Transocean Nets $249.5M in Q2, Announces Share Repurchase



Transocean Inc. said that its net income for the three months ended June 30, 2006, was $249.5 million, or $0.75 per diluted share, on revenues of $853.3 million. The results compare to net income of $301.8 million, or $0.90 per diluted share, on revenues of $727.4 million for the corresponding three months in 2005.

Net income for the three months ended June 30, 2006, included after-tax gains totaling $110.7 million, or $0.33 per diluted share, resulting from the sale of the semisubmersible rig Transocean Explorer, idle since January 1999, and the drilling barge Searex XII. Net income for the corresponding three months in 2005 included after-tax gains of $165.0 million, or $0.49 per diluted share, resulting from the sale of TODCO common stock and $9.1 million, or $0.03 per diluted share, resulting from the sale of two rigs.

For the six months ended June 30, 2006, net income totaled $455.2 million, or $1.36 per diluted share, on revenues of $1,670.6 million, compared to net income of $393.6 million, or $1.18 per diluted share, on revenues of $1,357.9 million for the six months ended June 30, 2005. Net income for the six months ended June 30, 2006, included after-tax gains totaling $153.6 million, or $0.46 per diluted share, resulting from the sale of the Transocean Explorer, Searex XII, the drillship Peregrine III, and a platform rig. Net income for the corresponding six months in 2005 included the previously mentioned gain from the sale of TODCO common stock, after-tax gains of $27.9 million, or $0.08 per share, resulting from the sale of three rigs and a loss of $6.7 million, or $0.02 per diluted share, resulting from the early retirement of debt.

During the three months ended June 30, 2006, the company repurchased and retired $400 million of its ordinary shares, or 5.2 million shares at an average price of $76.23 per share, pursuant to the share repurchase program that was initially authorized by the company's Board of Directors in October 2005 at $2.0 billion and increased in May 2006 to $4.0 billion. During July 2006, the company repurchased and retired an additional $400 million of its ordinary shares, or 5.2 million shares at an average price of $77.00 per share. At July 31, 2006, the company had repurchased and retired a total of $1.4 billion of its ordinary shares, or 19.0 million shares at an average price of $73.54 per share, and still had authority to repurchase up to an additional $2.6 billion of its ordinary shares under the terms of the share repurchase program.

Robert L. Long, President and Chief Executive Officer of Transocean Inc., stated: "Financial results for the second quarter and first six months of 2006 were at levels consistent with our previous guidance. The growth in revenues reflects the excellent contract signings seen over the past 18 months, partially offset by increased fleet out-of-service time and higher operating and maintenance expenses, including the costs associated with three rig reactivations. The second half of 2006 is expected to see additional improvement in financial results as revenues continue to grow. Operating revenues for each of the third and fourth quarters of 2006 are expected to be at record levels with the fourth quarter exceeding $1.0 billion for the first time in the company's history, while operating and maintenance expenses for each of the third and fourth quarters of 2006 are expected to approximate the level of expenses reported for the second quarter of 2006. With strong demand for our fleet of mobile offshore drilling rigs in both the domestic and international market sectors, the company's contract backlog has grown to approximately $19.4 billion at July 31, 2006, up from approximately $10.9 billion at December 31, 2005."

Operations Quarterly Review

Revenues for the three months ended June 30, 2006 increased 4% to $853.3 million, compared to revenues of $817.3 million during the three months ended March 31, 2006. The revenue improvement was primarily attributable to higher dayrates experienced throughout the fleet. The semisubmersible rig Transocean Marianas completed its first full quarter of operation since sustaining damage in September 2005 during Hurricane Rita and the semisubmersible rig Jim Cunningham and jackup rig Trident IV experienced improved utilization in the second quarter of 2006 following mobilizations to new regions during the first quarter of 2006. The improvement in revenues was partially offset by planned out-of-service time on 13 rigs, and in the case of the drillship Deepwater Frontier, mobilization of the rig from Brazil to India ahead of the commencement of a multi-year contract. The out-of-service time contributed to a slight decline in fleet utilization during the three months ended June 30, 2006 to 81% from 82% during the first quarter of 2006. Over the same comparative period, the average fleet dayrate improved 8% to an average of $129,000 from an average of $119,600, due chiefly to 12% and 7% improvements in average dayrates among the company's High-Specification and Other Floaters fleets, respectively.

Operating income before general and administrative expenses totaled $312.6 million, and field operating income (defined as revenues less operating and maintenance expenses) was $304.0 million for the three months ended June 30, 2006. The results compare to operating income before general and administrative expenses and field operating income of $304.8 million and $342.3 million, respectively, during the three months ended March 31, 2006. The decline in field operating income was primarily attributable to an increase in operating and maintenance expenses during the second quarter of 2006, which totaled $549.3 million compared to $475.0 million in the first quarter of 2006. Approximately $20 million of the increase in operating and maintenance expenses, compared to the first quarter of 2006, related to the continuation of reactivation programs on the semisubmersible rigs Transocean Prospect, Transocean Winner and C.K. Rhein, Jr. Another $45 million was associated with shipyard programs on 13 rigs, as well as an increase in major maintenance projects on a number of active rigs. A weak U.S. dollar and increases in the cost for rig supplies, personnel and insurance contributed further to this increase in operating and maintenance expenses in the second quarter of 2006.

Liquidity

Cash flow from operations totaled $443.8 million for the six months ended June 30, 2006. Total debt at June 30, 2006 was $1,596.0 million, effectively level with total debt reported at March 31, 2006. Although the company had not drawn against its $1.0 billion revolving credit facility at June 30, 2006, approximately $360 million was drawn against the facility at July 31, 2006, with the primary use of the proceeds to fund rig construction programs and the repurchase of company ordinary shares.

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