Note 3 - Impairment Charges

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Asset Impairment Charges [Text Block]

(

3

) IMPAIRMENT CHARGES

Long-Lived Asset Impairment

Our tangible long-lived assets consist primarily of vessels and construction-in-progress. 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. 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

2015

and 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.

However, prices have since declined and 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.

Based on the triggering events discussed above, we performed an evaluation for impairment for the quarter ended

March 31, 2016

and determined that the carrying values of certain of our long-lived asset groups in the Americas and in Southeast Asia were greater than the related undiscounted expected future cash flows. We compared the carrying values of the long-lived asset groups to the fair value provided by the independent appraisal firms and

recorded

$114.1

million of impairment charges in the

first

quarter of

2016.

The impairment charge consisted of

$94.5

million in connection with our long-lived assets in the U.S. Gulf of Mexico, which is part of our Americas segment and included vessels under construction, and

$19.6

million in connection with our Southeast Asia segment. We also performed an evaluation for impairment for each of our asset groups in the

first

and

second

quarters of

2017,

but determined that the undiscounted expected future cash flows were greater than the carrying value in each group and concluded that

no

further impairment was indicated.

We will continue to monitor the industry for triggering events that could indicate additional impairment.

Vessel Component Impairment

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

third

party valuations, in the

first

quarter of

2016

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.