What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-23 compared with 2022-02-23 · 197 added, 174 removed, 299 unchanged (55% of the section changed)

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For a discussion, including comparisons, of our results of operations and liquidity and capital resources for the years ended December 31, 2021 and 2020, see “Part II.

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, 2020 , filed with the United States (“U.S.”) Securities and Exchange Commission on March 1, 2021.

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, 2021 , filed with the United States (“U.S.”) Securities and Exchange Commission on February 23, 2022.

Transocean Ltd.

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As of February 14, 2023, we owned or had partial ownership interests in and operated 37 mobile offshore drilling units, consisting of 27 ultra-deepwater floaters and 10 harsh environment floaters.

As of February 14, 2022, we were constructing two ultra-deepwater drillships.

Additionally, as of February 14, 2023, we were constructing one ultra-deepwater drillship and held a noncontrolling ownership interest in a company that is constructing one ultra-deepwater drillship.

We provide, as our primary business, contract drilling services in a single operating segment, which involves contracting our mobile offshore drilling rigs, related equipment and work crews to drill oil and gas wells.

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Significant Events

Fleet expansion —In October 2022, we completed the construction of and placed into service the ultra-deepwater floater Deepwater Atlas .

In November 2022, we made a cash contribution of $15 million associated with our noncontrolling ownership interest in Liquila Ventures Ltd.

(together with its subsidiaries, “Liquila”), a Bermuda company formed to construct, own and operate the newbuild ultra-deepwater drillship Deepwater Aquila .

See “— Liquidity and Capital Resources—Sources and uses of liquidity ” and “— Liquidity and Capital Resources—Drilling fleet .”

Secured debt issuance —In January 2023, we issued $525 million aggregate principal amount of 8.375% senior secured notes due February 2028 (the “8.375% Senior Secured Notes”), and we received $515 million aggregate cash proceeds, net of issue costs.

In January 2023, we issued $1.175 billion aggregate principal amount of 8.75% senior secured notes due February 2030 (the “8.75% Senior Secured Notes”), and we received $1.157 billion aggregate cash proceeds, net of issue costs.

See “— Liquidity and Capital Resources—Sources and uses of liquidity .”

Debt and warrant issuance —In September 2022, we issued $300 million aggregate principal amount of 4.625% senior guaranteed exchangeable bonds due September 2029 (the “4.625% Senior Guaranteed Exchangeable Bonds”) in connection with (a) the issuance for aggregate cash proceeds of $188 million and (b) the exchanges (the “2022 Private Exchange”) of certain of the 0.50% exchangeable senior bonds due January 2023 (the “0.50% Exchangeable Senior Bonds”) and the 7.25% senior notes due November 2025 (the “7.25% Senior Notes”).

In connection with the 2022 Private Exchange, we also issued 22.2 million warrants to purchase Transocean Ltd.

See “— Liquidity and Capital Resources—Sources and uses of liquidity .”

Shipyard Loans —In June 2022, we borrowed $349 million under one of two credit agreements (each, a “Shipyard Loan,” and together, the “Shipyard Loans”) and made a cash payment of $46 million to satisfy the final milestone payment due upon delivery of Deepwater Atlas .

In December 2022, we borrowed $90 million under the second Shipyard Loan and made a cash payment of $325 million to satisfy the final milestone payment due upon delivery of Deepwater Titan .

We recorded the Shipyard Loan for Deepwater Atlas and Deepwater Titan , net of imputed interest, and the corresponding non-cash capital additions of $300 million and $82 million, respectively.

See “— Liquidity and Capital Resources—Sources and uses of liquidity ” and “— Liquidity and Capital Resources—Drilling fleet .”

Early debt retirement —In January 2023, in connection with the issuance of the 8.75% Senior Secured Notes, we made an aggregate payment of $1.156 billion, including a make-whole premium, to redeem the remaining outstanding $311 million, $240 million, $250 million, and $336 million aggregate principal amount of the 5.875% senior secured notes due January 2024 (the “5.875% Senior Secured Notes”), the 7.75% senior secured notes due October 2024 (the “7.75% Senior Secured Notes”), the 6.25% senior secured notes

due December 2024 (the “6.25% Senior Secured Notes”) and the 6.125% senior secured notes due August 2025 (the “6.125% Senior Secured Notes”), respectively.

In January 2023, we made a cash payment of $121 million to redeem an equivalent aggregate principal amount of the outstanding 5.375% senior secured notes due May 2023 (the “5.375% Senior Secured Notes”), and the trustee notified holders of our intent to redeem the remaining outstanding $122 million aggregate principal amount of notes for an equivalent aggregate cash payment, expected to be made on February 24, 2023.

In July 2022, we made an aggregate cash payment of $27 million to redeem an equivalent aggregate principal amount of the then outstanding 3.80% senior notes due October 2022 (the “3.80% Senior Notes”).

In January 2022, we made an aggregate cash payment of $18 million to redeem an equivalent aggregate principal amount of the 5.52% senior secured notes due May 2022 (the “5.52% Senior Secured Notes”).

See “— Operating Results ” and “— Liquidity and Capital Resources—Sources and uses of liquidity .”

Share issuance —In June 2021, we commenced an at-the-market equity offering program (the “ATM Program”).

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See “— Liquidity and Capital Resources—Sources and uses of liquidity .”

Shipyard financing arrangement —In June 2021, Transocean Offshore Deepwater Holdings Limited, a Cayman Islands company and our wholly owned indirect subsidiary, entered into credit agreements with Jurong Shipyard Pte Ltd.

establishing facilities (the “Shipyard Loans”) to finance the final payments expected to be owed to the shipyard upon delivery of the ultra-deepwater floaters Deepwater Atlas and Deepwater Titan .

See “— Liquidity and Capital Resources .”

Debt exchanges —In February 2021, we completed private exchanges (the “2021 Private Exchange”) of $323 million aggregate principal amount of outstanding 0.50% exchangeable senior bonds due January 2023 (the “0.50% Exchangeable Senior Bonds”) for $294 million aggregate principal amount of the 4.00% senior guaranteed exchangeable bonds due December 2025 (the “4.00% Senior Guaranteed Exchangeable Bonds”), together with an aggregate cash payment of $11 million.

In the year ended December 31, 2021, we recognized a gain of $51 million associated with the retirement of exchanged debt.

See “— Operating Results ” and “— Liquidity and Capital Resources—Sources and uses of liquidity .”

Early debt retirement —In the year ended December 31, 2021, we repurchased in the open market $79 million aggregate principal amount of our debt securities for an aggregate cash payment of $79 million.

In January 2022, we repaid the then-outstanding $18 million aggregate principal amount of the 5.52% Senior Secured Notes due May 2022 (the “5.52% Senior Secured Notes”) early for an aggregate cash payment of $18 million.

See “— Operating Results ” and “— Liquidity and Capital Resources—Sources and uses of liquidity .”

Dispositions —During the year ended December 31, 2021, we completed the sale of one harsh environment floater, along with related assets, for which we received $4 million aggregate net cash proceeds and recognized an aggregate net loss of $57 million.

See “— Operating Results .”

Drilling market —Our overall outlook for the offshore drilling industry has improved over the past year and remains positive, particularly for high-specification assets, such as those we own and operate.

During the second half of 2021, our customers’ interest in deepwater and harsh environment offshore projects was renewed due to numerous favorable factors, such as sustained higher commodity prices and comparably lower carbon intensity compared to other sources of fossil fuel.

South America, including Guyana, the

Gulf of Mexico and, increasingly, West Africa remain key ultra-deepwater market sectors, while Norway continues to represent the largest harsh environment market.

In addition, in 2021, we observed continued strong tendering activity for Asia and Australia.

Licensing activity also indicated an increased interest in these areas as energy companies looked to explore and develop new prospects.

Certain customers began to increase their exploration, production and reserve replacement activities by restarting delayed projects and commencing new campaigns.

We have seen an acceleration in this trend in early 2022.

While we expect this to continue in the near term, and potentially longer, it depends upon many variables, including increased global demand for hydrocarbons, the effects of the COVID-19 pandemic on consumer activity, the actions by some governments and regulators intended to curtail existing and future drilling activities, and other factors.

Offshore drilling activity is increasing in almost every ultra-deepwater market, and due to attrition of the global offshore fleet over the last several years, there are significantly fewer available drilling units and, particularly, an increasing scarcity of the highest specification drilling units as customers look to secure the best equipment for their projects.

In the North Sea harsh environment market, an accelerated level of recovery is anticipated in 2023 through 2026 as the effect of Norway tax incentive programs is realized by our customers.

Global energy demand is expected to increase in member and non-member countries of the Organization for Economic Co-operation and Development.

Non-member countries, in particular, are expected to experience the largest population growth and most significant increases in living standards, creating a compounding effect on energy consumption.

We believe that this forecasted increase in global energy demand will support an increase in demand for oil and gas.

In the context of the sharp decline in production activities that resulted from the pandemic and the lack of investment in exploration and production activities over the past seven years, we believe an increase in demand will precipitate substantial supply constraints that are not easily reversed without significant new investment in drilling.

With deepwater and harsh environment fields offering increasingly competitive returns, combined with their comparably low carbon intensity of production, we expect a significant portion of required spending in fossil fuel development will be allocated to deepwater and harsh environment projects.

As the hydrocarbon supply-demand balance further improves, we expect sustained prices to increase demand for our high-specification fleet of assets and, because there are now fewer offshore drilling rigs than in recent years, further improvement of dayrates.

Secured credit facility amendment —In July 2022, we amended the bank credit agreement for our Secured Credit Facility (as amended from time to time, the “Secured Credit Facility”) to, among other things, extend the maturity date from June 22, 2023 to June 22, 2025 and reduce the borrowing capacity from $1.33 billion to $774 million through June 22, 2023, and thereafter, reduce the borrowing capacity to $600 million through June 22, 2025.

See “— Liquidity and Capital Resources—Sources and uses of liquidity .”

Drilling market —Our industry outlook is positive based upon several fundamental factors, including the increased global demand for hydrocarbons combined with a diminishing global supply, the latter being the result of the natural decline in production of existing oil and gas fields compounded by the significant underinvestment in reserve replacement by oil and gas producers, and additional constraints imposed on industry participants by the governments of oil and gas producing nations as well as investors.

Additionally, the Russian invasion of Ukraine and the related economic sanctions have highlighted the criticality of energy reliability and security across Europe, the U.S.

and elsewhere.

Due to these and other factors, oil prices have increased materially over the past two years and even reached 10-year highs.

Although the price for both prompt and longer-dated barrels continues to exhibit volatility that reflects market concerns about inflationary trends, economic recession and the potential for demand destruction, these commodity prices are currently, and are expected to remain, at levels that are robustly supportive of investment in deepwater and harsh environment exploration and development projects.

Additionally, rig attrition resulting from significantly reduced offshore contracting activity over the last several years has resulted in a much smaller global fleet of floating rigs that is available to meet customer demands, specifically with respect to the highest specification drilling units required by many of our customers for their projects.

Consequently, our outlook for the offshore drilling industry overall remains positive, particularly for high-specification drilling assets, such as those we own and operate.

Our customers continue to show interest in deepwater and harsh environment offshore projects as evidenced by the restarting of delayed projects and commencement of new drilling campaigns.

Licensing activity has also increased as energy companies look to explore and develop new prospects.

This has resulted in more tendering activity during the last half of 2022 and into 2023.

Several multi-year tenders for work in Brazil, West Africa, Asia and Australia are expected to be awarded in the first nine months of 2023.

We have recently observed that the commencement of certain projects or parts of a project is, in some cases, being delayed due to global supply chain constraints adversely impacting the timely availability of necessary equipment and supplies.

We currently believe that these temporary circumstances will gradually diminish over the short to medium term.

Offshore drilling activity is increasing in every ultra-deepwater geographic sector.

South America, the U.S.

Gulf of Mexico and, increasingly, West Africa remain key ultra-deepwater market sectors.

We have seen significant increases in dayrates for projects in the U.S.

Gulf of Mexico and, particularly, in Brazil, trends that we expect will continue.

In Norway, the largest market for harsh environment rigs, we do not expect many new projects to commence before late 2023, but we expect demand for rigs in this market will accelerate thereafter through 2026 due to previously enacted Norwegian tax incentive programs.

Given the highly regulated nature of the Norwegian market and the limited number of rigs qualified to operate in it, we anticipate an increase in dayrates commensurate with the increased demand.

We are also encouraged by projects being announced in the United Kingdom, Namibia, South Africa and Australia that require high-specification, harsh environment semisubmersibles.

As expected, these opportunities are attracting rigs currently working in Norway, thereby further reducing rig supply and potentially accelerating dayrate increases for the remaining assets in the region.

We expect global energy demand to continue to increase in both member and non-member countries of the Organization for Economic Co-operation and Development.

Forecasts indicate that non-member countries will experience the largest population growth and require the most significant improvement in living standards, compounding the effect on energy demand for the foreseeable future.

We believe that this increase in global energy demand will result in meaningful incremental demand for oil and gas.

In the context of the pronounced decline in investment in exploration and production activities over the last decade, we anticipate that a prolonged period of elevated hydrocarbon prices and investment in drilling activity will be necessary to meet this demand.

With deepwater and harsh environment fields generating robust economic returns versus other hydrocarbon sources, combined with their comparably low carbon intensity of production, we expect a significant portion of the required spending in fossil fuel development will be allocated to deepwater and harsh environment projects.

As there are now fewer high-specification offshore drilling rigs capable of operating in these markets, we believe that this increase in demand will support further improvement of dayrates.

As of February 9, 2023, our contract backlog was $8.54 billion compared to $7.27 billion as of October 13, 2022.

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The contract backlog for our fleet was as follows:

Contract backlog

(in millions)

Contract backlog

Ultra-deepwater floaters

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The 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.

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 9, 2023, the contract backlog and average contractual dayrates for our fleet were as follows:

For the years ending December 31,

Contract backlog

(in millions, except average dayrates)

Contract backlog

Ultra-deepwater floaters

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The contractual operating dayrate may be higher than the actual dayrate we ultimately receive because 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.

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 actual dayrate may be reduced to zero if, for example, repairs extend beyond a stated period of time.

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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.

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.

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General and administrative expense

Loss on impairment

Loss on disposal of assets, net

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Interest expense, net of amounts capitalized

Gain on restructuring and retirement of debt, net

Gain on retirement of debt

Loss before income tax expense

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“nm” means not meaningful.

Contract drilling revenues —Contract drilling revenues decreased for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the following:

(a) approximately $200 million resulting from the settlement of disputes and payments for early termination of a contract in the year ended December 31, 2020 with no comparable activity in the current year period, (b) approximately $185 million resulting from rigs that were idle or in shipyard preparing for contracts in the current year, (c) approximately $155 million resulting from rigs that were stacked in the prior year and (d) approximately $115 million resulting from rigs that were sold.

These decreases were partially offset by the following increases:

(a) approximately $55 million resulting from increased average daily revenue and (b) approximately $5 million resulting from higher revenue efficiency.

Contract drilling revenues —Contract drilling revenues increased for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the following:

(a) approximately $25 million resulting from Deepwater Atlas , which was placed into service in October 2022, (b) approximately $20 million resulting from increased rig utilization, (c) approximately $10 million resulting from higher early termination revenues and (d) approximately $10 million resulting from higher reimbursable revenues.

These increases were partially offset by (a) approximately $40 million resulting from lower dayrates and (b) approximately $5 million resulting from lower fleet revenue efficiency.

Costs and expenses —Operating and maintenance costs and expenses decreased for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the following:

(a) approximately $145 million resulting from rigs that were stacked in the prior year, (b) approximately $95 million resulting from rigs that were sold, (c) approximately $55 million resulting from Transocean Norge being idle, (d) approximately $20 million resulting from litigation and settlement costs in the prior year, (d) approximately

$20 million resulting from severance costs of offshore and onshore personnel, (e) approximately $15 million resulting from onshore personnel costs, excluding severance, (f) approximately $10 million resulting from other changes in rig activity and (g) approximately $10 million resulting from reduced costs related to COVID-19 mitigation.

(a) approximately $35 million resulting from the effect of favorable exchange rates, (b) approximately $28 million resulting from the allowance for excess materials and supplies due to the identification, in the year ended December 31, 2021, of parts that were in excess of our expected future usage, (c) approximately $15 million resulting from reduced rig out-of-service maintenance costs and (d) approximately $5 million incurred on rigs sold in the year ended December 31, 2021.

These decreases were partially offset by the following increases:

(a) approximately $28 million resulting from our allowance for excess materials and supplies due to our identification of certain items that were in excess of our expected future usage based on our current market outlook, (b) approximately $35 million resulting from increased personnel costs, primarily due to unfavorable exchange rates, and (c) approximately $20 million resulting from shipyard and maintenance costs primarily driven by out-of-service activities.

Depreciation and amortization expense decreased for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to approximately $22 million resulting from rigs that were sold and approximately $16 million resulting from assets that had reached the end of their useful lives or had been retired.

General and administrative expense decreased for the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the following:

(a) approximately $13 million resulting from reduced personnel costs, including severance, related to our cost savings plan implemented in the year ended December 31, 2020 and (b) approximately $5 million resulting from reduced costs for information systems and technology, partially offset by (c) approximately $6 million resulting from increased strategy and innovation costs.

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, 2021, we recognized an aggregate net loss of $57 million, primarily associated with the sale of a harsh environment floater and related assets.

In the year ended December 31, 2020, we recognized an aggregate net 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.

(a) approximately $25 million resulting from personnel compensation increases, (b) approximately $20 million resulting from increased rig operating activities, (c) approximately $15 million resulting from Deepwater Atlas and (d) approximately $10 million resulting from higher customer reimbursable costs.

Depreciation and amortization expense decreased for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to (a) approximately $17 million resulting from assets that had reached the end of their useful lives or had been retired, partially offset by (b) approximately $10 million of increased depreciation associated with our newbuild ultra-deepwater drillship and other property and equipment placed into service in the year ended December 31, 2022.

General and administrative expense increased for the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the following:

(a) approximately $8 million of increased costs for information systems and technology and (b) approximately $3 million of increased costs for strategy and innovation.

Disposal of assets —In the year ended December 31, 2021, we recognized an aggregate net loss of $57 million, primarily associated with the sale of a harsh environment floater and related assets.

In the years ended December 31, 2022 and 2021, we recognized an aggregate net loss of $10 million and $5 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, 2021, compared to the year ended December 31, 2020, primarily due to a decrease of $145 million resulting from debt early retired, repaid or restructured, partially offset by an increase of $19 million resulting from debt issued.

In the year ended December 31, 2021, we recognized an aggregate net gain of $51 million associated with the retirement of $323 million aggregate principal amount of the 0.50% Exchangeable Senior Bonds as a result of the 2021 Private Exchange.

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 private exchange transactions in August 2020 (the “2020 Private Exchange”) and the exchange offers in September 2020 (the “2020 Exchange Offers”), (b) an aggregate gain of $135 million associated with the retirement of $360 million aggregate principal amount of our debt securities in the tender offers in November 2020, (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 (the “9.00% Senior Notes”).

Other income, net, increased in the year ended December 31, 2021, compared to the year ended December 31, 2020, primarily due to the following:

(a) decreased loss of $22 million resulting from impairment of our equity investment in Orion Holdings (Cayman) Limited (“Orion”), (b) increased income of $24 million resulting from a settlement of litigation and other claims, (c) increased income of $23 million related to the non-service components of net periodic benefit income and (d) decreased losses of $7 million resulting from net changes to currency exchange rates, partially offset by (e) decreased income of $25 million related to our investment in Orion and (f) decreased income of $4 million related to our dual-activity patent.

Other income and expense —Interest expense, net of amounts capitalized, increased in the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the following:

(a) an increase of $157 million resulting from the fair value adjustment of the bifurcated compound exchange feature embedded in the 4.625% Senior Guaranteed Exchangeable Bonds and (b) an increase of $15 million resulting from borrowings under the Shipyard Loans, partially offset by (c) a decrease of $41 million resulting from

debt repaid as scheduled or early retired and (d) a decrease of $23 million resulting from increased interest capitalized for our newbuild construction projects.

In the year ended December 31, 2022, we recognized an aggregate net gain on the retirement of debt, primarily associated with the retirement of $116 million aggregate principal amount of debt as a result of the 2022 Private Exchange.

In the year ended December 31, 2021, we recognized an aggregate net gain on the retirement of debt, primarily associated with the retirement of $323 million aggregate principal amount of debt as a result of the private exchanges completed in February 2021 (the “2021 Private Exchange”).

Other expense, net, increased in the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily due to the following:

(a) income of $32 million resulting from settlement of litigation recognized in the year ended December 31, 2021, (b) increased loss of $11 million related to our investment in Nauticus Robotics, Inc.

(“Nauticus”), (c) reduced income of $7 million related to our dual-activity patent, (d) increased losses of $7 million resulting from net changes to currency exchange rates, and (e) reduced income of $5 million related to the non-service components of net periodic benefit income, partially offset by (f) reduced losses of $33 million related to our investment in Orion Holdings (Cayman) Limited (“Orion”).

Income tax expense —In the years ended December 31, 2022 and 2021, our effective tax rate was (10.4) percent and (25.7) percent, respectively, based on loss before income tax expense.

In the years ended December 31, 2021 and 2020, the aggregate effect of discrete period tax items was a net tax expense of $47 million and benefit of $91 million, respectively.

In the years ended December 31, 2022 and 2021, the aggregate effect of discrete period tax items was a net tax benefit of $19 million and net tax expense of $47 million, respectively.

In the year ended December 31, 2022, such discrete items included settlement and expiration of various uncertain tax positions, changes to valuation allowances, operational restructuring and gains due to exchange rate changes.

In the year ended December 31, 2021, such discrete items included the effect of tax law changes in Switzerland and jurisdictional ownership changes of certain assets, loss on disposal of assets, expiration and settlements of various uncertain tax positions, gain on retirement of debt, changes to our allowance for excess materials and loss on impairment of an equity investment.

In the year ended December 31, 2020, such discrete items included 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 equity investment, the carryback of net operating losses in the U.S., including the release of valuation allowances previously recorded, settlements and expirations of various uncertain tax positions and accruals for withholding taxes.

In the years ended December 31, 2022 and 2021, our effective tax rate, excluding discrete items, was (13.6) percent and (18.5) percent, respectively, based on loss before income tax expense.

In the year ended December 31, 2021 compared to the year ended December 31, 2020, our effective tax rate increased primarily due changes in the relative blend of income from operations in certain jurisdictions.

In the year ended December 31, 2022 compared to the year ended December 31, 2021, our effective tax rate increased primarily due to changes in the relative blend of income from operations in certain jurisdictions.

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.

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, 2022, a significant portion of our income tax expense was generated in countries in which income taxes are imposed or treated to be 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, Norway and Hungary.

Conversely, during this period, the most significant countries in which we incurred income taxes that were based on income before income tax included the U.S., Hungary and Switzerland.

Our rig operating structures further 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.

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At December 31, 2022, we had $683 million in unrestricted cash and cash equivalents and $308 million in restricted cash and cash equivalents.

In the year ended December 31, 2021, our primary sources of cash were net cash provided by operating activities and net cash proceeds from the issuance of shares under the ATM Program.

In the year ended December 31, 2022, our primary sources of cash were net cash provided by our operating activities, net cash proceeds from the issuance of shares under the ATM Program and net cash proceeds from the issuance of debt.

Our primary uses of cash were debt repayments and capital expenditures.

Years ended December 31,

(in millions)

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Changes in operating assets and liabilities, net

Net cash provided by operating activities increased primarily due to (a) reduced cash paid for interest, (b) the cash payment of $125 million released from restricted cash to satisfy our remaining obligations under the Plaintiff Steering Committee settlement agreement in June 2020 with no comparable activity in the current year and (c) reduced cash paid for income taxes.

Net cash provided by operating activities decreased primarily due to (a) reduced cash collected from customers, (b) increased cash paid to employees and (c) reduced cash refunds for income taxes, partially offset by (d) reduced cash paid for interest.

Years ended December 31,

(in millions)

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Capital expenditures

Investments in equity of unconsolidated affiliates

Investment in loans to unconsolidated affiliates

Investments in unconsolidated affiliates

Proceeds from disposal of assets, net

Proceeds from maturities of unrestricted and restricted investments

Net cash used in investing activities decreased primarily due to (a) reduced capital expenditures unrelated to our two newbuilds under construction and (b) reduced investments in unconsolidated affiliates, partially offset by (c) increased investments in loans to our unconsolidated affiliates and (d) reduced proceeds from disposal of assets.

Net cash used in investing activities increased primarily due to (a) increased capital expenditures related to our newbuild construction program and (b) increased investments in equity of unconsolidated affiliates, including Liquila, Ocean Minerals LLC and Orion, partially offset by (c) reduced investment in loans to unconsolidated affiliates.

Years ended December 31,

(in millions)

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Proceeds from issuance of shares, net of issue costs

Proceeds from issuance of debt, net of discounts and issue costs

Net cash used in financing activities decreased primarily due to (a) reduced cash used to repay debt, primarily as a result of the full redemption of $714 million aggregate principal amount of the 9.00% Senior Notes in February 2020 and (b) aggregate net cash proceeds from the issuance of 36.1 million shares under the ATM Program in the current year, partially offset by (c) net cash proceeds from the issuance of the 8.00% senior notes due February 2027 (the “8.00% Senior Notes”) in January 2020.

Proceeds from issuance of debt, net of issue costs

Proceeds from issuance of warrants, net of issue costs

Net cash used in financing activities decreased primarily due to (a) net cash proceeds from the issuance of the 4.625% Senior Guaranteed Exchangeable Bonds in the year ended December 31, 2022, (b) increased net cash proceeds from the issuance of shares under the ATM Program and (c) decreased cash used to repay debt.

Sources and uses of liquidity

Overview —We expect to use existing unrestricted cash balances, internally generated cash flows, borrowings under the Shipyard Loans or the Secured Credit Facility, as defined below, or proceeds from the disposal of assets, the issuance of additional debt or the issuance of additional shares under the ATM Program to fulfill anticipated obligations, which may include capital expenditures, working capital

and other operational requirements, scheduled debt maturities or other payments.

Overview —We expect to use existing unrestricted cash balances, internally generated cash flows, borrowings under our Secured Credit Facility or proceeds from the disposal of assets or the issuance of debt or shares to fulfill anticipated near-term 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, and subject to market conditions and other factors, we may be required to provide collateral for any such future financing arrangements.

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.

Among other factors, if general economic, financial, industry or business conditions deteriorate, if we experience poor operating results, or if we incur costs to, for example, reactivate, stack or otherwise assure the marketability of our fleet, our cash flows from operations may be reduced or negative.

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 through 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 completed in the years ended December 31, 2021 and 2020.

We can provide 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 ongoing effect of the COVID-19 pandemic, including virus variants, 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.

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 ability and willingness to access the debt and equity markets is a function of 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.

Our ability and willingness to access the debt and equity markets is a function of a variety of factors, including, among others, general economic, industry or market conditions, market perceptions of us and our industry and credit rating agencies’ views of our debt.

General economic or market conditions could have an adverse effect on our business and financial position and on the business and financial position of our customers suppliers and lenders and could affect our ability to access the capital markets on acceptable terms or at all and 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 could impact our liquidity or need to alter our allocation or sources of capital, implement further cost reduction measures and change our financial strategy.

Additionally, the rating of the majority of our long-term debt, which is below investment grade, 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.

Secured Credit Facility —As of December 31, 2021, we have a $1.33 billion secured revolving credit facility established under a bank credit agreement (as amended from time to time, the “Secured Credit Facility”), which is scheduled to expire on June 22, 2023.

Debt issuances —In January 2023, we issued $525 million aggregate principal amount of 8.375% Senior Secured Notes, and we received $515 million aggregate cash proceeds, net of issue costs.

The 8.375% Senior Secured Notes are secured by the assets and earnings associated with the ultra-deepwater floater Deepwater Titan and the equity of the wholly owned subsidiary that owns or operates

the collateral rig.

Additionally, we are required to maintain certain balances in a restricted cash account to satisfy debt service requirements.

We may redeem all or a portion of the 8.375% Senior Secured Notes on or prior to February 1, 2025 at a price equal to 100 percent of the aggregate principal amount plus a make-whole premium, and subsequently, at specified redemption prices.

In January 2023, we issued $1.175 billion aggregate principal amount of 8.75% Senior Secured Notes, and we received $1.157 billion aggregate cash proceeds, net of issue costs.

The 8.75% Senior Secured Notes are fully and unconditionally guaranteed on an unsecured basis by Transocean Ltd.

and on a limited senior secured basis by certain of our wholly owned subsidiaries.

The 8.75% Senior Secured Notes are secured by a lien on the ultra-deepwater floaters Deepwater Pontus , Deepwater Proteus and Deepwater Thalassa and the harsh environment floaters Transocean Enabler and Transocean Encourage , together with certain related assets.

Additionally, we are required to maintain certain balances in a restricted cash account to satisfy debt service requirements.

Early debt retirement —In January 2023, in connection with the issuance of the 8.75% Senior Secured Notes, we made an aggregate payment of $1.156 billion, including a make-whole premium, to redeem the remaining outstanding $311 million, $240 million, $250 million, and $336 million aggregate principal amount of the 5.875% Senior Secured Notes, the 7.75% Senior Secured Notes, the 6.25% Senior Secured Notes and the 6.125% Senior Secured Notes, respectively.

In January 2022, we made an aggregate cash payment of $18 million to repay the then outstanding equivalent aggregate principal amount of the 5.52% Senior Secured Notes, and as a result, the noteholders subsequently released all liens, the mortgage on the secured rig and $106 million from restricted cash accounts.

In July 2022, we made an aggregate cash payment of $27 million to redeem the then outstanding equivalent aggregate principal amount of the 3.80% Senior Notes.

In October 2022, the harsh environment floater Transocean Equinox , which is held as collateral for the 5.375% Senior Secured Notes, concluded its drilling contract following a notice received from the customer in September 2022.

As required under the indenture governing such notes, in January 2023, we made a cash payment of $121 million to redeem an equivalent aggregate principal amount of the outstanding securities.

Additionally, in January 2023, the trustee notified holders of our intent to redeem the remaining outstanding $122 million aggregate principal amount of notes for an equivalent aggregate cash payment, expected to be made on February 24, 2023.

In the year ended December 31, 2021, we made an aggregate cash payment of $79 million to repurchase in the open market an equivalent aggregate principal amount of our debt securities.

Shipyard financing arrangement —We established the Shipyard Loans to finance all or a portion of the final payments expected to be owed to the shipyard upon delivery of the ultra-deepwater floaters Deepwater Atlas and Deepwater Titan .

In June 2022, we borrowed $349 million under one of the Shipyard Loans and made a cash payment of $46 million to satisfy the final milestone payment due upon delivery of Deepwater Atlas .

In December 2022, we borrowed $90 million under the other Shipyard Loan and made a cash payment of $325 million to satisfy the final milestone payment due upon delivery of Deepwater Titan .

The Shipyard Loans are guaranteed by Transocean Inc.

Borrowings under the Shipyard Loan for Deepwater Atlas are secured by, among other security, a lien on the rig.

Borrowings under the Shipyard Loan for Deepwater Titan are unsecured.

We have the right to prepay the outstanding borrowings, in full or in part, without penalty.

The Shipyard Loans contain covenants that, among other things, limits the ability of the subsidiary owners of the drilling rigs to incur certain types of additional indebtedness or make certain additional commitments or investments.

Debt exchanges —In September 2022, we issued $300 million aggregate principal amount of 4.625% Senior Guaranteed Exchangeable Bonds in connection with exchange and purchase agreements.

Pursuant to the exchange and purchase agreements, we exchanged (a) $73 million aggregate principal amount of the 0.50% Exchangeable Senior Bonds for (i) $73 million aggregate principal amount of the 4.625% Senior Guaranteed Exchangeable Bonds and (ii) 6.7 million warrants to purchase Transocean Ltd.

shares, and (b) $43 million aggregate principal amount of the 7.25% Senior Notes for $39 million aggregate principal amount of the 4.625% Senior Guaranteed Exchangeable Bonds.

Additionally, we sold $188 million aggregate principal amount of the 4.625% Senior Guaranteed Exchangeable Bonds and issued 15.5 million warrants to purchase Transocean Ltd.

shares for aggregate net cash proceeds of $188 million.

On or after March 30, 2026, we may redeem for cash all or a portion of the 4.625% Senior Guaranteed Exchangeable Bonds at a price equivalent to the aggregate principal amount to be redeemed if the closing price of our shares has been greater than 115 percent of the exchange price for a period of at least 20 trading days.

In February 2021, we issued $294 million aggregate principal amount of the 4.00% senior guaranteed exchangeable bonds due December 2025 (the “4.00% Senior Guaranteed Exchangeable Bonds”) and made an aggregate cash payment of $11 million in the 2021 Private Exchange for $323 million aggregate principal amount of the 0.50% Exchangeable Senior Bonds.

The 4.00% Senior Guaranteed Exchangeable Bonds are guaranteed by Transocean Ltd.

and the same subsidiaries of Transocean Inc.

that guarantee the 2.50% senior guaranteed exchangeable bonds due January 2027 (the “2.50% Senior Guaranteed Exchangeable Bonds”) and the 11.50% senior guaranteed notes due January 2027.

The indenture that governs the 4.00% 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 4.00% Senior Guaranteed Exchangeable Bonds may be exchanged at any time prior to the close of business on the second business day immediately preceding the maturity date at a current exchange rate of 190.4762 Transocean Ltd.

shares per $1,000 note, which implies an exchange price of $5.25 per share, subject to adjustment upon the occurrence of certain events, and any such exchange may be settled in cash, Transocean Ltd.

shares or a combination of cash and Transocean Ltd.

shares, at our election.

Share issuance —We intend to use the net proceeds from the sale of our shares under the ATM Program for general corporate purposes, which may include, among other things the repayment or refinancing of indebtedness and the funding of working capital, capital expenditures, investments and additional balance sheet liquidity.

In the years ended December 31, 2022 and 2021, we received aggregate cash proceeds of $263 million and $158 million, respectively, net of issue costs, for the aggregate sale of 61.0 million shares and 36.1 million shares, respectively, under the ATM Program.

Secured Credit Facility —In July 2022, we amended the bank credit agreement for our Secured Credit Facility to, among other things, (i) extend the maturity date from June 22, 2023 to June 22, 2025, (ii) reduce the borrowing capacity from $1.33 billion to $774 million through June 22, 2023, and thereafter reduce the borrowing capacity to $600 million through June 22, 2025 and (iii) replace our ability to borrow under the Secured Credit Facility at the reserve adjusted London Interbank Offered Rate plus a margin (the “Secured Credit Facility Margin”) with the ability to borrow under the Secured Credit Facility at a forward looking term rate based on the secured overnight financing rate (“Term SOFR”) plus the Secured Credit Facility Margin and a Term SOFR spread adjustment of 0.10 percent.

The Secured Credit Facility is subject to permitted extensions and certain early maturity triggers, including if on any date the aggregate amount of scheduled principal repayments of indebtedness, with certain exceptions, due within 91 days thereof is equal to or in excess of $200 million and available cash is less than $250 million.

The amended secured credit facility also permits us to increase the aggregate amount of commitments by up to $250 million.

The Secured Credit Facility is guaranteed by Transocean Ltd.

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The Secured Credit Facility is secured by, among other things, a lien on nine of our ultra-deepwater floaters and two of our harsh environment floaters.

The maximum borrowing capacity will be reduced to $1.00 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 a minimum guarantee coverage ratio of 3.0 to 1.0, a minimum collateral coverage ratio of 2.1 to 1.0, a maximum debt to capitalization ratio of 0.60 to 1.00 and minimum liquidity of $500 million.

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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.

In order to utilize the Secured Credit Facility, we must, at the time of the borrowing request, be in full compliance with the terms and conditions of 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.

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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 14, 2022, we had no borrowings outstanding, $16 million of letters of credit issued, and we had $1.32 billion of available borrowing capacity under the Secured Credit Facility.

Shipyard financing arrangement —In June 2021, we and Jurong Shipyard Pte Ltd.

entered into the Shipyard Loans to finance all or a portion of the final payments expected to be owed to the shipyard upon delivery of the ultra-deepwater floaters Deepwater Atlas and Deepwater Titan .

We expect to borrow approximately $370 million upon delivery of Deepwater Atlas in the six months ending June 30, 2022, and we expect to borrow approximately $90 million upon delivery of Deepwater Titan in the six months ending December 31, 2022.

The Shipyard Loans are guaranteed by Transocean Inc.

Borrowings under the Shipyard Loan for Deepwater Atlas will be secured by, among other security, a lien on the rig.

In certain circumstances, the maximum aggregate borrowing capacity under the Shipyard Loan for Deepwater Titan may be increased to approximately $440 million, and such Shipyard Loan may also be secured by, among other security, a lien on the rig.

We will repay the borrowings, together with interest of 4.5 percent per annum, according to the selected installment schedule over a maximum of a six-year period following delivery of the drilling rigs.

We have the right to prepay any outstanding borrowings, in full or

in part, without penalty.

At February 14, 2022, we had no borrowings outstanding under the Shipyard Loans.

Share issuance —On June 14, 2021, we entered into an equity distribution agreement with a sales agent for the offer and sale of our shares, with up to an aggregate net offering price of $400 million, pursuant to the ATM Program.

We intend to use the net proceeds from the sale of our shares under the ATM Program for general corporate purposes, which may include, among other things the repayment or refinancing of indebtedness and the funding of working capital, capital expenditures, investments and additional balance sheet liquidity.

In the year ended December 31, 2021, we received aggregate cash proceeds of $158 million, net of issue costs, for the aggregate sale of 36.1 million shares under the ATM Program.

Debt exchanges —On February 26, 2021, we issued $294 million aggregate principal amount of the 4.00% Senior Guaranteed Exchangeable Bonds and made an aggregate cash payment of $11 million in the 2021 Private Exchange for $323 million aggregate principal amount of the 0.50% Exchangeable Senior Bonds.

The 4.00% Senior Guaranteed Exchangeable Bonds are guaranteed by Transocean Ltd.

and the same subsidiaries of Transocean Inc.

that guarantee the 2.50% senior guaranteed exchangeable bonds due January 2027 (the “2.50% Senior Guaranteed Exchangeable Bonds”) and the 11.50% senior guaranteed notes due January 2027 (the “11.50% Senior Guaranteed Notes”).

At February 14, 2023, we had no borrowings outstanding, $6 million of letters of credit issued, and we had $767 million of available borrowing capacity under the Secured Credit Facility.

Equity and debt investments —In the years ended December 31, 2022 and 2021, we made cash investments of $25 million and $34 million, respectively, in the equity and debt of certain unconsolidated affiliates, such as Orion and Liquila, that own drilling units.

In the year ended December 31, 2022, we made a cash contribution of $15 million to Liquila, which was used by Liquila to make the initial payment to the shipyard to acquire the ultra-deepwater drillship Deepwater Aquila .

Additionally, in the year ended December 31, 2022, we made an aggregate cash contribution of $10 million to our equity investment in Orion, the company that, through its wholly owned subsidiary, owns the harsh environment floater Transocean Norge .

In June 2021, we agreed to participate in a financing arrangement for Orion, at a rate of 33 percent, equivalent to our ownership interest in Orion, and made a cash investment of $33 million in the loan facility.

In February 2023, we agreed to make an investment for a noncontrolling ownership interest in Global Sea Mineral Resources, a Belgian company and leading developer of nodule collection technology, which is engaged in the development and exploration of deep-sea polymetallic nodules that contain metals critical to the growing renewable energy market.

In addition to a cash investment of $10 million, we agreed to contribute the ultra-deepwater drillship Ocean Rig Olympia , and we expect to contribute engineering services in the future.

In the year ended December 31, 2022, we made an aggregate cash investment of $22 million in the equity and debt of certain other unconsolidated affiliates that are involved in researching and developing technology to improve efficiency, reliability, sustainability and safety in drilling and other activities.

We hold an equity investment in Nauticus, a company that develops highly sophisticated, ultra-sustainable marine robots and intelligent software to power them, which, following the completion of a business combination with a publicly traded special purpose acquisition company in September 2022, became a publicly listed company, the common shares of which trade on the NASDAQ exchange under the ticker symbol “KITT.” Additionally, we hold equity and debt investments in Ocean Minerals LLC, the parent company of Moana Minerals Ltd.

(“Moana”), a Cook Islands subsea resource development company that intends to extract polymetallic nodules.

We retain a priority right to provide deepwater nodule extraction services to Moana, and together with Moana and others, we intend to extract the nodules in an environmentally responsible way by employing existing and developing new technologies.

Exchangeable bonds —The indentures that govern the 4.00% Senior Guaranteed Exchangeable Bonds, 2.50% senior guaranteed exchangeable bonds due January 2027 and the 4.625% Senior Guaranteed Exchangeable Bonds each 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.

shares per $1,000 note, which implies an exchange price of $5.25 per share, subject to adjustment upon the occurrence of certain events, and any such exchange may be settled in cash, Transocean Ltd.

Additionally, the 4.00% Senior Guaranteed Exchangeable Bonds and the 4.625% Senior Guaranteed Exchangeable Bonds may be exchanged at any time prior to the close of business on the second business day immediately preceding the maturity date at the effective

exchange rate, and any such exchange may be settled in cash, Transocean Ltd.

shares or a combination of cash and Transocean Ltd.

shares, at our election.

On August 14, 2020, we issued $238 million aggregate principal amount of the 2.50% Senior Guaranteed Exchangeable Bonds in the 2020 Private Exchange for $397 million aggregate principal amount of the 0.50% Exchangeable Senior Bonds.

The 2.50% 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 2.50% 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 2.50% 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, 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 2.50% 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 2.50% Senior Guaranteed Exchangeable Bonds may be exchanged 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 exchange 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 2020 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.

Early debt retirement —In January 2022, we made an aggregate cash payment of $18 million to repay the then-outstanding $18 million aggregate principal amount of the 5.52% Senior Secured Notes, and as a result, the noteholders subsequently released all liens, the mortgage on the secured rig and $106 million from restricted cash accounts.

In the years ended December 31, 2021 and 2020, we made an aggregate cash payment of $79 million and $110 million, respectively, to repurchase in the open market $79 million and $147 million, respectively, aggregate principal amount of our debt securities.

In February 2020, we made an aggregate cash payment of $767 million, including the make-whole premium, to redeem in full the then-outstanding 9.00% Senior Notes.

In November 2020, we completed the cash

tender offers to purchase certain debt securities, and as a result, we made an aggregate cash payment of $222 million to settle the validly tendered notes.

Debt issuances —On January 17, 2020, we issued $750 million aggregate principal amount of our 8.00% Senior 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% Senior 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.

Equity and debt investments —We hold equity and debt investments in Orion, the company that, through its wholly owned subsidiary, owns the harsh environment floater Transocean Norge .

In June 2021, we agreed to participate in a financing arrangement for Orion, at a rate of 33.0 percent, equivalent to our ownership interest in Orion and made a cash investment of $33 million in the loan facility.

We also hold equity and debt investments in certain unconsolidated affiliates that are involved in researching and developing technology to improve efficiency, reliability, sustainability and safety in drilling and other activities.

One of these companies, Nauticus Robotics, develops highly sophisticated, ultra-sustainable marine robots and intelligent software to power them, and commercializes our patented HaloGuard ℠ system, which alarms, notifies and, if required, halts equipment to avoid injury to personnel who move into danger zones.

Nauticus Robotics has recently entered into a definitive business combination agreement with a publicly traded special purpose acquisition company that will result in it becoming a publicly listed company.

Litigation settlement —In June 2020, the U.S.

District Court for the Eastern District of Louisiana (the “MDL Court”) released the then-remaining $125 million of assets held in the escrow account established to satisfy our remaining obligations under the settlement agreement that we and the Plaintiff Steering Committee filed in May 2015 with the MDL Court, in which most claims against us for damages related to the blowout of the Macondo well in April 2010 were consolidated by the U.S.

Judicial Panel on Multidistrict Litigation.

Following the release of assets, all significant litigation, including civil and criminal claims, resulting from the Macondo well incident had been resolved.

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 3.50 billion.

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 for cancellation any amount of our shares for an aggregate purchase price of up to CHF 3.50 billion.

On February 12, 2010, our board of directors authorized our management to implement the share repurchase program.

At December 31, 2021, the authorization remaining under the share repurchase program was for the repurchase of up to CHF 3.24 billion, equivalent to approximately $3.55 billion, of our outstanding shares.

At December 31, 2022, the authorization remaining under the share repurchase program was for the repurchase of our outstanding shares for an aggregate purchase price of up to CHF 3.24 billion, equivalent to $3.51 billion.

We intend to fund any repurchases using available cash balances and cash from operating activities.

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See Notes to Consolidated Financial Statements—Note 9—Postemployment Benefit Plans .

As of December 31, 2021, we have unrecognized tax benefits of $435 million, including interest and penalties, against which we have recorded net operating loss deferred tax assets of $320 million, resulting in net unrecognized tax benefits of $115 million, including interest and penalties, that upon reversal would favorably impact our effective tax rate.

As of December 31, 2022, we had unrecognized tax benefits of $471 million, including interest and penalties, against which we recorded net operating loss deferred tax assets of $383 million, resulting in net unrecognized tax benefits of $88 million, including interest and penalties, that upon reversal would favorably impact our effective tax rate.

Although a portion of these could settle or reverse in the coming year, we have excluded this amount from our contractual obligations presented above due to the high degree of uncertainty regarding the timing of future cash outflows associated with these liabilities and the period in which any cash settlement may be made with the respective taxing authorities.

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Our failure to subsequently secure drilling contracts in these instances, if not already secured, could have an adverse effect on our results of operations or cash flows.

In the year ended December 31, 2022, we made a cash contribution of $15 million to Liquila, which represented our proportionate contribution that was used to make the initial payment to the shipyard to acquire the newbuild ultra-deepwater drillship Deepwater Aquila for a purchase price of approximately $200 million.

The seventh generation, high-specification drillship is designed to be equipped with our patented dual activity, a 1,400 short-ton hookload, large deck space, high load capacities, large deck space and will be dual-stack ready.

We maintain the exclusive right to market and manage the operations of the rig, which is expected to be delivered from the shipyard in the third quarter of 2023.

In the years ended December 31, 2022 and 2021, we made capital expenditures of $717 million and $208 million, respectively, including $669 million and $174 million, respectively, for our newbuild construction projects.

The historical and projected capital expenditures and non-cash capital additions for our ongoing newbuild construction projects were as follows:

Years ending December 31,

costs for the

(in millions)

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Deepwater Titan (b)

(a) Deepwater Atlas , an ultra-deepwater drillship under construction at the Jurong Shipyard Pte Ltd.

in Singapore.

We currently expect that the shipyard will be ready to deliver Deepwater Atlas in the first half of 2022, and upon delivery, we expect to borrow approximately $370 million under the Shipyard Loan, which may be discounted for imputed interest, to finance the final installment to the shipyard (see “— Sources and uses of liquidity ”).

The rig is expected to commence operations under its drilling contract, in the first of two phases, in the second half of 2022, using a 15,000 pounds per square inch blowout preventer.

Before the start of the second phase, the rig will undergo installation of a 20,000 pounds per square inch blowout preventer and related equipment, which is expected to be commissioned in the year ending December 31, 2023.

(b) Deepwater Titan , an ultra-deepwater drillship under construction at the Jurong Shipyard Pte Ltd.

in Singapore.

We currently expect that the shipyard will be ready to deliver Deepwater Titan in the second half of 2022, and upon delivery, we expect to borrow approximately $90 million under the Shipyard Loan, which may be discounted for imputed interest, to finance a portion of the final installment to the shipyard (see “— Sources and uses of liquidity ”).

The rig is expected to commence operations under its drilling contract in the first half of 2023.

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.

(a) In October 2022, we completed construction of the ultra-deepwater drillship Deepwater Atlas .

In June 2022, we borrowed $349 million under the Shipyard Loan and made a cash payment of $46 million to satisfy the final milestone payment due upon delivery of Deepwater Atlas .

We recorded the Shipyard Loan, net of imputed interest, and corresponding non-cash capital additions of $300 million.

In October 2022, the rig commenced operations in the first of two phases using a 15,000 pounds per square inch blowout preventer.

(b) Deepwater Titan is an ultra-deepwater drillship under construction.

In December 2022, we took delivery from Jurong Shipyard Pte Ltd.

in Singapore and borrowed $90 million under the Shipyard Loan and made a cash payment of $325 million to satisfy the final milestone payment due upon delivery of Deepwater Titan .

We recorded the Shipyard Loan, net of imputed interest, and corresponding non-cash capital additions of $82 million.

The rig is expected to commence operations under its drilling contract in the second quarter of 2023.

The projected capital additions include estimates for the mobilization and customer acceptance in the U.S.

Gulf of Mexico and 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.

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Dispositions —From time to time, we may also review the possible disposition of certain drilling assets.

Considering market conditions, we have committed to plans to sell certain lower specification drilling units for scrap value.

During the two-year period ended December 31, 2021, we identified eight such drilling units that we sold for scrap value or other purposes.

During the year ended December 31, 2021, we completed the sale of one harsh environment floater and related assets, and we received net cash proceeds of $4 million.

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 aggregate net cash proceeds of $20 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.

Considering market conditions, we have previously committed to plans to sell certain lower-specification drilling units for scrap value, and we may identify additional lower-specification drilling units to be sold for scrap, recycling or alternative purposes.

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, stacking and maintenance of the harsh environment floater Transocean Norge and a marketing services agreement for the marketing of the rig.

We also leased the rig under a short-term bareboat charter agreement, which expired in June 2021.

Prior to the rig’s placement into service, we 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.

Additionally, in June 2021, Orion refinanced its shipyard loans under a financing arrangement for $100 million, in which we participated at a rate equivalent to our ownership interest in Orion.

We have a management services agreement with Orion for the operation, stacking and maintenance of the harsh environment floater Transocean Norge and a marketing services agreement for the marketing of the rig.

We also periodically lease the rig under short-term bareboat charter agreements.

In June 2021, Orion refinanced its shipyard loans under a financing arrangement for $100 million, in which we made a cash investment of $33 million.

Borrowings under the financing arrangement are secured by Transocean Norge .

Additionally, we have a management services agreement with Liquila for various services, including the marketing of

the newbuild ultra-deepwater drilliship Deepwater Aquila .

See Notes to Consolidated Financial Statements—Note 3—Unconsolidated Affiliates .

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Perestroika AS has certain registration rights related to its shares and shares that may be issued in connection with any exchange of its 2.50% Senior Guaranteed Exchangeable Bonds.

See Notes to Consolidated Financial Statements—Note 9—Debt .

In November 2022, Perestroika AS made a cash investment of $10 million for a 13 percent noncontrolling ownership interest in Liquila.

See Notes to Consolidated Financial Statements— Note 3—Unconsolidated Affiliates and Notes to Consolidated Financial Statements—Note 8—Debt .

Critical Accounting Policies and Estimates

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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.

On an ongoing basis, we evaluate our estimates, including those related to our income taxes, property and equipment, equity investments, contingencies, allowance for excess materials and supplies, intangibles, postemployment benefit plans and share-based compensation.

We base our estimates 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.

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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 and accounting standards updates, refer to our Notes to Consolidated Financial Statements— Note 2—Significant Accounting Policies and Note 3—Accounting Standards Update .

For a discussion of our significant accounting policies and accounting standards updates, refer to our Notes to Consolidated Financial Statements— Note 2—Significant Accounting Policies .

Income taxes —We provide for income taxes based on expected taxable income, statutory rates, tax laws and tax planning opportunities available to us in the jurisdictions in which we operate or have a taxable presence.

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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.

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.

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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, 2021 and 2020, our unrecognized tax benefits were approximately $435 million and $419 million, respectively.

At December 31, 2022 and 2021, we had unrecognized tax benefits of $471 million and $435 million, respectively, including interest and penalties, against which we recorded net operating loss deferred tax assets of $383 million and $320 million, respectively, resulting in net unrecognized tax benefits of $88 million and $115 million, respectively, including interest and penalties, that upon reversal would favorably impact our effective tax rate.

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.

We continually evaluate tax planning 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.

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Our estimate of fair value generally requires us to use significant unobservable inputs, representative of Level 3 fair value measurements, 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.

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.

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(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.

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.

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We intend to defend our tax positions vigorously.

Although we can provide no assurance as to the outcome of the aforementioned changes, examinations or assessments, we do not expect the ultimate liability to have a material adverse effect on our consolidated financial position or results of operations;

however, it could have a material adverse effect on our consolidated cash flows.

however, it could have a material adverse effect on our consolidated statement of cash flows.

See Notes to Consolidated Financial Statements— Note 10—Income Taxes .

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What changed 10-K

Item 7. Management’s Discussion and Analysis