0000866829-19-000034.txt : 20191023 0000866829-19-000034.hdr.sgml : 20191023 20191023160621 ACCESSION NUMBER: 0000866829-19-000034 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 102 CONFORMED PERIOD OF REPORT: 20190930 FILED AS OF DATE: 20191023 DATE AS OF CHANGE: 20191023 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HELIX ENERGY SOLUTIONS GROUP INC CENTRAL INDEX KEY: 0000866829 STANDARD INDUSTRIAL CLASSIFICATION: OIL, GAS FIELD SERVICES, NBC [1389] IRS NUMBER: 953409686 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-32936 FILM NUMBER: 191163781 BUSINESS ADDRESS: STREET 1: 3505 W SAM HOUSTON NORTH STREET 2: SUITE 400 CITY: HOUSTON STATE: TX ZIP: 77043 BUSINESS PHONE: 281-618-0400 MAIL ADDRESS: STREET 1: 3505 W SAM HOUSTON NORTH STREET 2: SUITE 400 CITY: HOUSTON STATE: TX ZIP: 77043 FORMER COMPANY: FORMER CONFORMED NAME: CAL DIVE INTERNATIONAL INC DATE OF NAME CHANGE: 19960821 10-Q 1 hlx09302019-10q.htm HELIX ENERGY SOLUTIONS GROUP, INC. 3Q19 FORM 10-Q Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to__________
Commission File Number: 001-32936
hlxlogo.jpg
 
HELIX ENERGY SOLUTIONS GROUP, INC.
(Exact name of registrant as specified in its charter)
Minnesota
 
95-3409686
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
  
 
 
 
3505 West Sam Houston Parkway North
 
 
Suite 400 
 
 
Houston
Texas
 
77043
(Address of principal executive offices)
 
 (Zip Code)
 
(281) 618–0400
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock
 
HLX
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer 
Non-accelerated filer 
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No
As of October 18, 2019, 148,809,467 shares of common stock were outstanding.
 




TABLE OF CONTENTS
PART I.
 
FINANCIAL INFORMATION
PAGE
 
 
 
 
Item 1.
 
Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
PART II.
 
OTHER INFORMATION
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 

2



PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
September 30,
2019
 
December 31,
2018
 
(Unaudited)
 
 
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
286,340

 
$
279,459

Accounts receivable:
 
 
 
Trade, net of allowance for uncollectible accounts of $0
91,707

 
67,932

Unbilled and other
72,548

 
51,943

Other current assets
61,751

 
51,594

Total current assets
512,346

 
450,928

Property and equipment
2,819,932

 
2,785,778

Less accumulated depreciation
(1,022,138
)
 
(959,033
)
Property and equipment, net
1,797,794

 
1,826,745

Operating lease right-of-use assets
213,048

 

Other assets, net
90,323

 
70,057

Total assets
$
2,613,511

 
$
2,347,730

 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
 
 
 
Accounts payable
$
79,122

 
$
54,813

Accrued liabilities
71,982

 
85,594

Income tax payable

 
3,829

Current maturities of long-term debt
108,468

 
47,252

Current operating lease liabilities
52,840

 

Total current liabilities
312,412

 
191,488

Long-term debt
304,932

 
393,063

Operating lease liabilities
164,761

 

Deferred tax liabilities
110,118

 
105,862

Other non-current liabilities
39,008

 
39,538

Total liabilities
931,231

 
729,951

Redeemable noncontrolling interests
3,257

 

Shareholders equity:
 
 
 
Common stock, no par, 240,000 shares authorized, 148,802 and 148,203 shares issued, respectively
1,316,805

 
1,308,709

Retained earnings
437,418

 
383,034

Accumulated other comprehensive loss
(75,200
)
 
(73,964
)
Total shareholders equity
1,679,023

 
1,617,779

Total liabilities, redeemable noncontrolling interests and shareholders equity
$
2,613,511

 
$
2,347,730

The accompanying notes are an integral part of these condensed consolidated financial statements.

3



HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts) 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net revenues
$
212,609

 
$
212,575

 
$
581,160

 
$
581,462

Cost of sales
157,535

 
160,582

 
469,898

 
473,589

Gross profit
55,074

 
51,993

 
111,262

 
107,873

Gain on disposition of assets, net

 
146

 

 
146

Selling, general and administrative expenses
(16,076
)
 
(20,762
)
 
(48,923
)
 
(52,986
)
Income from operations
38,998

 
31,377

 
62,339

 
55,033

Equity in losses of investment
(13
)
 
(107
)
 
(82
)
 
(378
)
Net interest expense
(1,901
)
 
(3,249
)
 
(6,204
)
 
(10,744
)
Loss on extinguishment of long-term debt

 
(2
)
 
(18
)
 
(1,183
)
Other expense, net
(2,285
)
 
(709
)
 
(2,430
)
 
(3,225
)
Royalty income and other
362

 
652

 
2,897

 
4,068

Income before income taxes
35,161

 
27,962

 
56,502

 
43,571

Income tax provision
3,539

 
841

 
6,739

 
1,226

Net income
31,622

 
27,121

 
49,763

 
42,345

Net loss attributable to redeemable noncontrolling interests
(73
)
 

 
(104
)
 

Net income attributable to common shareholders
$
31,695

 
$
27,121

 
$
49,867

 
$
42,345

 
 
 
 
 
 
 
 
Earnings per share of common stock:
 
 
 
 
 
 
 
Basic
$
0.21

 
$
0.18

 
$
0.33

 
$
0.29

Diluted
$
0.21

 
$
0.18

 
$
0.33

 
$
0.29

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
147,575

 
146,700

 
147,506

 
146,679

Diluted
148,354

 
146,964

 
148,086

 
146,761

The accompanying notes are an integral part of these condensed consolidated financial statements.

4



HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net income
$
31,622

 
$
27,121

 
$
49,763

 
$
42,345

Other comprehensive loss, net of tax:
 
 
 
 
 
 
 
Net unrealized gain (loss) on hedges arising during the period
(274
)
 
(88
)
 
(701
)
 
839

Reclassifications to net income
1,046

 
1,799

 
4,867

 
5,233

Income taxes on hedges
(156
)
 
(357
)
 
(838
)
 
(1,298
)
Net change in hedges, net of tax
616

 
1,354

 
3,328

 
4,774

Unrealized loss on note receivable arising during the period

 

 

 
(629
)
Income taxes on note receivable

 

 

 
132

Unrealized loss on note receivable, net of tax

 

 

 
(497
)
Foreign currency translation loss
(4,301
)
 
(1,421
)
 
(4,564
)
 
(4,277
)
Other comprehensive loss, net of tax
(3,685
)
 
(67
)
 
(1,236
)
 

Comprehensive income
27,937

 
27,054

 
48,527

 
42,345

Less comprehensive loss attributable to redeemable noncontrolling interests:
 
 
 
 
 
 
 
Net loss
(73
)
 

 
(104
)
 

Foreign currency translation loss
(78
)
 

 
(78
)
 

Comprehensive loss attributable to redeemable noncontrolling interests
(151
)
 

 
(182
)
 

Comprehensive income attributable to common shareholders
$
28,088

 
$
27,054

 
$
48,709

 
$
42,345

The accompanying notes are an integral part of these condensed consolidated financial statements.

5



HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
(in thousands)
 
Common Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders’
Equity
 
Redeemable Noncontrolling Interests
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2019
148,759

 
$
1,314,163

 
$
405,748

 
$
(71,515
)
 
$
1,648,396

 
$
3,383

Net income (loss)

 

 
31,695

 

 
31,695

 
(73
)
Foreign currency translation adjustments

 

 

 
(4,301
)
 
(4,301
)
 
(78
)
Unrealized gain on hedges, net of tax

 

 

 
616

 
616

 

Accretion of redeemable noncontrolling interests

 

 
(25
)
 

 
(25
)
 
25

Activity in company stock plans, net and other
43

 
214

 

 

 
214

 

Share-based compensation

 
2,428

 

 

 
2,428

 

Balance, September 30, 2019
148,802

 
$
1,316,805

 
$
437,418

 
$
(75,200
)
 
$
1,679,023

 
$
3,257

 
Common Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders’
Equity
 
Redeemable Noncontrolling Interests
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, June 30, 2018
148,107

 
$
1,303,984

 
$
369,659

 
$
(71,249
)
 
$
1,602,394

 
$

Net income

 

 
27,121

 

 
27,121

 

Foreign currency translation adjustments

 

 

 
(1,421
)
 
(1,421
)
 

Unrealized gain on hedges, net of tax

 

 

 
1,354

 
1,354

 

Equity component of debt discount on convertible senior notes

 
(2
)
 

 

 
(2
)
 

Activity in company stock plans, net and other
40

 
213

 

 

 
213

 

Share-based compensation

 
2,509

 

 

 
2,509

 

Balance, September 30, 2018
148,147

 
$
1,306,703

 
$
396,781

 
$
(71,316
)
 
$
1,632,168

 
$

 
The accompanying notes are an integral part of these condensed consolidated financial statements.

6



HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
(in thousands)
 
Common Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders’
Equity
 
Redeemable Noncontrolling Interests
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2018
148,203

 
$
1,308,709

 
$
383,034

 
$
(73,964
)
 
$
1,617,779

 
$

Net income (loss)

 

 
49,867

 

 
49,867

 
(104
)
Reclassification of deferred gain from sale and leaseback transaction to retained earnings

 

 
4,560

 

 
4,560

 

Foreign currency translation adjustments

 

 

 
(4,564
)
 
(4,564
)
 
(78
)
Unrealized gain on hedges, net of tax

 

 

 
3,328

 
3,328

 

Issuance of redeemable noncontrolling interests

 

 

 

 

 
3,396

Accretion of redeemable noncontrolling interests

 

 
(43
)
 

 
(43
)
 
43

Activity in company stock plans, net and other
599

 
(765
)
 

 

 
(765
)
 

Share-based compensation

 
8,861

 

 

 
8,861

 

Balance, September 30, 2019
148,802

 
$
1,316,805

 
$
437,418

 
$
(75,200
)
 
$
1,679,023

 
$
3,257

 
Common Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders’
Equity
 
Redeemable Noncontrolling Interests
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
147,740

 
$
1,284,274

 
$
352,906

 
$
(69,787
)
 
$
1,567,393

 
$

Net income

 

 
42,345

 

 
42,345

 

Reclassification of stranded tax effect to retained earnings

 

 
1,530

 
(1,530
)
 

 

Foreign currency translation adjustments

 

 

 
(4,277
)
 
(4,277
)
 

Unrealized gain on hedges, net of tax

 

 

 
4,774

 
4,774

 

Unrealized loss on note receivable, net of tax

 

 

 
(497
)
 
(497
)
 

Equity component of debt discount on convertible senior notes

 
15,411

 

 

 
15,411

 

Activity in company stock plans, net and other
407

 
(438
)
 

 

 
(438
)
 

Share-based compensation

 
7,456

 

 

 
7,456

 

Balance, September 30, 2018
148,147

 
$
1,306,703

 
$
396,781

 
$
(71,316
)
 
$
1,632,168

 
$

 
The accompanying notes are an integral part of these condensed consolidated financial statements.

7



HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands) 
 
Nine Months Ended
September 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
49,763

 
$
42,345

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
84,420

 
83,339

Amortization of debt discounts
4,642

 
4,238

Amortization of debt issuance costs
2,752

 
2,703

Share-based compensation
8,979

 
7,569

Deferred income taxes
2,347

 
(5,716
)
Equity in losses of investment
82

 
378

Gain on disposition of assets, net

 
(146
)
Loss on extinguishment of long-term debt
18

 
1,183

Unrealized gain on derivative contracts, net
(2,351
)
 
(2,289
)
Changes in operating assets and liabilities, net of acquisitions:
 
 
 
Accounts receivable, net
(45,399
)
 
(15,769
)
Other current assets
12,215

 
(5,662
)
Income tax payable, net of income tax receivable
(3,143
)
 
2,963

Accounts payable and accrued liabilities
(14,765
)
 
6,968

Other, net
(9,683
)
 
28,723

Net cash provided by operating activities
89,877

 
150,827

 
 
 
 
Cash flows from investing activities:
 
 
 
Capital expenditures
(45,636
)
 
(55,431
)
STL acquisition, net
(4,081
)
 

Proceeds from sale of assets
2,550

 
25

Net cash used in investing activities
(47,167
)
 
(55,406
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Issuance of Convertible Senior Notes due 2023

 
125,000

Repurchase of Convertible Senior Notes due 2032

 
(60,365
)
Proceeds from term loan
35,000

 

Repayment of term loan
(34,567
)
 
(62,872
)
Repayment of Nordea Q5000 Loan
(26,786
)
 
(26,786
)
Repayment of MARAD Debt
(6,858
)
 
(6,532
)
Debt issuance costs
(1,544
)
 
(3,867
)
Payments related to tax withholding for share-based compensation
(1,345
)
 
(1,058
)
Proceeds from issuance of ESPP shares
462

 
506

Net cash used in financing activities
(35,638
)
 
(35,974
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
(191
)
 
(947
)
Net increase in cash and cash equivalents
6,881

 
58,500

Cash and cash equivalents:
 
 
 
Balance, beginning of year
279,459

 
266,592

Balance, end of period
$
286,340

 
$
325,092

The accompanying notes are an integral part of these condensed consolidated financial statements.

8



HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 — Basis of Presentation and New Accounting Standards
 
The accompanying condensed consolidated financial statements include the accounts of Helix Energy Solutions Group, Inc. and its subsidiaries (collectively, Helix). Unless the context indicates otherwise, the terms “we,” “us” and “our” in this report refer collectively to Helix and its subsidiaries. All material intercompany accounts and transactions have been eliminated. These unaudited condensed consolidated financial statements have been prepared pursuant to instructions for the Quarterly Report on Form 10-Q required to be filed with the Securities and Exchange Commission (the “SEC”) and do not include all information and footnotes normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
 
The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP in U.S. dollars and are consistent in all material respects with those applied in our 2018 Annual Report on Form 10-K (“2018 Form 10-K”) with the exception of the impact of adopting the new lease accounting standard in 2019 (see below). The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in the financial statements and the related disclosures. Actual results may differ from our estimates. We have made all adjustments, which, unless otherwise disclosed, are of normal recurring nature, that we believe are necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, statements of comprehensive income and statements of cash flows, as applicable. The operating results for the three- and nine-month periods ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. Our balance sheet as of December 31, 2018 included herein has been derived from the audited balance sheet as of December 31, 2018 included in our 2018 Form 10-K. These unaudited condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto included in our 2018 Form 10-K.
 
Certain reclassifications were made to previously reported amounts in the consolidated financial statements and notes thereto to make them consistent with the current presentation format.
 
New accounting standards adopted
 
In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” (“ASC 842”), which was updated by subsequent amendments. ASC 842 requires a lessee to recognize a lease right-of-use asset and related lease liability for most leases, including those classified as operating leases. ASC 842 also changes the definition of a lease and requires expanded quantitative and qualitative disclosures for both lessees and lessors. We adopted ASC 842 in the first quarter of 2019 using the modified retrospective method. We also elected the package of practical expedients permitted under the transition guidance that, among other things, allows companies to carry forward their historical lease classification. Our adoption of ASC 842 resulted in the recognition of operating lease liabilities of $259.0 million and corresponding right-of-use (“ROU”) assets of $253.4 million (net of existing prepaid/deferred rent balances) as of January 1, 2019. In addition, we reclassified the remaining deferred gain of $4.6 million (net of deferred taxes of $0.9 million) on a 2016 sale and leaseback transaction to retained earnings. Subsequent to adoption, leases in foreign currencies will generate foreign currency gains and losses, and we will no longer amortize the deferred gain from the aforementioned sale and leaseback transaction. Aside from these changes, ASC 842 is not expected to have a material impact on our net earnings or cash flows.
 
New accounting standards issued but not yet effective
 
In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments,” which was updated by subsequent amendments. This ASU replaces the current incurred loss model for measurement of credit losses on financial assets (including trade receivables) with a forward-looking expected loss model based on historical experience, current conditions, and reasonable and supportable forecasts. The guidance will be effective for us as of January 1, 2020. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
 
We do not expect any other recent accounting standards to have a material impact on our financial position, results of operations or cash flows.

9



Note 2 — Company Overview
 
We are an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention and robotics operations. We provide services and methodologies that we believe are critical to maximizing production economics. Our services cover the lifecycle of an offshore oil or gas field. We provide services primarily in deepwater in the Gulf of Mexico, Brazil, North Sea, Asia Pacific and West Africa regions. Our “life of field” services are segregated into three reportable business segments: Well Intervention, Robotics and Production Facilities (Note 12).
 
Our Well Intervention segment includes our vessels and/or equipment used to perform well intervention services primarily in the Gulf of Mexico, Brazil, the North Sea and West Africa. Our well intervention vessels include the Q4000, the Q5000, the Seawell, the Well Enhancer, and two chartered monohull vessels, the Siem Helix 1 and the Siem Helix 2. We also have a semi-submersible well intervention vessel under completion, the Q7000. Our well intervention equipment includes intervention riser systems (“IRSs”) and subsea intervention lubricators (“SILs”), some of which we provide on a stand-alone basis.
 
Our Robotics segment includes remotely operated vehicles (“ROVs”), trenchers and a ROVDrill, which are designed to complement offshore construction and well intervention services, and three robotics support vessels under long-term charter: the Grand Canyon, the Grand Canyon II and the Grand Canyon III. We also utilize spot vessels as needed, including the Ross Candies, which is under a flexible charter agreement.
 
Our Production Facilities segment includes the Helix Producer I (the “HP I”), a ship-shaped dynamically positioned floating production vessel, the Helix Fast Response System (the “HFRS”), our ownership interest in Independence Hub, LLC (“Independence Hub”) (Note 4), and several wells and related infrastructure associated with the Droshky Prospect that we acquired from Marathon Oil Corporation (“Marathon Oil”) on January 18, 2019. All of our current production facilities activities are located in the Gulf of Mexico.
 
On May 29, 2019, we acquired a 70% controlling interest in Subsea Technologies Group Limited (“STL”), a subsea engineering firm based in Aberdeen, Scotland, for $5.1 million, including $4.1 million in cash and $1.0 million that we loaned to STL in December 2018. The acquisition is expected to strengthen our supply of subsea intervention systems. The holders of the remaining 30% noncontrolling interest have the right to put their shares to us in June 2024. These redeemable noncontrolling interests have been recognized as temporary equity at their estimated fair value of $3.4 million at the acquisition date. We recognized $2.4 million of identifiable intangible assets and $6.9 million of goodwill, which are reflected in “Other assets” in the accompanying condensed consolidated balance sheet (Note 3). Goodwill is related to the synergies expected from the acquisition. The ultimate fair values of acquired assets, liabilities and noncontrolling interests are provisional and pending final assessment of the valuations. STL is included in our Well Intervention segment (Note 12) and its revenue and earnings are immaterial to our consolidated results.
Note 3 — Details of Certain Accounts
 
Other current assets consist of the following (in thousands):
 
September 30,
2019
 
December 31,
2018
 
 
 
 
Contract assets (Note 9)
$
580

 
$
5,829

Prepaids
14,876

 
10,306

Deferred costs (Note 9)
26,424

 
27,368

Other receivable (Note 13)
13,000

 

Other
6,871

 
8,091

Total other current assets
$
61,751

 
$
51,594


 

10



Other assets, net consist of the following (in thousands):
 
September 30,
2019
 
December 31,
2018
 
 
 
 
Prepaids
$
861

 
$
5,896

Deferred recertification and dry dock costs, net
16,678

 
8,525

Deferred costs (Note 9)
20,695

 
38,574

Charter deposit (1)
12,544

 
12,544

Other receivable (Note 13)
26,702

 

Goodwill (Note 2)
6,637

 

Intangible assets with finite lives, net (Note 2)
3,703

 
1,402

Other
2,503

 
3,116

Total other assets, net
$
90,323

 
$
70,057


(1)
This amount is deposited with the owner of the Siem Helix 2 to offset certain payment obligations associated with the vessel at the end of the charter term.
 
Accrued liabilities consist of the following (in thousands):
 
September 30,
2019
 
December 31,
2018
 
 
 
 
Accrued payroll and related benefits
$
25,853

 
$
43,079

Investee losses in excess of investment (Note 4)
7,638

 
5,125

Deferred revenue (Note 9)
10,814

 
10,103

Asset retirement obligations (Note 13)
11,556

 

Derivative liability (Note 17)
2,723

 
9,311

Other
13,398

 
17,976

Total accrued liabilities
$
71,982

 
$
85,594


 
Other non-current liabilities consist of the following (in thousands):
 
September 30,
2019
 
December 31,
2018
 
 
 
 
Investee losses in excess of investment (Note 4)
$

 
$
6,035

Deferred gain on sale of property (1)

 
5,052

Deferred revenue (Note 9)
9,196

 
15,767

Asset retirement obligations (Note 13)
27,564

 

Derivative liability (Note 17)

 
884

Other
2,248

 
11,800

Total other non-current liabilities
$
39,008

 
$
39,538


(1)
Relates to the sale and lease-back in January 2016 of our office and warehouse property located in Aberdeen, Scotland. The deferred gain had been amortized over a 15-year minimum lease term prior to our adoption of ASC 842 on January 1, 2019. See Note 1 for the effect of ASC 842 on this deferred gain.

11



Note 4 — Equity Method Investments
 
We have a 20% ownership interest in Independence Hub that we account for using the equity method of accounting. Independence Hub owns the “Independence Hub” platform located in Mississippi Canyon Block 920 in the Gulf of Mexico in a water depth of 8,000 feet. We are committed to providing our pro-rata portion of financial support for Independence Hub to pay its obligations as they become due. The platform decommissioning process is currently underway and is expected to be substantially completed within the next 12 months. We had a liability of $7.6 million at September 30, 2019 and $11.2 million at December 31, 2018 for our share of Independence Hub’s estimated obligations, net of remaining working capital. This liability is reflected in “Accrued liabilities” and “Other non-current liabilities” in the accompanying condensed consolidated balance sheets.
Note 5 — Leases
 
We charter vessels and lease facilities and equipment under non-cancelable contracts that expire on various dates through 2031. We also sublease some of our facilities under non-cancelable sublease agreements.
 
Leases with a term greater than one year are recognized on our balance sheet as ROU assets and lease liabilities. We have elected to not recognize on our balance sheet leases with an initial term of one year or less. Lease liabilities and their corresponding ROU assets are recorded at the commencement date based on the present value of lease payments over the expected lease term. We use our incremental borrowing rate, which would be the rate incurred to borrow on a collateralized basis over a similar term in a similar economic environment, to calculate the present value of lease payments. ROU assets are adjusted for any initial direct costs paid or incentives received.
 
We separate our long-term vessel charters between their lease components and non-lease services. We estimate the lease component using the residual estimate approach by estimating the non-lease services, which are primarily crew, repair and maintenance, and regulatory certification costs. For all other leases, we have not separated the lease components and non-lease services. The lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise the option.
 
We recognize operating lease cost on a straight-line basis over the lease term for both (i) leases that are recognized on the balance sheet and (ii) short-term leases. We recognize lease cost related to variable lease payments that are not recognized on the balance sheet in the period in which the obligation is incurred. The following table details the components of our lease cost (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2019
 
September 30, 2019
 
 
 
 
Operating lease cost
$
18,002

 
$
54,191

Variable lease cost
3,630

 
9,927

Short-term lease cost
5,587

 
14,549

Sublease income
(351
)
 
(1,077
)
Net lease cost
$
26,868

 
$
77,590


 

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Maturities of our operating lease liabilities as of September 30, 2019 are as follows (in thousands):
 
Vessels
 
Facilities and Equipment
 
Total
 
 
 
 
 
 
Remainder of 2019
$
15,416

 
$
1,717

 
$
17,133

2020
59,942

 
6,391

 
66,333

2021
54,481

 
5,694

 
60,175

2022
52,105

 
5,103

 
57,208

2023
34,580

 
4,522

 
39,102

Thereafter
2,470

 
10,163

 
12,633

Total lease payments
$
218,994

 
$
33,590

 
$
252,584

Less: imputed interest
(28,272
)
 
(6,711
)
 
(34,983
)
Total operating lease liabilities
$
190,722

 
$
26,879

 
$
217,601

 
 
 
 
 
 
Current operating lease liabilities
$
47,914

 
$
4,926

 
$
52,840

Non-current operating lease liabilities
142,808

 
21,953

 
164,761

Total operating lease liabilities
$
190,722

 
$
26,879

 
$
217,601


 
The following table presents the weighted average remaining lease term and discount rate:
 
September 30, 2019
 
 
Weighted average remaining lease term
4.2 years

Weighted average discount rate
7.54
%

 
The following table presents other information related to our operating leases (in thousands):
 
Nine Months Ended
 
September 30, 2019
 
 
Cash paid for operating lease liabilities
$
54,538

ROU assets obtained in exchange for new operating lease obligations
921


 
As previously disclosed in our 2018 Form 10-K and under the previous lease accounting standard, future minimum lease payments for our operating leases as of December 31, 2018 were as follows (in thousands):
 
Vessels
 
Facilities and Equipment
 
Total
 
 
 
 
 
 
2019
$
116,620

 
$
5,881

 
$
122,501

2020
96,800

 
5,340

 
102,140

2021
89,216

 
5,185

 
94,401

2022
90,371

 
5,064

 
95,435

2023
51,266

 
4,533

 
55,799

Thereafter

 
10,448

 
10,448

Total lease payments
$
444,273

 
$
36,451

 
$
480,724



13



Note 6 — Long-Term Debt
 
Scheduled maturities of our long-term debt outstanding as of September 30, 2019 are as follows (in thousands):
 
Term
Loan (1)
 
2022
Notes
 
2023 Notes
 
MARAD
Debt
 
Nordea
Q5000
Loan
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Less than one year
$
3,500

 
$

 
$

 
$
7,200

 
$
98,214

 
$
108,914

One to two years
3,500

 

 

 
7,560

 

 
11,060

Two to three years
27,125

 
125,000

 

 
7,937

 

 
160,062

Three to four years

 

 
125,000

 
8,333