Please standby, we are about to begin. Good day everyone, and welcome to the second quarter 2008 results conference call for Transocean Inc. Today’s conference is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to Mr. Gregory Panagos, Vice President of Investor Relations and Communications. Please go ahead sir. Gregory Panagos – Vice President of Investor Relations and Communications: Thank you, [Nikki] and good morning ladies and gentlemen. Welcome to Transocean’s second-quarter 2008 Earnings Conference Call. A copy of the second quarter press release covering our financial results, along with supporting statements and schedules, is posted on the company’s website at deepwater.com. We have also posted a file containing four charts that will be discussed during this morning’s call. That file can be found on the company’s website by selecting Investor Relations, followed quarterly tool kit. With me on this morning’s call are Bob Long, our Chief Executive Officer; Steven Newman, our Chief Operating Officer; Greg Cauthen, Senior Vice President and Chief Financial Officer; Terry Bonno, Vice President, Marketing & Planning. Before I turn the call over to Bob Long, I would like to point out that during the course of this conference call, participants may make certain forward-looking statements regarding various matters related to our business and company that are not historical facts, including future financial performance, operating results, and the prospects for the contract drilling business. As you know, it is inherently difficult to make projections or other forward-looking statements in a cyclical industry since the risks, assumptions, and uncertainties involved in these forward-looking statements include the level of crude oil and natural gas prices, rig demand, and operational and other risks, which are described in the company’s most recent Form 10-K and other filings with the US…

Thanks, Terry. I think with that, we are ready to answer some questions.

(Operator Instructions) And, we will take our first question from Robin Schumacher with Citigroup. Please go ahead.

Bob, I wanted to ask you about or actually Greg, maybe, the formula you described for the level of debt that you are comfortable with, the total debt less free cash flow, it seems that that number is around $10 billion. Is that correct?

No, that is not correct. Today, as I described, our free cash flow backlog is about $18 billion. So, if you expect that to hold, we get to a level of debt of around $13 billion and we would meet that criteria, if the backlog holds. Now, the backlog could hold or could go up or down, so as we have seen this quarter, we have seen a rapid increase in that free cash flow backlog. So but right now, given the backlog, we would be looking at $13 billion of debt before we reach that target and we should reach that sometime in the first quarter. Now, I would caution you, this is a guideline. This is one of the factors we will use among many or market conditions or prospects for reinvestment, economic conditions, etc., as to what we start doing with our cash once we beat that target. So, it’s not a black box that we are going to plug all this number in and then cash starts returning to shareholders the day we beat it. So, it’s a target. It’s good news that we are almost six months ahead of where we expected to be, because of the backlog growing, not because of debt shrinking faster than we expected. But let’s be cautious that it is just one of many factors.

Okay. So, then the asset sales proceeds that you will have, will those be applied to reduce debt further, kind of getting you towards your goal?

They will be, but remember the sale of the Arctic II and Arctic IV are seller-financed, so we are not going to get any cash from that sale immediately. That, will come over a couple of years. So, now the proceeds from the Nordic, you are exactly right. We will reduce debt and that will help us move towards the target quicker.

Okay. And, just staying on the asset sale theme, you have mentioned on the past that, like the jackups you sold earlier this year, you might find opportunities to sell smaller packages of jackups. Given your uncertainty about the market for jackups in 2009, is that -- are you proceeding actively in that arena or is this something that is more opportunistic, if you will?

I think, Robin, it’s fair to say it’s more opportunistic. We have a couple of potential jackup sales that could take place, but we have found that many of our jackups will have several years of contracts. When we look at the cash flow that is generated from the contracts, it’s pretty good. And, look at what the market seems to be willing to pay, so far we haven’t found very many opportunities that we think really make financial sense for us. So, we have decided to hold onto the assets. I wouldn’t encourage you to think that if there are any sales there are going to be very many. At this point I think we are likely to only see a very few additional jackup sales in the future.

Okay, thank you.

And, our next question comes from Geoff Kieburtz with Weeden & Co.

Thanks, good morning. Bob, you made a comment in your opening remarks about, I just wanted you to clarify, something about the operators may contract for more rigs than they are tendering for. Could you elaborate a little bit on what you meant there?

Yeah Jeff, I think we saw that, I think, the first time here is significantly when Petrobras had tendered for a handful of rigs and wound up using that tender to contract 12 rigs. Since that time, we have seen one or two additional instances where an operator has tendered for a rig and in discussions with them they have indicated that they could well decide to take more than the one or, in one case, the tenders for two rigs. They have indicated that they may decide to contract more than just the one or two rigs that they have tendered for. I think it’s an interesting development in terms of how operators are thinking about the deepwater market.

Does that suggest to you that there are more and more operators kind of looking at this market the way Petrobras seems to be?

I wouldn’t say that, Jeff. Petrobras is in a unique position where they have got a tremendous amount of activity that they are absolutely certain they are going to have for a very long time. So, the amount of capacity that they know they are going to need is significant. And, I think that puts them in a different position than most of the other operators out there.

Just on the Petrobras, when the contract details were being discussed there, I know that you are including in your commentary the potential bonus. What has been the actual history in terms of percentage of potential bonus that is actually earned?

This is a unique bonus on the Petrobras 10,000. It has a relatively low threshold of utilization that you meet that bonus, and so it’s every bonus arrangement with Petrobras is different. So, that is why we haven’t normally included the bonus in our announcement, but we are highly confident we will earn 90%-plus of this bonus based upon our normal deepwater utilization. So that is why we have included it in our announcement.

Just as a broad statement, though, Greg, if we see bonus potential, what is the history then across the board, maybe excluding this somewhat unique circumstance?

Frankly, I have never calculated it that way. It would be lower than 90%, probably higher than 50%. Somewhere in there, but I haven’t ever calculated it. But, this bonus is much better than the typical bonus from our perspective in terms of our ability to meet it.

Great, thank you.

And, our next question comes from Lee Cooperman with Omega Advisors. Please go ahead.

Thank you. Just, I apologize if I ask a question that was redundant, but I had to leave the call for a few minutes. I have two questions. Your contract back, I’m sorry, okay, You contract backlog is now $40.7 billion and our estimate that the cash margin is about $24.4 billion. If we back out the $4 billion in remaining newbuild CapEx, that leaves about $20.4 billion, which now I guess compares to debt of around $15.3 billion. So, this issue of returning money to shareholders I assume is going to be an issue that will be discussed sometime this year. Is that a reasonable view?

I think it’s reasonable to say that it will be discussed this year. We are already thinking hard about what we are going to do there, Lee. On your numbers, I think you are a little bit high with your net and I suspect what you have left out is cash taxes and some allocated local costs.

Got, you. Okay. But in principle this is a possible this year type of discussion?

It’s definitely a this year type of discussion. I won’t promise you that we will make a decision to do anything this year, but.

My only promise I want from you is that we don’t buy back overvalued stock. If we go the route of stock repurchase, we want to make sure that it’s undervalued.

Understood.

Okay. Now, the second question, when we first met three or four years ago we talked about the issues that would determine the outlook for the Company, and some of the issues. We talked about the importance of the commodity price and you had said back then that deepwater drilling was economic down to prices as low as $35 a barrel. Second, you said important for prospectivity, in other words that if we don’t find stuff the customer is not going to come back and keep drilling. Third was the risk of over builds. I’m just wondering how you would see these three issues today in other deepwater is economic down to prices as low as X given the inflation in oil country goods, second how is prospectivity lined up, in my own advantage point it looks like the only place that’s undiscovered -- deposits exist is deepwater offshore, which is terrific for us. Third, this financial environment we are in would seem to suggest that overbuilding, if it’s a risk, would be a risk that is being pushed out somewhat because of the constrained credit environment. But I would love your inputs on these three items as you gave several years ago.

Okay, I will take a stab at it. But on the price of oil that will justify deepwater, it’s difficult to say based on some input from a few operators that we hear consistently. My guess would be -- and it’s obviously a total guess -- is that $35 a barrel range is probably up now to the $60 or $65 a barrel range, maybe higher in certain areas. But I’m guessing its somewhat in that range. On the prospectivity its seems to me and this maybe the result of the escalation of the old prices that prospectivity has not been problem that potentially it could have been, in part they also be due to technology, but clearly the success rate that the operators are having, particularly in deepwater, has been significant. There is a big backlog of development and appraisal opportunities out there. There is also a growing need for additional deepwater exploratory efforts. I think many of the operators have been concerned about the inability to get drilling capacity to dedicate to an exploration program. So I don’t think that prospectivity is going to be an issue in any kind of a near-term future. On overbuilding, I think that we have seen such an increase in demand that despite the fact that we have had a lot of new construction in the floater business, 70% or more of that is already contracted. I am very confident that the rest of the speculative newbuilds, given the demand we see out there, is going to get contracted. And given the shipyard delivery times now, I think the last deepwater rig that was ordered has a 2012 delivery. You are not going to see much additional capacity come into this business for the next four years. So I think your characterization that some of these risks have been pushed out is accurate.

Thank you very much. Let me just take a moment to thank you and your whole team for doing such a wonderful job for the shareholders.

Thank you.

And our next question comes from Tom Curran with Wachovia. Please go ahead.

Good morning guys.

Good morning.

Bob, starting with the increase in the estimated out of service days for 2009, given the magnitude of it, I was wondering did this arise out of some sort of mid-year review, first? Then, secondly, could you break it down between how much is associated with a more comprehensive overview of the needs of the GlobalSantaFe rigs? Then how much has arisen out of your standard sources of increased down tide needs over the last few months, such as mobilizations associated with recent awards, contract prep modifications, repairs, and then special periodic surveys?

Tom, I have seen a number of the flash reports that came out this morning before the call where people seemed to be surprised about the amount of out-of-service time. But this is the first time that we have given guidance for 2009, in part because we were taking a careful look at the new combined fleet. But I am a little bit surprised that there is -- that the number was a surprise to the financial community. It’s actually less time, fairly significant amount less, than the out-of-service time then we have this year. So that quite sure what analyst were using to make their models and estimates of the out-of-service time. As Greg said its probably going to be revenue neutral because despite the fact that’s its significantly less out of the service time then in ‘08 there is more out of the service time for floaters and less with jackups. So the impact on the revenue, given the higher day rates for floaters will be somewhat more, but net-net about a wash and I would guess that going forward people ought to be looking at us having out of service time in future years that’s somewhere in the ballpark of the average of ‘08 and ‘09 absent some specific guidance from us that there is something unusual going on. I don’t think we have discovered any significant issues or surprises on our rigs, so I am not sure I could say much more than that without going into a whole lot of detail. It probably isn’t worth it.

Agreed, and I appreciate that color. I was really just trying to clarify should we assume that as a result of this increase you now feel you have gotten a good read or at least a good first read on what the needs are likely to be of the GlobalSantaFe fleet in ‘09?

I think we are pretty comfortable that we understand the conditions of the rigs and what we need to do. Both the Legacy Global fleet and the Legacy Transocean fleet.

Great, great. Secondly, Bob, I guess this would be for Terry as well are your marketing guys aware, current, anywhere in the world within the ultra-deepwater segment of any contractors, including yourself, but you don’t have to tell us who, that have yet pushed for a day rate with a $700,000 handle or are expected to soon?

I am not sure how to answer -- we obviously don’t know what our competitors are bidding.

Sometimes you do it?

Well, sometimes after the fact we find out. But have we indicated rates in excess of $700,000 to some of our customers? Yes.

And do you --? Based on the response you have gotten thus far, do you expect to eventually secure an ultra-deepwater day rate with a $700,000 handle?

I don’t like the word expect. Hope is there, obviously, but I couldn’t really tell you whether or not the market will get there. But clearly we are not far from it with the recent pitches at $650,000 a day and, as I have said before, I think the real catalyst for a significant increase in day rates is shrinking supply. If you look at what is happening to the available rigs in 2010, that available supply is getting smaller and smaller, which would suggest that if demand continues the way it is, that rates are going to go up.

Okay, that is very helpful. Thanks for the color, guys. I will turn it back.

And our next question comes from Alan Laws with Merrill Lynch. Please go ahead.

Good morning. . I have a follow-up question here to Lee’s question, actually. Since you have this return of cash decision remaining determined by the dynamic debt factor, I guess more specifically could you give us some color around how the debate at the board level is going with this issue? What are the factors you are bandying about when you are discussing this?

I don’t want to tell you what the debate at the Board level is. But, obviously, there are a lot of factors to take into account when we start to consider. One, whether it’s time to start returning cash to shareholders and two, what mechanism would be best to do that. We do a lot of analysis around all of that, but as Greg said, this thumb rule we have is just that. It’s just one other factor in the picture to put that into the considerations because we want to have significant financial capacity to take advantage of opportunities as and when they present themselves. And particularly if a downturn ever surfaced, they come very quickly in this business. So, there are a lot of factors in the decision about when to return the cash which revolve around our longer-term outlook and near-term outlook for market, as well as reinvestment opportunities that we see. In terms of the method, we do a lot of analysis looking and a lot of the discussions with shareholders in terms of their view on the preference for dividend buyback on the real value of a sustaining quarterly dividend. So, there are a lot of different factors that go into that. It’s a fairly long discussion and a lot of analysis.

Sure, so the dynamic debt formula is more like the frame to the whole picture, then? And you could change the frame at any time? Is that fair?

Absolutely.

Okay, then as far as discussing the potential return and what form it would come in, is that done with an external advisor too, or is it something you are just doing internally plus your major shareholders?

Well, we went through this before. We talked to a number of investment banks, a number of financial professions. I think we got as much input as we could get. How much more of that we will do as we reconsider this that is kind of an open question at the time.

Okay, and if it was to be a special dividend, is some of the discussion about being able to keep it consistent? We have seen some of your peers instate one and then pull it, and it hasn’t had a really good impact on their equity value is that consideration as well?

Clearly any time you talk about dividends, whatever considerations is whether or not failure to follow through will continue with and will impact the stock price, so certainly it’s a consideration.

Alright, great that’s all I have thank you.

And our next question comes from Jeff Tillery with Tudor Pickering & Holt. Please go ahead.

Hi, good morning.

Good morning.

Bob and Greg you talked about down year -- your down time in ‘09 being revenue neutral, just given ship chart inflation and the balance of down days year-over-year do you think that’s expense neutral in ‘09?

Probably not, and that’s why when I was talking about looking forward to ‘09, I had indicated there are other factors where we are frankly still working through our budgets on those shipyards and everything but certainly shipyard inflation is going to be higher than normal inflation, steel prices are higher and shipyards continue to be capacity constrained so its hard to settle that together but it will, I would not expect it to be cost neutral but would expect our shipyard cost to be higher and higher than about more than our normal inflation rate next year.

Thanks for that. And so from a higher level you have got inflation generally kind of you said what maybe mid teens levels you are going to add partial years of several new built next year, just conceptually expenses shouldn’t run less than 15% year-over-year increase. Is that thinking about it the right way?

Probably, but make sure you do your math right. One time we gave a percentage estimate like that and everybody applied it on January 1. That is not how inflation works. I mean, that is an annualized increase and every quarter will be different. If you look at the chart we included, our shipyard activity is actually going to be very low in the fourth quarter and the first quarter. So, you won’t see a big pressure on cost. Second, quarter shipyard activity goes up, and that happens to be when we give our pay raises. Personnel costs are over 50% of our costs. So, every quarter is different, and so that is an annualized assumption. And, we haven’t done our budgets. We are going to be doing all sorts of things. So, I caution you to be too quick off of that. Having said that, we are seeing increasing pressure on costs, so we wanted to make sure everybody was aware of that as well.

That is very helpful. And, my last question just regarding assets M&A market, you guys have been successful doing some creative deals, the Tanker Pacific deal, the deal with Petrobras. Could you just provide some color around how you see the potential for additional creative deals and acquiring new assets?

I think that the opportunity set out there is fairly limited and I wouldn’t be very optimistic that we are going to be able to do much of anything. Certainly we are not going to be doing anything until we contract the new build that we have at Hyundai, because we don’t want to take on the obligation. It’s some kind of a creative situation like we did with the Tanker Pacific, where we would be marketing a joint venture rig against our own. So, right now I would say that the likelihood of some additional deals is very small.

Okay, thank you very much.

And, our next question comes from Roger Read with Natixis. Please go ahead.

Hi, good morning gentlemen.

Good morning, Roger.

A real quick question for you on the jack up market, given that today it’s certainly stronger than I think any of us would have predicted 12 or 24 months ago, what do you need to see end of this year/beginning of next year to bring you confidence that that market is going to let’s say hold together at least as well as it has been if not better? One of the reasons I ask this is going through your rig status sheet from yesterday, I couldn’t find any jackups where the rates were lower on the next contract than they were on the prior contract, other than I think maybe there was one short-term change. Can, you kind of help us with what would be the signposts we should consider?

That is a little bit tough to say, Roger. We have not seen any backwardation of the day rates. The, market has continued to be stable. I don’t think that we could say that we have had opportunities to push day rates higher. The, surprise in the jack up market for me has been the continued steady increase in demand, and it hasn’t been a big new area with all of a sudden somebody wanted 50 or 20 jackups. It has been a couple here and a couple there, and four in Egypt and three someplace else. I think if that market continues like that, we are going to continue in a frame where we are kind of cautious about the market, and yet it could still continue to be good through ‘09. An indicator that would say, okay, I guess this is really going to be a good market clearly through ,09 would be some big new area. If in the Persian Gulf, instead of looking for an additional four or five rigs, they tendered for 20 rigs, or some other place like that which came up with a very significant incremental demand, which frankly I don’t see happening. But that is the only thing that I could see that would be a clear trigger so that you could say, yes, I am pretty comfortable this market is going to continue good through 2009 and into 2010.

Okay, then my second question for Greg. Greg, if you could help us a little bit on the OpEx, maybe walk through what percentage is sort of the labor and maybe an idea of an increase in shipyard costs year-over and how much of that we could consider as -- in kind of getting to Jeff’s question before about are you neutral, revenue neutral versus the OpEx? Which ones you could get recovery out of your higher -- the pass-along and the higher day rates via the contract terms?

Well, OpEx inflation in many of our contracts and certainly most of our deep -- ultra-deepwater long-term contracts is recovered through cost inflation that we have cautioned in the past, like cost inflation seems to be only about two-thirds 70% effective because there is a lag being calculated against everything typically those kind of cost escalations don’t cover shipyards, although in some of our newer contracts, we are seeing more coverage in day rate protection or whatever on shipyards. So that is helpful. In terms of the cost inflation, let me clarify, the 15% was our average. At one end of that average are the shipyard inflation that is certainly more than 15%. Rope, soap, and dope inflation we think will be at a lower end of that average range, especially because of our supply chain ability. But, again we have not run all the detailed budgets, so, frankly, I can’t give you a lot of detail about all the components other than that right now we are expecting that year-over-year inflation to run about 15% there is going to be higher cost because we are going to have more rigs operating with four newbuilds and an upgrade but we are going to continue to push for supply chain benefit, so we just don’t know how all of that is going to net out yet for 2009. So, you just need to bear with us. We will certainly be in a position on the next call to give more guidance for 2009. But, right now those are the trends we are seeing.

Okay, then just my last question as you look at the drilling management, the oil and gas piece that was left over from GlobalSantaFe, is that a business we should expect to remain kind of relatively steady with where it has been? Is there any desire to upgrade that or expand it or whatever at this point?

I will tell you, Roger, that business has historically been focused on the Gulf of Mexico and the North Sea. We are working really hard with those folks to leverage the relationships we have around the world, where clients find themselves in need of the special capabilities and the competencies, the experience, and the skill set that ADTI and CMI can bring to operations everywhere we operate. So I am anticipating to see that business expand in terms of their geographic areas. I think that will be positive for the whole company.

One short-term caution. The second quarter benefited from both an increase in activity, but also it benefited because during the second quarter ADTI did not use many Transocean rigs. So, the normal elimination/deferral that we normally see wasn’t there. But for the rest of the year we know they will be using Transocean rigs, and so that elimination/deferral will kick in. So, for the second half of the year, please use our guidance not the second quarter trended out for the rest of the year.

Alright, thank you. That is helpful.

And our next question comes from Bill Sanchez with Howard Weil. Please go ahead.

Good morning. Bob, can you talk to us? You have been certainly talking a lot about return of cash to shareholders. Can you just talk about incremental newbuild opportunities and the appetite right now for that in the market in general by Transocean?

Well, I guess in terms of the appetite by Transocean, we are obviously always interested in talking to customers who insist on talking about a newbuild. There is still some interest out there in newbuilds. If we can get contracts that meet our payback criteria then we would proceed. Right now I would say that there is a possibility that by the end of the year we might have another newbuild. I wouldn’t want to try and handicap that and tell you whether there is a high possibility or low possibility but there is that possibility. So, I think that is about all the color I can get you on it.

Okay, does the ranking, though, in terms of uses of cash from here really, It seems like you are more clearly, for the balance of this year paying down debt and then perhaps a special dividend or a share repurchase program. It seems to me it’s a higher priority, and maybe the returns are better certainly there than incremental newbuilds at this point. Is that a fair comment?

I wouldn’t say that is a fair comment. I think that the incremental newbuilds are almost insignificant in terms of the question of returning cash to shareholders, given that it takes four years to build these and that with our payback criteria the impact on our cash flow backlog is fairly small, if we are going to get at least 80% simple payback. So, it really doesn’t turn into be much of a factor. They are almost like self funding issues.

Okay, so it’s not an either/or. It can be both?

I think for sure it can be both. The newbuild would not impact our decision much on whether or not to return cash to shareholders.

Okay. Thank you, Bob.

I think we have time for one more question.

And our final question comes from Kurt Hallead with RBC Capital Markets. Please go ahead.

That’s alright. I’ll end it here. I’ll take it offline. Thanks.

Okay, thank you, everyone. I appreciate you joining us and we will do it again next quarter.

And ladies and gentlemen, that does conclude today’s conference. Thank you for your participation. You may now disconnect.