(

) 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 was 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 was related to the

2001

acquisition of Sea Truck Holding AS and the

1998

acquisition of Brovig Supply AS. We review l

ong-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets

may

not be recoverable. We assess potential impairment by comparing the carrying values of the long-lived assets to the undiscounted cash flows expected to be received from those assets. If impairment is indicated, we determine the amount of impairment expense by comparing the carrying value of the long-lived assets with their fair market value. We base our u

ndiscounted cash flow estimates on, among other things, historical results adjusted to reflect the best estimate of future operating performance. We obtain estimates of fair value of our vessels from independent appraisal firms. Goodwill was tested for impairment in the

third

quarter each year or on an interim basis if events or circumstances indicated that the fair value of goodwill had decreased below its carrying value. Management’s assumptions are an inherent part of our asset impairment evaluation, and the use of different assumptions could produce results that differ from those reported.

Beginning in late

2014,

oil prices declined significantly. Prices continued to decline throughout

2015and

into

2016,

reaching a low of less than

$30

per barrel in the

first

quarter of

2016.

Prices recovered over the remainder of

2016,

stabilizing at over

$40

per barrel for much of the

second

and

third

quarters of

2016

and further increasing to over

$50

per barrel in the

fourth

quarter of

2016.

This recent surge in prices is attributable to the Organization of Petroleum Exporting Countries (OPEC) decision to limit production at its

November

2016

meeting. However, prices continue to be volatile and are subject to significant uncertainty. The lower price environment impacted the operational plans for oil companies beginning in late

2014

and consequently adversely affected the drilling and support service sector. The decrease in day rates and utilization for offshore vessels has been significant. In addition, the independent appraisal firms have lowered the fair value estimates related to our vessels in each quarter since the

fourth

quarter of

2014.

As a result of these factors, we have performed a number of reviews for impairment since the

fourth

quarter of

2014.

See the discussions below detailing our impairment analyses and processes for each of goodwill, long-lived assets, intangible assets, vessel components and assets held for sale. The components of reduction in value of assets are as follows (in thousands):

	2016		2015		2014
Goodwill impairment	$	-	$	22,554	$	-
Long-lived assets impairment		160,222		115,489		-
Intangible asset impairment		-		13,695		-
Vessel component impairment		2,586		365		7,459
Assets held for sale		-		-		1,536
Total reduction in value of assets	$	162,808	$	152,103	$	8,995

Goodwill

Impairment

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 in the

third

quarter of

2015

we recorded a

$22.6

million impairment of the North Sea segment’s goodwill. As a result of this impairment, we no longer have any goodwill.

Long-Lived Asset Impairment

In the

third

quarter of

2015,

we recorded

$129.2

million of impairment expense related to 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. As a result of this impairment, we no longer have an intangible asset.

In the

first

and

second

quarters of

2016,

we recorded an aggregate of

$160.2

million of impairment expense related to our long-lived assets. Impairment charges totaled

$94.5

million for the U.S. Gulf of Mexico and

$15.9

million for the non-U.S. Americas, both part of the Americas segment. We also recorded impairment in Southeast Asia totaling

$49.8

million.

Vessel Component Impairment

We have vessel components in our North Sea and Southeast Asia segments that we intend to sell. We recorded impairment based on

third

party appraisals of the North Sea components totaling

$7.5

million in the

third

quarter of

2014

and

$0.4

million in the

third

quarter of

2015.

Based on

third

party valuations, we recorded impairment expense related to these assets totaling

$2.6

million, consisting of

$2.0

million in the North Sea and

$0.6

million in Southeast Asia, in the

first

quarter of

2016.

Assets Held For Sale

December

31,

2014,

we classified an additional North Sea vessel as an asset held for sale and determined that its carrying value was less than our estimate of the amount we would realize in a sale. As a result, we reduced the carrying value by

$1.5

million which is included in our results of operations as an impairment. The adjusted carrying value of this vessel is based on a purchase and sale agreement. In

January

2015,

we completed the sale of the asset at its adjusted carrying value.