Transocean Ltd. (NYSE: RIG) plans to raise as much as $350 million in the IPO of a company owning three of its drillships as the world’s largest offshore rig contractor seeks to strengthen its balance sheet, Bloomberg said June 23.

The new entity, Transocean Partners LLC, expects to sell 51% partnership units in each of the three rigs, while Vernier, Switzerland-based Transocean Ltd. retains the remaining 49% stakes, the company said in a federal filing June 23.

Offshore rig contractors have been studying tax-free partnerships for some long-term contract drillships since Norway’s Seadrill Ltd. (NYSE: SDRL) adopted such a structure in 2012. Transocean has been seeking ways to raise cash to upgrade its fleet and fund its dividend including a tax-free partnership, which is comparable to a MLP.

“We’ll start at a reasonable number of rigs that will allow us to grow the MLP over time so we can meet the MLP investor’s expectations regarding growth in distributions,” CEO Steven Newman said June 6 in an interview at Bloomberg’s Houston office. Transocean is on track to do a partnership IPO in the third quarter of this year, he said then.

Transocean’s filing didn’t provide timing for the IPO.

Royal Dutch Shell Plc (NYSE: RDS-A, RDS-B) is the latest energy company to announce an MLP. Shell said June 18 it will sell shares in a U.S. pipeline business in the second half of 2014.

It’s still to be determined “how well a new offshore drilling MLP will do with current fundamental conditions,” Luke Lemoine, an analyst at Capital One Southcoast in New Orleans, said June 23 in a note to investors.

Transocean Ltd. owned 77 rigs, including the three being contributed to the new partnership, as of June 16, according to the filing. The company is building another nine drillships and five shallow-water rigs.

Transocean Partners LLC has rigs in the Gulf of Mexico with contracts through at least November 2016. The partnership also will get first rights over the next five years to acquire stakes in four drillships under construction.

Rig contractors responded to rising demand in the past few years with the biggest batch of orders since the advent of deepwater drilling in the 1970s. Almost 100 vessels are on order for delivery before the end of 2017, according to IHS Energy.

Transocean, which has 10 Buy ratings from analysts, 19 Holds and 13 Sells, climbed 1.4% to close at $46 in New York. Before June 23, Transocean was the second-worst performer in the Philadelphia Oil Service Sector Index, having fallen 6.2% over the past 12 months. Diamond Offshore Drilling Inc. (NYSE: DO) was the worst performer over the past year before June 23, having slid 24%.

Morgan Stanley & Co. LLC and Barclays Capital Inc. will serve as underwriters for the IPO, according to the filing.

Offshore