(2) IMPAIRMENT CHARGES

Reduction in Value of Long-Lived Assets and Goodwill

Our tangible long-lived assets consist primarily of vessels and construction-in-progress. Our intangible asset is associated with customer relationships in the U.S. Gulf of Mexico acquired in our 2008 acquisition of Rigdon Marine Corporation and Rigdon Marine Holdings, LLC. Our goodwill relates to the 2001 acquisition of Sea Truck Holding AS and the 1998 acquisition of Brovig Supply AS. In assessing potential impairment related to our long-lived assets, the carrying values of the assets are compared with undiscounted expected future cash flows. If the carrying value of any long-lived asset is greater than the related undiscounted expected future cash flows, we measure impairment by comparing the fair value of the asset with its carrying value. At least annually, we assess whether goodwill is impaired based on certain qualitative factors.

In late 2014, the oil and gas industry experienced a significant decline in the price of oil causing an industry-wide downturn which has continued into 2015. The oil price recovered to almost $60 per barrel in the second quarter but continued its decline in the third quarter bottoming at near $40 per barrel. This downturn has impacted the operational plans for oil companies and consequently has affected the drilling and support service sector. We have experienced a negative impact on day rates and utilization in 2015 which is expected to continue into 2016.

As of December 31, 2014, we performed a full assessment of goodwill that did not indicate impairment. We performed another assessment in the second quarter of 2015 that did not indicate impairment, but the margin of coverage, given our assumptions, had narrowed since December 31, 2014. In the second quarter, we also performed a Step 1 assessment of our long-lived assets, including the intangible asset, for impairment and concluded that no impairment was indicated. These assessments were performed as a result of the triggering events described in the preceding paragraph.

Industry conditions continued to deteriorate in the third quarter and we again performed full assessments. For the quarter ended September 30, 2015, we recorded in our condensed consolidated statements of operations $152.1 million of impairment charges related to reduction in value of assets due to impairment. The components of reduction in value of assets are as follows (in thousands):

Goodwill impairment	$	22,554
Long-lived assets impairment		115,489
Intangible asset impairment		13,695
Vessel component impairment		365
Total reduction in value of assets	$	152,103

Goodwill

Impairment

Goodwill is tested for impairment in the third quarter each year or on an interim basis if events or circumstances indicate that the fair value of goodwill has decreased below its carrying value. We completed a qualitative analysis of goodwill in the third quarter of 2015 and determined that further testing was necessary. Our goodwill impairment evaluation indicated that the carrying value of the North Sea segment exceeded its fair value so that goodwill was potentially impaired. We then performed the second step of the goodwill impairment test, which involved calculating the implied fair value of our goodwill by allocating the fair value of the North Sea segment to all of the assets and liabilities (other than goodwill) and comparing it to the carrying amount of goodwill. To estimate the fair value of the reporting unit we used a 50% weighting of the discounted cash flow method and a 50% weighting of the public company guideline method in determining fair value of the North Sea reporting unit.

We determined that the implied fair value of our goodwill for the North Sea segment was less than its carrying value and recorded a $22.6 million impairment of the North Sea segment’s goodwill.

Long-Lived Asset Impairment

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is assessed by a comparison of the carrying amount of such assets to their fair value. Cash flow estimates are based upon, among other things, historical results adjusted to reflect the best estimate of operating performance. If an asset group’s fair value is less than the carrying amount of that asset groups, impairment losses are recorded in the amount by which the carrying amount of such assets exceeds the fair value. The estimates of fair value of our vessels and intangible asset were obtained from fair value appraisals performed at our request by third party appraisal firms.

At September 30, 2015, we recorded $129.2 million in expense in connection with the impairment of our long-lived assets in the U.S. Gulf of Mexico, which is a part of our Americas segment. The impairment consisted of $115.5 million related to our vessels and $13.7 million related to our intangible asset. The impairment in value of long-lived assets in the U.S. Gulf of Mexico was primarily driven by the disproportionally higher decline in day rates and utilization in the U.S. Gulf of Mexico compared to the other areas in which we provide offshore supply vessel services. We will continue to monitor the industry and our asset groups for indications of impairment and will perform additional assessments as conditions and circumstances warrant.

Vessel Component Impairment

We have certain vessel components in our North Sea region fixed asset base that were intended to be used in our new-build program. In second quarter 2014, we evaluated the use of these components and determined that they would not be used in our new-build fleet. We are actively pursuing a sale of the equipment, but there is a limited market. We adjusted the carrying value at June 30, 2014 to reflect the net realizable value. These assets are included in deferred costs and other assets on our balance sheet. The total charge to impairment expense related to these components at June 30, 2014 was $7.0 million. The adjustment value was based on an appraisal prepared by a third party appraisal firm. We obtained an updated appraisal at the end of each quarter since June 30, 2014 with no indications of material additional impairment until the third quarter 2015. We have charged an additional $0.4 million to impairment expense as of September 30, 2015 based on the updated appraisal.