Transocean Ltd. 10-K

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 on Form 10-K. The following discussion of our results of operations and liquidity and capital resources includes comparisons for the years ended December 31, 2020 and 2019. For a discussion, including comparisons, of our results of operations and liquidity and capital resources for the years ended December 31, 2019 and 2018, see “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the year ended December 31, 2019, filed with the United States (“U.S.”) Securities and Exchange Commission on February 18, 2020. Business Transocean Ltd. (together with its subsidiaries and predecessors, unless the context requires otherwise, “Transocean,” “we,” “us” or “our”) is a leading international provider of offshore contract drilling services for oil and gas wells. As of February 16, 2021, we owned or had partial ownership interests in and operated 37 mobile offshore drilling units, including 27 ultra-deepwater floaters and 10 harsh environment floaters. As of February 16, 2021, we were constructing two ultra-deepwater drillships. 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 Debt exchanges —On August 14, 2020, we issued $238 million aggregate principal amount of 2.50% senior guaranteed exchangeable bonds due January 2027 (the “Senior Guaranteed Exchangeable Bonds”) in non-cash private exchanges for $397 million aggregate principal amount of the 0.50% exchangeable senior bonds due January 2023 (the “Exchangeable Senior Bonds”) (collectively, the “Private Exchange”). In the year ended December 31, 2020, as a result of the Private Exchange, we recognized a gain of $72 million associated with the restructuring of debt. See “—Operating Results” and “—Liquidity and Capital Resources—Sources and uses of liquidity.” On September 11, 2020, we issued $687 million aggregate principal amount of 11.50% senior guaranteed notes due January 2027 (the “11.50% Senior Guaranteed Notes”) in non-cash exchange transactions with the respective holders for $1.5 billion aggregate principal amount of several series of our existing debt securities that were validly tendered and accepted for purchase (the “Exchange Offers” and, together with the Private Exchange, the “Exchange Transactions”), associated with the restructuring of debt. In the year ended December 31, 2020, as a result of the Exchange Offers, we recognized a gain of $355 million associated with the restructuring of debt. See “—Operating Results” and “—Liquidity and Capital Resources—Sources and uses of liquidity.” On February 26, 2021, we completed privately negotiated transactions to exchange $323 million aggregate principal amount of outstanding Exchangeable Senior Bonds for $294 million aggregate principal amount of new 4.00% Senior Guaranteed Exchangeable Bonds due 2025 (the “New Senior Guaranteed Exchangeable Bonds”) and an aggregate cash payment of $11 million. See “—Liquidity and Capital Resources—Sources and uses of liquidity.” Early debt retirement —On February 18, 2020, we made an aggregate cash payment of $767 million, including the make-whole premium, to redeem the outstanding 9.00% senior notes due July 2023 (the “9.00% Senior Notes”). In the year ended December 31, 2020, we recognized a loss of $65 million associated with the retirement of redeemed debt. See “—Operating Results” and “—Liquidity and Capital Resources—Sources and uses of liquidity.” During the year ended December 31, 2020, we repurchased in the open market $147 million aggregate principal amount of certain of our debt securities and made an aggregate cash payment of $110 million. In the year ended December 31, 2020, we recognized an aggregate net gain of $36 million, associated with the retirement of repurchased debt. See “—Operating Results” and “—Liquidity and Capital Resources—Sources and uses of liquidity.” On November 9, 2020, we completed cash tender offers (the “2020 Tender Offers”) to purchase (i) any and all of the outstanding 6.50% senior notes due November 2020 and (ii) up to $200 million in aggregate purchase price of the 6.375% senior notes due December 2021, 3.80% senior notes due October 2022, the 5.375% senior secured notes due May 2023 (“5.375% Senior Secured Notes”) and the 7.25% senior notes due November 2025 (the “7.25% Guaranteed Notes”), subject to certain conditions specified in the related offer - 26 - Table of Contents to purchase. In the year ended December 31, 2020, as a result of the 2020 Tender Offers, we made an aggregate cash payment of $222 million and recognized a gain of $135 million associated with the retirement of such notes. See “—Operating Results” and “—Liquidity and Capital Resources—Sources and uses of liquidity.” Debt issuances —On January 17, 2020, we issued $750 million aggregate principal amount of 8.00% senior notes due February 2027 (the “8.00% Guaranteed Notes”), and we received aggregate cash proceeds of $743 million, net of issue costs. See “—Liquidity and Capital Resources—Sources and uses of liquidity.” Debt exchange litigation and purported notice of default —In September 2020, funds managed by, or affiliated with, Whitebox Advisors LLC (“Whitebox”) as holders of certain series of our notes subject to the Exchange Offers, filed a claim (the “Claim”) in the U.S. District Court for the Southern District of New York (the “Court”) related to certain internal reorganization transactions (the “Internal Reorganization”) and the Exchange Offers. Additionally, in September and October 2020, Whitebox and funds managed by, or affiliated with, Pacific Investment Management Company LLC (“PIMCO”) as debtholders, together with certain other advisors and debtholders, provided purported notices of alleged default with respect to the indentures governing, respectively, the 8.00% Guaranteed Notes and the 7.25% Guaranteed Notes. Following our amendment of certain of our financing documents and certain internal reorganization transactions, we do not expect the liability, if any, resulting from these matters to have a material adverse effect on our consolidated financial statements. See “—Liquidity and Capital Resources—Sources and uses of liquidity.” Customer settlement —In June 2020, we entered into a settlement and mutual release agreement with a customer, which provided for the final settlement of disputes. In connection with the settlement, among other things, our customer agreed to pay us $185 million in four equal installments through January 15, 2023. See “—Operating Results.” Impairments —In the year ended December 31, 2020, we recognized an aggregate loss of $556 million primarily associated with the impairment of one ultra-deepwater floater, two harsh environment floaters and three midwater floaters, along with related assets, which we determined were impaired at the time we classified the assets as held for sale. In the year ended December 31, 2020, we recognized a loss of $59 million, which had no tax effect, recorded in other, net, associated with the impairment of our investment in Orion Holdings (Cayman) Limited (together with its subsidiary, “Orion”). In the year ended December 31, 2020, we recognized a loss of $31 million associated with the impairment of our midwater asset group. See “—Operating Results.” Dispositions —During the year ended December 31, 2020, we completed the sale of one ultra-deepwater floater, three harsh environment floaters and three midwater floaters, along with related assets, and we received $20 million in aggregate net cash proceeds. See “—Operating Results” and “—Liquidity and Capital Resources.” Outlook Drilling market —Since 2014, the industry has experienced a severe cyclical downturn of considerably longer duration than those previously observed. Multiple years of volatile and generally weak commodity prices, exacerbated in 2020 by the effects of the coronavirus (“COVID-19”) pandemic and production disputes among major oil producing countries, have resulted in our customers repeatedly delaying offshore investment decisions and postponing exploration and development programs. Some of our customers have also recently committed to invest or increase investment in low carbon and renewable energy resources, potentially reducing their expenditures in the development and production of hydrocarbons over the coming decades. However, even in the context of some diversion of investment away from traditional sources of energy, the structural efficiency gains achieved by the offshore oil and gas segment in the past six years have materially improved the economics of deepwater offshore development projects, making the segment a competitive source of new supply. We anticipate that the subdued level of contract activity will continue for at least the first half of 2021, although we believe that by the second half of 2021, our customers will again focus on favorable deepwater offshore economics and begin increasing their exploration, production and reserve replacement activities by restarting delayed projects and commencing new campaigns. This depends on many variables, including global amelioration of the COVID-19 pandemic, and the effects of actions by some governments and regulators intended to curtail existing and future drilling activities, and other factors. Ultimately, as the hydrocarbon supply-demand balance improves, including as the result of a post-pandemic global economic recovery, we expect a sustained improvement of oil prices, which will result in greater demand for our high-specification fleet of assets, resulting in further improvement of dayrates. In markets requiring harsh environment floating drilling rigs, the limited supply of these specialized high-specification rigs has continued to result in strong utilization and dayrates. In the ultra-deepwater markets, we have seen accelerated retirement of idle rigs, and with the anticipated consolidation of distressed drilling contractors, we expect additional retirements will reduce supply and improve utilization and dayrate metrics for high-specification assets. As of February 12, 2021, our contract backlog was $7.8 billion compared to $8.2 billion as of October 14, 2020. The risks of drilling project delays, contract renegotiations and contract terminations and cancellations have diminished as oil prices have improved and stabilized. 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 or is not committed to - 27 - Table of Contents a shipyard. The uncommitted fleet rates exclude the effect of priced options. As of February 12, 2021, uncommitted fleet rates for each of the five years in the period ending December 31, 2025 were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2022 2023 2024 2025 Uncommitted fleet rate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Ultra-deepwater floaters ​ 61 % ​ 74 % ​ 79 % ​ 83 % ​ 83 % ​ Harsh environment floaters ​ 32 % ​ 55 % ​ 76 % ​ 97 % ​ 100 % ​ Performance and Other Key Indicators 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. 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. The contract backlog for our fleet was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ February 12, ​ October 14, ​ February 14, ​ 2021 2020 2020 Contract backlog ​ (In millions) Ultra-deepwater floaters ​ $ 5,911 $ 6,061 $ 7,282 ​ Harsh environment floaters ​ ​ 1,931 ​ ​ 2,156 ​ ​ 2,836 ​ Midwater floaters ​ ​ — ​ ​ — ​ ​ 45 ​ Total contract backlog $ 7,842 $ 8,217 $ 10,163 ​ We believe our industry leading contract backlog sets us apart from the competition. 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. It does not include conditional agreements and options to extend firm commitments. Our contract backlog includes amounts associated with our contracted newbuild unit that is currently under construction but excludes amounts related to the conditional agreement we have for our second newbuild unit 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. 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 operations commence. At February 12, 2021, the contract backlog and average contractual dayrates for our fleet were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ending December 31, ​ ​ ​ ​ Total 2021 2022 2023 2024 Thereafter Contract backlog ​ (In millions, except average dayrates) Ultra-deepwater floaters $ 5,911 $ 1,306 $ 1,047 ​ $ 948 ​ $ 861 ​ $ 1,749 ​ Harsh environment floaters ​ ​ 1,931 ​ ​ 794 ​ ​ 714 ​ ​ 384 ​ ​ 39 ​ ​ — ​ Total contract backlog $ 7,842 $ 2,100 $ 1,761 ​ $ 1,332 ​ $ 900 ​ $ 1,749 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average contractual dayrates ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Ultra-deepwater floaters $ 418,000 $ 380,000 $ 364,000 ​ $ 419,000 ​ $ 471,000 ​ $ 471,000 ​ Harsh environment floaters ​ $ 406,000 $ 369,000 $ 439,000 ​ $ 435,000 ​ $ 423,000 ​ $ — ​ Total fleet average ​ $ 415,000 $ 375,000 $ 391,000 ​ $ 424,000 ​ $ 468,000 ​ $ 471,000 ​ 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 may be available to our customers under certain circumstances. The COVID-19 pandemic and the volatility in oil prices in the year ended December 31, 2020, which have included precipitous drops in oil prices, could have significant adverse consequences for the financial condition of our customers. This could result in contract cancellations, early terminations, customers seeking price reductions or more favorable economic terms, a reduced ability to ultimately collect receivables, or entry into lower dayrate contracts or having to idle, stack or retire more of our rigs. See “Part I. Item 1A. Risk Factors—Risks related to our business—Our current backlog of contract drilling revenues may not be fully realized.” Average daily revenue —Average daily revenue is defined as contract drilling revenues, excluding revenues for contract terminations, reimbursements and contract intangible amortization, earned per operating day. An operating day is defined as a calendar day - 28 - Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years ended December 31, ​ ​ 2020 2019 2018 Average daily revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Ultra-deepwater floaters ​ $ 324,500 $ 337,900 ​ $ 356,700 ​ Harsh environment floaters ​ $ 339,600 ​ $ 298,500 ​ $ 296,400 ​ Deepwater floaters ​ $ — ​ $ — ​ $ 186,700 ​ Midwater floaters ​ $ 111,400 $ 118,400 ​ $ 99,900 ​ High-specification jackups ​ $ — ​ $ — ​ $ 152,900 ​ Total fleet average daily revenue ​ $ 327,500 $ 313,400 ​ $ 296,200 ​ Our average daily revenue fluctuates relative to market conditions and our revenue efficiency. The average daily revenue may be affected by revenues for lump sum bonuses or demobilization fees received from our customers. 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 no longer operate deepwater floaters, midwater floaters or high-specification jackups. 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, 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 for 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, ​ ​ ​ 2020 2019 2018 Revenue efficiency ​ ​ ​ ​ ​ ​ Ultra-deepwater floaters ​ 97 % 99 % 96 % Harsh environment floaters ​ 95 % 95 % 94 % Deepwater floaters ​ — % — % 94 % Midwater floaters ​ 86 % 99 % 98 % High-specification jackups ​ — % — % 100 % Total fleet average revenue efficiency ​ 96 % 97 % 95 % Revenue efficiency measures our ability to ultimately convert our contractual opportunities into revenues. 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. Our revenue efficiency rate is also affected by incentive performance bonuses or penalties. 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, ​ ​ ​ 2020 2019 2018 Rig utilization ​ ​ ​ ​ Ultra-deepwater floaters ​ 59 % 51 % 48 % Harsh environment floaters ​ 73 % 78 % 82 % Deepwater floaters ​ — % — % 93 % Midwater floaters ​ 37 % 37 % 41 % High-specification jackups ​ — % — % 97 % Total fleet average rig utilization ​ 62 % 58 % 59 % 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. Accordingly, our rig utilization can increase when idle or stacked units are removed from our drilling fleet. - 29 - Table of Contents Operating Results Year ended December 31, 2020 compared to the year ended December 31, 2019 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ 2019 ​ Change % Change ​ ​ ​ ​ (In millions, except day amounts and percentages) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating days ​ ​ ​ 9,169 ​ ​ 9,872 ​ ​ ​ (703) ​ (7) % Average daily revenue ​ ​ $ 327,500 ​ ​ $ 313,400 ​ ​ $ 14,100 ​ 4 % Revenue efficiency ​ ​ ​ 96 % ​ ​ 97 % ​ ​ ​ ​ ​ ​ Rig utilization ​ ​ ​ 62 % ​ ​ 58 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contract drilling revenues ​ ​ $ 3,152 ​ ​ $ 3,088 ​ ​ $ 64 ​ 2 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating and maintenance expense ​ ​ ​ (2,000) ​ ​ ​ (2,140) ​ ​ ​ 140 ​ 7 % Depreciation and amortization expense ​ ​ ​ (781) ​ ​ ​ (855) ​ ​ ​ 74 ​ 9 % General and administrative expense ​ ​ ​ (183) ​ ​ ​ (193) ​ ​ ​ 10 ​ 5 % Loss on impairment ​ ​ ​ (597) ​ ​ ​ (609) ​ ​ ​ 12 ​ 2 % Loss on disposal of assets, net ​ ​ ​ (84) ​ ​ ​ (12) ​ ​ ​ (72) ​ nm ​ Operating loss ​ ​ ​ (493) ​ ​ ​ (721) ​ ​ ​ 228 ​ 32 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense), net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income ​ ​ ​ 21 ​ ​ ​ 43 ​ ​ ​ (22) ​ (51) % Interest expense, net of amounts capitalized ​ ​ ​ (575) ​ ​ ​ (660) ​ ​ ​ 85 ​ 13 % Gain (loss) on restructuring and retirement of debt ​ ​ ​ 533 ​ ​ ​ (41) ​ ​ ​ 574 ​ nm ​ Other, net ​ ​ ​ (27) ​ ​ ​ 181 ​ ​ ​ (208) ​ nm ​ Loss before income tax expense ​ ​ ​ (541) ​ ​ ​ (1,198) ​ ​ ​ 657 ​ 55 % Income tax expense ​ ​ ​ (27) ​ ​ ​ (59) ​ ​ ​ 32 ​ 54 % Net loss ​ ​ $ (568) ​ ​ $ (1,257) ​ ​ $ 689 ​ 55 % “nm” means not meaningful. Contract drilling revenues —Contract drilling revenues increased for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to the following: (a) $177 million resulting from the settlement of disputes in the year ended December 31, 2020, (b) approximately $110 million resulting from the reactivations of two ultra-deepwater floaters in Brazil in the year ended December 31, 2019, (c) approximately $55 million resulting from higher dayrates on our comparable active fleet, (d) approximately $50 million resulting from the operations of the harsh environment floater that we operate under a bareboat charter that commenced in August 2019, (e) approximately $37 million resulting from reimbursement revenues related to COVID-19, (f) approximately $30 million resulting from the early termination of a contract for the convenience of our customers and (g) approximately $25 million resulting from higher revenue efficiency on the comparable active fleet. These increases were partially offset by the following decreases: (a) approximately $170 million resulting from rigs stacked, (b) approximately $140 million resulting from decreased activity on the comparable active fleet, (c) approximately $60 million resulting from rigs sold or classified as held for sale and (d) approximately $45 million resulting from lower reimbursement revenues unrelated to COVID-19. Costs and expenses —Operating and maintenance costs and expenses decreased for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to the following: (a) approximately $80 million resulting from rigs stacked, (b) approximately $75 million resulting from reduced shipyard, personnel and in-service maintenance costs on the comparable active fleet, (c) approximately $65 million resulting from rigs sold or classified as held for sale, (d) approximately $45 million resulting from resulting from lower customer reimbursable costs unrelated to COVID-19 and (e) approximately $40 million resulting from optimized onshore personnel costs. These decreases were partially offset by the following increases: (a) approximately $70 million resulting from the operations of the harsh environment floater that we operate under a bareboat charter that commenced in August 2019, (b) approximately $65 million resulting from personnel and related costs associated with mitigating the effect of the COVID-19 pandemic and (c) approximately $30 million resulting from the reactivations of two ultra-deepwater floaters in Brazil in the year ended December 31, 2019. Depreciation and amortization expense decreased for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to approximately $65 million resulting from rigs sold or classified as held for sale and approximately $20 million resulting from assets that had reached the end of their useful lives or had been retired, partially offset by approximately $20 million resulting from assets placed into service. General and administrative expense decreased for the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to the following: (a) approximately $7 million resulting from personnel and other costs related to the integration of Ocean Rig UDW Inc. (“Ocean Rig”) in the year ended December 31, 2019, (b) approximately $5 million resulting from reduced legal and professional fees and (c) approximately $5 million resulting from reduced office rent expense. These decreases were partially offset by the following - 30 - Table of Contents increases: (a) approximately $5 million resulting from increased insurance costs and (b) approximately $3 million resulting from increased software licensing and subscription arrangements. Loss on impairment or disposal of assets —In the year ended December 31, 2020, we recognized a loss on the impairment of assets, including an aggregate net loss of $556 million associated with assets that we determined were impaired at the time we classified them as held for sale, a loss of $31 million associated with the impairment of our midwater floater asset group and a loss of $10 million associated with the impairment of other assets . In the year ended December 31, 2019, we recognized an aggregate loss of $583 million, primarily associated with certain assets that we determined were impaired at the time we classified them as held for sale, and an aggregate loss of $26 million associated with the impairment of right-of-use assets and leasehold improvements. In the year ended December 31, 2020, we recognized an aggregate loss of $61 million associated with the sale of one ultra-deepwater floater, three harsh environment floaters and three midwater floaters, along with related assets. In the year ended December 31, 2019, we recognized an aggregate gain of $4 million associated with the sale of six ultra-deepwater floaters, one harsh environment floater, two deepwater floaters and two midwater floaters, along with related assets. In the years ended December 31, 2020 and 2019, we recognized an aggregate loss of $23 million and $16 million, respectively, associated with the disposal of assets unrelated to rig sales. Other income and expense —Interest expense, net of amounts capitalized, decreased in the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to a decrease of $155 million resulting from the debt retired, repaid or restructured, partially offset by an increase of $78 million primarily resulting from debt issued. In the year ended December 31, 2020, we recognized a net gain on restructuring and retirement of debt, primarily due to the following: (a) an aggregate gain of $427 million associated with the restructuring of debt in the Exchange Transactions, (b) an aggregate gain of $135 million associated with the retirement of $360 million aggregate principal amount of our debt securities in the 2020 Tender Offers, (c) an aggregate gain of $36 million associated with the retirement of $147 million aggregate principal amount of our debt securities repurchased in the open market, partially offset by (d) a loss of $65 million associated with the full redemption of the 9.00% Senior Notes due July 2023. In the year ended December 31, 2019, we recognized a net loss on retirement of debt, including a loss of $23 million resulting from the retirement of $434 million aggregate principal amount of our debt securities repurchased in the open market and a loss of $18 million resulting from retirement of validly tendered notes (the “2019 Tendered Notes”). Other expense, net, increased in the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily due to the following: (a) a gain of $132 million recognized in the prior year resulting from the termination of construction contracts, (b) a loss of $59 million recognized in the year ended December 31, 2020, associated with the impairment of our equity-method investment in Orion, (c) increased net periodic benefit costs of $14 million primarily from settlement of certain defined benefit plans in Norway, (d) increased loss of $10 million resulting from net changes in currency exchange rates and (e) a gain of $11 million recognized in the prior year resulting from the bargain purchase of Ocean Rig completed in the year ended December 31, 2018, partially offset by (f) increased income of $9 million related to our investment in Orion and (g) increased income of $5 million related to our dual-activity patent. Income tax expense —In the years ended December 31, 2020 and 2019, our effective tax rate was (5.1) percent and (4.9) percent, respectively, based on loss before income tax expense. In the years ended December 31, 2020 and 2019, discrete period tax items represented a net tax benefit of $91 million and $150 million, respectively. In the year ended December 31, 2020, we identified certain discrete items, such as losses on impairment and disposal of assets, gain on restructuring and retirement of debt, revenues recognized for the settlement of disputes, the loss on impairment of an investment in an unconsolidated affiliate, the carryback of net operating losses in the U.S. as a result of the Coronavirus Aid, Relief, and Economic Security Act, which included the release of valuation allowances previously recorded, settlements and expirations of various uncertain tax positions and accruals for withholding taxes. In the year ended December 31, 2019, we identified certain discrete items, such as losses on impairment and disposal of assets, settlements and expirations of various uncertain tax positions and adjustments to our deferred taxes for operating structural changes made in the U.S. In the years ended December 31, 2020 and 2019, our effective tax rate, excluding discrete items, was (23.4) percent and (30.7) percent, respectively, based on loss before income tax expense. Our effective tax rate increased in the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to a decreased loss before income taxes, partially offset by tax benefits for the carryback of net operating losses in the U.S. as a result of the Coronavirus Aid, Relief, and Economic Security Act, which included the release of previously recorded valuation allowances, settlements and expirations of uncertain tax positions, and adjustments to our deferred taxes for operating structural changes in the U.S., offset by tax expense for an increase in the withholding tax rate in Angola and an increase in loss before income tax expense. Due 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, 2020, 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 the U.S., Switzerland, Brazil, the United Kingdom and Norway. Our rig operating structures further - 31 - Table of Contents complicate our tax calculations, especially in instances where we have more than one operating structure for the taxing jurisdiction and, thus, more than one method of calculating taxes depending on the operating structure utilized by the rig under the contract. Liquidity and Capital Resources Sources and uses of cash At December 31, 2020, we had $1.2 billion in unrestricted cash and cash equivalents and $406 million in restricted cash and cash equivalents. In the year ended December 31, 2020, our primary sources of cash were net cash proceeds from the issuance of debt and net cash provided by operating activities. Our primary uses of cash were repayments of debt and capital expenditures. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years ended ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ 2020 2019 Change ​ ​ (In millions) Cash flows from operating activities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss ​ $ (568) $ (1,257) $ 689 ​ Non-cash items, net ​ ​ 1,380 ​ ​ 1,898 ​ ​ (518) ​ Changes in operating assets and liabilities, net ​ ​ (414) ​ ​ (301) ​ ​ (113) ​ ​ ​ $ 398 $ 340 $ 58 ​ Net cash provided by operating activities increased primarily due to reduced operating activities and reduced cash paid for interest and taxes, partially offset by an aggregate cash payment of $125 million released from restricted cash accounts in June 2020 to satisfy our remaining obligations under the Plaintiff Steering Committee settlement agreement (the “PSC Settlement Agreement”). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years ended ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ 2020 2019 Change ​ ​ (In millions) Cash flows from investing activities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Capital expenditures ​ $ (265) $ (387) $ 122 ​ Proceeds from disposal of assets, net ​ ​ 24 ​ ​ 70 ​ ​ (46) ​ Investments in unconsolidated affiliates ​ ​ (19) ​ ​ (77) ​ ​ 58 ​ Proceeds from maturities of unrestricted and restricted investments ​ ​ 5 ​ ​ 123 ​ ​ (118) ​ Other, net ​ ​ (2) ​ ​ 3 ​ ​ (5) ​ ​ ​ $ (257) $ (268) $ 11 ​ Net cash used in investing activities decreased primarily due to (a) reduced capital expenditures and (b) reduced investments in unconsolidated affiliates, including Orion and certain companies involved in, among other things, researching and developing technology to improve efficiency and reliability and to increase automation, sustainability and safety, partially offset by (c) reduced proceeds from maturities of restricted and unrestricted investments and (d) reduced proceeds from disposal of assets, net of costs to sell. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years ended ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ 2020 2019 Change ​ ​ (In millions) Cash flows from financing activities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Proceeds from issuance of debt, net of discounts and issue costs ​ $ 743 ​ $ 1,056 ​ $ (313) ​ Repayments of debt ​ ​ (1,637) ​ ​ (1,325) ​ ​ (312) ​ Other, net ​ ​ (36) ​ ​ (43) ​ ​ 7 ​ ​ ​ $ (930) $ (312) $ (618) ​ Net cash used in financing activities increased primarily due to (a) reduced net cash proceeds from the issuance of the 8.00% Guaranteed Notes in the year ended December 31, 2020 compared to the net cash proceeds from the issuance of the 5.375% Senior Secured Notes and the 6.875% senior secured notes due February 2027 (“6.875% Senior Secured Notes”) in the prior year and (b) increased cash used to repay debt as a result of the full redemption of the 9.00% Senior Notes, the 2020 Tender Offers and our open market repurchases in the year ended December 31, 2020 compared to the cash used to repay debt related to the 2019 Tendered Notes and our open market repurchases in the prior year. 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 or equity to fulfill anticipated obligations, which may include capital expenditures, working capital and other operational requirements, scheduled debt maturities or other payments. We may consider establishing additional financing arrangements with banks or other capital providers or issuing shares from our authorized share capital. Subject to market conditions and other factors, we may be required to provide collateral for any future financing arrangements. - 32 - Table of Contents We continue to evaluate additional potential liability management transactions in connection with our ongoing efforts to prudently manage our capital structure and improve our liquidity. In each case subject to then existing market conditions and our expected liquidity needs, among other factors, we may continue to use existing unrestricted cash balances, internally generated cash flows and proceeds from asset sales to pursue liability management transactions, including among others, purchasing or exchanging one or more existing series of our debt securities in the open market, in privately negotiated transactions, through tender offers or exchange offers. Any future purchases, exchanges or other transactions may be on the same terms or on terms that are more or less favorable to holders than the terms of any prior transaction, including the Exchange Transactions. There can be no assurance as to which, if any, of these alternatives, or combinations thereof, we may choose to pursue in the future, if at all, or as to the timing with respect to any future transactions. The effects of the COVID-19 pandemic and the volatility in oil prices could have significant adverse consequences for general economic, financial and business conditions, as well as for our business and financial position and the business and financial position of our customers and suppliers and may, among other things, impact our ability to generate cash flows from operations, access the capital markets on acceptable terms or at all, and affect our future need or ability to borrow under our Secured Credit Facility. In addition to our potential sources of funding, the effects of such global events may impact our liquidity or need to alter our allocation or sources of capital, implement further cost reduction measures and change our financial strategy. Although the COVID-19 pandemic and the volatility in oil prices could have a broad range of effects on our sources and uses of liquidity, the ultimate effect thereon, if any, will depend on future developments, which cannot be predicted at this time. Our internally generated cash flows are directly related to our business and the market sectors in which we operate. We have generated positive cash flows from operating activities over recent years and, although we cannot provide assurances, we currently expect that such cash flows will continue to be positive over the next year. However, among other factors, if the drilling market deteriorates, or if we experience poor operating results, or if we incur expenses to, for example, reactivate, stack or otherwise assure the marketability of our fleet, cash flows from operations may be reduced or negative. Our access to debt and equity markets is currently limited due to a variety of events, including, among others, general economic conditions, industry conditions, market conditions and market perceptions of us and our industry and credit rating agencies’ views of our debt. The rating of the majority of our long-term debt (“Debt Rating”) is below investment grade. The Debt Rating is causing us to experience increased fees and interest rates under our Secured Credit Facility and agreements governing certain of our senior notes. Future downgrades may further restrict our ability to access the debt market for sources of capital and may negatively impact the cost of such capital 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 like the one we are currently experiencing 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. Debt exchange litigation and purported notice of default— Prior to the consummation of the Exchange Transactions, we completed the Internal Reorganization. In September 2020, funds managed by, or affiliated with Whitebox as holders of certain series of our notes subject to the Exchange Offers, filed the Claim in the Court related to the Internal Reorganization and the Exchange Offers. Additionally, in September and October 2020, Whitebox and funds managed by, or affiliated with, PIMCO as debtholders, together with certain other advisors and debtholders, provided purported notices of alleged default with respect to the indentures governing, respectively, the 8.00% Guaranteed Notes and the 7.25% Guaranteed Notes. On September 23, 2020, we filed an answer to the Claim with the Court and asserted counterclaims seeking a declaratory judgment that, among other matters, the Internal Reorganization did not cause a default under the indenture governing the 8.00% Guaranteed Notes. Concurrently, with our answer and counterclaims, we also submitted a motion for summary judgment seeking an expedited judgment on our request for declaratory judgment. Whitebox subsequently submitted a cross-motion for summary judgment seeking dismissal of our counterclaims. On November 30, 2020, while awaiting the Court’s ruling on our motion for summary judgment, we amended certain of our financing documents and implemented certain internal reorganization transactions, which resolved the allegations contained in the purported notices of default. On December 17, 2020, the Court issued its ruling granting our motion for summary judgment and denying the plaintiff’s cross-motion for summary judgment, holding, among other matters, that the allegations contained in the purported notice of default did not constitute a default under the indenture governing the 8.00% Guaranteed Notes. Whitebox has appealed the Court’s ruling. The facts alleged in the purported notice of default under the 8.00% Guaranteed Notes were the same as the facts underlying the Claim and the purported notice of default under the 7.25% Guaranteed Notes. Accordingly, following the amendment and internal reorganization transactions on November 30, 2020, and the subsequent ruling from the Court granting our motion for summary judgment, we do not expect the liability, if any, resulting from these matters to have a material adverse effect on our consolidated statement of financial position, results of operations or cash flows. Debt exchanges —On August 14, 2020, we issued $238 million aggregate principal amount of Senior Guaranteed Exchangeable Bonds in the Private Exchange for $397 million aggregate principal amount of the Exchangeable Senior Bonds. The Senior Guaranteed Exchangeable Bonds are fully and unconditionally guaranteed by Transocean Ltd. and certain wholly owned indirect subsidiaries of Transocean Inc. We may redeem all or a portion of the Senior Guaranteed Exchangeable Bonds (i) on or after August 14, 2022, if certain conditions related to the price of our shares have been satisfied, at a price equal to 100 percent of the aggregate principal amount and (ii) on or after August 14, 2023, at specified redemption prices. The indenture that governs the Senior Guaranteed Exchangeable Bonds contains covenants that, among other things, limit our ability to incur certain liens on our drilling units without equally and ratably securing the notes, - 33 - Table of Contents engage in certain sale and lease back transactions covering any of our drilling units, allow our subsidiaries to incur certain additional debt, and consolidate, merge or enter into a scheme of arrangement qualifying as an amalgamation. The indenture that governs the Senior Guaranteed Exchangeable Bonds also requires such bonds to be repurchased upon the occurrence of certain fundamental changes and events, at specified prices depending on the particular fundamental change or event, which include changes and events related to certain (i) change of control events applicable to Transocean Ltd. or Transocean Inc., (ii) the failure of our shares to be listed or quoted on a national securities exchange and (iii) specified tax matters. The Senior Guaranteed Exchangeable Bonds may be converted at any time prior to the close of business on the second business day immediately preceding the maturity date or the redemption date at a current exchange rate of 162.1626 Transocean Ltd. shares per $1,000 note, which implies an initial conversion price of $6.17 per share, subject to adjustment upon the occurrence of certain events. On September 11, 2020, we issued $687 million aggregate principal amount of the 11.50% Senior Guaranteed Notes in the Exchange Offers, pursuant to an exchange offer memorandum, dated August 10, 2020, as supplemented, for an aggregate principal amount of $1.5 billion of several series of our existing debt securities that were validly tendered and accepted for purchase. The 11.50% Senior Guaranteed Notes are fully and unconditionally guaranteed by Transocean Ltd. and certain wholly owned indirect subsidiaries of Transocean Inc. We may redeem all or a portion of the 11.50% Senior Guaranteed Notes prior to July 30, 2023 at a price equal to 100 percent of the aggregate principal amount plus a make-whole premium, and subsequently, at specified redemption prices. We may also use the net cash proceeds of certain equity offerings by Transocean Ltd. to redeem, on one or more occasions prior to July 30, 2023, up to a maximum of 40 percent of the original aggregate principal amount of the 11.50% Senior Guaranteed Notes, subject to certain adjustments, at a redemption price equal to 111.50 percent of the aggregate principal amount. The indenture that governs the 11.50% Senior Guaranteed Notes contains covenants that, among other things, limit our ability to incur certain liens on our drilling units without equally and ratably securing the notes, engage in certain sale and lease back transactions covering any of our drilling units, allow our subsidiaries to incur certain additional debt, make certain internal transfers of our drilling units and consolidate, merge or enter into a scheme of arrangement qualifying as an amalgamation. On February 26, 2021, we completed privately negotiated transactions to exchange $323 million aggregate principal amount of outstanding Exchangeable Senior Bonds for $294 million aggregate principal amount of the New Senior Guaranteed Exchangeable Bonds and an aggregate cash payment of $11 million. The New Senior Guaranteed Exchangeable Bonds are guaranteed by Transocean Ltd. and the same subsidiaries of Transocean Inc. that guarantee the Senior Guaranteed Exchangeable Bonds and 11.50% Senior Guaranteed Notes. In addition, the New Senior Guaranteed Exchangeable Bonds have an initial exchange rate of 190.4762 Transocean Ltd. shares per $1,000 note, which implies a conversion price of $5.25 per share, subject to adjustment upon the occurrence of certain events. Secured Credit Facility —As of December 31, 2020, we have a bank credit agreement, as amended from time to time, that established our $1.3 billion secured revolving credit facility (“Secured Credit Facility”), which is scheduled to expire on June 22, 2023. The Secured Credit Facility is guaranteed by Transocean Ltd. and certain subsidiaries. The Secured Credit Facility is secured by, among other things, a lien on the ultra-deepwater floaters Deepwater Asgard , Deepwater Corcovado , Deepwater Invictus , Deepwater Mykonos , Deepwater Orion , Deepwater Skyros , Development Driller III , Dhirubhai Deepwater KG2 and Discoverer Inspiration and the harsh environment floaters Transocean Barents and Transocean Spitsbergen . The maximum borrowing capacity will be reduced to $1.0 billion if, and so long as, our leverage ratio, measured as the aggregate principal amount of debt outstanding to earnings before interest, taxes, depreciation and amortization, exceeds 10.00 to 1.00. 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 the time of the borrowing request, not be in default under the Secured Credit Facility 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. Under the agreements governing certain of our debt and finance lease, we are also subject to various covenants, 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, the agreements governing our senior secured notes, our finance 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 16, 2021, we had no borrowings outstanding, $24 million of letters of credit issued, and we had $1.3 billion of available borrowing capacity under the Secured Credit Facility. Debt issuances —On January 17, 2020, we issued $750 million aggregate principal amount of our 8.00% Guaranteed Notes, and we received aggregate cash proceeds of $743 million, net of issue costs. We may redeem all or a portion of the 8.00% Guaranteed Notes on or prior to February 1, 2023 at a price equal to 100 percent of the aggregate principal amount plus a make-whole premium, and subsequently, at specified redemption prices. On February 1, 2019, we issued $550 million aggregate principal amount of 6.875% Senior Secured Notes, and we received aggregate cash proceeds of $539 million, net of discount and 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 on or prior to February 1, - 34 - Table of Contents 2022 at a price equal to 100 percent of the aggregate principal amount plus a make-whole premium, and subsequently, at specified redemption prices. On May 24, 2019, we issued $525 million aggregate principal amount of 5.375% Senior Secured Notes, and we received aggregate cash proceeds of $517 million, net of discount and issue costs. The indenture that governs the 5.375% Senior Secured Notes contains covenants that, among other things, limit the ability of our subsidiaries that own or operate the collateral rigs Transocean Endurance and Transocean Equinox to declare or pay dividends to their affiliates. We may redeem all or a portion of the 5.375% Senior Secured Notes on or prior to May 15, 2021 at a price equal to 100 percent of the aggregate principal amount plus a make-whole premium, and subsequently, at specified redemption prices. Early debt retirement —On January 17, 2020, we provided a notice to redeem in full our outstanding 9.00% Senior Notes. On February 18, 2020, we made a payment of $767 million, including the make-whole premium, to redeem the 9.00% Senior Notes, and in the three months ending March 31, 2020, we recognized a loss of $65 million associated with the retirement of redeemed debt. On November 9, 2020, we completed the 2020 Tender Offers. In the year ended December 31, 2020, as a result of the 2020 Tender Offers, we made an aggregate cash payment of $222 million to settle the validly tendered notes. On February 5, 2019, we completed the cash tender offers (“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 the year ended December 31, 2019, as a result of the 2019 Tender Offers, we made an aggregate cash payment of $522 million to settle the validly tendered 2019 Tendered Notes. In the years ended December 31, 2019 and 2018, we repurchased in the open market $434 million and $95 million aggregate principal amount of our debt securities, respectively, for an aggregate cash payment of $449 million and $95 million, respectively. Equity investments —In the years ended December 31, 2020 and 2019, we made an aggregate cash investment of $19 million and $77 million, respectively, in noncontrolling ownership interests in certain unconsolidated affiliates. The most significant of our equity investments is a 33.0 percent ownership interest in Orion, the company that, through its wholly owned subsidiary, owns the harsh environment floater Transocean Norge . We expect to make an additional $33 million cash contribution to Orion in the first half of 2021. We also hold equity investments in certain companies that are involved in researching and developing technology to improve efficiency and reliability and to increase automation, sustainability and safety in drilling and other activities. Litigation settlements —On May 29, 2015, together with the Plaintiff Steering Committee, we filed the PSC Settlement Agreement in which we agreed to deposit $212 million into an escrow account established to be allocated to two classes of plaintiffs in exchange for a release from all claims against us for damages related to the Macondo well incident. On February 15, 2017, the U.S. District Court for the Eastern District of Louisiana (the “MDL Court”) entered a final order and judgment approving the PSC Settlement Agreement, pursuant to which we made the required cash deposits into escrow accounts established for settlement. In the years ended December 31, 2020 and 2019, the MDL Court released $125 million and $33 million, respectively, from the escrow account to satisfy our remaining obligations under the PSC Settlement Agreement. 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 December 31, 2020, the authorization remaining under the share repurchase program was for the repurchase of up to CHF 3.2 billion, equivalent to approximately $3.7 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.” - 35 - Table of Contents Contractual obligations —At December 31, 2020, our contractual obligations stated at face value, were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ending December 31, ​ ​ ​ ​ Total 2021 2022 - 2023 2024 - 2025 Thereafter ​ ​ (in millions) Debt ​ $ 7,866 $ 516 $ 1,655 $ 1,705 $ 3,990 ​ Interest on debt ​ ​ 2,763 ​ ​ 414 ​ ​ 730 ​ ​ 561 ​ ​ 1,058 ​ Finance lease liability ​ ​ 611 ​ ​ 71 ​ ​ 142 ​ ​ 142 ​ ​ 256 ​ Operating lease liabilities ​ ​ 191 ​ ​ 13 ​ ​ 27 ​ ​ 26 ​ ​ 125 ​ Purchase obligations ​ ​ 934 ​ ​ 933 ​ ​ 1 ​ ​ — ​ ​ — ​ Service agreement obligations ​ ​ 903 ​ ​ 103 ​ ​ 237 ​ ​ 256 ​ ​ 307 ​ Total (a) ​ $ 13,268 $ 2,050 $ 2,792 $ 2,690 $ 5,736 ​ (a) As of December 31, 2020, our defined benefit pension and other postemployment plans represented an aggregate liability of $277 million, representing the aggregate projected benefit obligation, net of the aggregate fair value of plan assets. The carrying amount of this liability is influenced by, among others, significant current and future assumptions, funding contributions, returns on plan assets, participant demographics, and plan amendments. We excluded this amount from our contractual obligations presented above due to the uncertainties resulting from these factors and because the amount is not representative of future liquidity requirements. See Notes to Consolidated Financial Statements—Note 12—Postemployment Benefit Plans. As of December 31, 2020, we have unrecognized tax benefits of $419 million, including interest and penalties, of which $261 million are netted against net operating loss deferred tax assets resulting in net unrecognized tax benefits of $158 million, including interest and penalties, that upon reversal would favorably impact our effective tax rate. 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. The obligations under these standby letters of credit and surety bonds are primarily geographically concentrated in Brazil. Such obligations are not normally called, as we typically comply with the underlying performance requirement. Standby letters of credit are issued under various committed and uncommitted credit lines, some of which require cash collateral. At December 31, 2020, the aggregate cash collateral held by banks for letters of credit and surety bonds was $8 million. At December 31, 2020, these obligations stated in U.S. dollar equivalents and their time to expiration were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the years ended December 31, ​ ​ ​ ​ Total 2021 2022 - 2023 2024 - 2025 Thereafter ​ (in millions) Standby letters of credit ​ $ 24 $ 11 ​ $ 13 ​ $ — ​ $ — ​ Surety bonds ​ ​ 153 ​ ​ 1 ​ ​ 37 ​ ​ 115 ​ ​ — ​ Total ​ $ 177 $ 12 ​ $ 50 ​ $ 115 ​ $ — ​ 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, 2020, the captive insurance company held cash and cash equivalents of $34 million, and such balance is expected to range from $30 million to $55 million through December 31, 2021. The balance of the cash and cash equivalents held by the captive insurance company varies, depending on (i) premiums received and (ii) the timing and magnitude of claims and 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. - 36 - Table of Contents In the years ended December 31, 2020 and 2019, we made capital expenditures of $265 million and $387 million, respectively, including $143 million and $129 million, respectively, for our major construction projects. The historical and projected capital expenditures and non-cash capital additions for our ongoing major construction projects were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total costs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ through ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ For the years ending December 31, ​ ​ ​ ​ 2020 2021 2022 2023 ​ Total ​ ​ (In millions) Deepwater Atlas (a) ​ $ 369 ​ $ 619 ​ $ 97 ​ $ 10 ​ $ 1,095 ​ Deepwater Titan (b) ​ ​ 412 ​ ​ 650 ​ ​ 108 ​ ​ — ​ ​ 1,170 ​ Total ​ $ 781 $ 1,269 $ 205 $ 10 $ 2,265 ​ (a) Deepwater Atlas , an ultra-deepwater drillship under construction at the Jurong Shipyard Pte Ltd. in Singapore has received an agreement for drilling services, subject to a final investment decision by the customer and its partners. If the conditions are satisfied, the newbuild unit is expected to commence operations under the drilling contract in the first half of 2022. The projected capital additions include estimates for one 20,000 pounds per square inch blowout preventer and other equipment required by the customer, some of which will be delivered and commissioned in the year ending December 31, 2023, subsequent to placing the rig in service. We will only commit to these incremental capital expenditures with the backing of a firm commitment by the customer. (b) Deepwater Titan , an ultra-deepwater drillship under construction at the Jurong Shipyard Pte Ltd. in Singapore, is expected to commence operations under its drilling contract in the first half of 2022. 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. 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, borrowings under our Secured Credit Facility and financing arrangements with banks or other capital providers. Economic conditions and other factors could impact the availability of these sources of funding. See “—Sources and uses of liquidity.” Dispositions —From time to time, we may also review the possible disposition of non-strategic drilling assets. Considering market conditions, we have committed to plans to sell certain lower specification drilling units for scrap value. During the years ended December 31, 2020 and 2019, we identified seven and six such drilling units, respectively, that we have sold or intend to sell for scrap value or other purposes. During the year ended December 31, 2020, we completed the sale of one ultra-deepwater floater, three harsh environment floaters and three midwater floaters, along with related assets, and we received net cash proceeds of $20 million. During the year ended December 31, 2019, we completed the sale of six ultra-deepwater floaters, one harsh environment floater, two deepwater floaters and two midwater floaters, along with related assets, and we received net cash proceeds of $64 million. We continue to evaluate the drilling units in our fleet and may identify additional lower-specification drilling units to be sold for scrap value. Off-Balance Sheet Arrangements We had no off-balance sheet arrangements as of December 31, 2020. Related Party Transactions We engage in certain related party transactions with our unconsolidated affiliates, the most significant of which are under agreements with Orion. We have a management services agreement for the operation and maintenance of the harsh environment floater Transocean Norge and a marketing services agreement for the marketing of the rig. We also lease the rig under a short-term bareboat charter agreement, which is expected to expire in mid-2021. Prior to the rig’s placement into service, we also engaged in certain related party transactions with Orion under a shipyard care agreement for the construction of the rig and other matters related to its completion and delivery. In the years ended December 31, 2020 and 2019, we received an aggregate cash payment of $46 million and $96 million, respectively, primarily related to the commissioning, preparation and mobilization of Transocean Norge under the shipyard care agreement. In the years ended December 31, 2020 and 2019, we recognized rent expense of $22 million and $9 million, respectively, recorded in operating and maintenance costs, and made an aggregate cash payment of $22 million and $6 million, respectively, to charter the rig and equipment from Orion. See Notes to Consolidated Financial Statements—Note 4—Unconsolidated Affiliates. In the year ended December 31, 2020, Perestroika AS, an entity affiliated with one of our directors that beneficially owns approximately 10 percent of our shares, exchanged $356 million aggregate principal amount of the Exchangeable Senior Bonds for $213 million aggregate principal amount of Senior Guaranteed Exchangeable Bonds. Perestroika AS has certain registration rights related to its shares and shares that may be issued in connection with any exchange of its Senior Guaranteed Exchangeable Bonds. See Notes to Consolidated Financial Statements—Note 9—Debt. - 37 - Table of Contents Critical Accounting Policies and Estimates Overview —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, equity investments, contingencies, assets held for sale, intangibles, allowance for excess materials and supplies, allowance for credit losses, postemployment benefit plans, leases and share-based compensation. We base our estimates on historical experience and on various other assumptions that 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 may differ from these estimates. 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. Income taxes —Our annual tax provision is based on expected taxable income, statutory rates, tax laws and tax planning opportunities available to us in the various jurisdictions in which we operate or have a taxable presence. 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 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 or loss before income taxes. Variations also arise when income earned and taxed in a particular country or countries fluctuates from year to year. Uncertain tax positions —We apply significant judgment to evaluate our tax positions based on the interpretation of tax laws in various jurisdictions and with 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 or profitability of operations in each jurisdiction. The tax laws relating to the offshore drilling industry in certain jurisdictions in which we operate are not well developed, requiring us to apply incremental judgment. Although we employ the best information available at the time we prepare our annual tax provision, a number of years may elapse before the tax liabilities in the various jurisdictions are ultimately determined. We are undergoing examinations of our tax returns in a number of taxing jurisdictions for various 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. Our tax liabilities are dependent on numerous factors that cannot be reasonably projected, including 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. Consequently, we cannot reasonably estimate the future impact of changes to the assumptions and estimates related to our annual tax provision. Unrecognized tax benefits —We establish liabilities for estimated tax exposures, and the provisions and benefits resulting from changes to those liabilities are included in our annual tax provision along with related interest and penalties. 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, 2020 and 2019, our unrecognized tax benefits were approximately $419 million and $369 million, respectively. Valuation allowance —We apply significant judgment to determine whether our deferred tax assets will be fully or partially realized. Our evaluation requires us to consider all available positive and negative evidence, including projected future taxable income and the existence of cumulative losses in recent years. We continually evaluate strategies that could allow for the future utilization of our deferred tax assets. 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. During the years ended December 31, 2020 and 2019, in connection with our evaluation of the projected realizability of our deferred tax assets, we determined that our consolidated cumulative loss incurred over the recent three-year period has limited our ability to consider other subjective evidence, such as projected contract activity rather than contract backlog. Unremitted earnings —We recognize deferred taxes related to the earnings of certain subsidiaries that we do not consider to be indefinitely reinvested or do not expect to be indefinitely reinvested in the future. We do not provide for taxes on unremitted earnings of subsidiaries when we consider such earnings to be indefinitely reinvested. If we were to make a distribution from the unremitted earnings of subsidiaries with indefinitely reinvested earnings, we may be subject to taxes payable to various jurisdictions. If we were to change our expectations about distributing earnings of these subsidiaries, we may be required to record additional deferred taxes that could have a material effect on our consolidated financial statements. See Notes to Consolidated Financial Statements—Note 10—Income Taxes. Property and equipment —We apply significant judgment to account for our property and equipment, consisting primarily of offshore drilling rigs and related equipment, related to estimates and assumptions for cost capitalization, useful lives and salvage values. At - 38 - Table of Contents December 31, 2020 and 2019, the carrying amount of our property and equipment was $17.7 billion and $18.8 billion, respectively, representing 81 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 of, and depreciation expense for, 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. We may also consider major capital upgrades required to perform certain contracts and the long-term impact of those upgrades on future marketability. At December 31, 2020, 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 $27 million and a hypothetical one-year decrease would cause an increase in our annual depreciation expense of approximately $35 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. 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 mobilize rigs from an oversupplied region to a more lucrative and undersupplied region 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 and harsh environment 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 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, 2020, we recognized a loss of $31 million, which had no tax effect, associated with the impairment of the midwater floater asset group. See Notes to Consolidated Financial Statements—Note 6—Drilling Fleet. Equity-method investments and impairment —We review our equity-method investments for potential impairment when events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable in the near term. Such circumstances include the following: (a) evidence we are unable to recover the carrying amount of our investment, (b) evidence that the investee is unable to sustain earnings that would justify the carrying amount or (c) the current fair value of the investment is less than the carrying amount. If an evaluation of such circumstances results in the determination that an impairment that is other than temporary exists, we recognize an impairment loss, measured as the amount by which the carrying amount of the investment exceeds its estimated fair value. To estimate the fair value of the investment, we apply valuation methods that rely primarily on the income and market approaches. 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 estimated discount rate and the investee’s long-term future operational performance factors, such as projected revenues and costs and market factors, including demand for the investee’s industry, services and product lines. Such projections involve significant uncertainties and require significant judgment. In the year ended December 31, 2020, we recognized a loss of $59 million associated with an other-than-temporary impairment of the carrying amount of our equity-method investments. See Notes to Consolidated Financial Statements—Note 4—Unconsolidated Affiliates. - 39 - Table of Contents Contingencies —We assess 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. See Notes to Consolidated Financial Statements—Note 13—Commitments and Contingencies. Other Matters Regulatory matters 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.