i) four additional ultra-deepwater drillships and (ii) one additional harsh environment semisubmersible, in which we hold a partial
ownership interest.
We provide contract drilling services in a single, global operating segment, which involves contracting our mobile offshore drilling
fleet, related equipment and work crews primarily on a dayrate basis to drill oil and gas wells. We specialize in technically demanding
regions of the offshore drilling business with a particular focus on ultra-deepwater and harsh environment drilling services. Our drilling fleet
is one of the most versatile fleets in the world, consisting of drillships and semisubmersible floaters used in support of offshore drilling
activities and offshore support services on a worldwide basis.
Our contract drilling services operations are geographically dispersed in oil and gas exploration and development areas
throughout the world. Although rigs can be moved from one region to another, the cost of moving rigs and the availability of rig-moving
vessels may cause the supply and demand balance to fluctuate somewhat between regions. Still, significant variations between regions
do not tend to persist long term because of rig mobility. Our fleet operates in a single, global market for the provision of contract drilling
services. The location of our rigs and the allocation of resources to operate, build or upgrade our rigs are determined by the activities and
needs of our customers.
Significant Events
Business combinations—On January 30, 2018, we acquired an approximate 97.7 percent ownership interest in Songa
Offshore SE (“Songa”). On March 28, 2018, we acquired the remaining shares not owned by us through a compulsory acquisition under
Cyprus law, and as a result Songa became our wholly owned subsidiary. To complete these transactions, we issued 68.0 million shares
and $863 million aggregate principal amount of 0.50% exchangeable senior bonds due January 30, 2023 (the “Exchangeable Bonds”). As
a result of the acquisition, we acquired seven mobile offshore drilling units, including five harsh environment floaters and two midwater
floaters. See “—Liquidity and Capital Resources—Sources and uses of liquidity.”
On December 5, 2018, we acquired Ocean Rig UDW Inc. (“Ocean Rig”) in a merger transaction, and as a result, Ocean Rig
became our wholly owned subsidiary. To complete the acquisition, we issued 147.7 million shares and made an aggregate cash payment
of $1.2 billion. As a result of the acquisition, we acquired (i) 11 mobile offshore drilling units, including nine ultra-deepwater floaters and
two harsh environment floaters, and (ii) the contracts relating to the construction of two ultra-deepwater drillships. In February 2019, we
committed to plans to sell one ultra-deepwater floater and one harsh environment floater acquired in the Ocean Rig acquisition. See “—
Liquidity and Capital Resources—Sources and uses of liquidity.”
Impairments—In the year ended December 31, 2018, we recognized an aggregate loss of $999 million, which had no tax effect,
associated with the impairment of four ultra-deepwater floaters, two deepwater floaters and two midwater floaters, along with related
assets, which we determined were impaired at the time we classified the assets as held for sale, and we recognized a loss of $462 million,
which had no tax effect, associated with the impairment of our goodwill. See “—Operating Results.”
Secured Credit Facility—In June 2018, we entered into a bank credit agreement, which established a $1.0 billion secured
revolving credit facility (the “Secured Credit Facility”), and we terminated the former bank credit agreement. See “—Liquidity and Capital
Resources—Sources and uses of liquidity.”
Debt issuances—In July 2018, we issued $750 million aggregate principal amount of 5.875% senior secured notes due
January 2024 (the “5.875% Senior Secured Notes”), and $600 million aggregate principal amount of 6.125% senior secured notes due
August 2025 (the “6.125% Senior Secured Notes”), together the “2018 Senior Secured Notes”, and we received approximately $733 million
and $586 million, respectively, of aggregate cash proceeds, net of discount and issue costs. On October 25, 2018, we issued $750 million
aggregate principal amount of 7.25% senior unsecured notes due November 2025 (the “7.25% Senior Notes”), and we received aggregate
cash proceeds of $735 million, net of issue costs. On February 1, 2019, we issued $550 million aggregate principal amount of
6.875% senior secured notes due February 2027 (the “6.875% Senior Secured Notes”), and we received aggregate cash proceeds of
$538 million, net of discount and issue costs. See “—Liquidity and Capital Resources—Sources and uses of liquidity.”
Debt retirement—In the year ended December 31, 2018, we made an aggregate cash payment of $1.6 billion to repay debt
assumed in the Songa acquisition. In the year ended December 31, 2018, we repurchased in the open market $95 million aggregate
AR-27
principal amount of our debt securities for an aggregate cash payment of $95 million. See “—Liquidity and Capital Resources—Sources
and uses of liquidity.”
Debt tender offers—On February 5, 2019, we completed tender offers (the “2019 Tender Offers”) to purchase for cash up to
$700 million aggregate purchase price of certain outstanding senior notes (the “2019 Tendered Notes”). In January and February 2019, as
a result of the 2019 Tender Offers, we made an aggregate cash payment of $521 million to settle the validly tendered 2019 Tendered
Notes. In the three months ending March 31, 2019, we expect to recognize an aggregate net loss of approximately $18 million associated
with the retirement of debt. See “—Liquidity and Capital Resources—Sources and uses of liquidity.”
Investment in unconsolidated affiliates—In May 2018 and January 2019, we made an aggregate cash investment of
$91 million and $59 million, respectively, representing a 33.0 percent ownership interest in Orion Holdings (Cayman) Limited, a Cayman
Islands company formed to construct and own the newbuild harsh environment semisubmersible Transocean Norge. We expect to
operate the rig, through one of our wholly owned subsidiaries, under a six-well drilling contract that is expected to commence in July 2019.
See “—Liquidity and Capital Resources—Sources and uses of liquidity.”
Fleet expansion—In February 2018, we completed the construction of and placed into service the ultra-deepwater floater
Deepwater Poseidon. See “—Liquidity and Capital Resources—Drilling fleet.”
Dispositions—During the year ended December 31, 2018, we completed the sale of six ultra-deepwater floaters, one deepwater
floater and one midwater floater, along with related assets, for which we received aggregate net cash proceeds of $36 million. See “—
Operating Results” and “—Liquidity and Capital Resources—Drilling fleet.”
Outlook
Drilling market—Our long-term view of the part of the offshore drilling market in which we participate is positive, especially for
the highest specification floaters. Brent oil prices, although somewhat volatile, remained above $60 per barrel for most of 2018, improving
our customers’ economics for drilling oil and gas wells and providing positive support for our customers’ budget cycles for 2019. Structural
efficiency gains across the industry, which resulted in improved economics for offshore development, and some favorable trends in the
hydrocarbon supply-demand balance whereby oil supply has declined relative to demand, resulted in an increase in our customers’
investment decisions in 2018. We expect this trend of additional investment by our customers to continue in 2019.
Over the past year, opportunities have increased for our drilling services. In markets requiring harsh environment floating drilling
rigs, such as the Norwegian North Sea and eastern Canada, the limited supply of these specialized rigs has improved fleet utilization,
which has resulted in increased dayrates on high-specification rigs being tendered for new work. Outside of harsh environment markets,
the excess supply of ultra-deepwater floaters relative to demand has delayed improvement of dayrates despite the increase in contract
activity. However, as the hydrocarbon supply-demand balance improves, we expect that stability and sustained improvement of oil prices
will ultimately result in greater demand for ultra-deepwater drilling rigs and improvement of dayrates as utilization tightens.
As of February 11, 2019, our contract backlog was $12.2 billion compared to $11.5 billion as of October 22, 2018. We believe
the risks of drilling project delays, contract renegotiations and contract terminations and cancellations have diminished as oil prices have
improved and our customers’ cash positions have improved.
Fleet status—We refer to the availability of our rigs in terms of the uncommitted fleet rate. The uncommitted fleet rate is defined
as the number of uncommitted days divided by the total number of rig calendar days in the measurement period, expressed as a
percentage. An uncommitted day is defined as a calendar day during which a rig is idle or stacked, is not contracted to a customer and is
not committed to a shipyard. The uncommitted fleet rates exclude the effect of priced options.
As of February 11, 2019, the uncommitted fleet rates for each of the five years in the period ending December 31, 2023 were as
follows:
Uncommitted fleet rate
Ultra-deepwater floaters
Harsh environment floaters
Midwater floaters
Performance and Other Key Indicators
2019
2020
2021
2022
2023
56 %
31 %
34 %
70 %
60 %
50 %
80 %
67 %
98 %
86 %
70 %
100 %
86 %
84 %
100 %
Contract backlog—Contract backlog is defined as the maximum contractual operating dayrate multiplied by the number of days
remaining in the firm contract period, excluding revenues for mobilization, demobilization, contract preparation, other incentive provisions
or reimbursement revenues, which are not expected to be significant to our contract drilling revenues. Average contractual dayrate relative
to our contract backlog is defined as the average maximum contractual operating dayrate to be earned per operating day in the
measurement period. An operating day is defined as a day for which a rig is contracted to earn a dayrate during the firm contract period
after commencement of operations.
AR-28
The contract backlog represents the maximum contract drilling revenues that can be earned considering the contractual
operating dayrate in effect during the firm contract period and represents the basis for the maximum revenues in our revenue efficiency
measurement. To determine maximum revenues for purposes of calculating revenue efficiency, however, we include the revenues earned
for mobilization, demobilization and contract preparation, other incentive provisions or cost escalation provisions which are excluded from
the amounts presented for contract backlog.
The contract backlog for our fleet was as follows:
Contract backlog
Ultra-deepwater floaters
Harsh environment floaters
Deepwater floaters
Midwater floaters
High-specification jackups
Total contract backlog
February 11,
2019
$
$
8,404
3,716
—
97
—
12,217
February 19,
2018
October 22,
2018
(In millions)
$
7,435 $
3,974
4
102
—
11,515 $
8,367
4,269
105
60
38
12,839
$
Our contract backlog includes only firm commitments, which are represented by signed drilling contracts or, in some cases, by
other definitive agreements awaiting contract execution. Our contract backlog includes amounts associated with our newbuild units that
are currently under construction. The contractual operating dayrate may be higher than the actual dayrate we ultimately receive or an
alternative contractual dayrate, such as a waiting-on-weather rate, repair rate, standby rate or force majeure rate, may apply under certain
circumstances. The contractual operating dayrate may also be higher than the actual dayrate we ultimately receive because of a number
of factors, including rig downtime or suspension of operations. In certain contracts, the dayrate may be reduced to zero if, for example,
repairs extend beyond a stated period of time.
In connection with our Ocean Rig acquisition, we acquired contract backlog of approximately $650 million, included in the
contract backlog for our ultra-deepwater and harsh environment floaters presented above, measured as of the acquisition date,
December 5, 2018. In connection with our Songa acquisition, we acquired contract backlog of $3.7 billion, included in the contract backlog
for our harsh environment floaters presented above, measured as of the acquisition date, January 30, 2018.
In December 2018, we and a subsidiary of Chevron Corporation (together with its affiliates, “Chevron”) entered into a rig design
and construction contract and a five-year drilling contract for one of our ultra-deepwater drillships under construction at the Jurong
Shipyard Pte Ltd. in Singapore. The drilling contract added $830 million of estimated contract backlog. The drilling contract is subject to
design, construction and delivery requirements set forth in the construction contract. In the event of termination for convenience by the
customer, we will be compensated for our incremental 20,000 pounds per square inch (“psi”) subsea investment in the rig, and termination
for convenience after April 2020 will result in a substantial termination fee.
At February 11, 2019, the contract backlog and average contractual dayrates for our fleet were as follows:
Contract backlog
Ultra-deepwater floaters
Harsh environment floaters
Midwater floaters
Total contract backlog
Average-contractual dayrates
Ultra-deepwater floaters
Harsh environment floaters
Midwater floaters
Total fleet average
For the years ending December 31,
Total
2019
2020
2021
2022
Thereafter
(In millions, except average dayrates)
$
8,404
3,716
97
$ 12,217
$
$
1,497
974
48
2,519
$
$
1,387
860
47
2,294
$
$
1,179 $
765
2
1,946 $
860
702
—
1,562
$
$
3,481
415
—
3,896
$ 443,000
$ 385,000
$ 126,000
$ 416,000
$ 374,000
$ 323,000
$ 122,000
$ 340,000
$ 423,000
$ 389,000
$ 130,000
$ 392,000
$ 475,000 $ 471,000
$ 420,000 $ 432,000
$ 130,000 $
$ 450,000 $ 453,000
— $
$ 472,000
$ 427,000
—
$ 467,000
The actual amounts of revenues earned and the actual periods during which revenues are earned will differ from the amounts
and periods shown in the tables above due to various factors, including shipyard and maintenance projects, unplanned downtime and
other factors that result in lower applicable dayrates than the full contractual operating dayrate. Additional factors that could affect the
amount and timing of actual revenue to be recognized include customer liquidity issues and contract terminations, which are available to
our customers under certain circumstances.
AR-29
Average daily revenue—Average daily revenue is defined as contract drilling revenues, excluding revenues for contract
terminations and reimbursements, earned per operating day. An operating day is defined as a calendar day during which a rig is
contracted to earn a dayrate during the firm contract period after commencement of operations. The average daily revenue for our fleet
was as follows:
Average daily revenue
Ultra-deepwater floaters
Harsh environment floaters
Deepwater floaters
Midwater floaters
High-specification jackups
Total fleet average daily revenue
Years ended December 31,
2017
2016
2018
$
$
$
$
$
$
356,700
296,400
186,700
99,900
152,900
296,200
$
$
$
$
$
$
472,400
235,900
195,200
95,600
143,900
321,300
$
$
$
$
$
$
492,100
329,100
253,900
274,100
143,800
353,500
Our average daily revenue fluctuates relative to market conditions and our revenue efficiency. The average daily revenue may
also be affected by revenues for lump sum bonuses or demobilization fees received from our customers and is reduced by the amortization
of the contract intangible assets acquired in the Songa acquisition and, to a lesser extent, the Ocean Rig acquisition. Our total fleet
average daily revenue is also affected by the mix of rig classes being operated, as deepwater floaters, midwater floaters and
high-specification jackups are typically contracted at lower dayrates compared to ultra-deepwater floaters and harsh environment floaters.
We include newbuilds in the calculation when the rigs commence operations upon acceptance by the customer. We remove rigs from the
calculation upon disposal or classification as held for sale, unless we continue to operate rigs subsequent to sale, as we did with three of
the high-specification jackups sold in May 2017, in which case we remove the rigs at the time of completion or novation of the contract.
Revenue efficiency—Revenue efficiency is defined as actual contract drilling revenues, excluding revenues for contract
terminations and reimbursements, for the measurement period divided by the maximum revenue calculated for the measurement period,
expressed as a percentage. Maximum revenue is defined as the greatest amount of contract drilling revenues, excluding revenues from
contract terminations and reimbursements, the drilling unit could earn for the measurement period, excluding amounts related to incentive
provisions. The revenue efficiency rates for our fleet were as follows:
Years ended December 31,
2017
2016
2018
Revenue efficiency
Ultra-deepwater floaters
Harsh environment floaters
Deepwater floaters
Midwater floaters
High-specification jackups
Total fleet average revenue efficiency
96 %
94 %
94 %
98 %
100 %
95 %
96 %
96 %
94 %
96 %
101 %
96 %
98 %
98 %
96 %
99 %
98 %
98 %
Our revenue efficiency rate varies due to revenues earned under alternative contractual dayrates, such as a waiting-on-weather
rate, repair rate, standby rate, force majeure rate or zero rate, that may apply under certain circumstances. We include newbuilds in the
calculation when the rigs commence operations upon acceptance by the customer. We exclude rigs that are not operating under contract,
such as those that are stacked.
Rig utilization—Rig utilization is defined as the total number of operating days divided by the total number of rig calendar days
in the measurement period, expressed as a percentage. The rig utilization rates for our fleet were as follows:
Years ended December 31,
2017
2016
2018
Rig utilization
Ultra-deepwater floaters
Harsh environment floaters
Deepwater floaters
Midwater floaters
High-specification jackups
Total fleet average rig utilization
48 %
82 %
93 %
41 %
97 %
59 %
39 %
73 %
73 %
38 %
61 %
48 %
45 %
57 %
54 %
42 %
55 %
48 %
Our rig utilization rate declines as a result of idle and stacked rigs and during shipyard and mobilization periods to the extent
these rigs are not earning revenues. We include newbuilds in the calculation when the rigs commence operations upon acceptance by the
customer. We remove rigs from the calculation upon disposal, classification as held for sale or classification as discontinued operations.
Accordingly, our rig utilization can increase when idle or stacked units are removed from our drilling fleet.
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Operating Results
Year ended December 31, 2018 compared to the year ended December 31, 2017
The following is an analysis of our operating results. See “—Performance and Other Key Indicators” for definitions of operating
days, average daily revenue, revenue efficiency and rig utilization.
Operating days
Average daily revenue
Revenue efficiency
Rig utilization
Contract drilling revenues
Other revenues
Operating and maintenance expense
Depreciation expense
General and administrative expense
Loss on impairment
Loss on disposal of assets, net
Operating loss
Other income (expense), net
Interest income
Interest expense, net of amounts capitalized
Loss on retirement of debt
Other, net
Loss before income tax expense
Income tax expense
Net loss
“nm” means not meaningful.
Years ended
December 31,
2018
2017
Change
% Change
(In millions, except day amounts and percentages)
9,706
$ 296,200
8,499
$ 321,300
1,207
$ (25,100)
14 %
(8)%
95 %
59 %
96 %
48 %
$
$
3,018
—
3,018
(1,799)
(818)
(188)
(1,464)
—
(1,251)
53
(620)
(3)
46
(1,775)
(228)
(2,003)
$
$
2,731
242
2,973
(1,389)
(832)
(156)
(1,498)
(1,603)
(2,505)
43
(491)
(55)
5
(3,003)
(94)
(3,097)
$
$
287
(242)
45
(410)
14
(32)
34
1,603
1,254
10
(129)
52
41
1,228
(134)
1,094
11 %
nm
2 %
(30)%
2 %
(21)%
2 %
nm
50 %
23 %
(26)%
95 %
nm
41 %
nm
35 %
Contract drilling revenues—Contract drilling revenues increased for the year ended December 31, 2018 compared to the year
ended December 31, 2017 primarily due to the following: (a) approximately $515 million resulting from operations acquired in the
acquisitions of Songa and Ocean Rig, (b) approximately $335 million resulting from our two newbuild ultra-deepwater drillships that
commenced operations in the two-year period ended December 31, 2018, (c) approximately $125 million resulting from contract early
terminations and cancellations, (d) approximately $110 million resulting from the reactivation of two rigs and (e) approximately $90 million
of reimbursement revenues. These increases were partially offset by the following decreases: (a) approximately $375 million resulting
from lower dayrates, (b) approximately $345 million resulting from a greater number of rigs idle or stacked, (c) approximately $135 million
resulting from rigs sold or classified as held for sale and (d) approximately $40 million resulting from lower revenue efficiency.
Other revenues for the year ended December 31, 2017, included revenues of $201 million resulting from contract early
terminations and cancellations and $41 million of reimbursement revenues. For the year ended December 31, 2018, these activities are
presented in contract drilling revenues as part of our single performance obligation.
Costs and expenses—Operating and maintenance expense increased for the year ended December 31, 2018 compared to the
year ended December 31, 2017, primarily due to the following: (a) approximately $290 million resulting from operations acquired in the
acquisitions of Songa and Ocean Rig, (b) approximately $80 million resulting from our two newbuild ultra-deepwater drillships that
commenced operations in the two-year period ended December 31, 2018, (c) approximately $65 million resulting from increased costs
primarily associated with changes to our country of operations and maintenance programs, (d) approximately $55 million resulting from the
reactivation of three rigs and (e) approximately $45 million resulting from increased reimbursable costs. These increases were partially
offset by the following decreases: (a) approximately $80 million resulting from a greater number of rigs sold or classified as held for sale
and (b) approximately $50 million resulting from a greater number of rigs idle or stacked.
Depreciation expense decreased for the year ended December 31, 2018 compared to the year ended December 31, 2017
primarily due to the following: (a) approximately $120 million resulting from rigs sold or classified as held for sale, (b) approximately
$20 million resulting from the retirement or full depreciation of certain assets and (c) approximately $5 million resulting from the impairment
of our midwater floater asset group in the year ended to December 31, 2017. These decreases were partially offset by the following
increases: (a) approximately $82 million resulting from the rigs acquired in the acquisitions of Songa and Ocean Rig and (b) approximately
$49 million resulting from our two newbuild ultra-deepwater drillships placed into service in the two-year period ended December 31, 2018.
AR-31
General and administrative expense increased for the year ended December 31, 2018 compared to the year ended
December 31, 2017, primarily due to the following: (a) approximately $18 million of increased acquisition costs related to the acquisitions of
Songa and Ocean Rig, (b) approximately $7 million of increased professional fees related to developing technology for improving fleet
performance and reducing costs and (c) approximately $4 million of increased personnel costs, primarily resulting from costs associated
with the early retirement of certain personnel.
Loss on impairment or disposal of assets—In the year ended December 31, 2018, we recognized losses related to the
following: (a) $999 million associated with the impairment of certain assets classified as held for sale and (b) $462 million associated with
the impairment of goodwill. In the year ended December 31, 2017, we recognized losses related to the following: (a) a loss of $1.4 billion
associated with the impairment of certain assets classified as held for sale and (b) a loss of $94 million associated with the impairment of
our midwater floater asset group.
In the year ended December 31, 2018, we recognized an aggregate gain of $7 million associated with the sale of
six ultra-deepwater floaters, one deepwater floater and one midwater floater, along with related assets. In the year ended December 31,
2018, we recognized an aggregate loss of $7 million associated with the disposal of assets unrelated to rig sales. In the year ended
December 31, 2017, loss on disposal of assets was primarily due to the sale of 10 high-specification jackups and novation of the contracts
relating to the construction of five high-specification jackups, together with related assets.
Other income and expense—Interest expense, net of amounts capitalized, increased in the year ended December 31, 2018
compared to the year ended December 31, 2017, primarily due to the following: (a) approximately $98 million reduced interest costs
capitalized for our newbuild ultra-deepwater drillships placed into service in the two-year period ended December 31, 2018,
(b) approximately $78 million resulting from debt issued in the two-year period ended December 31, 2018 and (c) approximately
$32 million resulting from the debt and related undesignated derivative instruments issued or assumed in connection with the Songa
acquisition. These increases were partially offset by a decrease of approximately $83 million resulting from the retirement of debt.
Loss on retirement of debt in the year ended December 31, 2017 resulted primarily from the following: (a) an aggregate loss of
$48 million resulting from the retirement of notes validly tendered in the cash tender offers completed July 11, 2017 (the “2017 Tender
Offers”) and (b) an aggregate loss of $7 million resulting from debt redemptions and repurchases.
Other income, net, increased in the year ended December 31, 2018 compared to the year ended December 31, 2017, primarily
due to the following: (a) an increase of $45 million associated with receipt of payments related to our dual-activity patent, (b) an increase of
$15 million associated with the non-service component of net periodic benefit costs, (c) $10 million associated with the bargain purchase
gain resulting from the Ocean Rig acquisition with no comparable activity in the prior year and (d) $4 million associated with undesignated
interest rate swaps acquired in the Songa acquisition and subsequently terminated in the year ended December 31, 2018 with no
comparable activity in the prior year. These increases were partially offset by a decrease of $33 million associated with currency
exchange, $21 million of which resulted from undesignated currency derivative instruments in the current year.
Income tax expense—In the years ended December 31, 2018 and 2017, our effective tax rate was (12.8) percent and
(3.1) percent, respectively, based on loss before income tax expense. In the years ended December 31, 2018 and 2017, the effect of the
various discrete period tax items represented a net tax expense of $143 million and a net tax benefit of $37 million, respectively. In the
year ended December 31, 2018, such discrete items were primarily related to the United States (“U.S.”) transition tax on non-U.S.
earnings. In the year ended December 31, 2017, such discrete items were primarily related to the tax benefit of changes in unrecognized
tax benefits associated with tax positions taken in prior years, valuation allowances on deferred tax assets and foreign tax credits not
expected to be realized, remeasurement of the U.S. deferred tax assets for a tax rate change as a result of the enactment of the Tax Cuts
and Jobs Act (the “2017 Tax Act”) and deductions related to resolution of certain litigation matters related to Macondo well incident. In the
years ended December 31, 2018 and 2017, our effective tax rate, excluding discrete items, was (29.2) percent and 95.2 percent,
respectively, based on loss before income tax expense. Our effective tax rate decreased in the year ended December 31, 2018 compared
to the year ended December 31, 2017, primarily due to changes in the relative blend of income from operations in certain jurisdictions and
a loss before income taxes and the increased tax expense as a result of the U.S. base erosion and anti-abuse tax (“BEAT”).
The 2017 Tax Act amended existing U.S. tax laws that had an impact on our income tax provision, such as a reduction of the
U.S. corporate income tax rate and the creation of a quasi-territorial tax system with a one-time mandatory tax on certain unremitted
earnings and profits of the non-U.S. subsidiaries of our U.S. subsidiaries. The 2017 Tax Act also made prospective changes, effective in
2018, including BEAT, a global intangible low-taxed income tax, additional limitations on the deductibility of executive compensation and
interest and the repeal of the domestic manufacturing deduction. In the year ended December 31, 2018, we recognized income tax
expense of $33 million related to the bareboat charter structure of our U.S. operations because we concluded it was subject to BEAT. A
significant portion of our BEAT liability is contractually reimbursable by our customers due to a change-in-law provision in certain drilling
contracts. In the year ended December 31, 2017, we recognized income tax expense of $66 million with a corresponding decrease to our
net deferred tax assets to reflect the reduction in the U.S. corporate income tax rate from 35 percent to 21 percent.
As of December 31, 2018, our consolidated cumulative loss recognized over the recent three-year period, primarily due to losses
on impairment and disposal of assets, represented significant objective negative evidence for our evaluation of our deferred tax assets.
Although such evidence has limited our ability to consider other subjective evidence, we analyze each jurisdiction separately. We consider
objective evidence, such as contract backlog activity in jurisdictions in which we have profitable contracts. If estimated future taxable
AR-32
income changes during the carryforward periods or if the cumulative loss is no longer present, we may adjust the amount of deferred tax
assets that we expect to realize.
Due to factors related to our operating activities and organizational structure, our income tax expense does not change
proportionally with our income before income taxes. Significant decreases in our income before income taxes typically lead to higher
effective tax rates, while significant increases in income before income taxes can lead to lower effective tax rates, subject to the other
factors impacting income tax expense noted above. With respect to the effective tax rate calculation for the year ended December 31,
2018, a significant portion of our income tax expense was generated in countries in which income taxes are imposed on gross revenues,
with the most significant of these countries being India. Conversely, the countries in which we incurred the most significant income taxes
during this period that were based on income before income tax include Brazil, Switzerland, Norway, the United Kingdom (“U.K.”) and the
U.S. Our rig operating structures further complicate our tax calculations, especially in instances where we have more than one operating
structure for the particular taxing jurisdiction and, thus, more than one method of calculating taxes depending on the operating structure
utilized by the rig under the contract. For example, two rigs operating in the same country could generate significantly different provisions
for income taxes if they are owned by two different subsidiaries that are subject to differing tax laws and regulations in the respective
country of incorporation. See Notes to Consolidated Financial Statements—Note 10—Income Taxes.
Year ended December 31, 2017 compared to the year ended December 31, 2016
The following is an analysis of our operating results. See “—Performance and Other Key Indicators” for definitions of operating
days, average daily revenue, revenue efficiency and rig utilization.
Operating days
Average daily revenue
Revenue efficiency
Rig utilization
Contract drilling revenues
Other revenues
Operating and maintenance expense
Depreciation expense
General and administrative expense
Loss on impairment
Gain (loss) on disposal of assets, net
Operating income (loss)
Other income (expense), net
Interest income
Interest expense, net of amounts capitalized
Gain (loss) on retirement of debt
Other, net
Income (loss) before income tax expense
Income tax expense
Net income (loss)
“nm” means not meaningful.
Years ended
December 31,
2017
2016
Change
% Change
(In millions, except day amounts and percentages)
8,499
$ 321,300
10,443
$ 353,500
(1,944)
$ (32,200)
(19)%
(9)%
96 %
48 %
98 %
48 %
$
$
2,731
242
2,973
(1,389)
(832)
(156)
(1,498)
(1,603)
(2,505)
43
(491)
(55)
5
(3,003)
(94)
(3,097)
$
$
3,705
456
4,161
(1,901)
(893)
(172)
(93)
4
1,106
20
(409)
148
69
934
(107)
827
$
$
(974)
(214)
(1,188)
512
61
16
(1,405)
(1,607)
(3,611)
23
(82)
(203)
(64)
(3,937)
13
(3,924)
(26)%
(47)%
(29)%
27 %
7 %
9 %
nm
nm
nm
nm
(20)%
nm
(93)%
nm
12 %
nm
Contract drilling revenues—Contract drilling revenues decreased for the year ended December 31, 2017 compared to the year
ended December 31, 2016 primarily due to the following: (a) approximately $600 million resulting from a greater number of rigs idle or
stacked, (b) approximately $450 million resulting from rigs sold or classified as held for sale, (c) approximately $255 million resulting from
lower dayrates and (d) approximately $45 million resulting from decreased revenue efficiency. These decreases were partially offset by
the following increases: (a) approximately $325 million resulting from our four newbuild ultra-deepwater drillships that commenced
operations in the two-year period ended December 31, 2017 and (b) approximately $65 million resulting from the reactivation of two rigs.
Other revenues decreased for the year ended December 31, 2017 compared to the year ended December 31, 2016, due to the
following: (a) $196 million resulting from drilling contracts early terminated or cancelled by our customers, and (b) $18 million resulting from
reimbursable items.
Costs and expenses—Operating and maintenance expense decreased for the year ended December 31, 2017 compared to the
year ended December 31, 2016, primarily due to the following: (a) approximately $250 million resulting from rigs sold or classified as held
for sale, (b) approximately $170 million resulting from a greater number of rigs idle or stacked, (c) approximately $90 million resulting from
AR-33
reduced onshore costs and (d) approximately $75 million resulting from reduced offshore costs. These decreases were partially offset by
the following increases: (a) approximately $75 million resulting from our four newbuild ultra-deepwater drillships that commenced
operations in the two-year period ended December 31, 2017 and (b) approximately $30 million resulting from cost recoveries from
insurance associated with the Macondo well incident in the year ended December 31, 2016 with no comparable activity in the year ended
December 31, 2017.
Depreciation expense decreased for the year ended December 31, 2017 compared to the year ended December 31, 2016
primarily due to the following: (a) approximately $82 million resulting from rigs sold or classified as held for sale and (b) approximately
$22 million primarily resulting from the retirement or full depreciation of certain assets. These decreases were partially offset by an
increase of approximately $50 million primarily resulting from our newbuild ultra-deepwater drillships placed into service in the two-year
period ended December 31, 2017.
General and administrative expense decreased for the year ended December 31, 2017 compared to the year ended
December 31, 2016 primarily due to the following: (a) approximately $10 million of reduced personnel costs and (b) approximately
$4 million of reduced professional fees.
Loss on impairment or disposal of assets—In the year ended December 31, 2017, we recognized losses related to the
following: (a) $1.4 billion associated with the impairment of certain assets classified as held for sale and (b) $94 million associated with the
impairment of our midwater floater asset group. In the year ended December 31, 2016, we recognized losses related to the following:
(a) $52 million associated with the impairment of our deepwater floater asset group and (b) $41 million associated with the impairment of
certain assets classified as held for sale.
In the year ended December 31, 2017, loss on disposal of assets was primarily due to the sale of 10 high-specification jackups
and novation of the contracts relating to the construction of five high-specification jackups, together with related assets.
Other income and expense—Interest expense, net of amounts capitalized, increased in the year ended December 31, 2017
compared to the year ended December 31, 2016, primarily due to the following: (a) approximately $168 million resulting from new debt
issued in the two-year period ended December 31, 2017, (b) approximately $63 million resulting from reduced interest costs capitalized for
our newbuild ultra-deepwater drillships that commenced operations during the two-year period ended December 31, 2017 and
(c) approximately $13 million resulting from downgrades to the credit rating for our senior unsecured long-term debt. Partially offsetting
these increases was a decrease of approximately $160 million resulting from debt retired during the two-year period ended December 31,
2017.
Loss on retirement of debt in the year ended December 31, 2017 resulted primarily from the following: (a) an aggregate loss of
$48 million resulting from the retirement of notes validly tendered in the 2017 Tender Offers and (b) an aggregate loss of $7 million
resulting from debt redemptions and repurchases. Gain on retirement of debt in the year ended December 31, 2016 resulted primarily
from the following: (a) an aggregate net gain of $104 million resulting from the retirement of notes validly tendered in cash tender offers
completed August 1, 2016 (the “2016 Tender Offers”) and (b) an aggregate net gain of $44 million resulting from the retirement of notes
repurchased in the open market.
Other income, net, decreased in the year ended December 31, 2017 compared to the year ended December 31, 2016, primarily
due to (a) $33 million of reduced income associated with our dual-activity patent and (b) $25 million of reduced income associated with the
non-service component of net periodic benefit costs.
Income tax expense—In the years ended December 31, 2017 and 2016, our effective tax rate was (3.1) percent and
11.5 percent, respectively, based on income before income tax expense. Our effective tax rate decreased primarily due to losses on
impairment and disposal of assets with no tax benefit. In the years ended December 31, 2017 and 2016, the effect of the various discrete
period tax items represented a net tax benefit of $37 million and $50 million, respectively. In the year ended December 31, 2017, such
discrete items were primarily related to the tax benefit of changes in unrecognized tax benefits associated with tax positions taken in prior
years, valuation allowances on deferred tax assets not expected to be realized, remeasurement of the U.S. deferred tax assets for a tax
rate change as a result of the enactment of the 2017 Tax Act and deductions related to resolution of certain litigation matters related to
Macondo well incident. In the year ended December 31, 2016, such discrete items were primarily related to the tax benefit of changes in
unrecognized tax benefits associated with tax positions taken in prior years and valuation allowances on deferred tax assets for losses not
expected to be realized. In the years ended December 31, 2017 and 2016, our effective tax rate, excluding discrete items, was
95.2 percent and 18.5 percent, respectively, based on income before income tax expense. Our effective tax rate increased in the year
ended December 31, 2017 compared to the year ended December 31, 2016, primarily due to the following: (a) changes in the relative
blend of income from operations in certain jurisdictions and (b) valuation allowances on deferred tax assets for losses not expected to be
realized.
As of December 31, 2017, our consolidated cumulative loss incurred over the recent three-year period, primarily due to losses on
impairment and disposal of assets, represented significant objective negative evidence for our evaluation. Such evidence, together with
potential organizational changes that could alter our ability to realize certain deferred tax assets, has limited our ability to consider other
subjective evidence, such as projected future contract activity. As a result, we recorded an incremental valuation allowance of $110 million
to recognize only a portion of our U.S. deferred tax assets that are more likely than not to be recognized. If estimated future taxable
AR-34
income changes during the carryforward periods or if the cumulative loss is no longer present, we may adjust the amount of deferred tax
assets that we expect to realize.
Due to factors related to our operating activities and organizational structure, our income tax expense does not change
proportionally with our income before income taxes. Significant decreases in our income before income taxes typically lead to higher
effective tax rates, while significant increases in income before income taxes can lead to lower effective tax rates, subject to the other
factors impacting income tax expense noted above. With respect to the effective tax rate calculation for the year ended December 31,
2017, a significant portion of our income tax expense was generated in countries in which income taxes are imposed on gross revenues,
with the most significant of these countries being Angola and India. Conversely, the countries in which we incurred the most significant
income taxes during this period that were based on income before income tax include Brazil, Switzerland, Norway, the U.K. and the U.S.
Our rig operating structures further complicate our tax calculations, especially in instances where we have more than one operating
structure for the particular taxing jurisdiction and, thus, more than one method of calculating taxes depending on the operating structure
utilized by the rig under the contract. For example, two rigs operating in the same country could generate significantly different provisions
for income taxes if they are owned by two different subsidiaries that are subject to differing tax laws and regulations in the respective
country of incorporation. See Notes to Consolidated Financial Statements—Note 10—Income Taxes.
Liquidity and Capital Resources
Sources and uses of cash
At December 31, 2018, we had $2.2 billion in unrestricted cash and cash equivalents and $429 million in restricted cash and
cash equivalents. In the year ended December 31, 2018, our primary sources of cash were as follows: (1) net cash proceeds from the
issuance of debt, (2) net cash provided by operating activities and (3) proceeds from maturities of unrestricted and restricted short-term
investments. Our primary uses of cash were as follows: (a) repayments of debt, (b) cash paid in business combinations, net of cash
acquired, (c) capital expenditures, primarily associated with our newbuild construction projects, (d) deposits into restricted short-term
investments, (e) investments in unconsolidated affiliates, and (e) payments to terminate certain derivative instruments assumed in the
Songa acquisition.
Cash flows from operating activities
Net loss
Non-cash items, net
Changes in operating assets and liabilities, net
Years ended
December 31,
2018
2017
(In millions)
Change
$
$
(2,003) $
2,432
129
558 $
(3,097)
4,173
94
1,170
$
$
1,094
(1,741)
35
(612)
Net cash provided by operating activities decreased primarily due to the following: (i) proceeds of $408 million received from
customers for early terminations or cancellations of drilling contracts in the year ended December 31, 2017 with no comparable activity in
the current year and (ii) increased cash used in our operations, including for increased cash interest payments and three rig reactivations.
Cash flows from investing activities
Capital expenditures
Proceeds from disposal of assets, net
Cash paid in business combinations, net of cash acquired
Investment in unconsolidated affiliates
Proceeds from (deposits to) unrestricted and restricted short-term investments, net
Other, net
Years ended
December 31,
2018
2017
(In millions)
Change
$
$
(184) $
43
(883)
(107)
334
—
(797) $
(497)
350
—
—
(450)
10
(587)
$
$
313
(307)
(883)
(107)
784
(10)
(210)
Net cash used in investing activities increased primarily due to the following: (i) cash used in business combinations, net of cash
acquired, with no comparable activity in the year ended December 31, 2017, (ii) reduced net proceeds from disposal of assets and
(iii) cash used to invest in unconsolidated joint venture companies, including one that was established to construct and own the harsh
environment semisubmersible Transocean Norge with no comparable activity in the year ended December 31, 2017, partially offset by
(iv) increased proceeds from maturities of unrestricted and restricted short-term investments, net of deposits, and (v) reduced capital
expenditures, primarily associated with our major construction projects.
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Cash flows from financing activities
Proceeds from issuance of debt, net of discounts and issue costs
Repayments of debt
Proceeds from investments restricted for financing activities
Payments to terminate derivative instruments
Other, net
Years ended
December 31,
2018
2017
(In millions)
Change
$
$
2,054 $
(2,105)
26
(92)
(30)
(147) $
1,144
(2,284)
102
—
(3)
(1,041)
$
$
910
179
(76)
(92)
(27)
894
Net cash used in financing activities decreased primarily due to the following: (i) increased net cash proceeds from the issuance
of the 7.25% Senior Notes and the 2018 Senior Secured Notes in the current year compared to net cash proceeds from the issuance of the
5.52% senior secured notes due May 2022 (the “5.52%Senior Secured Notes”) and the 7.50% senior unsecured notes due January 2026
(the “7.50% Senior Notes”) in the prior year and (ii) decreased cash used to repay debt, primarily associated with the 2017 Tender Offers
in the year ended December 31, 2017 compared to cash used to repay debt, primarily associated with debt assumed in the Songa
acquisition, in the year ended December 31, 2018, partially offset by (iii) cash used to settle and terminate certain derivative instruments
acquired in the Songa acquisition in the year ended December 31, 2018 with no comparable activity in the prior year and (iv) decreased
cash proceeds from investments restricted for financing activities.
Sources and uses of liquidity
Overview—We expect to use existing unrestricted cash balances, internally generated cash flows, borrowings under the
Secured Credit Facility, proceeds from the disposal of assets or proceeds from the issuance of additional debt to fulfill anticipated
obligations, which may include capital expenditures, working capital and other operational requirements, scheduled debt maturities or other
payments. We may also consider establishing additional financing arrangements with banks or other capital providers. Subject to market
conditions and other factors, we may also be required to provide collateral for future financing arrangements. In each case subject to then
existing market conditions and to our then expected liquidity needs, among other factors, we may continue to use a portion of our internally
generated cash flows and proceeds from asset sales to reduce debt prior to scheduled maturities through debt repurchases, either in the
open market or in privately negotiated transactions, or through debt redemptions or tender offers.
Our access to debt and equity markets may be limited due to a variety of events, including, among others, credit rating agency
downgrades of our debt ratings, industry conditions, general economic conditions, market conditions and market perceptions of us and our
industry. The rating of our non-credit enhanced senior unsecured long-term debt (“Debt Rating”) is below investment grade. Such Debt
Rating has caused us to experience increased fees and interest rates under agreements governing certain of our senior notes. Further
downgrades may affect or limit our ability to access debt markets in the future. Our ability to access such markets may be severely
restricted at a time when we would like, or need, to access such markets, which could have an impact on our flexibility to react to changing
economic and business conditions. An economic downturn could have an impact on the lenders participating in our credit facilities or on
our customers, causing them to fail to meet their obligations to us.
Our internally generated cash flows are directly related to our business and the market sectors in which we operate. If the drilling
market were to deteriorate, or if we were to experience poor results in our operations, cash flows from operations may be reduced. We
have, however, continued to generate positive cash flows from operating activities over recent years and expect that such cash flows will
continue to be positive over the next year.
Business combinations—On December 5, 2018, we acquired Ocean Rig in a merger transaction, and as a result, Ocean Rig
became our wholly owned subsidiary. To complete the acquisition, we issued 147.7 million shares and made an aggregate cash payment
of $1.2 billion.
On January 30, 2018, we acquired an approximate 97.7 percent ownership interest in Songa. On March 28, 2018, we acquired
the remaining shares not owned by us through a compulsory acquisition under Cyprus law, and as a result, Songa became our wholly
owned subsidiary. To complete these transactions, we issued 68.0 million shares and issued $863 million aggregate principal amount of
Exchangeable Bonds as further described below.
Secured Credit Facility—In June 2018, we entered into a bank credit agreement, which established a $1.0 billion Secured
Credit Facility, which is scheduled to expire on the earlier of (i) June 22, 2023 and (ii) if greater than $300 million aggregate principal
amount of our 9.00% Senior Notes due July 2023 remain outstanding in April 2023, such date. The Secured Credit Facility is guaranteed
by Transocean Ltd. and certain subsidiaries. The Secured Credit Facility is initially secured by, among other things, a lien on the
floaters
ultra-deepwater
Transocean Barents and Transocean Spitsbergen. The Secured Credit Facility contains covenants that, among other things, include
maintenance of certain guarantee and collateral coverage ratios, a maximum debt to capitalization ratio of 0.60 to 1.00 and minimum
liquidity of $500 million. The Secured Credit Facility also restricts the ability of Transocean Ltd. and certain of our subsidiaries to, among
other things, merge, consolidate or otherwise make changes to the corporate structure, incur liens, incur additional indebtedness, enter
into transactions with affiliates and pay dividends and other distributions. In order to borrow under the Secured Credit Facility, we must, at
floaters Deepwater Asgard, Deepwater Invictus and Discoverer Inspiration and
the harsh environment
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the time of the borrowing request, not be in default under the bank credit agreement and make certain representations and warranties,
including with respect to compliance with laws and solvency, to the lenders. Repayment of borrowings under the Secured Credit Facility
are subject to acceleration upon the occurrence of an event of default. We are also subject to various covenants under the indentures
pursuant to which our public debt was issued, including restrictions on creating liens, engaging in sale/leaseback transactions and
engaging in certain merger, consolidation or reorganization transactions. A default under our public debt indentures, our capital lease
contract or any other debt owed to unaffiliated entities that exceeds $125 million could trigger a default under the Secured Credit Facility
and, if not waived by the lenders, could cause us to lose access to the Secured Credit Facility. At February 11, 2019, we had
no borrowings outstanding, $27 million of letters of credit issued, and we had $1.0 billion of available borrowing capacity under the Secured
Credit Facility. See Notes to Consolidated Financial Statements—Note 8—Debt and Note 13—Commitments and Contingencies—Global
Marine litigation.
Investments in unconsolidated affiliates—In the year ended December 31, 2018, we made an aggregate cash investment of
$107 million in unconsolidated affiliates, including an initial investment of $91 million, representing a 33.0 percent interest, in Orion
Holdings (Cayman) Limited (“Orion”), a Cayman Islands company formed to construct and own the newbuild harsh environment
semisubmersible Transocean Norge. In January 2019, we made an additional $59 million contribution to Orion, and we agreed to
contribute $33 million in January 2020. The total purchase price for the rig, under construction at the Jurong Shipyard Pte Ltd. in
Singapore, is $500 million. Additionally, we invested $16 million in other companies involved in researching and developing technology to
improve automation in drilling and other activities.
Debt issuances—On February 1, 2019, we issued $550 million aggregate principal amount of 6.875% senior secured notes due
February 2027 (the “6.875 Senior Secured Notes”), and we received aggregate cash proceeds of $538 million, net of issue costs. The
indenture that governs the 6.875% Senior Secured Notes contains covenants that, among other things, limit the ability of our subsidiaries
that own or operate the collateral rig Deepwater Poseidon to declare or pay dividends to their affiliates. We may redeem all or a portion of
the 6.875 Senior Secured Notes at any time prior to February 1, 2022 at a price equal to 100 percent of the aggregate principal amount
plus a make-whole provision, and on or after February 1, 2022, at specified redemption prices.
On October 25, 2018, we issued $750 million aggregate principal amount of 7.25% Senior Notes, and we received aggregate
cash proceeds of $735 million, net of issue costs. We may redeem all or a portion of the 7.25% Senior Notes at any time prior to
November 1, 2021 at a price equal to 100 percent of the aggregate principal amount plus a make-whole provision, and on or after
November 1, 2021, at specified redemption prices.
In July 2018, we issued $750 million aggregate principal amount of the 5.875% Senior Secured Notes and $600 million
aggregate principal amount of the 6.125% Senior Secured Notes, and we received aggregate cash proceeds of $733 million and
$586 million, respectively, net of discount and issue costs. The indentures that govern the 2018 Senior Secured Notes contain covenants
that, among other things, limit the ability of our subsidiaries that own or operate the collateral rigs Transocean Enabler,
Transocean Encourage and Deepwater Pontus to declare or pay dividends to their affiliates. We may redeem all or a portion of the
2018 Senior Secured Notes at a price equal to 100 percent of the aggregate principal amount plus a make-whole provision. We will be
required to redeem the notes at a price equal to 100 percent of the aggregate principal amount without a make-whole provision, upon the
occurrence of certain events related to the collateral rigs and the related drilling contracts.
In connection with
the Songa acquisition transactions, we issued $863 million aggregate principal amount of the
0.50% exchangeable senior bonds due January 2023 as partial consideration for the acquisition of the acquired Songa shares and partial
settlement of certain Songa indebtedness. Holders of the Exchangeable Bonds may convert the notes into shares of Transocean Ltd.
under certain circumstances at a rate of 97.29756 shares per $1,000 note, equivalent to a conversion price of $10.28 per share, subject to
adjustment due to the occurrence of certain events.
On October 17, 2017, we issued $750 million aggregate principal amount of 7.50% Senior Notes, and we received aggregate
cash proceeds of $742 million, net of issue costs. We may redeem all or a portion of the 7.50% Senior Notes at any time prior to
January 15, 2021 at a price equal to 100 percent of the aggregate principal amount plus a make-whole provision, and on or after
January 15, 2021, at specified redemption prices.
On May 5, 2017, we issued $410 million aggregate principal amount of the 5.52% Senior Secured Notes, and we received
aggregate cash proceeds of $403 million, net of issue costs. The note purchase agreement that governs the 5.52% Senior Secured Notes
contains covenants that limit the ability of our subsidiaries that own or operate Deepwater Conqueror to declare or pay dividends to
affiliates. We will be required to redeem or to offer to redeem the notes at a price equal to 100 percent of the aggregate principal amount,
and, under certain circumstances, the payment of a make-whole amount, upon the occurrence of certain events related to
Deepwater Conqueror and the related drilling contract.
Debt assumptions and repayments—In connection with the Songa acquisition, we assumed rights and obligations under credit
agreements establishing two senior secured term loan facilities (the “Senior Secured Term Loans”) and a subscription agreement
establishing a junior secured bond facility (the “Junior Secured Bonds”). The credit agreements and subscription agreement for the
assumed debt contained change of control clauses, for which we received waivers from the lenders that were scheduled to expire on
August 31, 2018. On February 12, 2018, we served notice of our intent to call the Junior Secured Bonds. In the year ended December 31,
AR-37
2018, we made an aggregate cash payment of $1.4 billion and $171 million to repay the borrowings under the Senior Secured Term Loans
and the Junior Secured Bonds, respectively, and terminated the underlying agreements.
In connection with the Songa acquisition, we assumed the indebtedness related to two bond loans (together, the “Bond Loans”),
previously publicly traded on the Oslo stock exchange, and on March 14, 2018, we made a cash payment of NOK 345 million, equivalent
to $44 million, to repay the Bond Loans. We also assumed the rights and obligations under a credit agreement, which was due to expire
on March 31, 2018, for a secured borrowing facility. On February 2, 2018, we made a cash payment of $23 million to repay the borrowings
outstanding under the secured borrowing facility and terminated the underlying credit agreement.
Debt tender offers—On February 5, 2019, we completed the 2019 Tender Offers to purchase for cash up to $700 million
aggregate purchase price of the 2019 Tendered Notes, subject to the terms and conditions specified in the related offer to purchase. In
January and February 2019, as a result of the 2019 Tender Offers, we made an aggregate cash payment of $521 million to settle the
validly tendered 2019 Tendered Notes.
On July 11, 2017, we completed the 2017 Tender Offers to purchase for cash up to $1.5 billion aggregate principal amount of
certain notes (the “2017 Tendered Notes”). We received valid tenders from holders of $1.2 billion aggregate principal amount of the
2017 Tendered Notes, and we made an aggregate cash payment of $1.3 billion to settle the 2017 Tendered Notes.
Debt redemptions, repurchases and other repayments—In the year ended December 31, 2018, we repurchased in the open
market $95 million aggregate principal amount of our debt securities for an aggregate cash payment of $95 million. In the year ended
December 31, 2017, we repurchased in the open market $156 million aggregate principal amount of our debt securities for an aggregate
cash payment of $157 million.
In November 2017, we redeemed the outstanding 6.00% Senior Notes due March 2018 and the 7.375% Senior Notes due
April 2018 with aggregate principal amounts of $319 million and $82 million, respectively, and we made an aggregate cash payment of
$407 million.
Debt scheduled maturities—On the scheduled maturity date of October 16, 2017, we made a cash payment of $152 million to
repay the outstanding 2.50% Senior Notes due October 2017, at a price equal to 100 percent of the aggregate principal amount.
Derivative instruments—In connection with the Songa acquisition, we acquired certain currency swaps that were denominated
in Norwegian kroner. In February 2018, we made an aggregate cash payment of $92 million in connection with the settlement and
termination of the currency swaps.
Litigation settlements—On May 29, 2015, together with the Plaintiff Steering Committee (the “PSC”), we filed a settlement
agreement (the “PSC Settlement Agreement”) in which we agreed to pay a total of $212 million, plus up to $25 million for partial
reimbursement of attorneys’ fees. In exchange for these payments, the two classes of plaintiffs agreed to release all respective claims
against us. On February 15, 2017, the U.S. District Court for the Eastern District of Louisiana (the “MDL Court”) entered a final order and
judgement approving the PSC Settlement Agreement, which is no longer subject to appeal. In June 2016 and August 2015, we made a
cash deposit of $25 million and $212 million, respectively, into an escrow account established by the MDL Court for the settlement. In
November 2017, the MDL Court released $25 million from the escrow account for payment of attorneys’ fees. In November 2018, the
MDL Court released $58 million from the escrow account as the first installment to the plaintiffs. As of February 11, 2019, the aggregate
balance of our escrow account was $156 million. We expect the remaining funds to be released in March 2019.
Pursuant to a cooperation guilty plea agreement by and among the U.S. Department of Justice (“DOJ”) and certain of our
affiliates, which was accepted by the court on February 14, 2013, we agreed to pay a criminal fine of $100 million and to consent to the
entry of an order requiring us to pay $150 million each to the National Fish & Wildlife Foundation and the National Academy of Sciences.
In the year ended December 31, 2017, we made the final scheduled cash payment of $60 million.
Share repurchase program—In May 2009, at our annual general meeting, our shareholders approved and authorized our
board of directors, at its discretion, to repurchase an amount of our shares for cancellation with an aggregate purchase price of up to
CHF 3.5 billion. On February 12, 2010, our board of directors authorized our management to implement the share repurchase program.
At February 11, 2019, the authorization remaining under the share repurchase program was for the repurchase of up to CHF 3.2 billion,
equivalent to approximately $3.3 billion, of our outstanding shares. We intend to fund any repurchases using available cash balances and
cash from operating activities. The share repurchase program could be suspended or discontinued by our board of directors or company
management, as applicable, at any time. We may decide, based on our ongoing capital requirements, the price of our shares, regulatory
and tax considerations, cash flow generation, the amount and duration of our contract backlog, general market conditions, debt rating
considerations and other factors, that we should retain cash, reduce debt, make capital investments or acquisitions or otherwise use cash
for general corporate purposes. Decisions regarding the amount, if any, and timing of any share repurchases will be made from time to
time based on these factors. Any repurchased shares under the share repurchase program would be held by us for cancellation by the
shareholders at a future general meeting of shareholders. See “Item 5. Market for Registrant’s Common Equity, Related Shareholder
Matters and Issuer Purchases of Equity Securities—Shareholder Matters.”
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Contractual obligations—At December 31, 2018, our contractual obligations stated at face value, were as follows:
Contractual obligations
Debt
Interest on debt
Capital lease obligation (a)
Operating lease obligations
Purchase obligations
Service agreement obligations (b)
Total (c)
Total
For the years ending December 31,
2019
2020 - 2021 2022 - 2023 Thereafter
(in millions)
$
$
9,583
4,875
765
204
1,882
1,189
18,498
$
$
354
623
72
18
932
106
2,105
$
$
1,337 $
1,157
143
27
950
238
3,852 $
3,084
920
143
24
—
248
4,419
$
$
4,808
2,175
407
135
—
597
8,122
Includes scheduled installments of principal and imputed interest on our capital lease obligation.
(a)
(b) We have long-term service agreements with certain original equipment manufacturers to provide services and parts related to our pressure control
systems, thrusters, top drives and other equipment. The future payments required under our service agreements were estimated based on our
projected operating activity and may vary based on actual operating activity.
(c) As of December 31, 2018, our defined benefit pension and other postemployment plans represented an aggregate liability of $362 million,
representing the aggregate projected benefit obligation, net of the aggregate fair value of plan assets. The carrying amount of this liability is affected
by net periodic benefit costs, funding contributions, participant demographics, plan amendments, significant current and future assumptions, and
returns on plan assets. Due to the uncertainties resulting from these factors and since the carrying amount is not representative of future liquidity
requirements, we have excluded this amount from the contractual obligations presented in the table above. See Notes to Consolidated Financial
Statements—Note 12—Postemployment Benefit Plans.
As of December 31, 2018, our unrecognized tax benefits related to uncertain tax positions, net of prepayments, represented a liability of $514 million.
Although a portion of these might settle or reverse in the coming year, there is a high degree of uncertainty regarding the timing of future cash
outflows associated with the liabilities recognized in this balance, we are unable to make reasonably reliable estimates of the period of cash
settlement with the respective taxing authorities, and we excluded this amount from the contractual obligations presented in the table above. See
Notes to Consolidated Financial Statements—Note 10—Income Taxes.
Other commercial commitments—We have other commercial commitments that we are contractually obligated to fulfill with
cash under certain circumstances. These commercial commitments include standby letters of credit and surety bonds that guarantee our
performance as it relates to our drilling contracts, insurance, customs, tax and other obligations in various jurisdictions. Standby letters of
credit are issued under various committed and uncommitted credit lines, some of which require cash collateral. At December 31, 2018, the
aggregate cash collateral held by banks for letters of credit was $5 million. The obligations that are the subject of these standby letters of
credit and surety bonds are primarily geographically concentrated in Brazil and India. Obligations under these standby letters of credit and
surety bonds are not normally called, as we typically comply with the underlying performance requirement.
At December 31, 2018, these obligations stated in U.S. dollar equivalents and their time to expiration were as follows:
Other commercial commitments
Standby letters of credit
Surety bonds
Total
Total
For the years ended December 31,
2019
2020 - 2021 2022 - 2023 Thereafter
(in millions)
$
$
31
84
115
$
$
22
37
59
$
$
5 $
—
5 $
3
47
50
$
$
1
—
1
We have established a wholly owned captive insurance company to insure various risks of our operating subsidiaries. Access to
the cash and cash equivalents of the captive insurance company may be limited due to local regulatory restrictions. At December 31,
2018, the captive insurance company held cash and cash equivalents of $241 million, and such balance is expected to range from
$50 million to $265 million through December 31, 2019. The balance of actual cash and cash equivalents held by the captive insurance
company varies, depending on the premiums paid to the captive insurance company and the timing and number of claims or dividends
paid by the captive insurance company.
Drilling fleet
Expansion—From time to time, we review possible acquisitions of businesses and drilling rigs and may make significant future
capital commitments for such purposes. We may also consider investments related to major rig upgrades, new rig construction, or the
acquisition of a rig under construction. We may commit to such investment without first obtaining customer contracts. Any acquisition,
upgrade or new rig construction could involve the payment by us of a substantial amount of cash or the issuance of a substantial number
of additional shares or other securities. Our failure to secure drilling contracts for rigs under construction could have an adverse effect on
our results of operations or cash flows.
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On December 5, 2018, we completed our acquisition of Ocean Rig in a merger transaction. In connection with the Ocean Rig
acquisition, we acquired (i) 11 mobile offshore drilling units, including nine ultra-deepwater floaters and two harsh environment floaters,
and (ii) the contracts relating to the construction of two ultra-deepwater drillships. On January 30, 2018, we completed our acquisition of
an approximate 97.7 percent ownership interest in Songa, and on March 28, 2018, we acquired the remaining shares not owned by us,
and as a result, Songa became our wholly owned subsidiary. In connection with the Songa acquisition, we acquired seven mobile offshore
drilling units, including five harsh environment floaters and two midwater floaters. See Notes to Consolidated Financial Statements—
Note 4—Business Combinations.
We hold a 33.0 percent interest in Orion Holdings (Cayman) Limited, a Cayman Islands company formed to construct and own
the newbuild harsh environment semisubmersible Transocean Norge. In May 2018 and January 2019, we made an aggregate cash
investment of $91 million and $59 million, respectively. The total purchase price for the rig, under construction at the Jurong
Shipyard Pte Ltd. in Singapore, is $500 million. The Moss Maritime CS60 design is considered among the most capable newbuild
semisubmersibles in the world. We expect to operate the rig, through one of our wholly owned subsidiaries, under a six-well drilling
contract that is expected to commence in July 2019. See Notes to Consolidated Financial Statements—Note 1—Business.
In the years ended December 31, 2018 and 2017, we made capital expenditures of $184 million and $497 million, respectively,
including $75 million and $397 million, respectively, for our major construction projects. As of December 31, 2018, the historical and
projected capital expenditures, capitalized interest and other cash or non-cash capital additions for our ongoing major construction projects
were as follows:
Total costs
through
December 31,
2018
For the years ending December 31,
2019
2020
(In millions)
2021
Total
Ocean Rig Santorini (a)
Ultra-Deepwater drillship TBN1 (b)
Ocean Rig Crete (a)
Ultra-Deepwater drillship TBN2 (c)
Total
—
293
—
216
509
$
455
65
12
106
638
—
527
613
622
$
1,762 $
—
—
—
106
106 $
455
885
625
1,050
3,015
$
(a) Ocean Rig Santorini and Ocean Rig Crete, two ultra-deepwater drillships under construction at Samsung Heavy Industries Co., Ltd. shipyard in
South Korea, do not yet have drilling contracts and are expected to be delivered in the third quarter of 2019 and the third quarter of 2020,
respectively. Included in the above table, upon delivery of Ocean Rig Santorini and Ocean Rig Crete in the third quarter of 2019 and third quarter of
2020, respectively, our expected remaining obligations to the shipyard will be $360 million and $520 million, respectively. The shipyard has agreed
to finance the expected remaining obligations at an interest rate of three percent per annum, payable semiannually, with principal due at maturity in
June 2023 and January 2024, respectively.
(b) Our unnamed ultra-deepwater drillship under construction at the Jurong Shipyard Pte Ltd. in Singapore does not yet have a drilling contract and is
expected to be delivered in the second quarter of 2020.
(c) Our unnamed ultra-deepwater drillship under construction at the Jurong Shipyard Pte Ltd. in Singapore is expected to commence operations in the
fourth quarter of 2021. The projected capital additions include estimates for an upgrade for two 20,000 pounds per square inch blowout preventers
and other equipment required by our customer, Chevron.
The ultimate amount of our capital expenditures is partly dependent upon financial market conditions, the actual level of
operational and contracting activity, the costs associated with the current regulatory environment and customer requested capital
improvements and equipment for which the customer agrees to reimburse us. As with any major shipyard project that takes place over an
extended period of time, the actual costs, the timing of expenditures and the project completion date may vary from estimates based on
numerous factors, including actual contract terms, weather, exchange rates, shipyard labor conditions, availability of suppliers to recertify
equipment and the market demand for components and resources required for drilling unit construction. We intend to fund the cash
requirements relating to our capital expenditures through available cash balances, cash generated from operations and asset sales and
financing arrangements with banks or other capital providers. We also have available credit under our Secured Credit Facility (see “—
Sources and uses of liquidity”). Economic conditions could impact the availability of these sources of funding.
Dispositions—From time to time, we may review the possible disposition of non-strategic drilling units. Considering recent
market conditions, we have committed to plans to sell certain lower-specification drilling units for scrap value. During the years ended
December 31, 2018, 2017 and 2016, we identified eight, seven and seven such drilling units, respectively, that we have sold or intend to
sell for scrap value. In February 2019, we committed to plans to sell two additional drilling units for scrap value. We continue to evaluate
the drilling units in our fleet and may identify additional lower-specification drilling units to be sold for scrap value.
During the year ended December 31, 2018, we completed the sale of six ultra-deepwater floaters, one deepwater floater and
one midwater floater, along with related assets, and we received net cash proceeds of $36 million. On May 31, 2017, we completed the
sale of 10 high-specification jackups and novated the contracts relating to the construction of five high-specification jackups, together with
related assets. In the year ended December 31, 2017, as a result of this transaction, we received aggregate net cash proceeds of
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$319 million. During the year ended December 31, 2017, we completed the sale of one ultra-deepwater floater and three midwater
floaters, along with related assets, and we received net cash proceeds of $22 million.
Off-Balance Sheet Arrangements
Orion Holdings (Cayman) Limited is an unconsolidated affiliate formed to construct and own the newbuild harsh environment
semisubmersible Transocean Norge. The total purchase price for the rig, under construction at the Jurong Shipyard Pte Ltd. in Singapore,
is $500 million. In January 2019, we made an additional $59 million contribution and we agreed to make another $33 million contribution in
January 2020. Orion Holdings (Cayman) Limited may enter into financing arrangements to fund its capital requirements for the
construction of the newbuild unit.
Related Party Transactions
As of December 31, 2018, we did not have any material related party transactions that were not in the ordinary course of
business.
Other Matters
Regulatory matters
Consent Decree—Under the civil consent decree (the “Consent Decree”), which resolved the claim by the U.S. for civil penalties
under the Clean Water Act, we agreed to undertake certain actions, including enhanced safety and compliance actions when operating in
U.S. waters. We also agreed to pay, and have satisfied our obligations to pay, civil penalties of $1.0 billion plus interest. The
Consent Decree requires us to submit and make publicly available certain plans, reports and other submissions. One such plan is a
performance plan approved on January 2, 2014, that contains, among other things, interim milestones for actions in specified areas and
schedules for reports required under the Consent Decree. Additionally, as required, we retained an independent auditor to review and
report to the DOJ our compliance with the Consent Decree and an independent process safety consultant to review, report and assist with
the process safety requirements of the Consent Decree. On January 2, 2019, as permitted under the Consent Decree, we submitted an
official termination request to the U.S. On February 6, 2019, the U.S. submitted a joint stipulation and proposed order (the “Order”) to
terminate the Consent Decree to the U.S. District Court for the Eastern District of Louisiana (the “Court”), and on February 13, 2019, the
Court entered the Order. Accordingly, the Consent Decree is terminated and has no further force or effect on the Company.
Other regulatory matters—In addition, we occasionally receive inquiries from governmental regulatory agencies regarding our
operations around the world, including inquiries with respect to various tax, environmental, regulatory and compliance matters. To the
extent appropriate under the circumstances, we investigate such matters, respond to such inquiries and cooperate with the regulatory
agencies.
See Notes to Consolidated Financial Statements—Note 13—Commitments and Contingencies.
Tax matters
We conduct operations through our various subsidiaries in 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 financial position,
results of operations or cash flows. We file federal and local tax returns in several jurisdictions throughout the world. 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 financial position or results of operations, although it may have a
material adverse effect on our consolidated cash flows. See Notes to Consolidated Financial Statements—Note 10—Income Taxes.
Critical Accounting Policies and Estimates
Overview—We consider the following to be our critical accounting policies and estimates since they are very important to the
portrayal of our financial condition and results and require our most subjective and complex judgments. We have discussed the
development, selection and disclosure of such policies and estimates with the audit committee of our board of directors. For a discussion
of our significant accounting policies, refer to our Notes to Consolidated Financial Statements—Note 2—Significant Accounting Policies.
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the U.S., which
require us to make estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of
contingent assets and liabilities. These estimates require significant judgments and assumptions. On an ongoing basis, we evaluate our
estimates, including those related to our income taxes, property and equipment, assets held for sale, goodwill, contingencies,
postemployment benefit plans, materials and supplies obsolescence, share-based compensation and allowance for doubtful accounts. We
base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances,
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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 may differ from these estimates.
Income taxes—We are a Swiss corporation, operating through our various subsidiaries in a number of countries throughout the
world. We provide for income taxes based on the tax laws and rates in the countries in which we operate and earn income. The
relationship between the provision for or benefit from income taxes and our income or loss before income taxes can vary significantly from
period to period because the countries in which we operate have taxation regimes that vary with respect to the nominal tax rate and the
availability of deductions, credits and other benefits. Consequently, our income tax expense does not change proportionally with our
income before income taxes. Variations also arise when income earned and taxed in a particular country or countries fluctuates from year
to year.
Our annual tax provision is based on expected taxable income, statutory rates and tax planning opportunities available to us in
the various jurisdictions in which we operate. The determination of our annual tax provision and evaluation of our tax positions involves
interpretation of tax laws in the various jurisdictions and requires significant judgment and the use of estimates and assumptions regarding
significant future events, such as the amount, timing and character of income, deductions and tax credits. Our tax liability in any given year
could be affected by changes in tax laws, regulations, agreements, and treaties, currency exchange restrictions or our level of operations
or profitability in each jurisdiction. Additionally, we operate in many jurisdictions where the tax laws relating to the offshore drilling industry
are not well developed. Although our annual tax provision is based on the best information available at the time, a number of years may
elapse before the tax liabilities in the various jurisdictions are ultimately determined.
We establish liabilities for estimated tax exposures in our jurisdictions of operation, and the provisions and benefits resulting from
changes to those liabilities are included in our annual tax provision along with related interest. Such tax exposures include potential
challenges to permanent establishment positions, intercompany pricing, disposition transactions, and withholding tax rates and their
applicability. These exposures may be affected by changes in applicable tax law or other factors, which could cause us to revise our prior
estimates, and are generally resolved through the settlement of audits within these tax jurisdictions or by judicial means. At December 31,
2018 and 2017, the liability for estimated tax exposures in our jurisdictions of operation was approximately $514 million and $309 million,
respectively.
We are currently undergoing examinations in a number of taxing jurisdictions for various fiscal years. We review our liabilities on
an ongoing basis and, to the extent audits or other events cause us to adjust the liabilities accrued in prior periods, we recognize those
adjustments in the period of the event. We do not believe it is possible to reasonably estimate the future impact of changes to the
assumptions and estimates related to our annual tax provision because changes to our tax liabilities are dependent on numerous factors
that cannot be reasonably projected. These factors include, among others, the amount and nature of additional taxes potentially asserted
by local tax authorities; the willingness of local tax authorities to negotiate a fair settlement through an administrative process; the
impartiality of the local courts; and the potential for changes in the taxes paid to one country that either produce, or fail to produce,
offsetting tax changes in other countries.
We do not provide for taxes on unremitted earnings of subsidiaries when we consider such earnings to be indefinitely reinvested.
We recognize deferred taxes related to the earnings of certain subsidiaries that we do not consider to be indefinitely reinvested or that will
not be indefinitely reinvested in the future. If we were to make a distribution from the unremitted earnings of these subsidiaries, we could
be subject to taxes payable to various jurisdictions. If facts and circumstances cause us to change our expectations regarding future tax
consequences, the resulting adjustments to our deferred tax balances could have a material effect on our consolidated statement of
financial position, results of operations or cash flows. If we were to distribute from the unremitted earnings of these subsidiaries, we could
be subject to taxes payable to various jurisdictions.
Estimates, judgments and assumptions are required in determining whether deferred tax assets will be fully or partially realized.
In evaluating our ability to realize deferred tax assets, we consider all available positive and negative evidence, including projected future
taxable income and the existence of cumulative losses in recent years. When it is estimated to be more likely than not that all or some
portion of certain deferred tax assets, such as foreign tax credit carryovers or net operating loss carryforwards, will not be realized, we
establish a valuation allowance for the amount of the deferred tax assets that is considered to be unrealizable.
The 2017 Tax Act imposes a one-time transition tax on certain unremitted earnings and profits of our non-U.S. subsidiaries that
are owned by U.S. subsidiaries. At December 31, 2017, we did not have the necessary information available, prepared and analyzed to
develop a reasonable estimate of the transition tax. In the year ended December 31, 2018, we completed our evaluation of the post-1986
earnings and profits for the non-U.S. subsidiaries of our U.S. subsidiaries and determined the amount of those earnings held in cash and
other assets necessary to determine the transition tax, and we recorded income tax expense of $103 million for estimated transition taxes
and an income tax benefit of $16 million for the estimated effect on the utilization of foreign tax credits. The transition tax had an effect on
the utilization of our foreign tax credits and net operating losses generated in the U.S., which had an effect on our valuation allowance
analysis related to those deferred tax assets. Although we have completed our analysis and recorded the resulting impact of the
2017 Tax Act, the U.S. Congress or Treasury may introduce clarifications, modification or amendments that could cause us to make further
adjustments in future periods.
We continually evaluate strategies that could allow for the future utilization of our deferred tax assets. During the years ended
December 31, 2018 and 2017, in evaluating our projected realizability of deferred tax assets, we considered our consolidated cumulative
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loss incurred over the recent three-year period, which is primarily due to losses on impairment and disposal of assets, which has limited
our ability to consider other subjective evidence, such as projected contract activity rather than contract backlog. See Notes to
Consolidated Financial Statements—Note 10—Income Taxes.
Business combinations—In connection with our acquisition of Songa and Ocean Rig, we applied the acquisition method of
accounting. Accordingly, we recorded the acquired assets and assumed liabilities at fair value and recognized goodwill to the extent the
consideration transferred exceeded the fair value of the net assets acquired. To the extent the fair value of the net assets acquired
exceeded the consideration transferred, we recognize a bargain purchase gain. We estimate the fair values of the acquired assets and
assumed liabilities as of the acquisition date, and our estimates continue to be subject to adjustment based on our final assessments of the
fair values of property and equipment, intangible assets, liabilities and our evaluation of tax positions and contingencies. We will complete
our final assessments of the fair values of the acquired assets and assumed liabilities and our final evaluations of uncertain tax positions
and contingencies within one year of the acquisition date.
Our estimates of fair value of property and equipment and contract intangibles require us to use significant unobservable inputs,
representative of a Level 3 fair value measurement, such as future commodity prices, projected demand for our services, rig utilization,
dayrates, remaining useful lives of the rigs and discount rates. We also consider a sales comparison approach from the perspective of
potential buyers and sellers of comparable assets. The valuation of a rig and our estimate of the remaining useful life can also vary based
on the rig design, condition and particular equipment configuration. We estimate the fair value of drilling contracts by comparing the
contractual dayrates over the remaining firm contract term and option periods relative to the projected market dayrates as of the acquisition
date. We estimate the fair value of construction contracts by comparing the contractual future payments and terms relative to the market
payments and terms as of the acquisition date. It can be difficult to determine the fair value based on the cyclicality of our business,
demand for offshore drilling rigs in different markets and changes in economic conditions. See Notes to Consolidated Financial
Statements—Note 4—Business Combinations.
Property and equipment—The carrying amount of property and equipment is subject to various estimates, assumptions, and
judgments related to capitalized costs, useful lives and salvage values and impairments. At December 31, 2018 and 2017, the carrying
amount of our property and equipment was $20.4 billion and $17.4 billion, respectively, representing 80 percent and 78 percent,
respectively, of our total assets.
Capitalized costs—We capitalize costs incurred to enhance, improve and extend the useful lives of our property and equipment
and expense costs incurred to repair and maintain the existing condition of our rigs. For newbuild construction projects, we also capitalize
the initial preparation, mobilization and commissioning costs incurred until the drilling unit is placed into service. Capitalized costs increase
the carrying amounts and depreciation expense of the related assets, which also impact our results of operations.
Useful lives and salvage values—We depreciate our assets using the straight-line method over their estimated useful lives after
allowing for salvage values. We estimate useful lives and salvage values by applying judgments and assumptions that reflect both
historical experience and expectations regarding future operations, rig utilization and asset performance. Useful lives and salvage values
of rigs are difficult to estimate due to a variety of factors, including (a) technological advances that impact the methods or cost of oil and
gas exploration and development, (b) changes in market or economic conditions, and (c) changes in laws or regulations affecting the
drilling industry. Applying different judgments and assumptions in establishing the useful lives and salvage values would likely result in
materially different net carrying amounts and depreciation expense for our assets. We reevaluate the remaining useful lives and salvage
values of our rigs when certain events occur that directly impact the useful lives and salvage values of the rigs, including changes in
operating condition, functional capability and market and economic factors. When evaluating the remaining useful lives of rigs, we also
consider major capital upgrades required to perform certain contracts and the long-term impact of those upgrades on future marketability.
At December 31, 2018, a hypothetical one-year increase in the useful lives of all of our rigs would cause a decrease in our annual
depreciation expense of approximately $40 million and a hypothetical one-year decrease would cause an increase in our annual
depreciation expense of approximately $64 million.
Long-lived asset impairment—We review our property and equipment for impairment when events or changes in circumstances
indicate that the carrying amounts of our assets held and used may not be recoverable or when carrying amounts of assets held for sale
exceed fair value less cost to sell. Potential impairment indicators include rapid declines in commodity prices and related market
conditions, declines in dayrates or utilization, cancellations of contracts or credit concerns of multiple customers. During periods of
oversupply, we may idle or stack rigs for extended periods of time or we may elect to sell certain rigs for scrap, which could be an
indication that an asset group may be impaired since supply and demand are the key drivers of rig utilization and our ability to contract our
rigs at economical rates. Our rigs are mobile units, equipped to operate in geographic regions throughout the world and, consequently, we
may move rigs from an oversupplied market sector to a more lucrative and undersupplied market sector when it is economical to do so.
Many of our contracts generally allow our customers to relocate our rigs from one geographic region to another, subject to certain
conditions, and our customers utilize this capability to meet their worldwide drilling requirements. Accordingly, our rigs are considered to
be interchangeable within classes or asset groups, and we evaluate impairment by asset group. We consider our asset groups to be
ultra-deepwater floaters, harsh environment floaters and midwater floaters.
We assess recoverability of assets held and used by projecting undiscounted cash flows for the asset group being evaluated.
When the carrying amount of the asset group is determined to be unrecoverable, we recognize an impairment loss, measured as the
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amount by which the carrying amount of the asset group exceeds its estimated fair value. To estimate the fair value of each asset group,
we apply a variety of valuation methods, incorporating income, market and cost approaches. We may weigh the approaches, under
certain circumstances, when relevant data is limited, when results are inconclusive or when results deviate significantly. Our estimate of
fair value generally requires us to use significant unobservable inputs, representative of a Level 3 fair value measurement, including
assumptions related to the long-term future performance of our asset groups, such as projected revenues and costs, dayrates, rig
utilization and revenue efficiency. These projections involve uncertainties that rely on assumptions about demand for our services, future
market conditions and technological developments. Because our business is cyclical in nature, the results of our impairment testing are
expected to vary significantly depending on the timing of the assessment relative to the business cycle. Altering either the timing of or the
assumptions used to estimate fair value and significant unanticipated changes to the assumptions could materially alter an outcome that
could otherwise result in an impairment loss. Given the nature of these evaluations and their application to specific asset groups and
specific time periods, it is not possible to reasonably quantify the impact of changes in these assumptions.
In the year ended December 31, 2017, we recognized a loss of $94 million ($93 million, net of tax) associated with the
impairment of the midwater floater asset group. In the year ended December 31, 2016, we recognized a loss of $52 million, which had no
tax effect, associated with the impairment of the deepwater floater asset group. In the years ended December 31, 2018, 2017 and 2016,
we recognized a loss of $999 million, $1.4 billion and $41 million, respectively, associated with the impairment of assets that we
determined were impaired at the time we classified such assets as assets held for sale. See Notes to Consolidated Financial
Statements—Note 6—Drilling Fleet.
Contingencies—We perform assessments of our contingencies on an ongoing basis to evaluate the appropriateness of our
liabilities and disclosures for such contingencies. We establish liabilities for estimated loss contingencies when we believe a loss is
probable and the amount of the probable loss can be reasonably estimated. We recognize corresponding assets for loss contingencies
that we believe are probable of being recovered through insurance. Once established, we adjust the carrying amount of a contingent
liability upon the occurrence of a recognizable event when facts and circumstances change, altering our previous assumptions with respect
to the likelihood or amount of loss. We recognize liabilities for legal costs as they are incurred, and we recognize a corresponding asset for
those legal costs only if we expect such legal costs to be recovered through insurance. Our estimates involve a significant amount of
judgement. Actual results may differ from our estimates.
We have recognized a liability for estimated loss contingencies associated with litigation and investigations resulting from the
Macondo well incident that we believe are probable and for which a reasonable estimate can be made. As of December 31, 2018 and
2017, the liability for estimated loss contingencies that we believe are probable and for which a reasonable estimate can be made was
$158 million and $219 million, respectively, recorded in other current liabilities, the majority of which is related to our settlement with the
PSC. See Notes to Consolidated Financial Statements—Note 13—Commitments and Contingencies.
Goodwill impairment—We conduct impairment testing for our goodwill annually as of October 1 and more frequently, on an
interim basis, when an event occurs or circumstances change that may indicate a reduction in the fair value of a reporting unit is below its
carrying amount. Before testing goodwill, we consider whether or not to first assess qualitative factors to determine whether the existence
of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its
carrying amount and whether an impairment test is required. If, as the result of our qualitative assessment, we determine that an
impairment test is required, or, alternatively, if we elect to forgo the qualitative assessment, we test goodwill for impairment by comparing
the carrying amount of the reporting unit, including goodwill, to the fair value of the reporting unit. We test goodwill at the reporting unit
level, which is defined as an operating segment or a component of an operating segment that constitutes a business for which financial
information is available and is regularly reviewed by management. We have determined that contract drilling services is our single
reporting unit for this purpose.
To estimate the fair value of our reporting unit, we apply a variety of valuation methods, incorporating the income, market and
cost approaches. We estimate fair value using discounted cash flows, publicly traded company multiples and acquisition multiples. To
develop the projected cash flows associated with our contract drilling services reporting unit, which are based on estimated future dayrates
and rig utilization, we consider key factors, including assumptions regarding future commodity prices, credit market conditions and the
effect these factors may have on our contract drilling operations and the capital expenditure budgets of our customers. We discount
projected cash flows using a long-term weighted-average cost of capital, which is based on our estimate of the investment returns that
market participants would require for our reporting unit. To develop the publicly traded company multiples, we gather available market
data for companies with operations similar to our reporting unit and publicly available information for recent acquisitions in the marketplace.
We may weigh the approaches, under certain circumstances, when a single approach produces inconclusive results or when results from
multiple approaches deviate significantly.
Our estimates of fair value require 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 utilization and dayrates. Because our business is cyclical in nature, the results of our impairment
testing are expected to vary significantly depending on the timing of the assessment relative to the business cycle. Altering either the
timing of or the assumptions used in a reporting unit’s fair value calculations could result in an estimate that is significantly below its
carrying amount, which may indicate its goodwill is impaired. In the year ended December 31, 2018, as a result of an interim goodwill test,
we recognized an aggregate loss of $462 million, which had no tax effect, associated with the impairment of the full balance of our
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goodwill. See Notes to Consolidated Financial Statements—Note 3—Accounting Standards Updates, Note 4—Business Combinations
and Note 7—Goodwill and Other Intangibles.
Accounting Standards Updates
For a discussion of the new accounting standards updates that have had or are expected to have an effect on our consolidated
financial statements, see Notes to Consolidated Financial Statements—Note 3—Accounting Standards Updates.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Interest rate risk —We are exposed to interest rate risk, primarily associated with our long-term debt, including current
maturities. The following table presents the nominal amounts and related weighted-average interest rates of our long-term debt
instruments by contractual maturity date for the years ending December 31 (in millions, except interest rate percentages):
Debt
Fixed rate (USD)
Average interest rate
2019
2020
2021
2022
2023
Thereafter
Total
Fair value
Scheduled Maturity Date (a)
$
$
386
6.35 %
$
680
6.41 %
$
730
7.26 %
740
6.13 %
$ 2,427
$ 5,131
$ 10,094
$ 9,212
5.67 %
7.21 %
_______________________________
(a) Expected maturity amounts are based on the face value of debt.
At December 31, 2018 and 2017, the fair value of our debt, presented above was $9.2 billion and $7.5 billion, respectively.
During the year ended December 31, 2018, the fair value of our debt increased by $1.7 billion due to the following: (a) an increase of
approximately $2.1 billion due to the issuance of Exchangeable Bonds and the 2018 Senior Secured Notes, (b) an increase of
approximately $661 million due to the issuance of 7.25% Senior Notes, partially offset by (c) a decrease of $363 million due to the
repayment of debt in scheduled installments and (d) a decrease of approximately $753 million due to changes in market prices for our
outstanding debt. See Notes to Consolidated Financial Statements—Note 8—Debt.
The majority of our cash equivalents is subject to variable interest rates or short-term interest rates and such cash equivalents
would earn commensurately higher rates of return if interest rates increase.
Currency exchange rate risk—We are exposed to currency exchange rate risk primarily associated with our international
operations. Our primary risk management strategy for currency exchange rate risk involves structuring customer contracts to provide for
payment in both U.S. dollars, which is our functional currency, and local currency. The portion denominated in local currency is based on
our anticipated local currency needs over the contract term. Due to various factors, including customer contract terms, local banking laws,
other statutory requirements, local currency convertibility and the impact of inflation on local costs, actual local currency needs may vary,
resulting in exposure to currency exchange rate risk. We may occasionally enter into forward exchange contracts to satisfy anticipated
local currency needs. The effect of fluctuations in currency exchange rates caused by our international operations generally has not had a
material impact on our overall operating results. See Notes to Consolidated Financial Statements—Note 19—Risk Concentration.
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Item 8.
Financial Statements and Supplementary Data
Management’s Report on Internal Control Over Financial Reporting
Management of Transocean Ltd. (the “Company,” “we” or “our”) is responsible for the integrity and objectivity of the financial
information included in this annual report. We have prepared our financial statements in accordance with accounting principles generally
accepted in the United States, which require us to apply our best judgement to make estimates and assumptions for certain amounts. We
are responsible for establishing and maintaining a system of internal controls and procedures to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of the consolidated financial statements. Our internal control system is supported by
a program of internal audits and appropriate reviews by management, written policies and guidelines, careful selection of qualified
personnel, and a written Code of Integrity. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements and, even when determined to be effective, can only provide reasonable assurance with respect to financial
statement preparation and presentation. Also, projections of any evaluation of effectiveness in future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Management assessed the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2018. In making this assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission, as described in Internal Control-Integrated
Framework, as published in 2013. On December 5, 2018, we completed our acquisition of Ocean Rig UDW Inc. (“Ocean Rig”).
Management has excluded Ocean Rig, which accounted for 11 percent of the Company’s total assets as of December 31, 2018, from its
assessment of the effectiveness of the Company’s internal control over financial reporting. Based on this assessment, management
believes that the Company maintained effective internal control over financial reporting as of December 31, 2018.
The Company’s independent auditors, Ernst & Young LLP, a registered public accounting firm, are appointed by the audit
committee of the Company’s board of directors, subject to ratification by our shareholders. Ernst & Young LLP has audited and reported
on the consolidated financial statements of Transocean Ltd. and subsidiaries, and the Company’s internal control over financial reporting.
The reports of the independent auditors are contained in this annual report.
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Transocean Ltd.
Opinion on Internal Control over Financial Reporting
We have audited Transocean Ltd. and subsidiaries’ internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) (the COSO criteria). In our opinion, Transocean Ltd. and subsidiaries (the Company) maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and
conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Ocean Rig, which is
included in the 2018 consolidated financial statements of the Company and constituted 11 percent of total assets as of December 31,
2018. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over
financial reporting of Ocean Rig.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
consolidated balance sheets of the Company as of December 31, 2018 and 2017, and the related consolidated statements of operations,
comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2018, and the related
notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 19, 2019, expressed an unqualified
opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our
audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Houston, Texas
February 19, 2019
AR-47
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Transocean Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Transocean Ltd. and subsidiaries (the Company) as of December 31,
2018 and 2017, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the
three years in the period ended December 31, 2018, and the related notes and financial statement schedule listed in the Index at
Item 15(a) (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated
February 19, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1999.
Houston, Texas
February 19, 2019
AR-48
Ernst & Young Ltd
Maagplatz 1
P.O. Box
8005 Zurich
Phone: +41 58 286 86 86
Fax: +41 58 286 30 04
www.ey.com/ch
To the General Meeting of
Transocean Ltd., Steinhausen
Zurich, February 19, 2019
Report of the statutory auditor on the consolidated financial statements
Opinion
As statutory auditor, we have audited the consolidated financial statements of Transocean Ltd. and its subsidiaries (the Company), which
comprise the consolidated balance sheets as of December 31, 2018 and 2017, and the related consolidated statements of operations,
comprehensive income (loss), equity, cash flows, and notes to the consolidated financial statements for each of the three years in the
period ended December 31, 2018 (pages AR-52 – AR-89). In our opinion, the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company as of December 31, 2018 and 2017, and the consolidated results of
its operations and its cash flows for each of the three years in the period ended December 31, 2018, in accordance with U.S. generally
accepted accounting principles and comply with Swiss law.
Board of Directors’ Responsibility
The Board of Directors is responsible for the preparation of the consolidated financial statements in accordance with U.S. generally
accepted accounting principles and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining
an internal control system relevant to the preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and
making accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting
firm and are required to be independent with respect to the Company. We conducted our audits in accordance with Swiss law, Swiss
Auditing Standards and the standards of the Public Company Accounting Oversight Board (United States) (PCAOB). Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free
from material misstatement, whether due to fraud or error.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal
control system relevant to the entity’s preparation of the consolidated financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control
system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting
estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight Authority
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial
statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our
description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibility section of our report, including in relation to these matters.
Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address
the matters below, provide the basis for our audit opinion on the consolidated financial statements.
AR-49
Business combinations
Area of
emphasis
As described in Note 4 to the consolidated financial statements, during 2018 the Company acquired Songa
Offshore SE for net consideration of USD 1.8 billion and Ocean Rig UDW Inc. for a net consideration of USD
2.5 billion.
Auditing the accounting for the Company's 2018 acquisitions of Songa Offshore SE and Ocean RIG UDW Inc.
involved a high degree of subjectivity in evaluating management's estimates, such as the recognition of the fair
value of assets acquired and liabilities assumed.
Our audit
response
Our audit procedures related to the key audit matter of business combinations included the following
procedures:
We tested the Company’s controls over the accounting for acquisitions, such as controls over the recognition
and measurement of assets acquired, liabilities assumed, and consideration paid and payable, including
convertible instruments. We read the purchase agreements, evaluated the significant assumptions and
methods used in developing the fair value estimates, and tested the recognition of (1) the assets acquired and
liabilities assumed at fair value; (2) the identifiable acquired intangible assets at fair value; and (3) goodwill or
bargain purchase gain measured as a residual.
We evaluated, among other things, whether the significant assumptions, including forecasted day rates and
utilization, discount rates, estimated useful lives, and the growth rate used in valuing the rigs and related
contract intangibles were appropriate, which are affected by expectations about future market or economic
conditions. Specifically, when evaluating the assumptions related to the forecasted day rates and utilization,
we compared the assumptions to similar fixtures in the market and considered whether they were consistent
with evidence obtained in other areas of the audit, such as assumptions used by the Company in its budget.
Valuation of Goodwill of the Contract Drilling Services reporting unit
Area of
emphasis
At December 31, 2018, the Company had no goodwill and recorded an impairment of USD 462 million during
the year-ended December 31, 2018. As discussed in Note 7 of the consolidated financial statements, goodwill
is tested for impairment at least annually, or on an interim basis if indicators are present, at the reporting unit
level. The Company’s goodwill is initially assigned to its reporting unit as of the acquisition date.
Auditing management’s annual goodwill impairment test was complex and highly judgmental due to the
significant estimation required in determining the fair value of the reporting unit. In particular, the fair value
estimate of the Contract Drilling Services reporting unit was sensitive to significant assumptions such as the
weighted average cost of capital, forecasted day rates and utilization, operating margin, working capital and
terminal value, which are affected by expectations about future market or economic conditions.
Our audit
response
Our audit procedures related to the key audit matter of valuation of goodwill of the contract drilling services
reporting unit included the following procedures:
We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s
controls over its goodwill impairment assessment process.
To test the estimated fair value of the Company’s Contract Drilling Services reporting unit, we performed audit
procedures that included, among others, assessing methodologies and testing the significant assumptions
discussed above and the underlying data used by the Company in its analysis. We compared the significant
assumptions used by management to current industry and economic trends, including offshore activity,
changes to the Company’s business model, customer analysis and other relevant factors. We assessed the
historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions
to evaluate the changes in the fair value of the Contract Drilling Services reporting unit that would result from
changes in the assumptions. In addition, we tested the reconciliation of the fair value of all reporting units to
the market capitalization of the Company.
AR-50
Realizability of deferred tax assets
Area of
emphasis
As discussed in Note 10 to the consolidated financial statements, the Company had deferred tax assets of
USD 87 million (net of a USD 681 million valuation allowance). Valuation allowances for deferred tax assets
are recorded when it is more likely than not that some or all of the benefit from the deferred tax asset will not
be realized. In evaluating the realizability of deferred tax assets, all available positive and negative evidence
is considered, including projected future taxable income and the existence of cumulative losses in recent
years.
Auditing the realizability of deferred tax assets is complex because of the judgement involved in determining
the sources of income available to realize the deferred tax assets, including projected future taxable income,
tax planning strategies, available carrybacks, and utilization of deferred tax liabilities and uncertain tax
positions.
Our audit
response
Our audit procedures related to the key audit matter of realizability of deferred tax assets included the
following procedures:
We evaluated the Company’s assessment of the realizability of deferred tax assets and the resultant valuation
allowance. We tested controls that address the risks of material misstatement relating to the realizability of
deferred tax assets, including controls over management’s projections of future taxable income, the future
reversal of existing taxable temporary differences and management’s identification and use of available tax
planning strategies.
Our audit procedures included, among others, testing forecasted taxable income and evaluating the availability
of future taxable temporary differences. We evaluated the assumptions used by the Company to develop
projections of future taxable income and temporary differences by jurisdiction and tested the completeness
and accuracy of the underlying data used in its projections. For example, we compared the projections of
future taxable income with firm contractual agreements. We also reconciled the projections of future taxable
income with other forecasted financial information prepared by the Company.
In addition, we involved our tax professionals to evaluate the application of tax law in the Company’s available
tax planning strategies and projections of future taxable income. We also tested the Company’s scheduling of
the reversal of existing temporary taxable differences.
Report on other legal requirements
We are a public accounting firm registered with the Swiss Federal Audit Oversight Authority (FAOA) and the PCAOB and we confirm that
we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA). We are independent with respect to the
Company in accordance with Swiss law (article 728 CO and article 11 AOA) and U.S. federal securities laws as well as the applicable rules
and regulations of the Swiss audit profession, the U.S. Securities and Exchange Commission and the PCAOB, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
In accordance with article 728a para 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists,
which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors.
We recommend that the consolidated financial statements submitted to you be approved.
We have served as the Company’s auditor since 2008.
Ernst & Young Ltd
/s/ Jolanda Dolente
Licensed audit expert
(Auditor in charge)
/s/ Jennifer Mathias
Certified public accountant
AR-51
TRANSOCEAN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
Contract drilling revenues
Other revenues
Costs and expenses
Operating and maintenance
Depreciation
General and administrative
Loss on impairment
Gain (loss) on disposal of assets, net
Operating income (loss)
Other income (expense), net
Interest income
Interest expense, net of amounts capitalized
Gain (loss) on retirement of debt
Other, net
Income (loss) before income tax expense
Income tax expense
Net income (loss)
Net income (loss) attributable to noncontrolling interest
Net income (loss) attributable to controlling interest
Earnings (loss) per share
Basic
Diluted
Weighted-average shares outstanding
Basic
Diluted
Years ended December 31,
2017
2018
2016
$
3,018 $
—
3,018
2,731
242
2,973
$
1,799
818
188
2,805
(1,464)
—
(1,251)
53
(620)
(3)
46
(524)
(1,775)
228
1,389
832
156
2,377
(1,498)
(1,603)
(2,505)
43
(491)
(55)
5
(498)
(3,003)
94
(2,003)
(7)
(1,996) $
(3,097)
30
(3,127) $
(4.27) $
(4.27) $
(8.00) $
(8.00) $
$
$
$
468
468
391
391
3,705
456
4,161
1,901
893
172
2,966
(93)
4
1,106
20
(409)
148
69
(172)
934
107
827
49
778
2.08
2.08
367
367
See accompanying notes.
AR-52
TRANSOCEAN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
Net income (loss)
Net income (loss) attributable to noncontrolling interest
Net income (loss) attributable to controlling interest
Components of net periodic benefit costs before reclassifications
Components of net periodic benefit costs reclassified to net income
Other comprehensive income (loss) before income taxes
Income taxes related to other comprehensive income (loss)
Other comprehensive income (loss)
Other comprehensive income attributable to noncontrolling interest
Other comprehensive income (loss) attributable to controlling interest
Total comprehensive income (loss)
Total comprehensive income (loss) attributable to noncontrolling interest
Total comprehensive income (loss) attributable to controlling interest
Years ended December 31,
2017
2018
2016
$
(2,003) $
(7)
(1,996)
(3,097) $
30
(3,127)
6
5
11
—
11
—
11
—
21
21
(28)
(7)
—
(7)
(1,992)
(7)
(1,985) $
(3,104)
30
(3,134) $
$
827
49
778
(20)
8
(12)
6
(6)
—
(6)
821
49
772
See accompanying notes.
AR-53
December 31,
2018
2017
$
$
$
$
$
$
2,160
—
604
474
551
159
3,948
25,811
(5,403)
20,408
795
66
448
25,665
269
70
373
746
1,458
9,605
64
1,424
11,093
2,519
450
596
418
466
157
4,606
22,693
(5,291)
17,402
—
47
355
22,410
201
79
250
839
1,369
7,146
44
1,082
8,272
—
58
59
13,394
(67)
(279)
13,107
7
13,114
25,665
$
37
11,031
1,929
(290)
12,707
4
12,711
22,410
$
TRANSOCEAN LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
Assets
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Materials and supplies, net
Restricted cash accounts and investments
Other current assets
Total current assets
Property and equipment
Less accumulated depreciation
Property and equipment, net
Contract intangible assets
Deferred income taxes, net
Other assets
Total assets
Liabilities and equity
Accounts payable
Accrued income taxes
Debt due within one year
Other current liabilities
Total current liabilities
Long-term debt
Deferred income taxes, net
Other long-term liabilities
Total long-term liabilities
Commitments and contingencies
Redeemable noncontrolling interest
Shares, CHF 0.10 par value, 638,285,574 authorized, 143,754,246 conditionally authorized, 610,581,677 issued
and 609,649,291 outstanding at December 31, 2018, and 417,060,033 authorized, 143,783,041 conditionally
authorized, 394,801,990 issued and 391,237,308 outstanding at December 31, 2017
Additional paid-in capital
Retained earnings (accumulated deficit)
Accumulated other comprehensive loss
Total controlling interest shareholders’ equity
Noncontrolling interest
Total equity
Total liabilities and equity
See accompanying notes.
AR-54
TRANSOCEAN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In millions)
Years ended December 31,
2017
2018
Quantity
2016
2018
Years ended December 31,
2017
Amount
2016
391
3
216
—
610
389
2
—
—
391
Shares
Balance, beginning of period
Issuance of shares under share-based compensation plans
Issuance of shares in acquisition transactions
Reduction of par value
Balance, end of period
Additional paid-in capital
Balance, beginning of period
Share-based compensation
Issuance of shares under share-based compensation plans
Issuance of shares in acquisition transactions
Equity component of convertible debt instruments
Acquisition of redeemable noncontrolling interest
Reduction of par value
Cancellation of shares held in treasury
Allocated capital for transactions with holders of noncontrolling interest
Other, net
Balance, end of period
Treasury shares, at cost
Balance, beginning of period
Cancellation of shares held in treasury
Balance, end of period
Retained earnings (accumulated deficit)
Balance, beginning of period
Net income (loss) attributable to controlling interest
Balance, end of period
Accumulated other comprehensive loss
Balance, beginning of period
Other comprehensive income (loss) attributable to controlling interest
Balance, end of period
Total controlling interest shareholders’ equity
Balance, beginning of period
Total comprehensive income (loss) attributable to controlling interest
Share-based compensation
Issuance of shares in acquisition transactions
Equity component of convertible debt instruments
Acquisition of redeemable noncontrolling interest
Allocated capital for transactions with holders of noncontrolling interest
Other, net
Balance, end of period
Noncontrolling interest
Balance, beginning of period
Total comprehensive income (loss) attributable to noncontrolling interest
Recognition of noncontrolling interest in business combination
Acquisition of noncontrolling interest
Distributions to holders of noncontrolling interest
Allocated capital for transactions with holders of noncontrolling interest
Balance, end of period
Total equity
Balance, beginning of period
Total comprehensive income (loss)
Share-based compensation
Issuance of shares in acquisition transactions
Equity component of convertible debt instruments
Recognition of noncontrolling interest in business combination
Acquisition of redeemable noncontrolling interest
Acquisition of noncontrolling interest
Distributions to holders of noncontrolling interest
Other, net
Balance, end of period
See accompanying notes.
AR-55
$
364
1
24
—
$
389
37 $
—
22
—
59 $
36
1
—
—
37
$
$
5,193
—
2
(5,159)
36
$ 11,031 $ 10,993
41
(1)
—
—
—
—
—
—
(2)
$ 13,394 $ 11,031
45
—
2,101
172
53
—
—
(3)
(5)
$
5,736
42
—
313
—
—
5,159
(240)
(18)
1
$ 10,993
$
$
$
$
$
$
— $
—
— $
— $
—
— $
(240)
240
—
1,929 $
(1,996)
(67) $
5,056
(3,127)
1,929
$
$
4,278
778
5,056
(290) $
11
(279) $
(283) $
(7)
(290) $
(277)
(6)
(283)
$ 12,707 $ 15,802
(3,134)
41
—
—
—
—
(2)
$ 13,107 $ 12,707
(1,985)
45
2,123
172
53
(3)
(5)
$ 14,690
772
42
315
—
—
(18)
1
$ 15,802
$
$
4 $
(2)
33
(31)
—
3
7 $
3
1
—
—
—
—
4
$
$
310
26
—
(321)
(30)
18
3
$ 12,711 $ 15,805
(3,133)
41
—
—
—
—
—
—
(2)
$ 13,114 $ 12,711
(1,987)
45
2,123
172
33
53
(31)
—
(5)
$ 15,000
798
42
315
—
—
—
(321)
(30)
1
$ 15,805
TRANSOCEAN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Cash flows from operating activities
Net income (loss)
Adjustments to reconcile to net cash provided by operating activities:
Contract intangible asset amortization
Depreciation
Share-based compensation expense
Loss on impairment
(Gain) loss on disposal of assets, net
(Gain) loss on retirement of debt
Deferred income tax expense (benefit)
Other, net
Changes in deferred revenues, net
Changes in deferred costs, net
Changes in other operating assets and liabilities, net
Net cash provided by operating activities
Cash flows from investing activities
Capital expenditures
Proceeds from disposal of assets, net
Cash paid in business combinations, net of cash acquired
Investment in unconsolidated affiliates
Proceeds from maturities of unrestricted and restricted short-term investments
Deposits into unrestricted and restricted short-term investments
Other, net
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of debt, net of discounts and issue costs
Repayments of debt
Proceeds from investments restricted for financing activities
Payments to terminate derivative instruments
Distributions to holders of noncontrolling interest
Other, net
Net cash provided by (used in) financing activities
Years ended December 31,
2017
2018
2016
$
(2,003) $
(3,097) $
827
112
818
45
1,464
—
3
(16)
6
(139)
34
234
558
(184)
43
(883)
(107)
507
(173)
—
(797)
2,054
(2,105)
26
(92)
—
(30)
(147)
—
832
41
1,498
1,603
55
89
55
33
54
7
1,170
(497)
350
—
—
—
(450)
10
(587)
1,144
(2,284)
102
—
—
(3)
(1,041)
—
893
42
93
(4)
(148)
68
14
219
72
(96)
1,980
(1,344)
30
—
—
—
—
1
(1,313)
2,401
(2,295)
100
—
(30)
—
176
843
2,590
3,433
Net increase (decrease) in unrestricted and restricted cash and cash equivalents
Unrestricted and restricted cash and cash equivalents, beginning of period
Unrestricted and restricted cash and cash equivalents, end of period
(386)
2,975
2,589 $
(458)
3,433
2,975
$
$
See accompanying notes.
AR-56
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Business
Overview—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. We
specialize in technically demanding sectors of the offshore drilling business with a particular focus on ultra-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. As of December 31, 2018, we
owned or had partial ownership interests in and operated a fleet of 50 mobile offshore drilling units, including 32 ultra-deepwater floaters,
14 harsh environment floaters and four midwater floaters. As of December 31, 2018, we were constructing (i) four additional
ultra-deepwater drillships and (ii) one additional harsh environment semisubmersible, in which we hold a partial ownership interest.
Business combinations—On January 30, 2018, we acquired an approximate 97.7 percent ownership interest in Songa
Offshore SE, a European public company limited by shares, or societas Europaea, existing under the laws of Cyprus (“Songa”). On
March 28, 2018, we acquired the remaining shares not owned by us through a compulsory acquisition under Cyprus law, and as a result,
Songa became our wholly owned subsidiary. To complete these transactions, we issued 68.0 million shares and $863 million aggregate
principal amount of 0.50% exchangeable senior bonds due January 30, 2023 (the “Exchangeable Bonds”). As a result of the acquisition,
we acquired seven mobile offshore drilling units, including five harsh environment floaters and two midwater floaters. See Note 4—
Business Combinations and Note 14—Equity.
On December 5, 2018, we acquired Ocean Rig UDW Inc., a Cayman Islands exempted company with limited liability
(“Ocean Rig”), in a merger transaction, and as a result, Ocean Rig became our wholly owned subsidiary. To complete the acquisition, we
issued 147.7 million shares and made an aggregate cash payment of $1.2 billion. As a result of the acquisition, we acquired (i) 11 mobile
offshore drilling units, including nine ultra-deepwater floaters and two harsh environment floaters and (ii) the contracts relating to the
construction of two ultra-deepwater drillships. See Note 4—Business Combinations, Note 14—Equity and Note 22—Subsequent Events.
Investment in unconsolidated affiliates—In the year ended December 31, 2018, we made an aggregate cash investment of
$107 million in unconsolidated affiliates, including an initial investment of $91 million, representing a 33.0 percent interest, in Orion
Holdings (Cayman) Limited (“Orion”), a Cayman Islands company formed to construct and own the newbuild harsh environment
semisubmersible Transocean Norge. We account for this investment, recorded in other assets, using the equity method of accounting.
The total purchase price for the rig, under construction at the Jurong Shipyard Pte Ltd. in Singapore, is $500 million. We have agreed to
make additional contributions of $59 million and $33 million to Orion in January 2019 and January 2020, respectively. We expect to
operate the rig, through one of our wholly owned subsidiaries, under a drilling contract that is expected to commence in July 2019.
Additionally, we invested $16 million in other companies, recorded in other assets using the cost method of accounting, that are involved in
researching and developing technology to improve automation in drilling and other activities.
Note 2—Significant Accounting Policies
Accounting estimates—To prepare financial statements in accordance with accounting principles generally accepted in the
United States (“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 allowance for doubtful accounts, materials and supplies obsolescence, property and equipment, assets held
for sale, goodwill, income taxes, contingencies, share-based compensation and postemployment benefit plans. 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 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.
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 unconsolidated 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. We separately present
AR-57
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
within equity on our consolidated balance sheets the ownership interests attributable to parties with noncontrolling interests in our
consolidated subsidiaries, and we separately present net income attributable to such parties on our consolidated statements of operations.
See Note 14—Equity.
Business combinations—In connection with our acquisitions, we applied the acquisition method of accounting. Accordingly,
we recorded the acquired assets and assumed liabilities at fair value and recognized goodwill to the extent the consideration transferred
exceeded the fair value of the net assets acquired. To the extent the fair value of the net assets acquired exceeded the consideration
transferred, we recognize a bargain purchase gain, recorded in other income, net. We estimated the fair values of the acquired assets and
assumed liabilities as of the date of the acquisition, and our estimates are subject to adjustment based on our ongoing assessments of the
fair values of property and equipment, intangible assets, other assets and liabilities and our evaluation of tax positions and contingencies,
which are ongoing. We will complete our final assessments of the fair values of the acquired assets and assumed liabilities and our final
evaluations of uncertain tax positions and contingencies within one year of the acquisition date. See Note 4—Business Combinations.
Goodwill—We conduct impairment testing for our goodwill annually as of October 1 and more frequently, on an interim basis,
when an event occurs or circumstances change that indicate that the fair value of our reporting unit may have declined below its carrying
value. We test goodwill at the reporting unit level, which is defined as an operating segment or one level below an operating segment that
constitutes a business for which financial information is available and is regularly reviewed by management. We determined that we have
a single reporting unit for this purpose. Before testing goodwill, we consider whether or not to first assess qualitative factors to determine
whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. If, as the result of our qualitative assessment, we determine that an impairment test is required, or,
alternatively, if we elect to forgo the qualitative assessment, we record an impairment to goodwill to the extent the carrying amount of the
reporting unit, including goodwill, exceeds the fair value of the reporting unit. In the year ended December 31, 2018, as a result of an
interim goodwill test, we recognized an aggregate loss of $462 million, which had no tax effect, associated with the impairment of our
goodwill. See Note 3—Accounting Standards Updates, Note 4—Business Combinations and Note 7—Goodwill and Other Intangibles.
Contract intangibles—In connection with our acquisitions, we recognized drilling contract intangible assets related to the
acquired drilling contracts for future contract drilling services and construction contract intangible liabilities related to the acquired shipyard
contracts for the construction of two rigs. The drilling contract intangible assets represent the amount by which the fixed dayrates of the
acquired contracts were above the market dayrates that were available or expected to be available during the term of the contract for
similar contracts, measured as of the acquisition date. We recognize the amortization on a straight-line basis over the expected remaining
contract period as a reduction of contract drilling revenues. The construction contract intangible liabilities resulting from the Ocean Rig
acquisition represent the amount by which the remaining amounts due under the acquired contracts were above market construction rates
for similar drilling units, measured as of the acquisition date. We expect to recognize the construction contract intangible liabilities as
reductions to the capitalized cost of the two rigs at the time we take delivery of the assets. At December 31, 2018, the aggregate carrying
amount of our drilling contract intangible assets and our construction contract intangible liabilities was $795 million and $132 million,
respectively. See Note 4—Business Combinations, Note 7—Goodwill and Other Intangibles and Note 13—Commitments and
Contingencies.
Derivative instruments—We record derivatives on our consolidated balance sheet, measured at fair value. We recognize the
gains and losses associated with changes in the fair value of undesignated derivatives in current period earnings. See Note 9—Derivative
Instruments.
Revenue recognition—We recognize revenues earned under our drilling contracts based on variable dayrates, which range
from a full operating dayrate to lower rates or zero rates for periods when drilling operations are interrupted or restricted, based on the
specific activities we perform during the contract on an hourly, or more frequent, basis. Such dayrate consideration is attributed to the
distinct time period to which it relates within the contract term, and therefore, is recognized as we perform the services. When the
operating dayrate declines over the contract term, we recognize revenues on a straight-line basis over the full contract period. We
recognize reimbursement revenues and the corresponding costs as we provide the customer-requested goods and services, when such
reimbursable costs are incurred while performing drilling operations. Prior to performing drilling operations, we may receive pre-operating
revenues, on either a fixed lump-sum or variable dayrate basis, for mobilization, contract preparation, customer-requested goods and
services or capital upgrades, which we recognize on a straight-line basis over the estimated firm contract period. We recognize losses for
loss contracts as such losses are incurred. We recognize revenues for demobilization or from contract terminations as we fulfill our
obligations and all contingencies have been resolved. To obtain contracts with our customers, we incur costs to prepare a rig for contract
and deliver or mobilize a rig to the drilling location. We defer pre-operating costs, such as contract preparation and mobilization costs, and
recognize such costs on a straight-line basis, consistent with the general pace of activity, in operating and maintenance costs over the
estimated firm period of drilling.
We elected to apply the optional exemption that permits us to exclude disclosure of the estimated transaction price related to the
variable portion of unsatisfied performance obligations at the end of the reporting period, as our transaction price is based on a single
performance obligation consisting of a series of distinct hourly, or more frequent, periods, the variability of which will be resolved at the
time of the future services. See Note 5—Revenues.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
the
Share-based compensation—To measure
fair values of granted or modified stock options, we use
the
Black-Scholes-Merton option-pricing model and apply assumptions for the expected life, risk-free interest rate, expected volatility and
dividend yield. To measure the fair values of granted or modified service-based restricted share units, we use the market price of our
shares on the grant date or modification date. To measure the fair values of granted or modified performance-based restricted share units
subject to market factors, we use a Monte Carlo simulation model and, in addition to the assumptions applied for the Black-Scholes-Merton
option-pricing model, we use a risk neutral approach and an average price at the performance start date. We recognize share-based
compensation expense in the same financial statement line item as cash compensation paid to the respective employees or non-employee
directors. We recognize such compensation expense on a straight-line basis over the service period through the date the employee or
non-employee director is no longer required to provide service to earn the award. In the years ended December 31, 2018, 2017 and 2016,
share-based compensation expense was $45 million, $41 million and $42 million, respectively. See Note 15—Share Based Compensation
Plans.
Capitalized interest—We capitalize interest costs for qualifying construction and upgrade projects and only capitalize interest
costs during periods in which progress for the construction projects continues to be underway. In the years ended December 31, 2018,
2017 and 2016, we capitalized interest costs of $37 million, $116 million and $176 million, respectively, for our construction work in
progress.
Functional currency—We consider the U.S. dollar to be the functional currency for all of our operations since the majority of our
revenues and expenditures are denominated in U.S. dollars, which limits our exposure to currency exchange rate fluctuations. We
recognize currency exchange rate gains and losses in other, net. In the years ended December 31, 2018, 2017 and 2016, we recognized
a net loss of $38 million, a net loss of $6 million and a net loss of $2 million, respectively, related to currency exchange rates.
Income taxes—We provide for income taxes based on the tax laws and rates in effect in the countries in which we operate and
earn income. We recognize the effect of changes in tax laws as of the date of enactment. Effective January 1, 2018, we recognize
potential global intangible low-taxed income inclusions as a period cost. There is little or no expected relationship between the provision
for or benefit from income taxes and income or loss before income taxes because the countries in which we operate have taxation regimes
that vary not only with respect to nominal rate, but also in terms of the availability of deductions, credits and other benefits. Variations also
arise because income earned and taxed in any particular country or countries may fluctuate from year to year.
We measure deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary
differences are expected to be recovered or paid. We record a valuation allowance for deferred tax assets when it is more likely than not
that some or all of the benefit from the deferred tax asset will not be realized. In evaluating our ability to realize deferred tax assets, we
consider all available positive and negative evidence, including projected future taxable income and the existence of cumulative losses in
recent years. We also record a valuation allowance for deferred tax assets resulting from net operating losses incurred during the year in
certain jurisdictions and for other deferred tax assets where, in our opinion, it is more likely than not that the financial statement benefit of
these losses will not be realized. Additionally, we record a valuation allowance for foreign tax credit carryforwards to reflect the possible
expiration of these benefits prior to their utilization.
We maintain liabilities for estimated tax exposures in our jurisdictions of operation, and we recognize the provisions and benefits
resulting from changes to those liabilities in our income tax expense or benefit along with related interest and penalties. Tax exposure
items include potential challenges to permanent establishment positions, intercompany pricing, disposition transactions, and withholding
tax rates and their applicability. These tax exposures are resolved primarily through the settlement of audits within these tax jurisdictions
or by judicial means, but can also be affected by changes in applicable tax law or other factors, which could cause us to revise past
estimates. See Note 10—Income Taxes.
Cash and cash equivalents—We consider cash equivalents to include highly liquid debt instruments with original maturities of
three months or less such as time deposits with commercial banks that have high credit ratings, U.S. Treasury and government securities,
Eurodollar time deposits, certificates of deposit and commercial paper. We may also invest excess funds in no-load, open-ended,
management investment trusts. Such management trusts invest exclusively in high-quality money market instruments.
Short-term investments—We periodically deposit unrestricted excess funds in time deposits and commercial paper with
original maturities beyond three months. Such short-term investments are with commercial banks with high credit ratings.
Accounts receivable—We earn our revenues by providing our drilling services to international oil companies and
government-owned or government-controlled oil companies. We evaluate the credit quality of our customers on an ongoing basis, and we
may occasionally require collateral or other security to support customer receivables. We establish an allowance for doubtful accounts on
a case-by-case basis, considering changes in the financial position of a customer, when we believe the required payment of specific
amounts owed to us is unlikely to occur. At December 31, 2018 and 2017, the allowance for doubtful accounts was less than $1 million.
Materials and supplies—We record materials and supplies at their average cost less an allowance for obsolescence. We
estimate the allowance for obsolescence based on historical experience and expectations for future use of the materials and supplies. At
December 31, 2018 and 2017, the allowance for obsolescence was $134 million and $141 million, respectively.
AR-59
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
Restricted cash accounts and investments—We maintain restricted cash accounts and investments that are either pledged
for debt service under certain bond indentures, as required under certain bank credit arrangements, or held in accounts that are subject to
restrictions due to legislation, regulation or court order. We classify such restricted cash accounts and investments in current assets if the
restriction is expected to expire or otherwise be resolved within one year or if such funds are considered to offset liabilities that are properly
classified as current liabilities. At December 31, 2018, the aggregate carrying amount of our restricted cash accounts and investments was
$552 million, of which $551 million and $1 million was classified in current assets and other assets, respectively. At December 31, 2017,
the aggregate carrying amount of our restricted cash accounts and investments was $489 million, of which $466 million and $23 million
was classified in current assets and other assets, respectively. See Note 3—Accounting Standards Updates, Note 8—Debt, Note 13—
Commitments and Contingencies and Note 18—Financial Instruments.
Assets held for sale—We classify an asset as held for sale when the facts and circumstances meet the criteria for such
classification, including the following: (a) we have committed to a plan to sell the asset, (b) the asset is available for immediate sale, (c) we
have initiated actions to complete the sale, including locating a buyer, (d) the sale is expected to be completed within one year, (e) the
asset is being actively marketed at a price that is reasonable relative to its fair value, and (f) the plan to sell is unlikely to be subject to
significant changes or termination. At December 31, 2018 and 2017, the aggregate carrying amount of our assets held for sale, recorded
in other current assets, was $25 million and $22 million, respectively. See Note 6—Drilling Fleet.
Property and equipment—The carrying amounts of our property and equipment, consisting primarily of offshore drilling rigs and
related equipment, are based on our estimates, assumptions and judgments relative to capitalized costs, useful lives and salvage values of
our rigs. These estimates, assumptions and judgments reflect both historical experience and expectations regarding future industry
conditions and operations. At December 31, 2018, the aggregate carrying amount of our property and equipment represented
approximately 80 percent of our total assets.
We capitalize expenditures for newbuilds, renewals, replacements and improvements, including capitalized interest, if applicable,
and we recognize the expense for maintenance and repair costs as incurred. For newbuild construction projects, we also capitalize the
initial preparation, mobilization and commissioning costs incurred until the drilling unit is placed into service. Upon sale or other disposition
of an asset, we recognize a net gain or loss on disposal of the asset, which is measured as the difference between the net carrying amount
of the asset and the net proceeds received. We compute depreciation using the straight-line method after allowing for salvage values.
The estimated original useful lives of our drilling units range from 30 to 35 years, our buildings and improvements range from
two to 30 years and our machinery and equipment range from four to 20 years. We reevaluate the remaining useful lives and salvage
values of our rigs when certain events occur that directly impact the useful lives and salvage values of the rigs, including changes in
operating condition, functional capability and market and economic factors. When evaluating the remaining useful lives of rigs, we also
consider major capital upgrades required to perform certain contracts and the long-term impact of those upgrades on future marketability.
Long-lived asset impairment—We review the carrying amounts of long-lived assets, principally property and equipment, for
potential impairment when events occur or circumstances change that indicate that the carrying amount of such assets may not be
recoverable. For assets classified as held and used, we determine recoverability by evaluating the estimated undiscounted future net cash
flows based on projected dayrates and utilization of the asset group under review. We consider our asset groups to be ultra-deepwater
floaters, harsh environment floaters and midwater floaters. When an impairment of one or more of our asset groups is indicated, we
measure the impairment as the amount by which the asset group’s carrying amount exceeds its estimated fair value. We measure the fair
values of our contract drilling asset groups by applying a variety of valuation methods, incorporating a combination of cost, income and
market approaches, using projected discounted cash flows and estimates of the exchange price that would be received for the assets in
the principal or most advantageous market for the assets in an orderly transaction between market participants as of the measurement
date. For an asset classified as held for sale, we consider the asset to be impaired to the extent its carrying amount exceeds its estimated
fair value less cost to sell. See Note 6—Drilling Fleet.
Pension and other postemployment benefit plans—We use a measurement date of January 1 for determining net periodic
benefit costs and December 31 for determining plan benefit obligations and the fair values of plan assets. We determine our net periodic
benefit costs based on a market-related value of assets that reduces year-to-year volatility by including investment gains or losses subject
to amortization over a five-year period from the year in which they occur. We calculate investment gains or losses for this purpose as the
difference between the expected return calculated using the market-related value of assets and the actual return based on the
market-related value of assets. If gains or losses exceed 10 percent of the greater of plan assets or plan liabilities, we amortize such gains
or losses over the average expected future service period of the employee participants.
We measure our actuarially determined obligations and related costs for our defined benefit pension and other postemployment
benefit plans, retiree life insurance and medical benefits, by applying assumptions, the most significant of which include long-term rate of
return on plan assets, discount rates and mortality rates. For the long-term rate of return, we develop our assumptions regarding the
expected rate of return on plan assets based on historical experience and projected long-term investment returns, and we weight the
assumptions based on each plan’s asset allocation. For the discount rate, we base our assumptions on a yield curve approach using
Aa-rated corporate bonds and the expected timing of future benefit payments.
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TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
At December 31, 2018 and 2017, our pension and other postemployment benefit plan obligations represented an aggregate
liability of $362 million and $359 million, respectively, and an aggregate asset of $47 million and $17 million, respectively, representing the
funded status of the plans. In the years ended December 31, 2018, 2017 and 2016, aggregate net periodic benefit costs were income of
$9 million, costs of $5 million and income of $11 million, respectively. See Note 3—Accounting Standards Updates and Note 12—
Postemployment Benefit Plans.
Contingencies—We perform assessments of our contingencies on an ongoing basis to evaluate the appropriateness of our
liabilities and disclosures for such contingencies. We establish liabilities for estimated loss contingencies when we believe a loss is
probable and the amount of the probable loss can be reasonably estimated. We recognize corresponding assets for those loss
contingencies that we believe are probable of being recovered through insurance. Once established, we adjust the carrying amount of a
contingent liability upon the occurrence of a recognizable event when facts and circumstances change, altering our previous assumptions
with respect to the likelihood or amount of loss. We recognize expense for legal costs as they are incurred, and we recognize a
corresponding asset for such legal costs only if we expect such legal costs to be recovered through insurance.
Reclassifications—We have made certain reclassifications to prior period amounts to conform with the current year’s
presentation. In our consolidated balance sheet as of December 31, 2017, we reclassified certain balances receivable from
non-customers, totaling $45 million, from accounts receivable, net, to other current assets. Such reclassifications did not have a material
effect on our consolidated statement of financial position, results of operations or cash flows.
Note 3—Accounting Standards Updates
Recently adopted accounting standards
Revenue from contracts with customers—Effective January 1, 2018, we adopted the accounting standards update that
requires an entity to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In our evaluation of the
requirements, we determined that reimbursement revenues and contract early cancellation and termination fees were part of our single
performance obligation, and we determined that reimbursement revenues should be recorded on a gross basis as the service is
performed. Our adoption, using the modified retrospective approach, for which we were not required to make any changes to the prior
year presentation, did not have a material effect on our consolidated statements of financial position, operations or cash flows.
Income taxes—Effective January 1, 2018, we adopted the accounting standards update that requires an entity to recognize the
income tax consequences of an intra entity transfer of an asset other than inventory when the transaction occurs as opposed to deferring
such recognition into future periods. Our adoption did not have a material effect on our consolidated statements of financial position,
operations or cash flows or on the disclosures contained in our notes to consolidated financial statements.
Statement of cash flows—Effective January 1, 2018, we adopted the accounting standards update that requires amounts
generally described as restricted cash or restricted cash equivalents to be included with cash and cash equivalents when reconciling the
beginning and end of period total amounts presented on the statement of cash flows. Aside from presenting the restricted cash and
restricted cash equivalents as a component of the beginning and ending cash balances on our consolidated statements of cash flows, we
removed the effect of proceeds from and deposits to restricted accounts from our cash flows provided by or used in operating, investing
and financing activities, as applicable. For the years ended December 31, 2018 and 2017, such changes did not have a material effect on
our consolidated statements of financial position, operations or cash flows or on the disclosures contained in our notes to consolidated
financial statements.
Retirement benefits—Effective January 1, 2018, we adopted the accounting standards update that requires an employer to
disaggregate the service cost component from the other components of net benefit cost related to defined benefit retirement plans and
other postemployment benefit plans. The update requires that the service cost component be presented in the same line item as other
compensation costs for employees and the other components of net benefit cost in other income and expense on our consolidated
statements of operations. The update also allows only the service cost component of net benefit cost to be eligible for capitalization. Our
adoption did not have a material effect on our consolidated statements of financial position, operations or cash flows or on the disclosures
contained in our notes to consolidated financial statements.
Goodwill—Effective January 1, 2018, we early adopted the accounting standards update that simplifies the method for
measuring the implied value of goodwill when performing a goodwill impairment test by performing a one-step test, comparing the fair
value of the reporting unit with its carrying amount. The update eliminates the two-step requirement to perform procedures to determine
the fair value of assets and liabilities on the same basis as required in a business combination. In the year ended December 31, 2018, we
applied this simplified method in our interim goodwill test, and we recognized an aggregate loss of $462 million, which had no tax effect,
associated with the full impairment of our goodwill.
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TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
Recently issued accounting standards
Leases—Effective January 1, 2019, we will adopt the accounting standards update that (a) requires lessees to recognize a right
to use asset and a lease liability for virtually all leases, and (b) updates previous accounting standards for lessors to align certain
requirements with the updates to lessee accounting standards and the revenue recognition accounting standards. In a recent update,
targeted improvements were made that provide for (a) an optional new transition method for adoption that results in initial recognition of a
cumulative effect adjustment to retained earnings in the year of adoption and (b) a practical expedient for lessors, under certain
circumstances, to combine the lease and non-lease components of revenues for presentation purposes. We expect to elect the new
optional transition method of adoption. With respect to our drilling contracts, which could contain a lease component, we expect to apply
the practical expedient and recognize revenues based on the service component, which we have determined is the predominant
component of our contracts. With respect to the lease arrangements under which we are the lessee as of December 31, 2018, we expect
to recognize an aggregate lease liability of between $130 million and $140 million and a right-of-use asset of between $100 million and
$110 million. We do not expect our adoption to have a material effect on our consolidated statements of financial position, operations or
cash flows.
Other comprehensive income—Effective January 1, 2019, we will adopt the accounting standards update that allows for
reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts
and Jobs Act (the “2017 Tax Act”). We expect to apply the permitted alternative and reclassify such stranded tax effects resulting from the
2017 Tax Act. We do not expect our adoption to have a material effect on our consolidated statements of financial position, operations or
cash flows or on the disclosures contained in our notes to consolidated financial statements.
Financial instruments – credit losses—Effective no later than January 1, 2020, we will adopt the accounting standards update
that requires entities to estimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to
long-term financings. The update, which permits early adoption, is effective for annual reporting periods beginning after December 15,
2019, including interim periods within those fiscal years. We continue to evaluate the requirements and do not expect our adoption to have
a material effect on our consolidated statements of financial position, operations or cash flows or on the disclosures contained in our notes
to consolidated financial statements.
Note 4—Business Combinations
Overview
During the year ended December 31, 2018, we completed the acquisitions of Songa and Ocean Rig. On January 30, 2018, we
acquired an approximate 97.7 percent ownership interest in Songa. We believe the Songa acquisition strengthens our position as a leader
in harsh environment and ultra-deepwater drilling services by adding high value assets, including four high-specification harsh environment
floaters, supported by significant contract backlog, and strengthens our footprint in harsh environment operating areas. The goodwill
resulting from the business combination was attributed to synergies and intangible assets that did not qualify for separate recognition. On
December 5, 2018, we acquired Ocean Rig in a merger transaction. We believe the Ocean Rig acquisition further strengthens our position
as a leader in the ultra-deepwater and harsh environment drilling services by adding additional high-value assets, including
nine ultra-deepwater floaters and two harsh environment floaters, and the contracts relating to the construction of two ultra-deepwater
drillships (see Note 22—Subsequent Events). In the year ended December 31, 2018 and 2017, in connection with these acquisitions, we
incurred acquisition costs of $24 million and $4 million, respectively, recorded in general and administrative costs and expenses.
Pro forma combined operating results—We have included the operating results of Songa and Ocean Rig in our consolidated
results of operations, commencing on the acquisition date, January 30, 2018 and December 5, 2018, respectively. In the year ended
December 31, 2018, our consolidated statement of operations includes revenues of $497 million and net income of $87 million associated
with the operations of Songa and revenues of $15 million and net loss of $8 million associated with the operations of Ocean Rig. Pro
forma combined operating results, assuming the acquisitions were completed as of January 1, 2017, were as follows (in millions, except
per share data):
Contract drilling revenues
Net loss
Per share loss - basic and diluted
Years ended
December 31,
$
2018
3,373 $
(2,124)
(3.47)
2017
4,386
(3,174)
(5.29)
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TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
Ocean Rig UDW Inc.
Consideration—To complete the acquisition, we issued 147.7 million shares with a per share market value of $9.32, based on
the market value of our shares on the acquisition date, and made an aggregate cash payment of $1.2 billion. The aggregate fair value of
the consideration transferred in the business combination was as follows (in millions):
Consideration transferred
Aggregate fair value of shares issued as partial consideration for Ocean Rig shares
Aggregate cash paid as partial consideration for Ocean Rig shares
Total consideration transferred in business combination
Total
$
$
1,377
1,168
2,545
Assets and liabilities—We estimated the fair value of assets acquired and liabilities assumed, measured as of December 5,
2018, as follows (in millions):
Assets acquired
Cash and cash equivalents
Accounts receivable
Property and equipment
Drilling contract intangible assets
Other assets
Liabilities assumed
Accounts payable and other current liabilities
Construction contract intangible liabilities
Other long-term liabilities
Net assets acquired
Total
152
72
2,206
275
114
71
132
61
2,555
$
$
As a result of the acquisition, we recognized a gain of $10 million, recorded in other, net, associated with the bargain purchase,
primarily due to the decline in the market value of our shares between the announcement date and the closing date. We estimated the fair
value of the rigs and related equipment by applying a combination of income and market approaches, using projected discounted cash
flows and estimates of the exchange price that would be received for the assets in the principal or most advantageous markets for the
assets in an orderly transaction between participants as of the acquisition date. We estimated the fair value of the drilling contracts by
comparing the contractual dayrates over the remaining firm contract term and option periods relative to the projected market dayrates as of
the acquisition date. We estimated the fair value of the construction contracts by comparing the contractual future payments and terms
relative to the market payments and terms as of the acquisition date. Our estimates of fair value for the drilling units and contract
intangibles required us to use significant unobservable inputs, representative of a Level 3 fair value measurement, including assumptions
related to the future performance of the assets, such as future commodity prices, projected demand for our services, rig availability, rig
utilization, dayrates, remaining useful lives of the rigs and discount rates.
We have not completed our estimates of the fair values of assets acquired and liabilities assumed. We continue to review the
estimated fair values of property and equipment, intangible assets, and other assets and liabilities, and to evaluate the assumed tax
positions and contingencies. Our estimates of the fair value for such assets and liabilities require significant assumptions and judgment.
Until we complete our evaluation, we may be required to adjust our original estimates, and such adjustments could be material.
Songa Offshore SE
Consideration—To complete the acquisition, we issued 66.9 million shares with a per share market value of $10.99, based on
the market value of our shares on the acquisition date. We also issued $854 million aggregate principal amount of Exchangeable Bonds,
including $562 million aggregate principal amount as partial consideration to Songa shareholders and $292 million aggregate principal
amount as settlement for certain Songa indebtedness. The aggregate fair value of the consideration transferred in the business
combination was as follows (in millions):
Consideration transferred
Aggregate fair value of shares issued as partial consideration for Songa shares
Aggregate fair value of Exchangeable Bonds issued as partial consideration for Songa shares
Consideration transferred to Songa shareholders
Aggregate fair value of Exchangeable Bonds issued for settlement of certain Songa indebtedness
Total consideration transferred in business combination
Total
735
675
1,410
351
1,761
$
$
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TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
Assets and liabilities—We estimated the fair value of assets acquired, liabilities assumed and noncontrolling interest,
measured as of January 30, 2018, as follows (in millions):
Assets acquired
Cash and cash equivalents
Accounts receivable
Other current assets
Property and equipment
Goodwill
Contract intangible assets
Liabilities assumed
Accounts payable and other current liabilities
Debt
Other long-term liabilities
Net assets acquired
Noncontrolling interest in business combination
Controlling interest acquired in business combination
Total
113
115
80
2,414
462
632
178
1,768
76
1,794
33
1,761
$
$
In the year ended December 31, 2018, we completed our estimates of the fair values of the assets and liabilities. We estimated
the fair value of the rigs and related equipment by applying a combination of income and market approaches, using projected discounted
cash flows and estimates of the exchange price that would be received for the assets in the principal or most advantageous markets for the
assets in an orderly transaction between participants as of the acquisition date. We estimated the fair value of the drilling contracts by
comparing the contractual dayrates over the remaining firm contract term and option periods relative to the projected market dayrates as of
the acquisition date. Our estimates of fair value for these assets required us to use significant unobservable inputs, representative of a
Level 3 fair value measurement, including assumptions related to the future performance of the assets, such as future commodity prices,
projected demand for our services, rig availability, dayrates and discount rates. We estimated the fair value of the debt using significant
other observable inputs, representative of a Level 2 fair value measurement, including the terms and credit spreads for the instruments.
Noncontrolling interest—On March 28, 2018, we acquired the remaining Songa shares not owned by us through a compulsory
acquisition under Cyprus law, and as a result, Songa became our wholly owned subsidiary. As consideration for the remaining Songa
shares, we issued 1.1 million shares and $9 million aggregate principal amount of Exchangeable Bonds and we made an aggregate cash
payment of $8 million to Songa shareholders who elected to receive a cash payment or failed to make an election, for an aggregate fair
value of $30 million.
Note 5—Revenues
Overview—The services we perform represent a single performance obligation under our drilling contracts with customers that is
satisfied over time. We earn revenues primarily by performing the following activities: (i) providing our drilling rig, work crews, related
equipment and services necessary to operate the rig (ii) delivering the drilling rig by mobilizing to and demobilizing from the drill location,
and (iii) performing certain pre-operating activities, including rig preparation activities or equipment modifications required for the contract.
The duration of our performance obligation varies by contract. At December 31, 2018, the expected remaining duration of our
drilling contracts extends through February 2028, excluding unexercised options. In the year ended December 31, 2018, we recognized
revenues of $174 million, respectively, for performance obligations satisfied in previous periods, primarily related to our customer’s
termination of the contract for Discoverer Clear Leader, effective November 2017, and certain revenues recognized on a cash basis.
In the years ended December 31, 2018, 2017 and 2016, we recognized costs of $45 million, $45 million and $86 million,
respectively, associated with pre-operating costs for contracts with customers. At December 31, 2018 and 2017, the unrecognized
pre-operating costs to obtain contracts was $2 million and $18 million, respectively, recorded in other assets.
Disaggregation—In the years ended December 31, 2018, 2017 and 2016, we recognized revenues as follows (in millions):
Ultra-deepwater floaters
Harsh environment floaters
Deepwater floaters
Midwater floaters
High-specification jackups
Total revenues
Year ended December 31, 2018
U.S.
Norway
U.K.
Brazil
Other
Total
$
$
1,496
—
—
—
—
1,496
$
$
— $
— $
651
—
—
—
651
$
124
—
38
—
162
$
$
26
—
84
—
—
$
110
266 $
199
40
36
58
599 $
1,788
974
124
74
58
3,018
AR-64
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
Ultra-deepwater floaters
Harsh environment floaters
Deepwater floaters
Midwater floaters
High-specification jackups
Total revenues
Ultra-deepwater floaters
Harsh environment floaters
Deepwater floaters
Midwater floaters
High-specification jackups
Total revenues
$
$
$
$
Year ended December 31, 2017
U.S.
Norway
U.K.
Brazil
Other
Total
1,519
8
—
—
—
1,527
$
$
— $
83
—
—
—
83
$
— $
225
—
30
33
288
$
235
$
—
100
—
—
$
335
294 $
140
44
123
139
740 $
2,048
456
144
153
172
2,973
Year ended December 31, 2016
U.S.
Norway
U.K.
Brazil
Other
Total
1,919
58
—
—
—
1,977
$
$
— $
— $
107
—
107
—
214
$
265
—
199
87
551
$
317
$
—
99
37
—
$
453
491 $
72
121
56
226
966 $
2,727
502
220
399
313
4,161
Contract liabilities—We recognize contract liabilities, recorded in other current liabilities and other long-term liabilities, for
mobilization, contract preparation, capital upgrades and deferred revenues for declining dayrate contracts using the straight-line method
over the remaining contract term. Contract liabilities for our contracts with customers were as follows (in millions):
Deferred contract revenues, recorded in other current liabilities
Deferred contract revenues, recorded in other long-term liabilities
Total contract liabilities
Significant changes in contract liabilities were as follows (in millions):
Total contract liabilities, beginning of period
Decrease due to recognition of revenues for goods and services
Increase due to goods and services transferred over time
Total contract liabilities, end of period
December 31,
2018
January 1,
2018
$
$
87 $
399
486 $
203
422
625
Year ended
December 31,
2018
$
$
625
(239)
100
486
Note 6—Drilling Fleet
Construction work in progress—For each of the three years in the period ended December 31, 2018, the changes in our
construction work in progress, including capital expenditures and other capital additions, were as follows (in millions):
Construction work in progress, beginning of period
Capital expenditures
Newbuild construction program
Other equipment and construction projects
Total capital expenditures
Changes in accrued capital additions
Construction work in progress acquired in business combination
Construction work in progress sold
Property and equipment placed into service
Newbuild construction program
Other property and equipment
Construction work in progress, end of period
Years ended December 31,
2018
1,392
$
2017
2,171 $
2016
3,735
$
75
109
184
4
28
—
397
100
497
(23)
—
(289)
1,206
138
1,344
(86)
—
—
(903)
(73)
632
$
(896)
(68)
1,392 $
(2,557)
(265)
2,171
$
Impairments of assets held and used—During the years ended December 31, 2017 and 2016, we identified indicators that the
asset groups in our contract drilling services reporting unit may not be recoverable. In the year ended December 31, 2017, such indicators
AR-65
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
included a significant decline in commodity prices and the market value of our stock, a reduction of projected dayrates and a further
extension of low utilization rates, and in the year ended December 31, 2016, such indicators included a reduction of projected dayrates and
an extension to low utilization rates. In the year ended December 31, 2017, as a result of our testing, we recognized a loss of $94 million
($93 million, or $0.25 per diluted share, net of tax) associated with the impairment of the midwater floater asset group. In the year ended
December 31, 2016, as a result of our testing, we recognized a loss of $52 million ($0.14 per diluted share), which had no tax effect,
associated with the impairment of the deepwater floater asset group.
We measured the fair value of the asset groups by applying a combination of income and market approaches, using projected
discounted cash flows and estimates of the exchange price that would be received for the assets in the principal or most advantageous
markets for the assets in an orderly transaction between participants as of the measurement date. 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. If we experience increasingly unfavorable changes to actual or anticipated dayrates or other impairment
indicators, or if we are unable to secure new or extended contracts for our active units or the reactivation of any of our stacked units, we
may be required to recognize additional losses in future periods as a result of impairments of the carrying amount of one or more of our
asset groups.
Impairments of assets held for sale—In the year ended December 31, 2018, we recognized an aggregate loss of $999 million
($2.13 per diluted share), which had no tax effect, associated with the impairment of the ultra-deepwater floaters Deepwater Discovery,
Deepwater Frontier, Deepwater Millennium and GSF C.R. Luigs, the deepwater floaters Jack Bates and Transocean 706 and the midwater
floaters Songa Delta and Songa Trym, along with related assets, which we determined were impaired at the time that we classified the
assets as assets held for sale.
In the year ended December 31, 2017, we recognized an aggregate loss of $1.4 billion ($3.59 per diluted share), which had no
tax effect, associated with the impairment of the ultra-deepwater floaters Cajun Express, Deepwater Pathfinder, GSF Jack Ryan,
Sedco Energy and Sedco Express, the deepwater floater Transocean Marianas and the midwater floaters Transocean Prospect and
Transocean Searcher, along with related assets, which we determined were impaired at the time that we classified the assets as assets
held for sale.
In the year ended December 31, 2016, we recognized an aggregate loss of $41 million ($39 million, or $0.10 per diluted share,
net of tax) associated with the impairment of the deepwater floaters M.G. Hulme, Jr. and Sedco 702 and the midwater floaters
GSF Rig 140, Sedco 704, Transocean Driller, Transocean John Shaw and Transocean Winner, along with related assets, which we
determined were impaired at the time that we classified the assets as assets held for sale.
We measured the impairment of the drilling units and related assets 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 indicative market values for the drilling units and related assets to be sold for scrap value or
binding contracts to sell such assets for alternative purposes. If we commit to plans to sell additional rigs for values below the respective
carrying amounts, we will be required to recognize additional losses in future periods associated with the impairment of such assets.
Dispositions—During the year ended December 31, 2018, in connection with our efforts to dispose of non-strategic assets, we
completed the sale of the ultra-deepwater floaters Cajun Express, Deepwater Discovery, Deepwater Pathfinder, GSF C.R. Luigs,
Sedco Energy and Sedco Express, the deepwater floater Transocean Marianas and the midwater floater Songa Trym, along with related
assets. In the year ended December 31, 2018, we received aggregate net cash proceeds of $36 million and recognized an aggregate net
gain of $7 million ($0.01 per diluted share), which had no tax effect, associated with the disposal of these assets. In the year ended
December 31, 2018, we received aggregate net cash proceeds of $7 million and recognized an aggregate net loss of $7 million associated
with the disposal of assets unrelated to rig sales.
jackups,
On May 31, 2017, in connection with our efforts to dispose of non-strategic assets, we completed the sale of
10 high-specification
including GSF Constellation I, GSF Constellation II, GSF Galaxy I, GSF Galaxy II, GSF Galaxy III,
GSF Monarch, Transocean Andaman, Transocean Ao Thai, Transocean Honor and Transocean Siam Driller, along with related assets,
and novated the contracts relating to the construction of five high-specification jackups, together with related assets. In the year ended
December 31, 2017, we received aggregate net cash proceeds of $319 million and recognized an aggregate net loss of $1.6 billion
($4.08 per diluted share), which had no tax effect, associated with the disposal of these assets. Following the completion of the sale, we
continued to operate three of these high-specification jackups through completion of the drilling contracts, the last of which was completed
in October 2018. In the years ended December 31, 2018, 2017 and 2016, excluding our loss on the disposal of these assets, our
operating results included income of $44 million, $65 million and $74 million, respectively, before taxes, associated with the
high-specification jackup asset group.
During the year ended December 31, 2017, we also completed the sale of the ultra-deepwater floater GSF Jack Ryan and the
midwater floaters GSF Rig 140, Transocean Prospect and Transocean Searcher, along with related assets. In the year ended
December 31, 2017, we received aggregate net cash proceeds of $22 million and recognized an aggregate net gain of $9 million
AR-66
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
($0.01 per diluted share), which had no tax effect, associated with the disposal of these assets. In the year ended December 31, 2017, we
received aggregate net cash proceeds of $9 million and recognized an aggregate net loss of $15 million associated with the disposal of
assets unrelated to rig sales.
During the year ended December 31, 2016, in connection with our efforts to dispose of non-strategic assets, we completed the
sale of the deepwater floaters Deepwater Navigator, M.G. Hulme, Jr. and Sedco 702 and the midwater floaters Falcon 100,
GSF Grand Banks, GSF Rig 135, Sedco 704, Sedneth 701, Transocean Driller, Transocean John Shaw and Transocean Winner, along
with related assets. In the year ended December 31, 2016, we received aggregate net cash proceeds of $22 million and recognized an
aggregate net gain of $13 million ($0.04 per diluted share, net of tax) associated with the disposal of these assets. In the year ended
December 31, 2016, we received cash proceeds of $8 million and recognized an aggregate net loss of $9 million associated with the
disposal of assets unrelated to rig sales.
Assets held for sale—At December 31, 2018, the aggregate carrying amount of our assets held for sale, including the
ultra-deepwater floaters Deepwater Frontier and Deepwater Millennium, the deepwater floaters Jack Bates and Transocean 706 and the
midwater floater Songa Delta, along with related assets, was $25 million, recorded in other current assets. At December 31, 2017, the
aggregate carrying amount of our assets held for sale was $22 million, including the ultra-deepwater floaters Cajun Express,
Deepwater Pathfinder, Sedco Energy and Sedco Express and the deepwater floater Transocean Marianas, along with related assets,
recorded in other current assets.
Note 7—Goodwill and Other Intangibles
Goodwill—During the three months ended June 30, 2018, we classified as held for sale and impaired three ultra-deepwater
floaters (see Note 6—Drilling Fleet). We identified the impairment of these assets included in our single contract drilling services reporting
unit as a trigger to test the recoverability of goodwill. As a result, we performed an interim goodwill impairment test as of June 30, 2018,
and we determined that the goodwill associated with our contract drilling services reporting unit was fully impaired. In the year ended
December 31, 2018, we recognized a loss of $462 million ($0.99 per diluted share), which had no tax effect, associated with the
impairment of the full balance of our goodwill. We estimated the fair value of the contract drilling services reporting unit using the income
approach. 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 the reporting unit, such as future commodity prices, projected
demand for our services, rig availability and dayrates.
Finite-lived intangible assets and liabilities—At December 31, 2018, the gross carrying amount and accumulated amortization
of our drilling contract intangible assets were as follows (in millions):
Year ended December 31, 2018
Net
carrying
amount
Accumulated
amortization
Gross
carrying
amount
Drilling contract intangible assets
Balance, beginning of period
Acquisition
Amortization
Balance, end of period
$
$
— $
907
—
907
$
— $
—
(112)
(112) $
—
907
(112)
795
In the year ended December 31, 2018, we recognized drilling contract intangible amortization of $112 million recorded as a
reduction of contract drilling revenues. We expect to amortize the carrying amounts over the remaining contract periods, through
March 2024. As of December 31, 2018, the estimated future amortization of contract intangible assets was as follows (in millions):
Years ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total carrying amount of contract intangible assets
Total
179
179
179
178
76
4
795
$
$
At December 31, 2018, the gross carrying amount of our construction contract liabilities was $132 million. We expect to
recognize the construction contract intangible liabilities as reductions to the capitalized cost of the two rigs at the time we take delivery of
the assets.
AR-67
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
Note 8—Debt
Overview
Outstanding debt—The aggregate principal amounts and aggregate carrying amounts, net of debt-related balances, including
unamortized discounts, premiums, issue costs and fair value adjustments of our debt, were as follows (in millions):
Eksportfinans Loan due January 2018
6.50% Senior Notes due November 2020 (a)
6.375% Senior Notes due December 2021 (a)
5.52% Senior Secured Notes due May 2022 (b)
3.80% Senior Notes due October 2022 (a)
0.50% Exchangeable Bonds due January 2023 (a)
9.00% Senior Notes due July 2023 (c)
5.875% Senior Secured Notes due January 2024 (d)
7.75% Senior Secured Notes due October 2024 (d)
6.25% Senior Secured Notes due December 2024 (d)
6.125% Senior Secured Notes due August 2025 (d)
7.25% Senior Notes due November 2025 (c)
7.50% Senior Notes due January 2026 (c)
7.45% Notes due April 2027 (a)
8.00% Debentures due April 2027 (a)
7.00% Notes due June 2028
Capital lease contract due August 2029
7.50% Notes due April 2031 (a)
6.80% Senior Notes due March 2038 (a)
7.35% Senior Notes due December 2041 (a)
Total debt
Less debt due within one year
Eksportfinans Loan due January 2018
5.52% Senior Secured Notes due May 2022 (b)
5.875% Senior Secured Notes due January 2024 (d)
7.75% Senior Secured Notes due October 2024 (d)
6.25% Senior Secured Notes due December 2024 (d)
6.125% Senior Secured Notes due August 2025 (d)
Capital lease contract due August 2029
Total debt due within one year
Total long-term debt
Principal amount
Carrying amount
December 31,
2018
December 31,
December 31,
2017
2018
December 31,
2017
$
— $
286
328
282
411
863
1,250
750
480
500
600
750
750
88
57
300
511
588
1,000
300
10,094
—
83
83
60
62
66
32
386
9,708
$
$
26
286
328
362
506
—
1,250
—
540
562
—
—
750
88
57
300
541
588
1,000
300
7,484
26
79
—
60
62
—
30
257
7,227
$
— $
288
327
280
408
862
1,221
735
469
489
588
736
742
86
57
306
511
585
991
297
9,978
—
81
79
58
60
63
32
373
9,605
$
$
26
288
327
356
502
—
1,216
—
526
549
—
—
742
86
57
307
541
585
991
297
7,396
26
77
—
57
60
—
30
250
7,146
(a) Transocean Inc., a 100 percent owned direct subsidiary of Transocean Ltd., is the issuer of the notes and debentures. Transocean Ltd. has
provided a full and unconditional guarantee of the notes and debentures. Transocean Ltd. has no independent assets or operations, and its other
subsidiaries not owned indirectly through Transocean Inc. were minor. Transocean Inc. has no independent assets and operations, other than those
related to its investments in non-guarantor operating companies and balances primarily pertaining to its cash and cash equivalents and debt. Except
as discussed under “Indentures,” 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 capital distributions.
(b) The subsidiary issuer of the unregistered senior secured notes is a wholly owned indirect subsidiary of Transocean Inc. The senior secured notes
are fully and unconditionally guaranteed by the owner of the collateral rig. See “—Debt issuances—Senior secured notes.”
(c) Transocean Inc. is the issuer of the unregistered notes. The priority guaranteed senior unsecured notes, which rank equal in right of payment of all
of our existing and future unsecured unsubordinated obligations and rank structurally senior to the extent of the value of the assets of the
subsidiaries guaranteeing the notes, are fully and unconditionally, jointly and severally, guaranteed by Transocean Ltd. and certain wholly owned
subsidiaries of Transocean Inc. See “—Debt issuances—Priority guaranteed senior unsecured notes.”
(d) Each subsidiary issuer of the respective unregistered senior secured notes is a wholly owned indirect subsidiary of Transocean Inc. The senior
secured notes are fully and unconditionally, jointly and severally, guaranteed by Transocean Ltd., Transocean Inc. and, in each case, the owner of
the respective collateral rig. See “—Debt issuances—Senior secured notes.”
See Note 22—Subsequent Events.
AR-68
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
Scheduled maturities—At December 31, 2018, the scheduled maturities of our debt were as follows (in millions):
Years ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total principal amount of debt
Total debt-related balances, net
Total carrying amount of debt
Total
386
680
730
740
2,427
5,131
10,094
(116)
9,978
$
$
Indentures—The indentures that govern our debt generally contain covenants that, among other things, limit our ability to incur
certain liens on our drilling units without equally and ratably securing the notes, to engage in certain sale and lease back transactions
covering any of our drilling units, to allow our subsidiaries to incur certain additional debt, or to engage in certain merger, consolidation or
reorganization transactions or to enter into a scheme of arrangement qualifying as an amalgamation.
Additionally, the indentures that govern the 5.875% senior secured notes due January 2024 (the “5.875% Senior Secured
Notes”), the 6.125% senior secured notes due August 2025 (the “6.125% Senior Secured Notes”), the 5.52% senior secured notes due
May 2022 (the “5.52% Senior Secured Notes”), the 7.75% senior secured notes due October 2024 (the “7.75% Senior Secured Notes”)
and the 6.25% senior secured notes due December 2024 (the “6.25% Senior Secured Notes”) contain covenants that limit the ability of our
subsidiaries that own or operate the collateral rigs to declare or pay dividends to their affiliates. The 5.875% Senior Secured Notes, the
6.125% Senior Secured Notes, the 7.75% Senior Secured Notes and the 6.25% Senior Secured Notes also impose a maximum collateral
rig leverage ratio (“Maximum Collateral Ratio”), represented by the debt balance relative to each rig’s earnings, that changes over the
terms of the notes. At December 31, 2018, the Maximum Collateral Ratio under the respective indenture was as follows: (i) 6.00 to 1.00
for the 5.875% Senior Secured Notes, (ii) 5.75 to 1.00 for the 6.125% Senior Secured Notes and (iii) 4.75 to 1.00 for the 7.75% Senior
Secured Notes and the 6.25% Senior Secured Notes.
Interest rate adjustments—The interest rates for certain of our notes are subject to adjustment from time to time upon a change
to the credit rating of our non-credit enhanced senior unsecured long-term debt (“Debt Rating”). At December 31, 2018, the interest rate in
effect for the 6.375% senior notes due December 2021 (the”6.375% Senior Notes”), the 3.80% senior notes due October 2022 (the”3.80%
Senior Notes”) and the 7.35% senior notes due December 2041 was 8.375 percent, 5.80 percent and 9.35 percent, respectively.
Secured Credit Facility—In June 2018, we entered into a bank credit agreement, which established a $1.0 billion secured
revolving credit facility (the “Secured Credit Facility”), which is scheduled to expire on the earlier of (i) June 22, 2023 and (ii) if greater than
$300 million aggregate principal amount of our 9.00% senior notes due July 2023 (the”9.00% Senior Notes”) remain outstanding in
April 2023, such date. The Secured Credit Facility is guaranteed by Transocean Ltd. and certain wholly owned subsidiaries. The Secured
Credit Facility is secured by, among other things, a lien on the ultra-deepwater floaters Deepwater Asgard, Deepwater Invictus and
Discoverer Inspiration and the harsh environment floaters Transocean Barents and Transocean Spitsbergen, the aggregate carrying
amount of which was $3.4 billion at December 31, 2018. The Secured Credit Facility contains covenants that, among other things, include
maintenance of certain guarantee and collateral coverage ratios, a maximum debt to capitalization ratio of 0.60 to 1.00 and minimum
liquidity of $500 million. The Secured Credit Facility also restricts the ability of Transocean Ltd. and certain of our subsidiaries to, among
other things, merge, consolidate or otherwise make changes to the corporate structure, incur liens, incur additional indebtedness, enter
into transactions with affiliates and pay dividends and other distributions.
We may borrow under the Secured Credit Facility at either (1) the reserve adjusted London interbank offered rate plus a margin
(the “Secured Credit Facility Margin”), which ranges from 2.625 percent to 3.375 percent based on the credit rating of the Secured Credit
Facility, or (2) the base rate specified in the credit agreement plus the Secured Credit Facility Margin, minus one percent per annum.
Throughout the term of the Secured Credit Facility, we pay a facility fee on the amount of the underlying commitment which ranges from
0.375 percent to 1.00 percent based on the credit rating of the Secured Credit Facility. At December 31, 2018, based on the credit rating
of the Secured Credit Facility on that date, the Secured Credit Facility Margin was 2.75 percent and the facility fee was 0.50 percent. At
December 31, 2018, we had no borrowings outstanding, $25 million of letters of credit issued, and we had $1.0 billion of available
borrowing capacity under the Secured Credit Facility. See Note 13—Commitments and Contingencies—Global Marine litigation.
Debt issuances
Priority guaranteed senior unsecured notes—On October 25, 2018, we issued $750 million aggregate principal amount of
7.25% senior unsecured notes due November 2025 (the “7.25% Senior Notes”), and we received aggregate cash proceeds of $735 million,
net of issue costs. We may redeem all or a portion of the 7.25% Senior Notes at any time prior to November 1, 2021 at a price equal to
AR-69
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
100 percent of the aggregate principal amount plus a make-whole provision, and on or after November 1, 2021, at specified redemption
prices.
On October 17, 2017, we completed an offering of an aggregate principal amount of $750 million of 7.50% senior unsecured
notes due January 15, 2026 (the “7.50% Senior Notes”), and we received aggregate cash proceeds of $742 million, net of issue costs. We
may redeem all or a portion of the 7.50% Senior Notes at any time prior to January 15, 2021 at a price equal to 100 percent of the
aggregate principal amount plus a make-whole provision, and on or after January 15, 2021, at specified redemption prices.
On July 21, 2016, we completed an offering of an aggregate principal amount of $1.3 billion of the 9.00% Senior Notes and we
received aggregate cash proceeds of $1.2 billion, net of initial discount and costs payable by us. We may redeem all or a portion of the
9.00% Senior Notes at any time prior to July 15, 2020 at a price equal to 100 percent of the aggregate principal amount plus a make-whole
provision, and on or after July 15, 2020, at specified redemption prices.
Senior secured notes—In July 2018, we issued $750 million aggregate principal amount of 5.875% Senior Secured Notes and
$600 million aggregate principal amount of 6.125% Senior Secured Notes, and we received aggregate cash proceeds of $733 million and
$586 million, respectively, net of discount and issue costs. The 5.875% Senior Secured Notes are secured by the assets and earnings
associated with the harsh environment floaters Transocean Enabler and Transocean Encourage and the equity of the wholly owned
subsidiaries that own or operate the collateral rigs. The 6.125% Senior Secured Notes are secured by the assets and earnings associated
with the ultra-deepwater floater Deepwater Pontus and the equity of the wholly owned subsidiaries that own or operate the collateral rig. In
connection with the issuance of such notes, we were required to deposit $63 million, with respect to the 5.875% Senior Secured Notes,
and $51 million with respect to the 6.125% Senior Secured Notes, in restricted cash accounts to satisfy debt service and reserve
requirements. We are required to pay semiannual installments of principal and interest on the 5.875% Senior Secured Notes, beginning
January 15, 2019, and on the 6.125% Senior Secured Notes, beginning February 1, 2019. We may redeem all or a portion of these notes
at a price equal to 100 percent of the aggregate principal amount plus a make-whole provision.
On May 5, 2017, we issued $410 million aggregate principal amount of 5.52% Senior Secured Notes, and we received aggregate
cash proceeds of $403 million, net of issue costs. The 5.52% Senior Secured Notes are secured by the assets and earnings associated
with the ultra-deepwater floater Deepwater Conqueror, the equity of the wholly owned subsidiaries that own and operate the collateral rig,
and certain related assets. We are required to pay quarterly installments of principal and interest on the 5.52% Senior Secured Notes. We
may redeem all or a portion of the 5.52% Senior Secured Notes at any time on or prior to December 31, 2021 at a price equal to
100 percent of the aggregate principal amount plus, subject to certain exceptions, a make-whole amount.
On October 19, 2016, we issued $600 million aggregate principal amount of 7.75% Senior Secured Notes, and we received
aggregate cash proceeds of $583 million, net of initial discount and issue costs. On December 8, 2016, we completed an offering of an
aggregate principal amount of $625 million of 6.25% Senior Secured Notes, and we received aggregate cash proceeds of $609 million, net
of initial discount and issue costs. The 7.75% Senior Secured Notes and the 6.25% Senior Secured Notes are secured by the assets and
earnings associated with the ultra-deepwater floater Deepwater Thalassa and the Deepwater Proteus, respectively, and the equity of the
wholly owned subsidiary that owns the collateral rig. We are required to pay semiannual installments of principal and interest on the
7.75% Senior Secured Notes and the 6.25% Senior Secured Notes. We may redeem all or a portion of the 7.75% Senior Secured Notes
and the 6.25% Senior Secured Notes at any time on or prior to October 15, 2020 and December 1, 2020, respectively, at a price equal to
100 percent of the aggregate principal amount plus a make-whole provision.
At December 31, 2018 and 2017, we had $347 million and $211 million, respectively, deposited in restricted cash accounts to
satisfy debt service and working capital requirements for the senior secured notes. At December 31, 2018, the aggregate carrying amount
of Deepwater Conqueror, Deepwater Pontus, Deepwater Proteus, Deepwater Thalassa, Transocean Enabler and Transocean Encourage
was $4.4 billion. At December 31, 2017, the aggregate carrying amount of Deepwater Conqueror, Deepwater Thalassa and
Deepwater Proteus was $2.4 billion. We will be required to redeem the notes at a price equal to 100 percent of the aggregate principal
amount without a make-whole provision, upon the occurrence of certain events related to the collateral rigs and the related drilling
contracts.
Exchangeable bonds—In connection with the Songa acquisition transactions, we issued $863 million aggregate principal
amount of Exchangeable Bonds, as partial consideration for the Songa shares and as consideration for refinancing certain Songa
indebtedness. The Exchangeable Bonds may be converted at any time prior to the maturity date at an exchange rate of 97.29756 shares
per $1,000 note, equivalent to a conversion price of $10.28 per share, subject to adjustment upon the occurrence of certain events.
Holders of Exchangeable Bonds may require us to repurchase all or a portion of such holder’s Exchangeable Bonds upon the occurrence
of certain events. The aggregate fair value of the Exchangeable Bonds, measured as of the issuance date, was $1.0 billion, which
represented a substantial premium of $172 million above par, and we recorded such premium to additional paid-in capital. We estimated
the fair value using significant other observable inputs, representative of a Level 2 fair value measurement, including the terms and credit
spreads for the instruments.
AR-70
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
Debt assumptions and repayments
Senior Secured Term Loans and Junior Secured Bonds—In connection with the Songa acquisition, we assumed the rights
and obligations under credit agreements establishing two senior secured term loan facilities (the “Senior Secured Term Loans”) and a
subscription agreement establishing a junior secured bond facility (the “Junior Secured Bonds”). The credit agreements and subscription
agreement contained change of control clauses, for which we received waivers from the lenders that were scheduled to expire on
August 31, 2018. On February 12, 2018, we served notice of our intent to call the Junior Secured Bonds. Prior to the expiration of the
waivers, we made an aggregate cash payment of $1.4 billion and $171 million to repay the borrowings under the Senior Secured Term
Loans and the Junior Secured Bonds, respectively, and terminated the underlying agreements. We recognized an aggregate net loss of
$1 million associated with the repaid borrowings.
Other debt—In connection with the Songa acquisition, we assumed the indebtedness related to two bond loans (together, the
“Bond Loans”), previously publicly traded on the Oslo stock exchange. On the acquisition date, the Bond Loans had an aggregate
principal amount of NOK 337 million, equivalent to $44 million. On March 14, 2018, we made a cash payment of NOK 345 million,
equivalent to $44 million, to repay the Bond Loans. We also assumed the rights and obligations under a credit agreement for a secured
borrowing facility. On February 2, 2018, we made a cash payment of $23 million to repay the borrowings outstanding under the secured
borrowing facility and terminated the underlying credit agreement.
Debt retirements
Repurchases and repayments—During the years ended December 31, 2018, 2017 and 2016, we repurchased in the open
market debt securities with aggregate principal amounts as follows (in millions):
5.05% Senior Notes due December 2016
2.50% Senior Notes due October 2017
6.00% Senior Notes due March 2018
7.375% Senior Notes due April 2018
6.50% Senior Notes due November 2020
6.375% Senior Notes due December 2021
3.80% Senior Notes due October 2022
7.45% Notes due April 2027
7.50% Notes due April 2031
Aggregate principal amount retired
Aggregate cash payment
Aggregate net gain (loss)
$
$
$
$
Years ended December 31,
2017
2018
— $
—
—
—
—
—
95
—
—
95
$
— $
62
354
83
15
10
33
—
—
557 $
2016
36
85
35
26
44
122
38
8
5
399
95
$
— $
564 $
(7) $
354
44
Tender offers—In July 11, 2017, we completed cash tender offers to purchase up to $1.5 billion aggregate principal amount of
certain notes (the “2017 Tendered Notes”). On August 1, 2016, we completed cash tender offers to purchase up to $1.0 billion aggregate
principal amount of certain notes (the “2016 Tendered Notes”). During the years ended December 31, 2017 and 2016, we received valid
tenders from holders of aggregate principal amounts of the 2017 Tendered Notes and 2016 Tendered Notes as follows (in millions):
2.50% Senior Notes due October 2017
6.00% Senior Notes due March 2018
7.375% Senior Notes due April 2018
6.50% Senior Notes due November 2020
6.375% Senior Notes due December 2021
3.80% Senior Notes due October 2022
Aggregate principal amount retired
Aggregate cash payment
Aggregate net gain (loss)
See Note 22—Subsequent Events.
Years ended
December 31,
2017
2016
$
$
$
$
271 $
400
128
207
213
—
1,219 $
1,269 $
(48) $
—
—
—
348
476
157
981
876
104
Scheduled maturities and installments—On the scheduled maturity date of October 16, 2017, we made a cash payment of
$152 million to repay the outstanding 2.50% senior notes due October 2017, at a price equal to 100 percent of the aggregate principal
amount. On the scheduled maturity date of December 15, 2016, we made a cash payment of $938 million to repay the outstanding
5.05% senior notes due December 2016, at a price equal to 100 percent of the aggregate principal amount. In the years ended December
AR-71
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
31, 2018, 2017 and 2016, we also made cash payments of $257 million, $299 million and $127 million to repay other indebtedness in
scheduled installments.
Note 9—Derivative Instruments
Forward exchange contracts—At December 31, 2018, we held undesignated forward exchange contracts, extending through
June 2019, with an aggregate notional payment amount of $76 million and an aggregate notional receive amount of NOK 600 million,
representing a weighted average exchange rate of NOK 7.94 to $1. In the year ended December 31, 2018, we recognized a loss of
$9 million, recorded in other, net, associated with the forward exchange contracts. At December 31, 2018, the undesignated forward
exchange contracts represented a liability with a carrying amount of $6 million, recorded in other current liabilities.
In connection with the Songa acquisition, we acquired certain undesignated forward exchange contracts for the purchase of
Norwegian kroner that extended through May 2018. On the acquisition date, the forward exchange contracts represented an asset of
$4 million. During the year ended December 31, 2018, we settled the remaining forward exchange contracts upon expiration. In the
year ended December 31, 2018, we recognized a loss of $1 million, recorded in other, net, associated with the forward exchange
contracts.
Interest rate swaps—In connection with the Songa acquisition, we acquired interest rate swaps, which we repaid in the
year ended December 31, 2018. On the acquisition date, the aggregate fair value of the interest rate swaps represented an asset of
$14 million. In July and August 2018, we received aggregate cash proceeds of $18 million in connection with the settlement and
termination of the interest rate swaps. In the year ended December 31, 2018, we recognized a gain of $4 million, recorded in other, net,
associated the interest rate swaps.
Currency swaps—In connection with the Songa acquisition, we acquired currency swaps, which were previously designated as
a cash flow hedge, to reduce the variability of cash interest payments and the final cash principal payment associated with the Bond Loans
resulting from the changes in the U.S. dollar to Norwegian krone exchange rate. On the acquisition date, the aggregate fair value of the
currency swaps represented a liability of $81 million. In February 2018, we made an aggregate cash payment of $92 million in connection
with the settlement and termination of the currency swaps. In the year ended December 31, 2018, we recognized a loss of $11 million,
recorded in other, net, associated with the currency swaps.
Note 10—Income Taxes
Overview—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. For Swiss federal income taxes, qualifying net dividend income and net capital
gains on the sale of qualifying investments in subsidiaries are exempt. Consequently, there is not a direct relationship between our Swiss
earnings before income taxes and our Swiss income tax expense.
Tax provision and rate—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. The components of our income tax provision (benefit) were as follows
(in millions):
Years ended December 31,
2017
2016
2018
Current tax expense
Deferred tax expense (benefit)
Income tax expense
$
$
244
(16)
228
$
$
5 $
89
94 $
39
68
107
In the years ended December 31, 2018, 2017 and 2016, our effective tax rate was (12.8) percent, (3.1) percent and 11.5 percent,
respectively, based on income before income tax expense.
AR-72
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
The following is a reconciliation of the income tax expense (benefit) computed at the Swiss holding company federal statutory
rate of 7.83% and our reported provision for income taxes (in millions):
Income tax expense (benefit) at Swiss federal statutory rate
Impact of U.S. tax reform
Changes in unrecognized tax benefits, net
Impairment losses subject to rates different than the Swiss federal statutory rate
Changes in valuation allowance
Currency revaluation of Norwegian assets
Litigation matters, primarily related to the Macondo well incident
Earnings subject to rates different than the Swiss federal statutory rate
Benefit from foreign tax credits
Other, net
Income tax expense
Years ended December 31,
2016
2018
2017
$
$
(139) $
136
117
114
67
11
—
(70)
(5)
(3)
228
$
(235) $
66
(56)
241
162
1
(70)
2
(15)
(2)
94 $
72
—
(31)
5
32
18
(1)
34
(16)
(6)
107
Deferred taxes—The significant components of our deferred tax assets and liabilities were as follows (in millions):
Deferred tax assets
Net operating loss carryforwards
Interest expense limitation
Accrued payroll expenses not currently deductible
Accrued expenses
Loss contingencies
United Kingdom charter limitation
Deferred income
Tax credit carryforwards
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Depreciation
Contract intangible revenues
Other
Total deferred tax liabilities
Deferred tax assets, net
$
December 31,
2018
2017
$
479
76
49
44
40
30
26
11
13
(681)
87
(62)
(22)
(1)
(85)
435
59
54
16
42
36
101
37
17
(574)
223
(216)
—
(4)
(220)
$
2
$
3
At December 31, 2018 and 2017, our deferred tax assets included U.S. foreign tax credit carryforwards of $11 million and
$37 million, respectively, which will expire between 2019 and 2028. The deferred tax assets related to our net operating losses were
generated in various worldwide tax jurisdictions. At December 31, 2018, the net operating losses carryforwards, which were generated in
various jurisdictions worldwide, included $307 million that do not expire and $172 million that will expire beginning between 2021 and 2038.
At December 31, 2017, the net operating losses carryforwards, which were generated in various jurisdictions worldwide, included
$261 million that do not expire and $174 million that will expire beginning between 2020 and 2037.
As of December 31, 2018, our consolidated cumulative loss incurred over the recent three-year period was primarily due to
losses on impairment and disposal of assets, which represented significant objective negative evidence for our evaluation of our deferred
tax assets. Although such evidence has limited our ability to consider other subjective evidence, we analyze each jurisdiction separately.
We consider objective evidence, such as contract backlog activity, in jurisdictions in which we have profitable contracts. If estimated future
taxable income changes during the carryforward periods or if the cumulative loss is no longer present, we may adjust the amount of
deferred tax assets that we expect to realize. At December 31, 2018 and 2017, due to uncertainty of realization, we have recorded a
valuation allowance of $681 million and $574 million, respectively, on net operating losses and other deferred tax assets.
Our other deferred tax liabilities include taxes related to the earnings of certain subsidiaries that are not indefinitely reinvested or
that will not be indefinitely reinvested in the future. We consider the earnings of certain of our subsidiaries to be indefinitely reinvested. As
of December 31, 2018, we did not provide for deferred taxes on earnings of certain subsidiaries that are indefinitely reinvested because it
is not practical to estimate the amount of tax that would ultimately be due if remitted. If we were to make a distribution from the unremitted
earnings of these subsidiaries, we would be subject to taxes payable to various jurisdictions. If our expectations were to change regarding
AR-73
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
future tax consequences, we may be required to record additional deferred taxes that could have a material effect on our consolidated
statement of financial position, results of operations or cash flows.
Unrecognized tax benefits—The changes to our liabilities related to unrecognized tax benefits, excluding interest and penalties
that we recognize as a component of income tax expense, were as follows (in millions):
Balance, beginning of period
Additions for prior year tax positions
Additions for current year tax positions
Reductions related to statute of limitation expirations
Reductions for prior year tax positions
Reductions due to settlements
Balance, end of period
$
$
$
Years ended December 31,
2017
2018
274 $
222
17
172
13
29
(13)
(8)
(68)
(7)
—
(1)
222 $
408
2016
287
13
42
(15)
(34)
(19)
274
$
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):
Unrecognized tax benefits, excluding interest and penalties
Interest and penalties
Unrecognized tax benefits, including interest and penalties
December 31,
2018
2017
408
106
514
$
$
222
87
309
$
$
In the years ended December 31, 2018, 2017 and 2016, we recognized, as a component of our income tax provision, expense of
$13 million, income of $9 million and income of $23 million, respectively, related to previously recognized interest and penalties associated
with our unrecognized tax benefits. As of December 31, 2018, if recognized, $514 million of our unrecognized tax benefits, including
interest and penalties, would favorably impact our effective tax rate.
It is reasonably possible that our existing liabilities for unrecognized tax benefits may increase or decrease in the year ending
December 31, 2019, primarily due to the progression of open audits and 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.
U.S. tax reform—In December 2017, the U.S. enacted the 2017 Tax Act, which amended existing U.S. tax laws that had an
impact on our income tax provision, such as a base erosion and anti-abuse tax (“BEAT”), a global intangible low-taxed income tax,
additional limitations on the deductibility of executive compensation and interest and the repeal of the domestic manufacturing deduction.
In the years ended December 31, 2018 and 2017, we recognized the income tax effects of the 2017 Tax Act in accordance with Staff
Accounting Bulletin No. 118 (“SAB 118”), which provides SEC staff guidance for the application of accounting standards for income taxes
in the reporting period in which the 2017 Tax Act was enacted. Although we have completed our analysis and recorded the resulting
impact of the 2017 Tax Act, the U.S. Congress or Treasury may introduce clarifications, modification or amendments that could cause us
to make further adjustments in future periods.
In the year ended December 31, 2017, we recognized income tax expense of $66 million with a corresponding decrease to our
net deferred tax assets to reflect the reduction in the U.S. corporate income tax rate from 35 percent to 21 percent.
In the year ended December 31, 2018, we recognized income tax expense of $33 million related to the bareboat charter
structure of our U.S. operations because we concluded it is subject to BEAT. A significant portion of our BEAT liability is contractually
reimbursable by our customers due to a change-in-law provision in certain drilling contracts.
The 2017 Tax Act imposes a one-time transition tax on certain unremitted earnings and profits of our non-U.S. subsidiaries that
are owned by U.S. subsidiaries. At December 31, 2017, we did not have the necessary information available, prepared and analyzed to
develop a reasonable estimate of the transition tax. In the year ended December 31, 2018, we completed our evaluation, and we recorded
income tax expense of $103 million for estimated transition taxes and an income tax benefit of $16 million for the estimated effect on the
utilization of foreign tax credits.
Tax returns—We file federal and local tax returns in several jurisdictions throughout the world. With few exceptions, we are no
longer subject to examinations of our U.S. and non-U.S. tax matters for years prior to 2011. Our tax returns in the major jurisdictions in
which we operate, other than Brazil, as 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 20 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 timing or the 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 statement of cash flows.
AR-74
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
Brazil tax investigations—In December 2005, the Brazilian tax authorities began issuing tax assessments with respect to our tax
returns for the years 2000 through 2004. In January 25, 2008, we filed a protest letter with the Brazilian tax authorities for these tax
assessments, and we are currently engaged in the appeals process. In May 19, 2014, the Brazilian tax authorities issued an additional tax
assessment for the years 2009 and 2010, and in June 18, 2014, we filed protests with the Brazilian tax authorities for these tax
assessments. In September 2018, a portion of one of the cases was favorably closed. As of December 31, 2018, the remaining
aggregate tax assessment was for BRL 973 million, equivalent to approximately $251 million, including penalties and interest. We believe
our returns are materially correct as filed, and we are vigorously contesting these assessments. 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.
Other tax matters—We conduct operations through our various subsidiaries in 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 11—Earnings (Loss) Per Share
The numerator and denominator used for the computation of basic and diluted per share earnings were as follows (in millions,
except per share data):
Numerator for earnings (loss) per share
Net income (loss) attributable to controlling interest
Undistributed earnings allocable to participating securities
Net income (loss) available to shareholders
Denominator for earnings (loss) per share
Weighted-average shares outstanding
Effect of share-based awards and other equity instruments
Weighted-average shares for per share calculation
2018
Basic
Diluted
Years ended December 31,
2017
Diluted
Basic
2016
Basic
Diluted
$ (1,996) $ (1,996) $ (3,127) $ (3,127) $
—
—
—
—
$ (1,996) $ (1,996) $ (3,127) $ (3,127) $
778
(14)
764
$
$
467
1
468
467
1
468
391
—
391
391
—
391
367
—
367
778
(14)
764
367
—
367
Per share earnings (loss)
$
(4.27) $
(4.27) $
(8.00) $
(8.00) $
2.08
$
2.08
In the years ended December 31, 2018, 2017 and 2016, we excluded from the calculation 10.6 million, 4.7 million and 2.5 million
share-based awards, respectively, since the effect would have been anti-dilutive. In the year ended December 31, 2018, we excluded from
the calculation 77.2 million shares issuable upon conversion of the Exchangeable Bonds, since the effect would have been anti-dilutive.
Note 12—Postemployment Benefit Plans
Defined benefit pension and other postemployment benefit plans
Overview—As of December 31, 2018, we had defined benefit plans in the U.S., the United Kingdom (“U.K.”), and Norway.
Benefits under the defined benefit plans in the U.S. and the U.K. have ceased accruing. We maintain the respective pension obligations
under such plans until they have been fully satisfied.
As of December 31, 2018, the defined benefit plans in the U.S. included three funded and three unfunded plans (the “U.S.
Plans”). As of December 31, 2018, the defined benefit plan in the U.K. included one funded plan (the “U.K. Plan”). As of December 31,
2018, the defined benefit plans in Norway, primarily group pension schemes with life insurance companies, included three funded and
two unfunded plans (the “Norway Plans”), one of which we assumed in our acquisition of Songa. We refer to the U.K. Plan and the
Norway Plans, collectively, as the “Non-U.S. Plans.” We refer to the U.S. Plans and the Non-U.S. Plans, collectively, as the
“Transocean Plans”. Additionally, we maintain certain unfunded other postemployment benefit plans (collectively, the “OPEB Plans”),
under which benefits to eligible participants diminish during a phase-out period ending December 31, 2025.
Assumptions—We estimated our benefit obligations using the following weighted-average assumptions:
Discount rate
Compensation trend rate
4.31 %
na
AR-75
December 31, 2018
Non-U.S.
U.S.
Plans
Plans
2.86 %
2.75 %
December 31, 2017
Non-U.S.
OPEB
Plans
U.S.
Plans
3.56 %
na
3.68 %
na
Plans
2.49 %
2.50 %
OPEB
Plans
2.93 %
na
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
We estimated our net periodic benefit costs using the following weighted-average assumptions:
Year ended December 31, 2018
OPEB
Non-U.S.
U.S.
Year ended December 31, 2017
OPEB
Non-U.S.
U.S.
Year ended December 31, 2016
Non-U.S.
U.S.
Discount rate
Expected rate of return
Compensation trend rate
“na” means not applicable.
Plans
3.68 %
6.21 %
na
Plans
2.49 %
4.72 %
2.50 %
Plans
Plans
2.93 % 4.26 %
6.31 %
na
na
na
Plans
2.69 %
4.79 %
2.25 %
Plans
3.08 %
na
na
Plans
4.56 %
6.82 %
0.22 %
OPEB Plans
Plans
3.69 %
5.85 %
4.01 %
3.13 %
na
na
Net periodic benefit costs—Net periodic benefit costs, before tax, included the following components (in millions):
Year ended December 31, 2018
Non-U.S.
Plans
Transocean
Plans
U.S.
Plans
Year ended December 31, 2017
U.S.
Plans
Non-U.S.
Plans
Transocean
Plans
Year ended December 31, 2016
Non-U.S.
Plans
Transocean
Plans
U.S.
Plans
Net periodic benefit costs
Service cost
Interest cost
Expected return on plan assets
Settlements and curtailments
Actuarial (gain) loss, net
Prior service cost, net
Net periodic benefit costs
$ — $
61
(72)
—
8
—
(3) $
$
$
7
10
(19)
(1)
1
—
(2) $
$
7
71
(91)
(1)
9
—
(5) $
$
3
65
(74)
—
5
—
(1) $
3
11
(20)
13
1
—
8
$
$
6 $
76
(94)
13
6
—
7 $
3 $
69
(80)
—
5
—
(3) $
$
10
17
(25)
(5)
(1)
—
(4) $
13
86
(105)
(5)
4
—
(7)
In the years ended December 31, 2018, 2017 and 2016, for the OPEB Plans, the combined components of net periodic benefit
costs, including service cost, interest cost, recognized net actuarial losses, prior service cost amortization, curtailments and special
termination benefits, were income of $4 million, $2 million and $4 million, respectively.
Funded status—The changes in projected benefit obligation, plan assets and funded status and the amounts recognized on our
consolidated balance sheets were as follows (in millions):
Change in projected benefit obligation
Projected benefit obligation, beginning of period
Assumed projected benefit obligation
Actuarial (gains) losses, net
Service cost
Interest cost
Currency exchange rate changes
Benefits paid
Settlements
Plan amendment
Special termination benefit
Projected benefit obligation, end of period
Change in plan assets
Fair value of plan assets, beginning of period
Fair value of acquired plan assets
Actual return on plan assets
Currency exchange rate changes
Employer contributions
Benefits paid
Settlements
Fair value of plan assets, end of period
Funded status, end of period
Balance sheet classification, end of period:
Pension asset, non-current
Pension liability, current
Pension liability, non-current
Accumulated other comprehensive income (loss) (a)
(a) Amounts are before income tax effect.
Year ended December 31, 2018
Year ended December 31, 2017
U.S.
Plans
Non-U.S.
Plans
OPEB
Plans
Total
U.S.
Plans
Non-U.S.
Plans
OPEB
Plans
Total
$
1,680
—
(145)
—
61
—
(69)
—
—
—
1,527
1,343
—
(87)
—
2
(69)
—
1,189
$
379
29
(45)
7
10
(21)
(19)
(3)
1
—
338
393
22
(6)
(22)
13
(19)
(3)
378
$
19
—
(2)
—
1
—
(2)
—
—
1
17
—
—
—
—
2
(2)
—
—
2,078
29
(192)
7
72
(21)
(90)
(3)
1
1
1,882
1,736
22
(93)
(22)
17
(90)
(3)
1,567
$
1,557 $
—
115
3
65
—
(60)
—
—
—
1,680
398 $
—
18
3
11
35
(86)
—
—
—
379
1,204
—
198
—
1
(60)
—
1,343
400
—
31
36
12
(86)
—
393
$
19
—
2
—
—
—
(2)
—
—
—
19
—
—
—
—
2
(2)
—
—
1,974
—
135
6
76
35
(148)
—
—
—
2,078
1,604
—
229
36
15
(148)
—
1,736
(338)
$
40
$
(17)
$
(315)
$
(337) $
14 $
(19)
$
(342)
— $
(3)
(335)
(307)
$
47
(1)
(6)
(64)
— $
(3)
(14)
15
$
47
(7)
(355)
(356)
— $
(2)
(335)
(301)
17 $
(1)
(2)
(84)
— $
(3)
(16)
19
17
(6)
(353)
(366)
$
$
$
AR-76
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
The aggregate projected benefit obligation and fair value of plan assets for plans with a projected benefit obligation in excess of
plan assets were as follows (in millions):
Projected benefit obligation
Fair value of plan assets
U.S.
Plans
$ 1,527
1,189
December 31, 2018
OPEB
Non-U.S.
Plans
Plans
$
$
26
20
17
—
Total
$ 1,570
1,209
December 31, 2017
U.S.
Plans
Non-U.S.
Plans
OPEB
Plans
$ 1,680 $
1,343
5 $
2
19
—
Total
$ 1,704
1,345
At December 31, 2018 and 2017, the accumulated benefit obligation for all defined benefit pension plans was $1.9 billion and
$2.1 billion, respectively. The aggregate accumulated benefit obligation and fair value of plan assets for plans with an accumulated benefit
obligation in excess of plan assets were as follows (in millions):
Accumulated benefit obligation
Fair value of plan assets
U.S.
Plans
$ 1,527
1,189
December 31, 2018
OPEB
Non-U.S.
Plans
Plans
$
$
3
—
17
—
Total
$ 1,547
1,189
December 31, 2017
U.S.
Plans
Non-U.S.
Plans
OPEB
Plans
$ 1,680 $
1,343
3 $
—
19
—
Total
$ 1,702
1,343
The following table presents the amounts in accumulated other comprehensive income (loss), before tax, that have not been
recognized as components of net periodic benefit costs (in millions):
Actuarial gain (loss), net
Prior service cost, net
Total
U.S.
Plans
(307) $
—
(307) $
$
$
December 31, 2018
OPEB
Non-U.S.
Plans
Plans
(63) $
(1)
(64) $
(1) $
16
15
$
December 31, 2017
U.S.
Non-U.S.
Total
(371) $
15
(356) $
Plans
(301) $
—
(301) $
Plans
(84) $
—
(84) $
OPEB
Plans
(4) $
23
19
$
Total
(389)
23
(366)
The following table presents the amounts in accumulated other comprehensive income expected to be recognized as
components of net periodic benefit costs during the year ending December 31, 2019 (in millions):
Actuarial loss, net
Prior service cost, net
Total amount expected to be recognized
Year ending December 31, 2019
U.S.
Plans
Non-U.S.
Plans
OPEB
Plans
$
$
3
—
3
$
$
— $
—
— $
— $
(2)
(2) $
Total
3
(2)
1
Plan assets—We periodically review our investment policies, plan assets and asset allocation strategies to evaluate
performance relative to specified objectives. In determining our asset allocation strategies for the U.S. Plans, we review the results of
regression models to assess the most appropriate target allocation for each plan, given the plan’s status, demographics and duration. For
the U.K. Plan, the plan trustees establish the asset allocation strategies consistent with the regulations of the U.K. pension regulators and
in consultation with financial advisors and company representatives. Investment managers for the U.S. Plans and the U.K. Plan are given
established ranges within which the investments may deviate from the target allocations. For the Norway Plans, we establish minimum
rates of return under the terms of investment contracts with insurance companies. As of December 31, 2018 and 2017, the
weighted-average target and actual allocations of the investments for the funded Transocean Plans were as follows:
December 31, 2018
December 31, 2017
Target allocation
Non-U.S.
U.S.
Actual allocation
Non-U.S.
U.S.
Plans
Plans
Plans
Plans
Target allocation
Non-U.S.
U.S.
Plans
Plans
Actual allocation
Non-U.S.
U.S.
Plans
Equity securities
Fixed income securities
Other investments
Total
50 %
50 %
— %
100 %
34 %
51 %
15 %
100 %
50 %
50 %
— %
100 %
32 %
52 %
16 %
100 %
50 %
50 %
—
100 %
39 %
50 %
11 %
100 %
52 %
48 %
—
100 %
AR-77
Plans
39 %
48 %
13 %
100 %
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
As of December 31, 2018 and 2017, the investments for the funded Transocean Plans were categorized as follows (in millions):
Significant observable inputs
Transocean
Non-U.S.
U.S.
December 31, 2018
Significant other observable inputs
Non-U.S.
Transocean
U.S.
Plans
Plans
Plans
Plans
Plans
Plans
U.S.
Plans
Total
Non-U.S.
Plans
Transocean
Plans
Mutual funds
U.S. equity funds
Non-U.S. equity funds
Bond funds
Total mutual funds
Other investments
Cash and money market funds
Property collective trusts
Investment contracts
Total other investments
$
401
179
591
1,171
$ — $
—
—
—
401
179
591
1,171
$
— $
5
7
12
6
—
—
6
1
—
—
1
7
—
—
7
—
—
—
—
— $
120
195
315
—
19
43
62
125
202
327
—
19
43
62
— $
401 $ — $
184
598
1,183
120
195
315
6
—
—
6
1
19
43
63
401
304
793
1,498
7
19
43
69
Total investments
$ 1,177
$
1
$ 1,178
$
12
$
377
$
389 $ 1,189 $
378
$ 1,567
Significant observable inputs
Transocean
Non-U.S.
U.S.
December 31, 2017
Significant other observable inputs
Non-U.S.
Transocean
U.S.
Plans
Plans
Plans
Plans
Plans
Plans
U.S.
Plans
Total
Non-U.S.
Plans
Transocean
Plans
Mutual funds
U.S. equity funds
Non-U.S. equity funds
Bond funds
Total mutual funds
Other investments
Cash and money market funds
Property collective trusts
Investment contracts
Total other investments
$
557
138
629
1,324
$ — $
—
—
—
557
138
629
1,324
$
— $
5
8
13
6
—
—
6
7
—
—
7
13
—
—
13
—
—
—
—
— $
153
190
343
—
20
23
43
158
198
356
—
20
23
43
— $
557 $
143
637
1,337
6
—
—
6
— $
153
190
343
7
20
23
50
557
296
827
1,680
13
20
23
56
Total investments
$ 1,330
$
7
$ 1,337
$
13
$
386
$
399 $ 1,343 $
393
$ 1,736
The U.S. Plans and the U.K. Plan invest primarily in passively managed funds that reference market indices. The funded
Norway Plans are subject to contractual terms under selected insurance programs. Each plan’s investment managers have discretion to
select the securities held within each asset category. Given this discretion, the managers may occasionally invest in our debt or equity
securities, and may hold either long or short positions in such securities. As the plan investment managers are required to maintain well
diversified portfolios, the actual investment in our securities would be immaterial relative to asset categories and the overall plan assets.
Funding contributions—In the years ended December 31, 2018, 2017 and 2016, we made an aggregate contribution of
$17 million, $15 million and $49 million, respectively, to the Transocean Plans and the OPEB Plans using our cash flows from operations.
In the year ending December 31, 2019, we expect to contribute $15 million to the Transocean Plans, and we expect to fund benefit
payments of approximately $3 million for the OPEB Plans as costs are incurred.
Benefit payments—The following were the projected benefits payments (in millions):
Years ending December 31,
2019
2020
2021
2022
2023
2024 - 2028
U.S.
Plans
Non-U.S.
Plans
OPEB
Plans
Total
$
$
78
80
81
83
83
426
$
7
8
8
8
9
55
3 $
3
3
2
2
5
88
91
92
93
94
486
AR-78
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
Defined contribution plans
We sponsor defined contribution plans, for our employees, the most significant of which were as follows: (1) a qualified savings
plan covering certain employees working in the U.S., (2) a non-qualified supplemental plan covering certain eligible employees working in
the U.S., (3) a qualified savings plan covering certain eligible U.K. employees, (4) a non-qualified savings plan covering certain employees
working outside the U.S. and U.K. and (5) various savings plans covering eligible employees working in Norway. In the years ended
December 31, 2018, 2017 and 2016, we recognized expense of $50 million, $43 million and $51 million, respectively, related to our defined
contribution plans.
Note 13—Commitments and Contingencies
Purchase and service agreement obligations
We have entered into purchase obligations with shipyards and other contractors related to our newbuild construction programs.
We have also entered into long-term service agreements with original equipment manufacturers to provide services and parts related to
our pressure control systems. The future payments required under our service agreements were estimated based on our projected
operating activity and may vary based on actual operating activity. At December 31, 2018, the aggregate future payments required under
our purchase obligations and our service agreement obligations were as follows (in millions):
Years ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total
Purchase
obligations
Service
agreement
obligations
$
$
932 $
950
—
—
—
—
1,882 $
106
120
118
122
126
597
1,189
In connection with our acquisition of Ocean Rig, we acquired contracts relating to the construction of two ultra-deepwater
drillships Ocean Rig Santorini and Ocean Rig Crete. Included in the above table, upon delivery of Ocean Rig Santorini and
Ocean Rig Crete in the third quarter of 2019 and third quarter of 2020, respectively, our expected remaining obligations to the shipyard will
be $360 million and $520 million, respectively. The shipyard has agreed to finance the expected remaining obligations at an interest rate
of three percent per annum, payable semiannually, with principal due at maturity in June 2023 and January 2024, respectively.
Lease obligations
We have operating lease obligations expiring at various dates, principally for real estate, office space and operating equipment.
In the years ended December 31, 2018, 2017 and 2016, our rental expense for all operating leases, including operating leases with terms
of less than one year, was approximately $35 million, $52 million and $45 million, respectively.
We also have a capital lease obligation, which is due to expire in August 2029. The capital lease contract has an implicit interest
rate of 7.8 percent and requires scheduled monthly payments of $6 million through August 2029, after which we will have the right and
obligation to acquire the drillship from the lessor for one dollar. In the years ended December 31, 2018, 2017 and 2016, depreciation
expense associated with Petrobras 10000, the asset held under capital lease, was $23 million. At December 31, 2018 and 2017, the
aggregate carrying amount of this asset held under capital lease was as follows (in millions):
Property and equipment, cost
Accumulated depreciation
Property and equipment, net
December 31,
2018
2017
777 $
(194)
583 $
774
(170)
604
$
$
AR-79
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
At December 31, 2018, the aggregate future minimum rental payments related to our non-cancellable operating leases and the
capital lease were as follows (in millions):
Years ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total future minimum rental payment
Less amount representing imputed interest
Present value of future minimum rental payments under capital leases
Less current portion included in debt due within one year
Long-term capital lease obligation
Capital
lease
Operating
leases
18
16
11
12
12
135
204
$
$
72 $
72
71
71
72
407
765 $
(254)
511
(32)
479
Letters of credit and surety bonds
At December 31, 2018 and 2017, we had outstanding letters of credit totaling $31 million and $29 million, respectively, issued
under various committed and uncommitted credit lines, some of which require cash collateral, provided by several banks to guarantee
various contract bidding, performance activities and customs obligations. At December 31, 2018, the aggregate cash collateral held by
banks for letters of credit was $5 million. As is customary in the contract drilling business, we also have various surety bonds in place that
secure customs obligations related to the importation of our rigs and certain performance and other obligations. At December 31, 2018
and 2017, we had outstanding surety bonds totaling $84 million and $51 million, respectively.
Legal proceedings
Macondo well incident—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 off the coast of Louisiana. At the time of the explosion, Deepwater Horizon was
contracted to an affiliate of BP plc. (together with its affiliates, “BP”). Following the incident, we have been subject to civil and criminal
claims, as well as causes of action, fines and penalties by local, state and federal governments. Litigation commenced shortly after the
incident, and most claims against us were consolidated by the U.S. Judicial Panel on Multidistrict Litigation and transferred to the U.S.
District Court for the Eastern District of Louisiana (the “MDL Court”). A significant portion of the contingencies arising from the
Macondo well incident has now been resolved or is pending release of funds from escrow (see “—PSC Settlement Agreement”). As for
any actions not resolved by our previous settlements, including any claims by individuals who opted out of the settlement agreement that
we and the Plaintiff Steering Committee (the “PSC”) filed with the MDL Court in May 2015 (the “PSC Settlement Agreement”), we will
vigorously defend those claims and pursue any and all defenses available.
We recognized a liability for the remaining estimated loss contingencies associated with litigation resulting from the
Macondo well incident that we believe are probable and for which a reasonable estimate can be made. At December 31, 2018 and 2017,
the liability for estimated loss contingencies that we believe are probable and for which a reasonable estimate can be made was
$158 million and $219 million, respectively, recorded in other current liabilities, the majority of which is related to our settlement with the
PSC.
PSC Settlement Agreement—On May 29, 2015, together with the PSC, we filed the PSC Settlement Agreement with the
MDL Court for approval. Through the PSC Settlement Agreement, we agreed to pay a total of $212 million, plus up to $25 million for
partial reimbursement of attorneys’ fees, to be allocated between two classes of plaintiffs as follows: (1) 72.8 percent to private plaintiffs,
businesses, and local governments who could have asserted punitive damages claims against us under general maritime law; and
(2) 27.2 percent to private plaintiffs who previously settled economic damages claims against BP and were assigned certain claims BP had
made against us. In exchange for these payments, each of the classes agreed to release all respective claims it has against us.
Thirty claimants elected to opt out of the PSC Settlement Agreement. In June 2016 and August 2015, we made a cash deposit of
$25 million and $212 million, respectively, into an escrow account established by the MDL Court for the settlement. On February 15, 2017,
the MDL Court entered a final order and judgement approving the PSC Settlement Agreement, which is no longer subject to appeal. In
November 2017, the MDL Court released $25 million from the escrow account for payment of attorneys’ fees. In November 2018, the
MDL Court released $58 million from the escrow account as the first installment to the plaintiffs. At December 31, 2018 and 2017, the
aggregate cash balance in escrow account was $156 million and $212 million, respectively, recorded in restricted cash accounts and
investments. We expect the remaining funds to be released in March 2019.
Plea Agreement—Pursuant
to
one misdemeanor count of negligently discharging oil into the U.S. Gulf of Mexico, in violation of the Clean Water Act, for which our
subsidiary is no longer subject to probation. We also agreed to make an aggregate cash payment of $400 million, including a criminal fine
the plea agreement (the “Plea Agreement”), one of our subsidiaries pled guilty
to
AR-80
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
and certain cash contributions payable in scheduled installments. In the years ended December 31, 2017 and 2016, we made a cash
payment of $60 million in each year, representing the final installments for our obligations under the Plea Agreement.
Global Marine litigation—On November 28, 2017, Wilmington Trust Company, in its capacity as trustee, filed a lawsuit in the
Supreme Court of the State of New York, County of New York, against Global Marine Inc. (“Global Marine”), one of our wholly owned,
indirect subsidiaries, seeking a declaratory judgment that Global Marine is in default under the indenture governing its $300 million of
outstanding 7.00% Notes due June 2028. We disagree with the assertions in the lawsuit and believe that Global Marine is in compliance
with the indenture and has meritorious defenses against these allegations, although it can make no assurance regarding the outcome of
the lawsuit, including the actual amount that would be due in the event that the lawsuit is successful. The notes are neither guaranteed by,
nor recourse to, Transocean Ltd. or our other subsidiaries. The claimants seek payment prior to the scheduled maturity of the principal
amount of notes outstanding and accrued but unpaid interest as well as make-whole amounts under the indenture. In addition, the
acceleration of the amounts due under the indenture could, absent our payment of the amounts due or otherwise staying any judgment
therefrom, result in an event of default under our currently undrawn Secured Credit Facility. We intend to vigorously defend the lawsuit.
While we cannot predict or provide assurance as to the outcome of these proceedings, we do not expect the proceedings to have a
material adverse effect on our consolidated statement of financial position, results of operations or cash flows.
Nigerian customer arbitration—One of our customers in Nigeria owes us approximately $80 million for drilling services
performed in 2014 and 2015. The customer has not disputed the services rendered and we have remained engaged in discussions with
the customer about collection of this overdue balance. In September 2018, we notified the customer of our intentions to enter into
arbitration. We intend to vigorously pursue full recovery of this receivable. While we cannot predict or provide assurance as to its
outcome, we do not expect it to have a material adverse effect on our consolidated statement of financial position, results of operations or
cash flows.
Nigerian Cabotage Act litigation—In October 2007, three of our subsidiaries were each served a Notice and Demand from the
Nigeria Maritime Administration and Safety Agency, imposing a two percent surcharge on the value of all contracts performed by us in
Nigeria pursuant to the Coastal and Inland Shipping (Cabotage) Act 2003 (the “Cabotage Act”). Our subsidiaries each filed an originating
summons in the Federal High Court in Lagos challenging the imposition of this surcharge on the basis that the Cabotage Act and
associated levy is not applicable to drilling rigs. The respondents challenged the competence of the suits on several procedural grounds.
The court upheld the objections and dismissed the suits. In December 2010, our subsidiaries filed a new joint Cabotage Act suit. While
we cannot predict or provide assurance as to the outcome of these proceedings, we do not expect the proceedings to have a material
adverse effect on our consolidated statement of financial position, results of operations or cash flows.
Asbestos litigation—In 2004, several of our subsidiaries were named, along with numerous other unaffiliated defendants, in
complaints filed in the Circuit Courts of the State of Mississippi, and in 2014, a group of similar complaints were filed in Louisiana. The
plaintiffs, former employees of some of the defendants, generally allege that the defendants used or manufactured asbestos containing
drilling mud additives for use in connection with drilling operations, claiming negligence, products liability, strict liability and claims allowed
under the Jones Act and general maritime law. The plaintiffs generally seek awards of unspecified compensatory and punitive damages,
but the court-appointed special master has ruled that a Jones Act employer defendant, such as us, cannot be sued for punitive damages.
At December 31, 2018, nine plaintiffs have claims pending in Louisiana, in which we have or may have an interest. We intend to defend
these lawsuits vigorously, although we can provide no assurance as to the outcome. We historically have maintained broad liability
insurance, although we are not certain whether insurance will cover the liabilities, if any, arising out of these claims. Based on our
evaluation of the exposure to date, we do not expect the liability, if any, resulting from these claims to have a material adverse effect on our
consolidated statement of financial position, results of operations or cash flows.
One of our subsidiaries has been named as a defendant, along with numerous other companies, in lawsuits arising out of the
subsidiary’s manufacture and sale of heat exchangers, and involvement in the construction and refurbishment of major industrial
complexes alleging bodily injury or personal injury as a result of exposure to asbestos. As of December 31, 2018, the subsidiary was a
defendant in approximately 156 lawsuits with a corresponding number of plaintiffs. For many of these lawsuits, we have not been provided
sufficient information from the plaintiffs to determine whether all or some of the plaintiffs have claims against the subsidiary, the basis of
any such claims, or the nature of their alleged injuries. The operating assets of the subsidiary were sold in 1989. In September 2018, the
subsidiary and certain insurers agreed to a settlement of outstanding disputes that leaves the subsidiary with funding, including cash,
annuities and coverage in place settlement agreements with insurers, that we believe will be sufficient to respond to both the current
lawsuits as well as future lawsuits of a similar nature. While we cannot predict or provide assurance as to the outcome of these matters,
we do not expect the ultimate liability, if any, resulting from these claims to have a material adverse effect on our consolidated statement of
financial position, results of operations or cash flows.
Other matters—We are involved in various tax matters, various regulatory matters, and a number of claims and lawsuits,
asserted and unasserted, all of which have arisen in the ordinary course of our business. We do not expect the liability, if any, resulting
from these other matters to have a material adverse effect on our consolidated statement of financial position, results of operations or cash
flows. We cannot predict with certainty the outcome or effect of any of the litigation matters specifically described above or of any such
other pending, threatened, or possible litigation or liability. We can provide no assurance that our beliefs or expectations as to the outcome
AR-81
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
or effect of any tax, regulatory, lawsuit or other litigation matter will prove correct and the eventual outcome of these matters could
materially differ from management’s current estimates.
Environmental matters
We have certain potential liabilities under the Comprehensive Environmental Response, Compensation and Liability Act
(“CERCLA”) and similar state acts regulating cleanup of various hazardous waste disposal sites, including those described below.
CERCLA is intended to expedite the remediation of hazardous substances without regard to fault. Potentially responsible parties (“PRPs”)
for each site include present and former owners and operators of, transporters to and generators of the substances at the site. Liability is
strict and can be joint and several.
One of our subsidiaries has been named as a PRP in connection with a site located in Santa Fe Springs, California, known as
the Waste Disposal, Inc. site. We and other PRPs agreed with the Environmental Protection Agency (the “EPA”) and the Department of
Justice to settle our potential liabilities by remediating the site. Under a participation agreement, the parties to the settlement completed
the required remediation, and we believe our share, approximately eight percent, of the ongoing future operation and maintenance costs is
not material. We have no reason to believe that any additional potential liabilities for the site will be material.
One of our subsidiaries was ordered by the California Regional Water Quality Control Board (“CRWQCB”) to develop a testing
plan for a site known as Campus 1000 Fremont in Alhambra, California, which is now a part of the San Gabriel Valley, Area 3, Superfund
site. We were also advised that one or more of our subsidiaries that formerly owned and operated the site would likely be named as a
PRP or PRPs. The current property owner, an unrelated party, performed the required testing and detected no contaminants, and based
on such results, we would contest any potential liability. In discussions with CRWQCB staff, we were advised of their intent to issue us a
“no further action” letter, but it has not yet been received. We have no knowledge of the potential cost of any remediation, who else will be
named as PRPs, and whether in fact any of our subsidiaries is a responsible party. The subsidiaries in question do not own any operating
assets and have limited ability to respond to any liabilities.
Resolutions of other claims by the EPA, the involved state agency or PRPs are at various stages of investigation. It is difficult to
quantify the potential cost of environmental matters and remediation obligations. Nevertheless, based on the available information, we do
not expect the ultimate liability, if any, resulting from all environmental matters, including the liability for all related pending legal
proceedings, asserted legal claims and known potential legal claims that are likely to be asserted, to have a material adverse effect on our
consolidated statement of financial position, results of operations or cash flows.
Note 14—Equity
Redeemable noncontrolling interest—Until June 11, 2018, we owned a 65 percent interest in Angola Deepwater Drilling
Company Ltd. (“ADDCL”), a Cayman Islands company and variable interest entity for which we concluded that we were the primary
beneficiary. Angco Cayman Limited (“Angco Cayman”) owned the remaining a 35 percent interest in ADDCL. Under the terms of
ADDCL’s governing documents, Angco Cayman had the right to require us to purchase its interest in ADDCL for cash, and accordingly, we
presented the carrying amount of Angco Cayman’s ownership interest as redeemable noncontrolling interest on our consolidated balance
sheets. We also had the right under ADDCL’s governing documents to require Angco Cayman to sell us its interest, and we exercised that
right. On June 11, 2018, pursuant to a settlement requiring no cash payment, we acquired the interests in ADDCL not previously owned
by us, and ADDCL became our wholly owned subsidiary. In connection with the acquisition, we reclassified the $53 million aggregate
carrying amount of the redeemable noncontrolling interest to additional paid-in capital. At December 31, 2017, the carrying amount of the
assets and liabilities of ADDCL, after eliminating the effect of intercompany transactions, was $716 million and $7 million, respectively.
Noncontrolling interest—Transocean Partners LLC, a Marshall Islands limited liability company (“Transocean Partners”), was
previously a partially owned subsidiary. In the year ended December 31, 2016, Transocean Partners declared and paid a distribution to its
unitholders, of which the holders of noncontrolling interest were paid $28 million. On December 9, 2016, Transocean Partners merged
with one of our subsidiaries as contemplated under the merger agreement and became our wholly owned subsidiary. Each
Transocean Partners common unit that was issued and outstanding immediately prior to the closing, other than the units held by
Transocean and its subsidiaries, was converted into the right to receive 1.20 of our shares. To complete the merger, we issued
23.8 million shares from conditional capital.
Extraordinary general meetings—On November 29, 2018, in connection with the Ocean Rig acquisition, shareholders at our
extraordinary general meeting approved: (1) an amendment of our articles of association to create additional authorized share capital,
(2) the issuance of up to 147.7 million Transocean Ltd. shares and (3) the deletion of the previously approved special purpose authorized
share capital. On January 16, 2018, in connection with the Songa acquisition, shareholders at our extraordinary general meeting
approved: (1) the issuance of up to 68.6 million Transocean Ltd. shares, (2) an amendment of our articles of association to create
additional authorized share capital, (3) the election of a new director to our board of directors and (4) the issuance of consideration shares
from our authorized share capital and shares issuable upon exchange of the Exchangeable Bonds.
AR-82
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
Par value reduction—On October 29, 2015, at our extraordinary general meeting, our shareholders approved the reduction of
the par value of each of our shares to CHF 0.10 from the original par value of CHF 15.00. The reduction of par value became effective as
of January 7, 2016 upon registration in the commercial register.
Shares held in treasury—In May 2009, at our annual general meeting, our shareholders approved and authorized our board of
directors, at its discretion, to repurchase an amount of our shares for cancellation with an aggregate purchase price of up to
CHF 3.5 billion. On February 12, 2010, our board of directors authorized our management to implement the share repurchase program.
During the three-year period ended December 31, 2017, we did not purchase any shares under our share repurchase program. At
December 31, 2015, we held 2.9 million shares in treasury, recorded at cost. On October 29, 2015, at our extraordinary general meeting,
our shareholders approved the cancellation of the 2.9 million shares previously purchased under the share repurchase program and held
in treasury, and such cancellation became effective as of January 7, 2016 upon registration in the commercial register.
Shares held by subsidiaries—One of our subsidiaries holds our shares for future use to satisfy our obligations to deliver shares
in connection with awards granted under our incentive plans or other rights to acquire our shares. At December 31, 2018, our subsidiary
held 0.9 million shares. At December 31, 2017, two of our subsidiaries, together, held 3.6 million of our shares for this purpose.
Accumulated other comprehensive loss—The changes in accumulated other comprehensive loss, presented net of tax, for
our defined benefit pension plans were as follows (in millions):
Balance, beginning of period
Other comprehensive income (loss) before reclassifications
Reclassifications to net income
Other comprehensive income (loss), net
Balance, end of period
Note 15—Share-Based Compensation
Overview
Years ended December 31,
2018
2017
$
$
(290) $
7
4
11
(279) $
(283)
(2)
(5)
(7)
(290)
We have a long-term incentive plan (the “Long-Term Incentive Plan”) for executives, key employees and non-employee directors
under which awards can be granted in the form of restricted share units, restricted shares, stock options, stock appreciation rights and
cash performance awards. Awards may be granted as service awards that are earned over a defined service period or as performance
awards that are earned based on the achievement of certain market factors or performance targets or a combination of market factors and
performance targets. Our compensation committee of our board of directors determines the terms and conditions of the awards granted
under the Long-Term Incentive Plan. At December 31, 2018, we had 32.7 million shares authorized and 15.0 million shares available to be
granted under the Long-Term Incentive Plan. At December 31, 2018, the total unrecognized compensation cost related to our unvested
share-based awards was $37 million, which is expected to be recognized over a weighted-average period of 1.7 years.
Service awards typically vest either in three equal annual installments beginning on the first anniversary date of the grant or in an
aggregate installment at the end of the stated vesting period. Performance awards typically are subject to a three-year measurement
period during which the number of options or shares to be issued remains uncertain until the end of the measurement period, at which time
the awarded number of options or shares to be issued is determined. The performance awards typically vest in one aggregate installment
following the determination date. Stock options are subject to a stated vesting period and, once vested, typically have a seven-year term
during which they are exercisable.
Service awards
Restricted share units—A restricted share unit is a notional unit that is equal to one share but has no voting rights until the
underlying share is issued. The following table summarizes unvested activity for service-based units granted under our incentive plans
during the year ended December 31, 2018:
Unvested at January 1, 2018
Granted
Vested
Forfeited
Unvested at December 31, 2018
Number
of
units
Weighted-average
grant-date fair value
per unit
3,820,455 $
2,521,939
(2,087,141)
(177,261)
4,077,992 $
12.15
9.67
12.74
10.17
10.40
During the year ended December 31, 2018, the vested restricted share units had an aggregate grant-date fair value of
$27 million. During the years ended December 31, 2017 and 2016, we granted 1,921,029 and 3,155,382 service-based units, respectively,
AR-83
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
with a per unit weighted-average grant-date fair value of $13.03 and $8.69, respectively. During the years ended December 31, 2017 and
2016, we had 1,867,970 and 1,725,734 service-based units, respectively, that vested with an aggregate grant-date fair value of $28 million
and $48 million, respectively.
Stock options—The following table summarizes activity for vested and unvested service-based stock options outstanding under
our incentive plans during the year ended December 31, 2018:
Outstanding at January 1, 2018
Granted
Exercised
Forfeited
Expired
Outstanding at December 31, 2018
Weighted-average
exercise price
per share
Weighted-average
remaining
contractual term
(years)
Aggregate
intrinsic value
(in millions)
2
6.37 $
Number
of shares
under option
2,753,463 $
1,249,266
(6,922)
(52,900)
(175,424)
3,767,483 $
34.98
9.18
8.61
22.09
144.32
21.56
6.84 $
—
—
Vested and exercisable at December 31, 2018
1,600,514 $
36.90
4.58 $
During the year ended December 31, 2018, the granted stock options had a per option weighted-average grant-date fair value of
$4.52. During the year ended December 31, 2018, the vested stock options had an aggregate grant-date fair value of $6 million. At
December 31, 2018 and 2017, there were outstanding unvested stock options to purchase 2,166,969 and 1,489,761 shares, respectively.
During the years ended December 31, 2017 and 2016, we granted stock options to purchase 877,231 and 945,724 shares, respectively,
with a per option weighted-average grant-date fair value of $6.46 and $5.11, respectively. During the years ended December 31, 2017 and
2016, the vested stock options had an aggregate grant-date fair value of $2 million and $3 million, respectively. During the years ended
December 31, 2017 and 2016, no stock options were exercised.
Performance awards
Restricted share units—We grant performance awards in the form of restricted share units that can be earned depending on
the achievement of market factors. The number of shares ultimately earned per unit is quantified upon completion of the specified period
at the determination date. The following table summarizes unvested activity for performance-based units under our incentive plans during
the year ended December 31, 2018:
Unvested at January 1, 2018
Granted
Vested
Unvested at December 31, 2018
Number
of
units
Weighted-average
grant-date fair value
per unit
1,638,681 $
1,074,054
(948,941)
1,763,794 $
13.56
10.79
11.60
12.93
During the year ended December 31, 2018, the vested performance-based units had an aggregate grant-date fair value of
$11 million. During the years ended December 31, 2017 and 2016, we granted 689,740 and 997,362 performance-based units,
respectively, with a per unit weighted-average grant-date fair value of $16.25 and $11.60, respectively. During the years ended
December 31, 2017 and 2016, the vested performance-based units had an aggregate grant-date fair value of $7 million and $6 million,
respectively.
AR-84
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
Note 16—Supplemental Balance Sheet Information
Other current liabilities were comprised of the following (in millions):
Other current liabilities
Accrued payroll and employee benefits
Accrued interest
Accrued taxes, other than income
Deferred revenues
Contingent liabilities
Other
Total other current liabilities
Other long-term liabilities were comprised of the following (in millions):
Other long-term liabilities
Postemployment benefit plan obligations
Income taxes payable
Deferred revenues
Construction contract intangible liability
Other
Total other long-term liabilities
December 31,
2018
2017
182 $
184
69
87
213
11
746 $
176
127
67
213
246
10
839
December 31,
2018
2017
355 $
476
399
132
62
1,424 $
353
247
422
—
60
1,082
$
$
$
$
Note 17—Supplemental Cash Flow Information
Net cash provided by operating activities attributable to the net change in other operating assets and liabilities was comprised of
the following (in millions):
Years ended December 31,
2017
2016
2018
Changes in other operating assets and liabilities
Decrease in accounts receivable
(Increase) decrease in other assets
Decrease in accounts payable and other current liabilities
(Decrease) increase in other long-term liabilities
Change in income taxes receivable / payable, net
Additional cash flow information was as follows (in millions):
Certain cash operating activities
Cash payments for interest
Cash payments for income taxes
Non-cash investing and financing activities
Capital additions, accrued at end of period (a)
Issuance of shares in business combinations (b)
Issuance of debt in business combination (c)
Issuance of shares to acquire noncontrolling interest (d)
$
$
$
$
180
3
(154)
80
125
234
$
$
230 $
(37)
(115)
(13)
(58)
7 $
350
28
(286)
(55)
(133)
(96)
Years ended December 31,
2017
2016
2018
$
$
570
151
30
2,112
1,026
—
486 $
124
351
172
20 $
42
—
—
—
317
(a) Additions to property and equipment for which we had accrued a corresponding liability in accounts payable at the end of
(b)
(c)
(d)
the period. See Note 6—Drilling Fleet.
In connection with our acquisition of Songa and Ocean Rig, we issued 66.9 million and 147.7 million shares, respectively,
with an aggregate fair value of $735 million and $1.4 billion, respectively. See Note 4—Business Combinations.
In connection with our acquisition of Songa, we issued $854 million aggregate principal amount of Exchangeable Bonds
as partial consideration to Songa shareholders and settlement for certain Songa indebtedness. See Note 4—Business
Combinations.
In connection with our acquisition of the outstanding publicly held common units of Transocean Partners pursuant to its
merger with one of our other subsidiaries, we issued 23.8 million shares. See Note 14—Equity.
AR-85
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
Note 18—Financial Instruments
Overview—The carrying amounts and fair values of our financial instruments were as follows (in millions):
Cash and cash equivalents
Short-term investments
Restricted cash and cash equivalents
Restricted investments
Long-term debt, including current maturities
Derivative instruments, liabilities
$
Carrying
amount
$
December 31, 2018
Fair
value
2,160
—
429
123
9,212
6
2,160
—
429
123
9,978
6
$
December 31, 2017
Fair
Carrying
value
amount
2,519
450
456
33
7,538
—
2,519 $
450
456
33
7,396
—
We estimated the fair value of each class of financial instruments, for which estimating fair value is practicable, by applying the
following methods and assumptions:
Cash and cash equivalents—The carrying amount of our cash and cash equivalents represents the historical cost, plus
accrued interest. Our cash equivalents are primarily invested in short-term time deposits and money market funds. The carrying amount
of our cash and cash equivalents approximates fair value because of the near-term maturities of the instruments.
Short-term investments—The carrying amount of our unrestricted short-term investments represents the historical cost of the
time deposits in which they are invested. The carrying amount of such short-term investments approximates fair value because of the
near-term maturities of the instruments.
Restricted cash and cash equivalents—The carrying amount of our restricted cash and cash equivalents, which are subject to
restrictions due to collateral requirements, legislation, regulation or court order approximates fair value due to the near-term maturities of
the instruments in which the restricted balances are held. At December 31, 2018, the aggregate carrying amount of such restricted cash
and cash equivalents was $429 million, including $428 million and $1 million, recorded in current assets and other assets, respectively. At
December 31, 2017, the aggregate carrying amount of such restricted cash and cash equivalents was $456 million, including $440 million
and $16 million, recorded in current assets and other assets, respectively.
Restricted investments—The carrying amount of our restricted investments, which are subject to restrictions due to court order
or pledged for security of certain credit arrangements, approximates fair value because of the near-term maturities of the instruments. At
December 31, 2018, the aggregate carrying amount of the restricted investments was $123 million, recorded in other current assets. At
December 31, 2017, the aggregate carrying amount of the restricted investments was $26 million and $7 million, recorded in current assets
and other assets, respectively.
Debt—The carrying amount of our debt represents the principal amount, net of unamortized discounts, premiums, debt issue
costs and fair value adjustments. We measured the estimated fair value of our debt using significant other observable inputs,
representative of a Level 2 fair value measurement, including the terms and credit spreads for the instruments.
Derivative instruments—The carrying amount of our derivative instruments represents the estimated fair value of such
instruments. We measured the estimated fair value of our derivative instruments using significant other observable inputs, representative
of a Level 2 fair value measurement, including the terms and credit spreads for the instruments.
Note 19—Risk Concentration
Interest rate risk—Financial instruments that potentially subject us to concentrations of interest rate risk include our cash
equivalents, short-term investments, restricted cash investments, debt and capital lease obligations. We are exposed to interest rate risk
related to our cash equivalents and short-term investments, as the interest income earned on these investments is based on variable or
short-term interest rates, which change with market interest rates. We are also exposed to the interest rate risk related to our fixed-rate
debt when we refinance maturing debt with new debt or when we repurchase debt in open market repurchases.
Currency exchange rate risk—Our international operations expose us to currency exchange rate risk. This risk is primarily
associated with compensation costs of our employees and purchasing costs from non-U.S. suppliers, which are denominated in currencies
other than the U.S. dollar. We use a variety of techniques to minimize the exposure to currency exchange rate risk, including the
structuring of customer contract payment terms.
Our primary currency exchange rate risk management strategy involves structuring customer contracts to provide for payment in
both U.S. dollars and local currency. The payment portion denominated in local currency is based on anticipated local currency
requirements over the contract term. Due to various factors, including customer acceptance, local banking laws, national content
requirements, other statutory requirements, local currency convertibility and the impact of inflation on local costs, actual local currency
needs may vary from those anticipated in the customer contracts, resulting in partial exposure to currency exchange rate risk. The
currency exchange effect resulting from our international operations generally has not had a material impact on our operating results.
AR-86
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
Credit risk—Financial instruments that potentially subject us to concentrations of credit risk are primarily cash and cash
equivalents, short-term investments and trade receivables, both current and long-term.
We generally maintain our cash, cash equivalents and short-term investments in time deposits at commercial banks with high
credit ratings or mutual funds, which invest exclusively in high-quality money market instruments. We limit the amount of exposure to any
one institution and do not believe we are exposed to any significant credit risk.
We earn our revenues by providing our drilling services to international oil companies, government-owned oil companies and
government-controlled oil companies. Receivables are dispersed in various countries (see Note 20—Operating Segments, Geographic
Analysis and Major Customers). We establish an allowance for doubtful accounts on a case-by-case basis, considering changes in the
financial position of a customer, when we believe the required payment of specific amounts owed to us is unlikely to occur. Although we
have encountered only isolated credit concerns related to independent oil companies, we occasionally require collateral or other security to
support customer receivables. In certain instances, when we determine that collection is not reasonably assured, we may occasionally
offer extended payment terms and recognize revenues associated with the contract on a cash basis.
Labor agreements—We require highly skilled personnel to operate our drilling units. We conduct extensive personnel
recruiting, training and safety programs. At December 31, 2018, we had approximately 6,700 employees, including approximately
800 persons engaged through contract labor providers. Approximately 34 percent of our total workforce, working primarily in Norway,
Brazil, U.K. and Australia are represented by, and some of our contracted labor work is subject to, collective bargaining agreements,
substantially all of which are subject to annual salary negotiation. These negotiations could result in higher personnel expenses, other
increased costs or increased operational restrictions as the outcome of such negotiations affect the market for all offshore employees not
just the union members.
Note 20—Operating Segments, Geographic Analysis and Major Customers
Operating segments—We operate in a single, global market for the provision of contract drilling services to our customers. The
location of our rigs and the allocation of our resources to build or upgrade rigs are determined by the activities and needs of our customers.
Geographic analysis—Operating revenues by country were as follows (in millions):
Years ended December 31,
2017
2016
2018
Operating revenues
U.S.
Norway
U.K.
Brazil
Other countries (a)
Total operating revenues
$
$
1,496
651
162
110
599
3,018
$
$
1,527 $
83
288
335
740
2,973 $
1,977
214
551
453
966
4,161
(a) Other countries represent countries in which we operate that individually had operating revenues representing less than
10 percent of consolidated operating revenues earned.
Long-lived assets by country were as follows (in millions):
Long-lived assets
U.S.
Norway
Trinidad
Other countries (a)
Total long-lived assets
December 31,
2018
2017
$
$
6,257 $
3,260
1,841
9,050
20,408 $
7,541
887
2,563
6,411
17,402
(a) Other countries represents countries in which we operate that individually had long-lived assets representing less than
10 percent of consolidated long-lived assets.
Since the majority of our assets are mobile, the geographic locations of such assets at the end of the periods are not necessarily
indicative of the geographic distribution of the operating revenues generated by such assets during the periods. Although we are
organized under the laws of Switzerland, we do not conduct any operations and do not have operating revenues in Switzerland. At
December 31, 2018 and 2017, the aggregate carrying amount of our long-lived assets located in Switzerland was less than $1 million.
AR-87
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
Our international operations are subject to certain political and other uncertainties, including risks of war and civil disturbances or
other market disrupting events, expropriation of equipment, repatriation of income or capital, taxation policies, and the general hazards
associated with certain areas in which we operate.
Major customers—For the year ended December 31, 2018, Royal Dutch Shell plc (together with its affiliates, “Shell”),
Chevron Corporation (together with its affiliates, “Chevron”) and Equinor ASA (together with its affiliates, “Equinor”) accounted for
approximately 26 percent, 21 percent and 18 percent, respectively, of our consolidated operating revenues. For the year ended
December 31, 2017, Chevron, Shell and Petróleo Brasileiro S.A. (“Petrobras”) accounted for approximately 29 percent, 17 percent, and
14 percent, respectively, of our consolidated operating revenues. For the year ended December 31, 2016, Chevron, BP, Shell and
Petrobras accounted for approximately 24 percent, 12 percent, 12 percent and 11 percent, respectively, of our consolidated operating
revenues.
Note 21—Quarterly Results (Unaudited)
2018
Operating revenues
Operating loss (a)
Net loss (a)
Net loss attributable to controlling interest (a)
Per share loss
Basic
Diluted
Weighted-average shares outstanding
Basic
Diluted
2017
Operating revenues
Operating income (loss) (b)
Net income (loss) (b)
Net income (loss) attributable to controlling interest (b)
Per share earnings (loss)
Basic
Diluted
Weighted-average shares outstanding
Basic
Diluted
Three months ended
March 31,
June 30,
September 30,
December 31,
(In millions, except per share data)
$
$
$
$
$
$
$
664
(4)
(212)
(210)
790 $
(917)
(1,139)
(1,135)
$
816
(305)
(409)
(409)
(0.48) $
(0.48) $
(2.46) $
(2.46) $
(0.88) $
(0.88) $
438
438
785
169
95
91
0.23
0.23
390
390
462
462
463
463
$
$
$
751 $
(1,542)
(1,679)
(1,690)
$
808
(1,147)
(1,411)
(1,417)
(4.32) $
(4.32) $
(3.62) $
(3.62) $
391
391
391
391
748
(25)
(243)
(242)
(0.48)
(0.48)
506
506
629
15
(102)
(111)
(0.28)
(0.28)
391
391
(a) First quarter, third quarter and fourth quarter included an aggregate loss of $24 million associated with Songa and Ocean Rig acquisition costs.
Fourth quarter included a bargain purchase gain of $10 million associated with Ocean Rig acquisition. Second quarter included a loss of
$462 million associated with the impairment of our goodwill. Second quarter, third quarter and fourth quarter included an aggregate loss of
$999 million associated with the impairment of certain drilling units classified as assets held for sale.
(b) Second quarter and third quarter included an aggregate loss of $1.4 billion associated with the impairment of certain drilling units classified as assets
held for sale. Second quarter included a loss of $94 million associated with the impairment of our midwater floater asset group. Second quarter
included a loss of $1.6 billion associated with the sale of 10 high-specification jackups and the novation of five high-specification jackups under
construction. First quarter, second quarter, third quarter and fourth quarter included an aggregate loss of $55 million associated with the retirement
of debt.
AR-88
TRANSOCEAN LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
Note 22—Subsequent Events
Senior secured notes issuance—On February 1, 2019, we issued $550 million aggregate principal amount of 6.875% senior
secured notes due February 2027 (the “6.875% Senior Secured Notes”), and we received approximately $538 million aggregate cash
proceeds, net of discount and issue costs. In connection with the issuance of such notes, we were required to deposit $19 million in
restricted cash accounts to satisfy debt service requirements. We are required to pay semiannual installments of interest only through
August 2021, after which we will pay semiannual installments of principal and interest. We may redeem all or a portion of the
6.875% Senior Secured Notes at any time prior to February 1, 2022 at a price equal to 100 percent of the aggregate principal amount plus
a make-whole provision, and on or after February 1, 2022 at specified redemption prices. We will be required to redeem the notes at a
price equal to 100 percent of the aggregate principal amount, without a make-whole provision, upon the occurrence of certain events
related to the collateral rig and the related drilling contract. The indenture that governs the 6.875% Senior Secured Notes contains
covenants that limit the ability of our subsidiaries that own or operate the collateral rig to declare or pay dividends to their affiliates. The
indenture also imposes a Maximum Collateral Ratio, represented by the net earnings of the rig relative to the debt balance, that changes
over the term of the notes. Through December 31, 2020, the Maximum Collateral Ratio under the indenture is 5.75 to 1.00. The
6.875% Senior Secured Notes are secured by the assets and earnings associated with the ultra-deepwater floater Deepwater Poseidon
and the equity of the wholly owned subsidiaries that own or operate the collateral rig.
Debt tender offers—On February 5, 2019, we completed tender offers (the “2019 Tender Offers”) to purchase for cash up to
$700 million aggregate purchase price of our 6.50% senior notes due November 2020 (the “6.50% Senior Notes”), 6.375% Senior Notes,
3.80% Senior Notes and 9.00% Senior Notes (collectively, the “2019 Tendered Notes”), subject to the terms and conditions specified in the
related offer to purchase. In connection with the 2019 Tender Offers, we received valid tenders from holders of an aggregate principal
amount of the 2019 Tendered Notes as follows: $57 million of 6.50% Senior Notes, $63 million of 6.375% Senior Notes, $190 million of
3.80% Senior Notes, and $200 million of 9.00% Senior Notes. In January and February 2019, as a result of the 2019 Tender Offers, we
made an aggregate cash payment of $521 million to settle the validly tendered 2019 Tendered Notes. In the three months ending
March 31, 2019, we expect to recognize an aggregate net loss of approximately $18 million associated with the retirement of debt.
Assets held for sales—Subsequent to December 31, 2018, we committed to plans to sell the ultra-deepwater floater
Ocean Rig Paros and the harsh environment floater Eirik Raude and related assets. At December 31, 2018, the aggregate carrying
amount of the assets was $12 million.
AR-89
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
We have not had a change in or disagreement with our accountants within 24 months prior to the date of our most recent
financial statements or in any period subsequent to such date.
Item 9A.
Controls and Procedures
Disclosure controls and procedures—Our disclosure controls and procedures are designed to provide reasonable assurance
that information required to be disclosed in our reports filed or submitted under the Exchange Act is (1) accumulated and communicated to
our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required
disclosure and (2) recorded, processed, summarized and reported within the time periods specified in the United States (“U.S.”) Securities
and Exchange Commission’s rules and forms. Under the supervision and with the participation of management, including our Chief
Executive Officer and Chief Financial Officer, we performed an evaluation of the effectiveness of our disclosure controls and procedures as
of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of December 31, 2018.
Internal control over financial reporting—There has been no change to our internal control over financial reporting during the
quarter ended December 31, 2018 that has materially affected or is reasonably likely to materially affect our internal control over financial
reporting. See “Management’s Report on Internal Control Over Financial Reporting” and “Report of Independent Registered Public
Accounting Firm,” included in Item 8 of this annual report.
Item 9B.
Other Information
None.
AR-90
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13.
Certain Relationships, Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
The information required by Items 10, 11, 12, 13 and 14 is incorporated herein by reference to our definitive proxy statement for
our 2019 annual general meeting of shareholders, which will be filed with the U.S. Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934 within 120 days of December 31, 2018. Certain information with respect to our
executive officers is set forth in Item 4 of this annual report under the caption “Executive Officers of the Registrant.”
AR-91
PART IV
Item 15.
Exhibits and Financial Statement Schedules
(a)
Index to Financial Statements, Financial Statement Schedules and Exhibits
(1) Index to Financial Statements
Included in Part II of this report:
Management’s Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Balance Sheets
Consolidated Statements of Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
AR-46
AR-47
AR-52
AR-53
AR-54
AR-55
AR-56
AR-57
Financial statements of unconsolidated subsidiaries are not presented herein because such subsidiaries do not meet the
significance test.
(2) Financial Statement Schedules
Transocean Ltd. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
(In millions)
Year ended December 31, 2016
Reserves and allowances deducted from asset accounts:
Allowance for obsolete materials and supplies
Valuation allowance on deferred tax assets
Year ended December 31, 2017
Reserves and allowances deducted from asset accounts:
Allowance for obsolete materials and supplies
Valuation allowance on deferred tax assets
Year ended December 31, 2018
Reserves and allowances deducted from asset accounts:
Allowance for obsolete materials and supplies
Valuation allowance on deferred tax assets
Additions
Balance at
beginning of
period
Charge to cost
and
expenses
Charge to
other
accounts
-describe
Deductions
-describe
Balance at
end of
period
148
380
153
412
141
574
15
32
24
162
12
67
—
—
—
—
10 (a)
—
36 (a)
—
—
40 (b)
19 (a)
—
153
412
141
574
134
681
(a) Amount related to materials and supplies on rigs and related assets sold or classified as held for sale.
(b) Amount primarily related to the following: (i) adjustments of $26 million to the valuation allowance and related deferred tax assets with corresponding
adjustments to retained earnings associated with our adoption of the accounting standards update that requires an entity to recognize in the period in
which it occurs the income tax consequences of an intra entity transfer of an asset other than inventory and (ii) an adjustment of $14 million to the
valuation allowance related to deferred tax assets acquired in business combinations.
AR-92
(3) Exhibits
The following exhibits are filed or furnished with our annual report on Form 10-K, as indicated, or incorporated by reference to the location
indicated:
Number Description
2.1
Transaction Agreement, dated August 13, 2017, among Transocean Ltd.,
Transocean Inc, and Songa Offshore SE (schedules and exhibits have
been omitted from this exhibit pursuant to Item 601(b)(2) of Regulation S-K
and will be provided to the Securities and Exchange Commission upon
request)
2.2
Amendment No. 1 to Transaction Agreement, dated September 15, 2017,
among Transocean Ltd., Transocean Inc. and Songa Offshore SE
2.3
Amendment No. 2 to Transaction Agreement, dated December 19, 2017,
among Transocean Ltd., Transocean Inc. and Songa Offshore SE
2.4
Agreement and Plan of Merger, dated September 3, 2018, by and among
Transocean Ltd., Transocean Oceanus Holdings Limited, Transocean
Oceanus Limited and Ocean Rig UDW Inc.
3.1
Articles of Association of Transocean Ltd.
3.2
Organizational Regulations of Transocean Ltd., adopted November 18,
2016
4.1
Credit Agreement dated June 22, 2018, among Transocean Inc., the
lenders parties thereto and Citibank, N.A., as administrative agent and
collateral agent.
4.2
Indenture, dated July 13, 2018, by and among Transocean Guardian
Limited, the Guarantors and Wells Fargo Bank, National Association
4.3
Indenture, dated July 20, 2018, by and among Transocean Pontus Limited,
the Guarantors and Wells Fargo Bank, National Association.
4.4
Indenture dated as of April 15, 1997 between Transocean Offshore Inc.
and Texas Commerce Bank National Association, as trustee
First Supplemental
Indenture dated as of April 15, 1997 between
Bank
and
Transocean
National Association, as trustee, supplementing the Indenture dated as of
April 15, 1997
Offshore Inc.
Commerce
Texas
Location
Exhibit 2.1 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 000-53533) filed on August 15, 2017)
Exhibit 2.1 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 000-53533) filed on September 15, 2017
Exhibit 2.1 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 000-53533) filed on December 20, 2017
Exhibit 2.1 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 001-38373) filed on September 4, 2018
Exhibit 3.1 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 001-38373) filed on February 13, 2019
Exhibit 3.1 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 000-53533) filed on November 23, 2016
Exhibit 4.1 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 001-38373) filed on June 27, 2018
Exhibit 4.1 to Transocean Ltd’s Current Report on Form 8-K
(Commission File No. 001-38373) filed on July 17, 2018
Exhibit 4.1 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 001-38373) filed on July 24, 2018
Exhibit 4.1 to Transocean Offshore Inc.’s Current Report on
Form 8-K (Commission File No. 001-07746) filed on April 30,
1997
Exhibit 4.2 to Transocean Offshore Inc.’s Current Report on
Form 8-K (Commission File No. 001-07746) filed on April 30,
1997
Second Supplemental Indenture dated as of May 14, 1999 between
Transocean Offshore (Texas) Inc., Transocean Offshore Inc. and Chase
Bank of Texas, National Association, as trustee
Fifth Supplemental Indenture, dated as of December 18, 2008, among
Transocean Ltd., Transocean Inc. and The Bank of New York Mellon Trust
Company, N.A., as trustee
Exhibit 4.5
to Transocean Offshore Inc.’s Post-Effective
Amendment No. 1 to Registration Statement on Form S-3
(Registration No. 333-59001-99) filed on June 29, 1999
Exhibit 4.4 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 333-75899) filed on December 19, 2008
4.5
4.6
4.7
4.8
Form of 7.45% Notes due April 15, 2027
4.9
Form of 8.00% Debentures due April 15, 2027
4.10
Officers’ Certificate establishing the terms of the 7.50% Note due April 15,
2031
4.11
Officers’ Certificate establishing the terms of the 7.375% Notes due 2018
Indenture dated as of September 1, 1997, between Global Marine Inc. and
Wilmington Trust Company, as Trustee, relating to Debt Securities of
Global Marine Inc.
4.12
4.13
Exhibit 4.3 to Transocean Offshore Inc.’s Current Report on
Form 8-K (Commission File No. 001-07746) filed on April 30,
1997
Exhibit 4.4 to Transocean Offshore Inc.’s Current Report on
Form 8-K (Commission File No. 001-07746) filed on April 30,
1997
Exhibit 4.3 to Transocean Sedco Forex Inc.’s Current Report on
Form 8-K (Commission File No. 333-75899) filed on April 9,
2001
Exhibit 4.14 to Transocean Sedco Forex Inc.’s Annual Report
on Form 10-K (Commission File No. 333-75899) for the fiscal
year ended December 31, 2001
Exhibit 4.1 of Global Marine Inc.’s Registration Statement on
Form S-4 (No. 333-39033) filed on October 30, 1997
First Supplemental Indenture dated as of June 23, 2000, between Global
Marine Inc. and Wilmington Trust Company, as Trustee, relating to Debt
Securities of Global Marine Inc.
Exhibit 4.2 of Global Marine Inc.’s Quarterly Report on
Form 10-Q (Commission File No. 001-05471) for the quarter
ended June 30, 2000
AR-93
Number Description
4.14
Second Supplemental Indenture dated as of November 20, 2001, between
Global Marine Inc. and Wilmington Trust Company, as Trustee, relating to
Debt Securities of Global Marine Inc.
4.15
Form of 7% Note Due 2028
4.16
Terms of 7% Note Due 2028
4.17
Senior
Indenture, dated as of December 11, 2007, between
Transocean Inc. and Wells Fargo Bank, National Association
4.18
First Supplemental Indenture, dated as of December 11, 2007, between
Transocean Inc. and Wells Fargo Bank, National Association
4.19
4.20
4.21
4.22
4.23
Third Supplemental Indenture, dated as of December 18, 2008, among
Transocean Ltd., Transocean Inc. and Wells Fargo Bank, National
Association, as trustee
Fourth Supplemental Indenture, dated as of September 21, 2010, among
Bank,
Transocean Inc.
and Wells
Fargo
Transocean Ltd.,
National Association, as trustee
Fifth Supplemental Indenture, dated as of December 5, 2011, among
Transocean Ltd., Transocean Inc. and Wells Fargo Bank, National
Association, as trustee
Sixth Supplemental Indenture, dated as of September 13, 2012, among
Bank,
Transocean Ltd.
and Wells
Fargo
Transocean Inc.,
National Association, as trustee
Credit Agreement dated June 30, 2014 among Transocean Inc., the
lenders parties thereto and JPMorgan Chase Bank, N.A., as administrative
agent, Citibank, N.A. and DNB Bank, ASA, New York Branch, as
co-syndication agents, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., Crédit
Agricole Corporate and
Investment Bank and Wells Fargo Bank,
National Association, as co-documentation agents
4.24
Guarantee Agreement dated June 30, 2014 among Transocean Ltd. and
JPMorgan Chase Bank, N.A., as administrative agent under the Credit
Agreement
4.25
Indenture, dated as of July 21, 2016, by and among Transocean Inc., the
Guarantors and Wells Fargo Bank, National Association
4.26
4.27
4.28
4.29
Indenture, dated as of October 19, 2016, by and among Transocean
Triton
Phoenix
Capital II GmbH and Wells Fargo Bank, National Association
Transocean Ltd.,
Transocean Inc.,
2 Limited,
Indenture, dated December 8, 2016, by and among Transocean
Fargo Bank,
and Wells
Guarantors
the
Proteus Limited,
National Association
Indenture dated as of October 17, 2017, by and among Transocean Inc.,
the guarantors party thereto and Wells Fargo Bank, National Association
dated
Indenture,
Transocean Inc.,
Transocean Ltd., as guarantor, and Computershare Trust Company N.A.
and Computershare Trust Company of Canada, as co-trustees
January 30,
among
2018,
4.30
Form of 0.50% Exchangeable Senior Bonds due 2023
4.31
4.32
4.33
Registration Rights Agreement, dated as of January 30, 2018, among
Transocean Ltd., Transocean Inc., and the security holders named therein
Indenture, dated October 25, 2018, among Transocean Inc.,
the
guarantors party thereto and Wells Fargo Bank, National Association, as
trustee
Indenture, dated February 1, 2019, by and among Transocean Poseidon
Limited, the Guarantors and Wells Fargo Bank, National Association, as
trustee and collateral agent
AR-94
Location
Exhibit 4.2 to GlobalSantaFe Corporation’s Annual Report on
Form 10-K (Commission File No. 001-14634) for the year ended
December 31, 2004
Exhibit 4.2 of Global Marine Inc.’s Current Report on Form 8-K
(Commission File No. 001-05471) filed on May 22, 1998
Exhibit 4.1 of Global Marine Inc.’s Current Report on Form 8-K
(Commission File No. 001-05471) filed on May 22, 1998
Exhibit 4.36 to Transocean Inc.’s Annual Report on Form 10-K
(Commission File No. 333-75899)
the year ended
December 31, 2007
Exhibit 4.37 to Transocean Inc.’s Annual Report on Form 10-K
(Commission File No. 333-75899)
the year ended
December 31, 2007
Exhibit 4.3 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 333-75899) filed on December 19, 2008
for
for
Exhibit 4.1 to Transocean Ltd.’s Quarterly Report on Form 10-Q
(Commission File No. 000-53533)
the quarter ended
September 30, 2010
Exhibit 4.3 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 000-53533) filed on December 5, 2011
for
Exhibit 4.3 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 000-53533) filed on September 13, 2012
Exhibit 4.1 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 000-53533) filed on July 2, 2014
Exhibit 4.2 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 000-53533) filed on July 2, 2014
Exhibit 4.1 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 000-53533) filed on July 22, 2016
Exhibit 4.1 to Transocean Ltd.’s Current Report on Form 8-K (C
omission File No. 000-53533) filed on October 20, 2016
Exhibit 4.1 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 000-53533) filed on December 8, 2016
Exhibit 4.1 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 000-53533) filed on October 17, 2017
Exhibit 4.1 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 000-38373) filed on January 30, 2018
Exhibit A of Exhibit 4.1 to Transocean Ltd.’s Current Report on
Form 8-K (Commission File No. 000-38373) filed on January 30,
2018
Exhibit 4.3 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 000-38373) filed on January 30, 2018
Filed with our Annual Report on Form 10-K for the year ended
December 31, 2018
Exhibit 4.1 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 001-38373) filed on February 1, 2019
Number Description
* 10.1
First Amendment to Transocean Ltd. 2015 Long-Term Incentive Plan
10.2
Form of Voting and Support Agreement, by and among Transocean Ltd.
and certain shareholders of Ocean Rig UDW Inc.
10.3
Form of Voting and Support Agreement, by and among Ocean Rig
UDW Inc. and certain shareholders of Transocean Ltd.
* 10.4
Long-Term Incentive Plan of Transocean Ltd. (as amended and restated
as of February 12, 2009)
* 10.5
First Amendment to Long-Term Incentive Plan of Transocean Ltd. (as
amended and restated as of February 12, 2009)
* 10.6
Deferred Compensation Plan of Transocean Offshore Inc., as amended
and restated effective January 1, 2000
* 10.7
GlobalSantaFe Corporation Key Employee Deferred Compensation Plan
effective January 1, 2001 and Amendment to GlobalSantaFe Corporation
Key Employee Deferred Compensation Plan effective November 20, 2001
* 10.8
Amendment to Transocean Inc. Deferred Compensation Plan
10.9
Master Separation Agreement dated February 4, 2004 by and among
Transocean Inc., Transocean Holdings Inc. and TODCO
10.10
Tax Sharing Agreement dated February 4, 2004 between Transocean
Holdings Inc. and TODCO
10.11
Amended and Restated Tax Sharing Agreement effective as of February 4,
2004 between Transocean Holdings Inc. and TODCO
* 10.12
Form of 2004 Performance-Based Nonqualified Share Option Award Letter
* 10.13
Form of 2004 Director Deferred Unit Award
* 10.14
Form of 2008 Director Deferred Unit Award
* 10.15
Form of 2009 Director Deferred Unit Award
* 10.16
Terms and Conditions of 2013 Director Deferred Unit Award
* 10.17
Terms and Conditions of 2014 Director Deferred Unit Award
* 10.18
Terms and Conditions of 2015 Director Restricted Share Unit Award
* 10.19
Performance Award and Cash Bonus Plan of Transocean Ltd.
* 10.20
Amendment
to Performance Award and Cash Bonus Plan of
Transocean Ltd.
* 10.21
Terms and Conditions of 2014 Executive Equity Award
* 10.22
Terms and Conditions of 2015 Executive Equity Award
AR-95
for
to Transocean Ltd.’s definitive proxy statement
Location
Annex B
(Commission File No. 001-38373) filed on March 20, 2018
Exhibit 10.1 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 001-38373) filed on September 4, 2018
Exhibit 10.2 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 001-38373) filed on September 4, 2018.
Exhibit 10.5 to Transocean Ltd.’s Annual Report on Form 10-K
(Commission File No. 000-53533)
the year ended
December 31, 2008
Exhibit 10.1 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 000-53533) filed on May 22, 2013
Exhibit 10.10 to Transocean Sedco Forex Inc.’s Annual Report
on Form 10-K (Commission File No. 333-75899) for the year
ended December 31, 1999
Exhibit 10.33 to the GlobalSantaFe Corporation Annual Report
on Form 10-K (Commission File No. 001-14634) for the year
ended December 31, 2004
Exhibit 10.1 to Transocean Inc.’s Current Report on Form 8-K
(Commission File No. 333-75899) filed on December 29, 2005
Exhibit 99.2 to Transocean Inc.’s Current Report on Form 8-K
(Commission File No. 333-75899) filed on March 3, 2004
Exhibit 99.3 to Transocean Inc.’s Current Report on Form 8-K
(Commission File No. 333-75899) filed on March 3, 2004
Exhibit 10.1 to Transocean Inc.’s Current Report on Form 8-K
(Commission File No. 333-75899) filed on November 30, 2006
Exhibit 10.2 to Transocean Inc.’s Current Report on Form 8-K
(Commission File No. 333-75899) filed on February 15, 2005
Exhibit 10.4 to Transocean Inc.’s Current Report on Form 8-K
(Commission File No. 333-75899) filed on February 15, 2005
Exhibit 10.20 to Transocean Ltd.’s Annual Report on Form 10-K
the year ended
(Commission File No. 000-53533)
December 31, 2008
Exhibit 10.19 to Transocean Ltd.’s Annual Report on Form 10-K
(Commission File No. 000-53533)
the year ended
December 31, 2009
Exhibit 10.14 to Transocean Ltd.’s Annual Report on Form 10-K
(Commission File No. 000-53533)
the year ended
December 31, 2015
Exhibit 10.15 to Transocean Ltd.’s Annual Report on Form 10-K
the year ended
(Commission File No. 000-53533)
December 31, 2015
Exhibit 10.16 to Transocean Ltd.’s Annual Report on Form 10-K
(Commission File No. 000-53533)
the year ended
December 31, 2015
Exhibit 10.21 to Transocean Ltd.’s Annual Report on Form 10-K
(Commission File No. 000-53533)
the year ended
December 31, 2008
Exhibit 10.20 to Transocean Ltd.’s Annual Report on Form 10-K
the year ended
(Commission File No. 000-53533)
December 31, 2012
Exhibit 10.19 to Transocean Ltd.’s Annual Report on Form 10-K
(Commission File No. 000-53533)
the year ended
December 31, 2015
Exhibit 10.20 to Transocean Ltd.’s Annual Report on Form 10-K
(Commission File No. 000-53533)
the year ended
December 31, 2015
for
for
for
for
for
for
for
for
for
Number Description
* 10.23
Terms and Conditions of the July 2008 Nonqualified Share Option Award
* 10.24
Terms and Conditions of the February 2009 Nonqualified Share Option
Award
* 10.25
Terms and Conditions of the February 2012 Long Term Incentive Plan
Award
* 10.26
Transocean Ltd. Incentive Recoupment Policy
10.27
Form of Novation Agreement dated as of November 27, 2007 by and
among GlobalSantaFe Corporation, Transocean Offshore Deepwater
Drilling Inc. and certain executives
* 10.28
Global Marine Inc. 1990 Non-Employee Director Stock Option Plan
* 10.29
First Amendment to Global Marine Inc. 1990 Non-Employee Director Stock
Option Plan
* 10.30
Second Amendment to Global Marine Inc. 1990 Non-Employee Director
Stock Option Plan
* 10.31
1997 Long-Term Incentive Plan
* 10.32
Amendment to 1997 Long Term Incentive Plan
* 10.33
Amendment to 1997 Long Term Incentive Plan, dated December 1, 1999
* 10.34
GlobalSantaFe Corporation 1998 Stock Option and Incentive Plan
* 10.35
First Amendment to GlobalSantaFe Corporation 1998 Stock Option and
Incentive Plan
* 10.36
GlobalSantaFe Corporation 2001 Non-Employee Director Stock Option
and Incentive Plan
* 10.37
GlobalSantaFe Corporation 2001 Long-Term Incentive Plan
* 10.38
GlobalSantaFe 2003 Long-Term
Restated Effective June 7, 2005)
Incentive Plan
(as Amended and
* 10.39
Transocean Ltd. Pension Equalization Plan, as amended and restated,
effective January 1, 2009
* 10.40
Transocean U.S. Supplemental Retirement Benefit Plan, as amended and
restated, effective as of November 27, 2007
* 10.41
GlobalSantaFe Corporation Supplemental Executive Retirement Plan
* 10.42
Transocean U.S. Supplemental Savings Plan
AR-96
for
Location
Exhibit 10.2 to Transocean Inc.’s Form 10-Q (Commission File
No. 333-75899) for the quarter ended June 30, 2008
Exhibit 10.30 to Transocean Ltd.’s Annual Report on Form 10-K
(Commission File No. 000-53533)
the year ended
December 31, 2008
Exhibit 10.28 to Transocean Ltd.’s Annual Report on Form 10-K
(Commission File No. 000-53533)
the year ended
December 31, 2011
Exhibit 10.30 to Transocean Ltd.’s Annual Report on Form 10-K
the year ended
(Commission File No. 000-53533)
December 31, 2012
Exhibit 10.1 to Transocean Inc.’s Current Report on Form 8-K
(Commission File No. 333-75899) filed on December 3, 2007
for
for
on
Exhibit 10.18 of Global Marine Inc.’s Annual Report on
Form 10-K (Commission File No. 001-05471) for the year ended
December 31, 1991
Exhibit 10.1 of Global Marine Inc.’s Quarterly Report on
Form 10-Q (Commission File No. 001-05471) for the quarter
ended June 30, 1995
Exhibit 10.37 of Global Marine Inc.’s Annual Report on
Form 10-K (Commission File No. 001-05471) for the year ended
December 31, 1996
GlobalSantaFe Corporation’s Registration Statement
Form S-8 (No. 333-7070) filed June 13, 1997
Exhibit 10.25 of GlobalSantaFe Corporation’s Annual Report on
Form 20-F (Commission File No. 001-14634) for the year ended
December 31, 1998
Exhibit 10.33 of GlobalSantaFe Corporation’s Annual Report on
Form 20-F (Commission File No. 001-14634) for the year ended
December 31, 1999
Exhibit 10.1 of Global Marine Inc.’s Quarterly Report on
Form 10-Q (Commission File No. 001-05471) for the quarter
ended March 31, 1998
Exhibit 10.2 of Global Marine Inc.’s Quarterly Report on
Form 10-Q (Commission File No. 001-05471) for the quarter
ended June 30, 2000
Exhibit 4.8
of GlobalSantaFe Corporation’s Registration
Statement on Form S-8 (No. 333-73878) filed on November 21,
2001
to GlobalSantaFe Corporation’s definitive proxy
Exhibit A
statement (Commission File No. 001-14634) filed on March 21,
2001
Exhibit 10.4 to GlobalSantaFe Corporation’s Quarterly Report
on Form 10-Q (Commission File No. 001-14634) for the quarter
ended June 30, 2005
Exhibit 10.41 to Transocean Ltd.’s Annual Report on Form 10-K
(Commission File No. 000-53533)
the year ended
December 31, 2008
Exhibit 10.11 to Transocean Inc.’s Current Report on Form 8-K
(Commission File No. 333-75899) filed on December 3, 2007
Exhibit 10.1 to the GlobalSantaFe Corporation Quarterly Report
on Form 10-Q (Commission File No. 001-14634) for the quarter
ended September 30, 2002
Exhibit 10.44 to Transocean Ltd.’s Annual Report on Form 10-K
(Commission File No. 000-53533)
the year ended
December 31, 2008
for
for
Number Description
10.43
Form of Indemnification Agreement entered into between Transocean Ltd.
and each of its Directors and Executive Officers
* 10.44
Form of Assignment Memorandum for Executive Officers
10.45
Drilling Contract between Vastar Resources, Inc. and R&B Falcon
Drilling Co. dated December 9, 1998 with respect to Deepwater Horizon,
as amended
* 10.46
Executive Severance Benefit Policy
* 10.47
Transocean Ltd. 2015 Long-Term Incentive Plan
10.48
10.49
10.50
Term Sheet Agreement for a Transocean and PSC/DHEPDS Settlement,
dated May 20, 2015, among Triton Asset Leasing GmbH, Transocean
Deepwater Inc., Transocean Offshore Deepwater Drilling Inc., Transocean
Holdings LLC, the Plaintiffs Steering Committee in MDL 2179, and the
Deepwater Horizon Economic and Property Damages Settlement Class
Confidential Settlement Agreement, Mutual Releases and Agreement to
Indemnify, dated May 20, 2015, among Transocean Offshore Deepwater
Drilling Inc., Transocean Deepwater Inc., Transocean Holdings LLC, Triton
Asset Leasing GmbH, BP Exploration and Production Inc. and BP America
Production Co.
Transocean Punitive Damages and Assigned Claims Settlement
Agreement, dated May 29, 2015, among Transocean Offshore Deepwater
Drilling Inc., Transocean Deepwater Inc., Transocean Holdings LLC, Triton
Asset Leasing GmbH, the Plaintiffs Steering Committee in MDL 2179, and
the Deepwater Horizon Economic and Property Damages Settlement
Class
* 10.51
Employment Agreement among Transocean Ltd., Transocean Offshore
Deepwater Drilling Inc. and John Stobart dated December 1, 2015
* 10.52
Employment Agreement with Keelan Adamson dated August 10, 2018
* 10.53
Employment Agreement with Jeremy D. Thigpen effective September 1,
2016
* 10.54
Employment Agreement with Mark L. Mey effective September 1, 2016
10.55
10.56
10.57
10.58
10.59
21
Pre-acceptance, dated August 13, 2017, between Transocean Ltd. and
Perestroika AS
Pre-acceptance, dated August 13, 2017, between Transocean Ltd. and
certain funds affiliated with Asia Research and Capital Management Ltd.
Form of Pre-acceptance among Transocean Ltd. and certain shareholders
of Songa Offshore SE
Form of Amendment No. 1 to Pre-acceptance among Transocean Ltd. and
certain shareholders of Songa Offshore SE
Form of Amendment No. 2 to Pre-acceptance among Transocean Ltd. and
certain shareholders of Songa Offshore SE
Subsidiaries of Transocean Ltd.
23.1
Consent of Ernst & Young LLP
24
31.1
Powers of Attorney
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley
Act of 2002
Location
Exhibit 10.1 to Transocean Inc.’s Current Report on Form 8-K
(Commission File No. 333-75899) filed on October 10, 2008
Exhibit 10.6 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 000-53533) filed on December 19, 2008
to Transocean Ltd.’s Quarterly Report on
Exhibit 10.1
Form 10-Q (Commission File No. 000-53533) for the quarterly
period ended June 30, 2010
Exhibit 10.1 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 000-53533) filed on February 23, 2012
Annex B
(Commission File No. 000-53533) filed on March 23, 2015
Exhibit 10.3
to Transocean Ltd.’s Quarterly Report on
Form 10-Q (Commission File No. 000-53533) for the quarter
ended June 30, 2015
to Transocean Ltd.’s definitive proxy statement
Exhibit 10.6
to Transocean Ltd.’s Quarterly Report on
Form 10-Q (Commission File No. 000-53533) for the quarter
ended June 30, 2015
Exhibit 10.7
to Transocean Ltd.’s Quarterly Report on
Form 10-Q (Commission File No. 000-53533) for the quarter
ended June 30, 2015
for
Exhibit 10.60 to Transocean Ltd.’s Annual Report on Form 10-K
(Commission File No. 000-53533)
the year ended
December 31, 2015
Exhibit 10.1 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 001-38373) filed on August 14, 2018.
Exhibit 10.1
to Transocean Ltd.’s Quarterly Report on
Form 10-Q (Commission File No. 000-53533) for the quarter
ended September 30, 2016
Exhibit 10.2
to Transocean Ltd.’s Quarterly Report on
Form 10-Q (Commission File No. 000-53533) for the quarter
ended September 30, 2016
Exhibit 10.1 to Transocean Ltd.’s current report on Form 8-K
(Commission File No. 000-53533) filed on August 15, 2017
Exhibit 10.2 to Transocean Ltd.’s current report on Form 8-K
(Commission File No. 000-53533) filed on August 15, 2017
Exhibit 10.3 to Transocean Ltd.’s current report on Form 8-K
(Commission File No. 000-53533) filed on August 15, 2017
Exhibit 10.1 to Transocean Ltd.’s current report on Form 8-K
(Commission File No. 000-53533) filed on September 15, 2017
Exhibit 10.1 to Transocean Ltd.’s current report on Form 8-K
(Commission File No. 000-53533) filed on December 20, 2017
Filed with our Annual Report on Form 10-K for the year ended
December 31, 2018
Filed with our Annual Report on Form 10-K for the year ended
December 31, 2018
Filed with our Annual Report on Form 10-K for the year ended
December 31, 2018
Filed with our Annual Report on Form 10-K for the year ended
December 31, 2018
AR-97
Number Description
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley
Act of 2002
Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Cooperation Guilty Plea Agreement by and among Transocean
Deepwater Inc., Transocean Ltd. and the United States
Consent Decree by and among Triton Asset Leasing GmbH, Transocean
Holdings LLC, Transocean Offshore Deepwater Drilling Inc., Transocean
Deepwater Inc. and the United States
Administrative Agreement by and among Transocean Deepwater Inc.,
Transocean Offshore Deepwater Drilling Inc., Triton Asset Leasing GmbH,
Transocean Holdings, LLC and the United States Environmental Protection
Agency dated effective as of February 25, 2013
Interactive data files
32.1
32.2
99.1
99.2
99.3
101
Location
Filed with our Annual Report on Form 10-K for the year ended
December 31, 2018
Furnished with our Annual Report on Form 10-K for the year
ended December 31, 2018
Furnished with our Annual Report on Form 10-K for the year
ended December 31, 2018
Exhibit 99.2 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 000-53533) filed on January 3, 2013
Exhibit 99.3 to Transocean Ltd.’s Current Report on Form 8-K
(Commission File No. 000-53533) filed on January 3, 2013
Exhibit 99.4 to Transocean Ltd.’s Annual Report on Form 10-K
the year ended
(Commission File No. 000-53533)
December 31, 2013
for
Filed with our Annual Report on Form 10-K for the year ended
December 31, 2018
*
Compensatory plan or arrangement
Exhibits listed above as previously having been filed with the U.S. Securities and Exchange Commission are incorporated herein
by reference pursuant to Rule 12b-32 under the Securities Exchange Act of 1934 and made a part hereof with the same effect as if filed
herewith.
Certain instruments relating to our long-term debt and our subsidiaries have not been filed as exhibits since the total amount of
securities authorized under any such instrument does not exceed 10 percent of our total assets and our subsidiaries on a consolidated
basis. We agree to furnish a copy of each such instrument to the SEC upon request.
Certain agreements filed as exhibits to this Report may contain representations and warranties by the parties to such
agreements. These representations and warranties have been made solely for the benefit of the parties to such agreements and (1) may
be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be
inaccurate, (2) may have been qualified by certain disclosures that were made to other parties in connection with the negotiation of such
agreements, which disclosures are not reflected in such agreements, and (3) may apply standards of materiality in a way that is different
from what may be viewed as material to investors.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned; thereunto duly authorized, on February 19, 2019.
TRANSOCEAN LTD.
By:
/s/ Mark L. Mey
Mark L. Mey
Executive Vice President, Chief Financial Officer
(Principal Financial Officer)
By:
/s/ David Tonnel
David Tonnel
Senior Vice President and Corporate Controller
(Principal Accounting Officer)
AR-98
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant in the capacities indicated on February 19, 2019.
Signature
*
Merrill A. “Pete” Miller, Jr
/s/ Jeremy D. Thigpen
Jeremy D. Thigpen
/s/ Mark L. Mey
Mark L. Mey
/s/ David Tonnel
David Tonnel
*
Glyn A. Barker
*
Vanessa C.L. Chang
*
Frederico F. Curado
*
Chad C. Deaton
*
Tan Ek Kia
*
Vincent J. Intrieri
*
Samuel Merksamer
*
Frederick W. Mohn
*
Edward R. Muller
By: /s/ David Tonnel
(Attorney-in-Fact)
Title
Chairman
of the Board of Directors
President and
Chief Executive Officer
(Principal Executive Officer)
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Senior Vice President and
Corporate Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
AR-99
TRANSOCEAN LTD.
STATUTORY FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Ernst & Young Ltd
Maagplatz 1
P.O. Box
8005 Zurich
Phone: +41 58 286 86 86
Fax: +41 58 286 30 04
www.ey.com/ch
To the General Meeting of
Transocean Ltd., Steinhausen
Zurich, February 19, 2019
Report of the statutory auditor on the financial statements
As statutory auditor, we have audited the financial statements of Transocean Ltd., which comprise the statement of operations, balance
sheet and notes (pages SR-3 to SR-11), for the year ended December 31, 2018.
Board of Directors’ Responsibility
The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and
the company’s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system
relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of
Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are
reasonable in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with
Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance
whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to
the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the
appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall
presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
Opinion
In our opinion, the financial statements for the year ended December 31, 2018 comply with Swiss law and the company’s articles of
incorporation.
Report on Key Audit Matters based on the circular 1/2015 of the Federal Audit Oversight Authority
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of
the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters. For the matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities section of our report, including in relation to this matter.
Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material
misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matter
below, provide the basis for our audit opinion on the financial statements.
SR-1
Impairment assessment of investments in subsidiaries
Area of
emphasis
Transocean Ltd. evaluates its investments in subsidiaries for impairment annually and records an impairment loss
when the carrying amount of such assets exceeds the recoverable amount. The assessment of the existence of
any indicators of impairment of the carrying amount of investments in subsidiaries is judgmental. In the event that
indicators of impairment are identified, the assessment of the recoverable amounts is also judgmental and
requires estimation and the use of subjective assumptions.
Transocean Ltd. measures the recoverable amount of its investments in subsidiaries by applying a variety of
valuation methods, incorporating a combination of income and market approaches and using projected discounted
cash flows.
The primary risks are identifying impairment indicators, inaccurate models being used for the impairment
assessment, and that the assumptions to support the value of the investments are inappropriate. The principal
consideration for our determination that the impairment assessment of investments in subsidiaries is a key audit
matter is the subjectivity in the assessment of the recoverable amounts which requires estimation and the use of
subjective assumptions.
See Note 3 to these financial statements for Transocean Ltd.’s disclosures related to investment in subsidiaries.
Our audit
response
Our audit procedures related to the key audit matter of the impairment assessment of investments in subsidiaries
included the following procedures:
We performed inquiries of management about the current market conditions supporting the evaluation of potential
impairment indicators, tested the key assumptions used, and performed procedures on Transocean Ltd.’s
prospective financial information.
We involved valuation specialists to assist in the evaluation of management’s valuation models and impairment
analyses, specifically in testing key assumptions and prospective financial information.
We performed procedures to assess the valuation models for evidence of management bias considering contrary
evidence from third party analyst reports and press releases.
Report on other legal requirements
We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence
(article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists,
which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.
We recommend that the financial statements submitted to you be approved.
Ernst & Young Ltd
/s/ Jolanda Dolente
Licensed audit expert
(Auditor in charge)
/s/ Jennifer Mathias
Certified public accountant
SR-2
TRANSOCEAN LTD.
STATEMENTS OF OPERATIONS
(In thousands)
Years ended December 31,
2018
2017
CHF
CHF
921
49
970
1,401
5
1,406
19,873
26
21,924
12,106
53,929
28,408
27
(327 )
929
29,037
(378,031 )
(189)
(440,372)
1
CHF (431,179 )
CHF
(468,002)
Income
Guarantee fee income
Financial income
Total income
Costs and expenses
General and administrative
Depreciation
(Gain) loss on currency exchange
Financial expense
Total costs and expenses
Loss on impairment
Direct taxes
Net loss for the year
See accompanying notes.
SR-3
TRANSOCEAN LTD.
BALANCE SHEETS
(in thousands)
Assets
Cash
Receivables from subsidiaries
Other current assets
Total current assets
Investment in subsidiaries
Property and equipment
Less accumulated depreciation
Property and equipment, net
Other non-current assets
Total non-current assets
Total assets
Liabilities and shareholders’ equity
Accounts payable to subsidiaries
Interest payable to subsidiaries
Other current liabilities
Total current liabilities
Long-term interest bearing notes payable to subsidiary
Total non-current liabilities
Share capital
Statutory capital reserves from capital contribution
Statutory capital reserves from capital contribution for shares held by subsidiaries
Free capital reserves from capital contribution
Accumulated loss
Accumulated loss brought forward from previous years
Net loss for the year
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2018
2017
CHF
CHF
53,837
21,600
1,302
76,739
3,455
6,416
6,818
16,689
9,739,216
6,114,795
1,392
1,390
2
1,382
1,353
29
99
9,739,317
CHF 9,816,056
1,436
6,116,260
CHF 6,132,949
CHF
CHF
8,459
7,453
2,301
18,213
2,156,663
2,156,663
61,058
11,903,340
72,995
1,500,000
25,449
309
5,107
30,865
52,157
52,157
39,480
11,403,842
71,639
—
(5,465,034 )
(431,179 )
7,641,180
CHF 9,816,056
(4,997,032 )
(468,002 )
6,049,927
CHF 6,132,949
See accompanying notes.
SR-4
TRANSOCEAN LTD.
NOTES TO STATUTORY FINANCIAL STATEMENTS
Note 1—General
Transocean Ltd. (the “Company”, “we”, “us”, or “our”) is the parent company of Transocean Inc. and Transocean Management
Services GmbH., our direct wholly owned subsidiaries. Transocean Ltd. is registered with the commercial register in the canton of Zug,
and its shares are listed on the New York Stock Exchange. At December 31, 2018 and 2017, we had less than 10 full-time employees.
On January 30, 2018, we acquired an approximate 97.7 percent ownership interest in Songa Offshore SE (“Songa”), a European
public company limited by shares, or societas Europaea, existing under the laws of Cyprus. On March 28, 2018, we acquired the
remaining shares not owned by us through a compulsory acquisition under Cyprus law, and as a result, Songa became our wholly owned
subsidiary. In connection with these transactions, we issued 68.0 million shares and Transocean Inc. issued USD 863 million aggregate
principal amount of 0.5% exchangeable senior bonds due January 30, 2023 (the “Exchangeable Bonds”). On March 28, 2018,
immediately after completing these transactions, we contributed all shares of Songa to Transocean Inc.
On December 5, 2018, we acquired Ocean Rig UDW Inc. (“Ocean Rig”), a Cayman Islands exempted company with limited
liability, in a merger transaction, and as a result, Ocean Rig became our wholly owned subsidiary. In connection with the acquisition, we
issued 147.7 million shares and made an aggregate cash payment of USD 1.2 billion. On December 7, 2018, we contributed all shares of
Ocean Rig to Transocean Inc.
Note 2—Significant Accounting Policies
Presentation—We have prepared our unconsolidated statutory financial statements in accordance with the accounting
principles as set out in Art. 957 to Art. 963b, of the Swiss Code of Obligations (the “CO”). Since we have prepared our consolidated
financial statements in accordance with U.S. generally accepted accounting standards, a recognized accounting standard, we have, in
accordance with the CO, elected to forego presenting the statement of cash flows, the additional disclosures and the management report
otherwise required by the CO. Our financial statements may be influenced by the creation and release of excess reserves.
Currency—We maintain our accounting records in U.S. dollars and translate them into Swiss francs for statutory reporting
purposes. We translate into Swiss francs our assets and liabilities that are denominated in non-Swiss currencies using the year-end
currency exchange rates, except prior-year transactions for our investments in subsidiaries and our shareholders’ equity, which are
translated at historical exchange rates. We translate into Swiss francs our income statement transactions that are denominated in non-
Swiss currencies using the average currency exchange rates for the year.
Our principal exchange rates were as follows:
CHF / USD
CHF / GBP
CHF / NOK
Average exchange rates
for the years ended
December 31,
Exchange rates
at December 31,
2018
2017
2018
2017
0.98
1.31
0.12
0.99
1.26
0.12
0.98
1.25
0.11
0.97
1.31
0.12
We recognize realized currency exchange and translation gains and losses arising from business transactions and net
unrealized currency exchange and translation losses in current period earnings. We defer net unrealized currency exchange and
translation gains and record such deferred gains in other current liabilities.
Cash—We hold cash balances, denominated in Swiss francs and U.S. dollars, which include cash deposited in demand bank
accounts, money market investment accounts and other liquid investments and interest earned on such cash balances.
Current assets and liabilities—We record current assets at historical cost less adjustments for impairment of value and current
liabilities at historical cost.
Investments in subsidiaries—We record our investments in subsidiaries at acquisition cost less adjustments for impairment of
value. We evaluate our investments in subsidiaries for impairment annually and record an impairment loss when the carrying amount of
such assets exceeds the fair value. We estimate fair value of our investments using a variety of valuation methods, including the income
and market approaches. Our estimates of fair value represent a price that would be received to sell the asset in an orderly transaction
between market participants in the principal market for the asset.
Own shares—We recognize own shares at acquisition cost, which we present as a deduction from shareholders’ equity at the
time of acquisition. For own shares held by subsidiaries, we build a reserve for shares in equity at the respective acquisition costs.
Related parties—In the meaning of the CO, we consider related parties to be only shareholders, direct and indirect subsidiaries,
and the board of directors.
SR-5
TRANSOCEAN LTD.
NOTES TO STATUTORY FINANCIAL STATEMENTS—continued
Note 3—Investment in Subsidiaries
Direct Investments—Our direct investments in subsidiaries were as follows (in thousands, except percentages):
Company name
Purpose
Domicile
Ownership
and voting
interest
Share
capital
2018
Carrying amount as of December 31,
Transocean Inc.
Holding
Cayman Islands
100%
USD
3,192 CHF 9,739,108 CHF
Transocean Management Ltd.
Management and administration
Switzerland
Transocean Management Services GmbH
Management and administration
Switzerland
—
90%
CHF
— CHF
20 CHF
— CHF
108 CHF
2017
6,114,687
90
18
On June 26, 2018, Transocean Management Ltd, formerly our direct wholly owned subsidiary, merged with Transocean
Management Services GmbH. Following the merger Transocean Management Ltd ceased to exist and Transocean Management
Services GmbH was the surviving entity.
Impairments—In the year ended December 31, 2018, as a result of our annual impairment test, we determined that the carrying
amounts of our investments in subsidiaries were impaired, and, as a result, we recognized an aggregate loss of CHF 378 million
associated with the impairment of our investment in Transocean Inc. In the year ended December 31, 2017, as a result of our annual
impairment test, we determined that the carrying amounts of our investments in subsidiaries were impaired, and, as a result, we
recognized an aggregate loss of CHF 440 million and released excess reserves in amount of CHF 511 million associated with the
impairment of our investment in Transocean Inc.
Principal indirect investments—Our principal indirect investments in subsidiaries were as follows:
December 31, 2018
December 31, 2017
Company name
Deepwater Pacific 1 Inc.
Global Marine Inc.
GSF Leasing Services GmbH
Sedco Forex Holdings Limited
Sedco Forex International Inc.
Transocean Conqueror Limited
Domicile
British Virgin Islands
United States
Switzerland
Cayman Islands
Cayman Islands
Cayman Islands
Transocean Deepwater Drilling Services Limited
Cayman Islands
Transocean Drilling Offshore S.a.r.l
Transocean Drilling U.K. Limited
Transocean Financing GmbH
Transocean Guardian Limited
Transocean Holdings 1 Limited
Transocean Holdings 2 Limited
Transocean Holdings 3 Limited
Transocean Hungary Holdings LLC
Transocean Norway Drilling AS
Luxembourg
Scotland
Switzerland
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Hungary
Norway
Transocean Oceanus Holdings Limited
Cayman Islands
Transocean Offshore Deepwater Drilling Inc.
United States
Transocean Offshore Deepwater Holdings Limited
Cayman Islands
Transocean Offshore Holdings Limited
Cayman Islands
Transocean Offshore International Ventures Limited
Cayman Islands
Transocean Partners Holdings Limited
Transocean Phoenix 2 Limited
Transocean Pontus Limited
Transocean Poseidon Limited
Transocean Proteus Limited
Transocean Entities Holdings GmbH
Transocean Worldwide Inc.
Triton Asset Leasing GmbH
Triton Hungary Investments 1 LLC
Triton Nautilus Asset Leasing GmbH
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Cayman Islands
Switzerland
Cayman Islands
Switzerland
Hungary
Switzerland
Ownership
and voting
interest
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Company name
Deepwater Pacific 1 Inc.
Global Marine Inc.
GSF Leasing Services GmbH
Sedco Forex Holdings Limited
Sedco Forex International Inc.
Transocean Conqueror Limited
Domicile
British Virgin Islands
United States
Switzerland
Cayman Islands
Cayman Islands
Cayman Islands
Transocean Deepwater Drilling Services Limited
Cayman Islands
Transocean Drilling Offshore S.a.r.l
Transocean Drilling U.K. Limited
Transocean Financing GmbH
Transocean Holdings 1 Limited
Transocean Holdings 2 Limited
Transocean Holdings 3 Limited
Transocean Hungary Holdings LLC
Transocean Norway Drilling AS
Luxembourg
Scotland
Switzerland
Cayman Islands
Cayman Islands
Cayman Islands
Hungary
Norway
Transocean Offshore Deepwater Drilling Inc.
United States
Transocean Offshore Deepwater Holdings Limited
Cayman Islands
Transocean Offshore Holdings Limited
Cayman Islands
Transocean Offshore International Ventures Limited
Cayman Islands
Transocean Partners Holdings Limited
Transocean Phoenix 2 Limited
Cayman Islands
Cayman Islands
Transocean Proteus Limited
Transocean Entities Holdings GmbH
Transocean Worldwide Inc.
Triton Asset Leasing GmbH
Triton Hungary Investments 1 LLC
Triton Nautilus Asset Leasing GmbH
Cayman Islands
Switzerland
Cayman Islands
Switzerland
Hungary
Switzerland
Ownership
and voting
interest
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
In
the year ended December 31, 2018, we
formed Transocean Guardian Limited, Transocean Pontus Limited and
Transocean Poseidon Limited in connection with the issuance of senior secured notes for the purpose of partially financing the
construction or acquisition of the respective collateral rig. We also formed Transocean Oceanus Holdings Limited in connection with the
acquisition of Ocean Rig. See Note 7— Guarantees and Commitments.
SR-6
TRANSOCEAN LTD.
NOTES TO STATUTORY FINANCIAL STATEMENTS—continued
Note 4—Shareholders’ Equity
Overview—Changes in our shareholder’s equity were as follows (in thousands):
Share capital
Statutory capital reserves
Free reserves
Shares
Amount
from capital
contribution
from capital
contribution for
shares held by
subsidiaries
(a)
Free capital
reserves
from capital
contribution
Own shares
against capital
reserve from
capital
contribution
Total
shareholders’
equity
Accumulated
loss
394,802 CHF
—
—
394,802 CHF
68,051
147,700
—
29
—
610,582 CHF
39,480 CHF 11,403,893 CHF
71,588 CHF
—
—
(51 )
—
51
—
39,480 CHF 11,403,842 CHF
6,805
526,084
71,639 CHF
—
— CHF
—
—
— CHF
—
14,770
—
3
—
(1,500,000 )
1,474,483
(1,356 )
287
—
—
1,356
—
—
1,500,000
—
—
—
—
61,058 CHF 11,903,340 CHF
72,995 CHF
1,500,000
CHF
(4,997,032 ) CHF
— CHF
6,517,929
—
(468,002)
—
—
—
(468,002))
(5,465,034 ) CHF
— CHF
6,049,927
—
—
—
—
(431,179)
(5,896,213 ) CHF
—
—
—
—
—
532,889
—
1,489,253
—
290
(431,179)
— CHF
7,641,180
Balance at December 31, 2016
Own share transactions
Net loss
Balance at December 31, 2017
Share issuance for Songa acquisition
Release of statutory capital reserves
from capital contribution
Share issuance for Ocean Rig acquisition
Own share transactions
Share issuance for debt conversions
Net loss
Balance at December 31, 2018
_______________________
a)
The statutory capital reserve from capital contribution for shares held by subsidiaries represents the aggregate cost of own shares held indirectly by Transocean Ltd.
through Transocean Inc. During the years ended December 31, 2018 and 2017, Transocean Inc. withheld 118,547 and 5,630 own shares, respectively, through a
broker arrangement in satisfaction of withholding taxes due by our employees upon the vesting of equity awards granted under our Long-Term Incentive Plan. For the
years ended December 31, 2018 and 2017, the aggregate value of own share transactions was CHF 1.4 million and CHF 51,000, respectively. See Note 5—Own
Shares.
Authorized share capital—In May 2016, at our annual general meeting, our shareholders approved an authorized share capital
in the amount of CHF 2.2 million, authorizing the issuance of a maximum of 22.3 million fully paid-in shares with a par value of
CHF 0.10 per share at any time until May 12, 2018.
In January 2018, in connection with the acquisition of Songa, shareholders at our extraordinary general meeting approved,
together with other proposals, the issuance of up to 68.6 million of our shares, par value CHF 0.10 each, tendered for a voluntary offer, and
an amendment of our articles of association to create additional authorized share capital to issue up to 25.4 million registered shares, par
value CHF 0.10 each, in connection with a compulsory acquisition of the remaining Songa shares not owned by us immediately after
completion of the voluntary offer.
In May 2018, shareholders at our annual general meeting renewed the board of directors’ authority to issue shares out of
authorized share capital for a further two-year period, expiring on May 18, 2020. The board of directors’ authority to issue shares in one or
several steps is limited to a maximum of 27.7 million shares.
In November 2018, in connection with the acquisition of Ocean Rig, shareholders at our extraordinary general meeting approved,
together with other proposals, an amendment of our articles of association to create additional authorized share capital, the issuance of up
to 147.7 million shares to pay the share consideration in the acquisition of Ocean Rig. The board of directors utilized the full authorization
less eight shares for the specified purpose; the remaining authorization is reflected in article 5ter of the Company’s articles of association
but may not be used for any purpose other than the already completed acquisition of Ocean Rig. The shareholders at the same
extraordinary general meeting approved the deletion of the previously approved special purpose authorized share capital, in connection
with the acquisition of Songa, included in article 5bis of the Company’s articles of association, which allowed for the issuance of up to
24.3 million shares.
Conditional share capital—Our articles of association provide for a conditional share capital that permits us to issue up to
143.8 million additional shares, under the following circumstances, without obtaining additional shareholder approval:
(1) through the exercise of conversion, exchange, option, warrant or similar rights for the subscription of shares granted in
connection with bonds, options, warrants or other securities newly or already issued in national or international capital
markets or new or already existing contractual obligations convertible into or exercisable or exchangeable for our shares or
the shares of one of our group companies or any of their respective predecessors; or
(2) in connection with the issuance of shares, options or other share-based awards to directors, employees, contractors,
consultants or other persons providing services to us.
In connection with the issuance of bonds, notes, warrants or other financial instruments or contractual obligations that are
convertible into, exercisable for or exchangeable for our registered shares, our board of directors is authorized to withdraw or limit the
advance subscription rights of shareholders under certain circumstances. In connection with the issuance of shares, options or other
share-based awards to directors, employees, contractors, consultants or other persons providing services to us, the preemptive rights and
SR-7
TRANSOCEAN LTD.
NOTES TO STATUTORY FINANCIAL STATEMENTS—continued
the advance subscription rights of shareholders are excluded. In the year ended December 31, 2018, we issued 28,795 shares out of
conditional share capital to holders that exercised their options to convert the Exchangeable Bonds into our shares.
Note 5—Own Shares
Overview—The following is a summary of changes in the registered shares (i) that were repurchased under our share
repurchase program for cancellation purposes, and (ii) held by Transocean Inc. to satisfy obligations under our share-based compensation
plans (in thousands, except percentages):
Balance at December 31, 2016
Transfers under share-based compensation plans
Balance at December 31, 2017
Transfers under share-based compensation plans
Balance at December 31, 2018
Own
shares
5,430
(1,880 )
3,550
(2,627 )
923
Total shares
issued
394,802
394,802
610,582
Percentage of
shares issued
1.38%
0.90%
0.15%
Share repurchase program—In May 2009, at our annual general meeting, our shareholders approved and authorized our
board of directors, at its discretion, to repurchase an amount of our shares for cancellation with an aggregate purchase price of up to
CHF 3.5 billion At December 31, 2018, the authorization remaining under the share repurchase program was for the repurchase of our
outstanding shares for an aggregate cost of up to CHF 3.2 billion. The share repurchase program may be suspended or discontinued by
our board of directors or company management, as applicable, at any time.
Shares held by subsidiaries—At December 31, 2017, Transocean Partners Holdings Ltd. (“TPHL”) held 95,830 of our shares.
On December 20, 2018, TPHL transferred its holdings of our shares to Transocean Inc. for a cash payment of CHF 1.3 million.
Transocean Inc. holds our shares to satisfy our obligations to deliver shares in connection with awards granted under our
incentive plans or other rights to acquire our shares. In the years ended December 31, 2018 and 2017, we transferred 2.6 million and
1.9 million shares, respectively, at historical cost, from the own shares held by Transocean Inc. to satisfy obligations under our
share-based compensation plans. In the years ended December 31, 2018 and 2017, we received cash proceeds of CHF 1.4 million and
CHF 53,000, respectively, for own shares transferred in exchange for equity awards exercised or withheld for taxes under our share-based
compensation plans.
Note 6—Share Ownership
Significant shareholders—Certain significant shareholders have reported to us that they held, directly or through their affiliates,
the following beneficial interests in excess of 5 percent of our issued share capital (in thousands, except percentages):
December 31, 2018
December 31, 2017
Name
The Vanguard Group.
BlackRock, Inc.
PRIMECAP Management Company
Frederik W. Mohn / Perestroika AS
Number of
shares
Percentage of
issued share
capital
48,850
46,561
33,892
33,137
8.01%
7.64%
5.56%
5.44%
Name
BlackRock, Inc.
Vanguard
Number of
shares
35,420
33,345
Percentage of
issued share
capital
9.10%
8.52%
Own shares—At December 31, 2018 and 2017, indirectly through Transocean Inc., we held 0.9 million and 3.6 million registered
shares, respectively, representing 0.2 percent and 0.9 percent, respectively, of our issued share capital. See Note 5—Own Shares.
SR-8
TRANSOCEAN LTD.
NOTES TO STATUTORY FINANCIAL STATEMENTS—continued
Shares held by board members—The number of shares held, including shares privately held, by members of our board of
directors was as follows:
Name
Merrill A. “Pete” Miller, Jr.
Glyn A. Barker
Vanessa C.L. Chang
Frederico F. Curado
Chad Deaton
Tan Ek Kia
Vincent J. Intrieri
Martin B. McNamara
Samuel Merksamer
Frederick W. Mohn (a)
Edward R. Muller
Jeremy D. Thigpen
Total
December 31, 2018
December 31, 2017
Vested
shares and
unvested
share units
107,734
87,902
91,596
76,154
82,896
85,664
81,394
—
82,130
33,136,694
101,280
1,483,755
35,417,199
Stock options
and
conversion
rights
—
—
—
—
—
—
—
—
—
34,619,736
—
780,522
35,400,258
Vested
shares and
unvested
share units
82,753
71,761
69,455
60,013
66,755
69,523
55,253
108,276
65,989
—
85,139
1,115,235
1,850,152
Stock
options
—
—
—
—
—
—
—
—
—
—
—
451,575
451,575
____________________________
a) Mr. Mohn and his related parties hold conversion rights associated with the Exchangeable Bonds, which may be converted at any time
prior to the maturity date at an exchange rate of 97.29756 shares per $1,000 note, equivalent to a conversion price of $10.28 per
share, subject to adjustment upon the occurrence of certain events. Holders of Exchangeable Bonds may require us to repurchase all
or a portion of such holder’s Exchangeable Bonds upon the occurrence of certain events.
Shares held by the executive management team—Our executive management team consists of the President and Chief
Executive Officer, the Executive Vice President and Chief Financial Officer and the Executive Vice President and Chief Operations Officer.
The number of shares held, including shares privately held, by members of our executive management team and their conditional rights to
receive shares under our share-based compensation plans were as follows:
Name
Jeremy D. Thigpen
Mark L. Mey
Keelan Adamson
John Stobart (a)
Total
Number of
granted share
units vesting
in 2019
325,052
137,309
67,259
99,016
December 31, 2018
Number of
granted share
units vesting
in 2020
399,656
155,895
77,370
57,225
Number of
shares held
430,285
223,316
85,898
—
739,499
628,636
690,146
Number of
granted share
units vesting
in 2021
Total
shares and
share units
Number of
shares held
54,467
21,009
10,427
—
85,903
1,209,460
537,529
240,954
156,241
2,144,184
156,784
95,204
—
84,854
336,842
Number of
granted share
units vesting
in 2018
471,428
223,977
—
169,379
864,784
December 31, 2017
Number of
granted share
units vesting
in 2019
Number of
granted share
units vesting
in 2020
Total
shares and
share units
270,586
116,301
—
116,747
503,634
37,633
16,258
—
16,318
936,431
451,740
—
387,298
70,209
1,775,469
_____________________________
a) Mr. Stobart was no longer designated as a member of the Executive Management Team, effective June 1, 2018. A prorated portion of restricted share units will be
released at date of termination, July 1, 2019. A prorated portion of performance share units will be released at actual performance for his 2017 and 2018 awards in
2020 and 2021, respectively.
In the table above, the number of granted share units vesting in future years represents the vesting of previously granted service
awards and performance awards in the form of share units. Total shares excludes vested but unissued shares for share units granted from
2016 to 2018, which are expected to be issued in the first quarter of 2019.
Stock options held by members of the executive management team—The members of our executive management team
held vested and unvested stock options as follows:
Number of
granted
stock options
vested and
outstanding
228,510
96,696
72,678
135,706
Number of
granted
stock options
vesting
in 2019
260,174
106,310
51,248
106,732
December 31, 2018
Number of
granted
stock options
vesting
in 2020
182,189
73,630
36,543
—
292,362
Number of
granted
stock options
vesting
in 2021
109,649
42,294
20,990
—
172,933
533,590
524,464
Name
Jeremy D. Thigpen
Mark L. Mey
Keelan Adamson
John Stobart (a)
Total
Total vested
and unvested
stock options
Number of
granted
stock options
vested and
outstanding
780,522
318,930
181,459
242,438
1,523,349
77,985
32,679
—
71,425
182,089
Number of
granted
stock options
vesting
in 2018
150,525
64,017
—
64,281
278,823
December 31, 2017
Number of
granted
stock options
vesting
in 2019
Number of
granted
stock options
vesting
in 2020
Total vested
and unvested
stock options
150,525
64,017
—
64,282
72,540
31,337
—
31,453
278,824
135,330
451,575
192,050
—
231,441
875,066
_____________________________
a) Mr. Stobart was no longer designated as a member of the Executive Management Team, effective June 1, 2018. Unvested options are forfeited at date of termination,
July 1, 2019. Vested options will remain exercisable for one year following date of termination.
SR-9
TRANSOCEAN LTD.
NOTES TO STATUTORY FINANCIAL STATEMENTS—continued
Shares granted—We granted the following service awards and performance awards to members of our board, members of our
executive management team and employees:
Name
Board members
Executive management team
Employees
Total
December 31, 2018
Value
of
share units
Number of
share units
granted
December 31, 2017
Value
of
share units
Number of
share units
granted
170,250 CHF
925,092
14,364
2,268,760
9,253,924
128,921
1,109,706 CHF 11,651,605
203,580 CHF 2,134,778
8,381,144
559,932
91,086
6,910
770,422 CHF 10,607,008
Note 7—Guarantees, Contingencies and Commitments
Transocean Inc. and other indirect subsidiaries debt obligations—Transocean Inc., Transocean Phoenix 2 Limited (“TP2L”),
Transocean Proteus Limited (“TPTL”), Transocean Pontus Limited (“TPOL”) and Transocean Guardian Limited (“TGLtd”) have each issued
certain debt securities or entered into other credit arrangements, including notes, bank credit agreements, debentures, surety bonds and
letters of credit. We have guaranteed certain of these debt securities or other credit arrangements. With certain exceptions under the
indentures of the senior secured notes issued by our subsidiaries, we are not subject to any significant restrictions on our ability to obtain
funds from our consolidated subsidiaries by dividends, loans or return of capital distributions. At December 31, 2018 and 2017, the
aggregate carrying amount of debt that we have guaranteed was USD 8.9 billion and USD 6.2 billion, respectively, equivalent to
approximately CHF 8.7 billion and CHF 6.0 billion, respectively. In the years ended December 31, 2018 and 2017, we recognized
guarantee fee income of less than CHF 1 million. See Note 9—Subsequent Events.
Macondo well litigation settlement obligations—On January 3, 2013, certain of our wholly owned subsidiaries reached
agreements with the U.S. Department of Justice (“DOJ”) to resolve certain matters arising from the Macondo well incident. The
agreements included a criminal plea, pursuant to which one of our subsidiaries pled guilty to one misdemeanor count of negligently
discharging oil in the U.S. Gulf of Mexico, in violation of the U.S. Clean Water Act, and a civil consent decree (the “Consent Decree”),
which resolved certain claims by the DOJ, the U.S. Environmental Protection Agency and the U.S. Coast Guard against certain of our
subsidiaries (the “Transocean Defendants”) and certain incidents of noncompliance that were alleged by the U.S. Bureau of Safety and
Environmental Agency. As part of this resolution, certain of our subsidiaries agreed to pay USD 1.4 billion, equivalent to approximately
CHF 1.3 billion, in fines, recoveries and civil penalties, excluding interest, payable in installments through February 2017. We agreed to
guarantee the scheduled installments and other obligations required of the Transocean Defendants, in exchange for a guarantee fee. The
guarantee fee, payable annually from January 1, 2014 to 2017, was equivalent to 1.76 percent of the weighted average daily outstanding
balance due by the Transocean Defendants over the prior year. In the year ended December 31, 2017, we recognized guarantee fee
income of less than CHF 1 million. See Note 9—Subsequent Events.
Transocean Management Services GmbH office
lease obligation—On June 26, 2018, Transocean Management
Services GmbH assumed responsibility for a lease obligation, originally entered into by its predecessor, Transocean Management Ltd., for
its former principal offices in Vernier, Switzerland. Under an uncommitted line of credit, Transocean Ltd. issued a surety bond in the full
amount of the lease obligation. At December 31, 2018 and 2017, our guarantee for the lease obligation was CHF 460,000.
Swiss value added tax—We are one of a group of Swiss entities, which are jointly and severally liable for the whole Swiss value
added tax amount due to the Swiss tax authorities by this group.
Note 8—Related Party Transactions
Transocean Inc.—Transocean Inc. holds our shares to satisfy, on our behalf, our obligation to deliver shares in connection with
awards granted under our incentive plans, warrants or other right to acquire our shares. At December 31, 2018, Transocean Inc. held
0.9 million shares. At December 31, 2017, Transocean Inc. and TPHL, together, held 3.6 million of our shares for this purpose.
We and Transocean Inc., as the borrower and lender, respectively, entered into a credit agreement dated June 1, 2011,
establishing a USD 2.0 billion revolving credit facility. At December 31, 2018 and 2017, we had borrowings of USD 134 million and
USD 53 million, respectively, equivalent to approximately CHF 132 million and CHF 52 million, respectively, outstanding under the
revolving credit facility at a rate of 3.0 percent and 2.5 percent, respectively.
On January 30, 2018, in connection with the acquisition of Songa, we issued to Transocean Inc. an exchangeable loan note in
the principal amount of USD 854 million with interest payable semiannually at a rate of 0.5 percent per annum. On March 28, 2018, we
issued a first supplemental indenture in the principal amount of USD 9 million. At December 31, 2018, the outstanding principal of the
exchangeable note was USD 863 million, equivalent to approximately CHF 847 million. Exchangeable loan notes may be converted at any
time prior to the maturity date at an exchange rate of 97.29756 shares per $1,000 note, equivalent to a conversion price of $10.28 per
share, subject to adjustment upon the occurrence of certain events. Holders of Exchangeable Bonds may require us to repurchase all or a
portion of such holder’s Exchangeable Bonds upon the occurrence of certain events.
SR-10
TRANSOCEAN LTD.
NOTES TO STATUTORY FINANCIAL STATEMENTS—continued
On November 30, 2018, in connection with the acquisition of Ocean Rig, we and Transocean Inc., as the borrower and lender,
respectively, entered into a credit agreement establishing a USD 1.2 billion revolving credit facility, expiring December 5, 2024. Under the
terms of the agreement, we will pay interest quarterly on outstanding borrowings at a variable rate based on the Swiss Safe Harbor Rate.
At December 31, 2018, we had borrowings of USD 1.2 billion, equivalent to CHF 1.2 billion, outstanding under the credit facility at an
interest rate of 3.0 percent.
Other subsidiaries—Our subsidiaries perform on our behalf certain general and administrative services, including executive
administration, procurement and payables, treasury and cash management, personnel and payroll, accounting and other administrative
functions. In the years ended December 31, 2018 and 2017, we recognized such costs of CHF 2 million and CHF 10 million, respectively,
recorded in general and administrative costs and expenses.
Note 9—Subsequent Events
Subsidiary debt obligations—Subsequent to December 31, 2018, Transocean Poseidon Limited, our indirect wholly owned
subsidiary, issued USD 550 million senior secured notes. We and Transocean Inc. have each provided a full and unconditional guarantee
of the senior secured notes.
Macondo well litigation settlement obligations—On January 2, 2019, as permitted under the Consent Decree, we submitted
an official termination request to the U.S. On February 6, 2019, the U.S. submitted a joint stipulation and proposed order (the “Order”) to
terminate the Consent Decree to the U.S. District Court for the Eastern District of Louisiana (the “Court”), and on February 13, 2019, the
Court entered the Order. Accordingly, the Consent Decree is terminated and has no further force or effect on the Company.
SR-11
TRANSOCEAN LTD.
PROPOSED APPROPRIATION OF THE ACCUMULATED LOSS
The board of directors proposes that shareholders at the annual general meeting in 2019 approve the following appropriation
(in thousands):
Balance brought forward from previous years
Net loss for the year
Total accumulated loss
Balance to be carried forward on this account
December 31,
2018
2017
CHF (5,465,034) CHF (4,997,032)
(468,002)
(431,179)
(5,896,213)
(5,465,034)
CHF(5,896,213) CHF (5,465,034)
Under Swiss law, the appropriation of available earnings or accumulated loss, as the case may be, as set forth in the Swiss
statutory financial statements must be submitted to shareholders for approval at each annual general meeting. The accumulated loss
subject to the vote of our shareholders at the 2019 Annual General Meeting is the accumulated loss of Transocean Ltd., on a standalone
basis.
SR-12
BOARD OF DIRECTORS
EXECUTIVE MANAGEMENT
Merrill A. “Pete” Miller, Jr.
Chairman
Transocean Ltd.
Glyn A. Barker
Former Vice Chairman – U.K.
PricewaterhouseCoopers LLP
Vanessa C.L. Chang
Director and shareholder of EL & EL
Investments, a privately held real
estate investment business
Frederico F. Curado
Former President and
Chief Executive Officer
Embraer S.A.
Chadwick C. Deaton
Former Executive Chairman and
Chief Executive Officer
Baker Hughes Incorporated
Edward R. Muller
Former Chairman, Chief Executive
Officer and President
GenOn Energy, Inc.
Vincent J. Intrieri
Founder and CEO of VDA Capital
Management LLC, a private invest-
ment fund
Tan Ek Kia
Former Chairman
Shell Northeast Asia
Jeremy D. Thigpen
President and Chief Executive Officer
Transocean Ltd.
Samuel J. Merksamer
Former Managing Director
Icahn Capital LP
Frederik W. Mohn
Former Chairman Songa Offshore SE
Sole Owner and Managing Director
of Perestroika AS
Jeremy D. Thigpen
President and
Chief Executive Officer
Mark L. Mey
Executive Vice President and
Chief Financial Officer
Keelan Adamson
Executive Vice President and
Chief Operations Officer
Howard E. Davis
Executive Vice President,
Chief Administrative Officer and
Chief Information Officer
Brady Long
Executive Vice President and
General Counsel
CORPORATE INFORMATION
Registered Address
Transocean Ltd.
Turmstrasse 30
CH-6312
Steinhausen, Switzerland
Phone: +41 (41) 749-0500
Transfer Agent and Registrar
Computershare
www.computershare.com
Online inquiries: www-us.computershare.com/investor/contact
Shareholder inquiries:
Computershare
P.O. Box 505000
Louisville, Kentucky 40233-5000
1-877-397-7229
+1 201-680-6570 (for callers outside the United States)
Overnight correspondence:
Computershare
462 South 4th Street
Suite 1600
Louisville, Kentucky 40233-5000
Proxy solicitor
Georgeson LLC
1290 Avenue of the Americas, 9th Floor
New York, New York 10104
Independent Registered Public Accounting Firm
Ernst & Young LLP
Houston, Texas
Swiss Auditor
Ernst & Young Ltd.
Zurich, Switzerland
Financial Information
Financial analysts and shareholders should visit the company’s website at:
www.deepwater.com, or call Investor Relations at +1 713-232-7500 for
information about Transocean Ltd.
NYSE Annual CEO Certification and Sarbanes-
Oxley Section 302 Certifications
We submitted the annual chief executive officer certification to the NYSE
as required under the corporate governance rules. We also filed the chief
executive officer certifications required under section 302 of the Sarbanes-
Oxley Act of 2002 as an exhibit to our 2018 Annual Report on Form 10-K.
Stock Exchange Listing
Transocean Ltd. shares are listed on the New York Stock Exchange (“NYSE”) under the
symbol RIG. The following table represents the intraday high and low per-share prices
as reported on the NYSE for the periods indicated.
NYSE (USD)
2018
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
HIGH
12.40
14.16
14.34
14.47
LOW
8.70
9.36
10.40
6.19
HIGH
16.16
13.04
10.84
11.78
LOW
11.69
7.67
7.20
9.33
Performance Graph1
The graph below compares the cumulative total shareholder return of our shares,
the Standard & Poor’s 500 Stock Index (“S&P 500”), the Standard & Poor’s
MidCap 400 Index (“S&P MidCap 400”) and the Philadelphia Oil Service Sector
Index (“OSX”) over our last five fiscal years. In 2017, the Company moved to
the S&P MidCap 400 from the S&P 500 due to a market capitalization below
$4.5 billion. The graph assumes that $100 was invested in our shares, the S&P
500 and the S&P MidCap 400, and the OSX on December 31, 2013, and that all
dividends were reinvested on the date of payment.
Indexed Cumulative Total Shareholder Return
December 31, 2013 - December 31, 2018
200
150
100
50
0
S&P 500
S&P MidCap 400
OSX
RIG
31-Dec-13
31-Dec-14
31-Dec-15
31-Dec-16
31-Dec-17
31-Dec-18
DATE
S&P 500
DEC-13
DEC-14
DEC-15
DEC-16
DEC-17
DEC-18
$100.00
$113.68
$115.24
$129.02
$157.17
$150.27
S&P 400 Mid Cap
$100.00
$109.74
$107.34
$129.60
$150.63
$133.91
OSX Index
$100.00
$76.46
$58.59
$69.71
$57.71
$31.62
RIG
$100.00
$40.07
$28.76
$34.24
$24.81
$16.12
1The above Performance Graph and related information shall not be deemed “soliciting material” or to be
“filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the
Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we
specifically incorporate it by reference into such filing.
3/4/19 4:02 PM
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