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Note 15 - Asset Dispositions, Assets Held for Sale and Asset Impairments

9 Months Ended

Sep. 30, 2021

(15)

ASSET DISPOSITIONS, ASSETS HELD FOR SALE AND ASSET IMPAIRMENTS

In the fourth quarter of 2019, we evaluated our fleet, primarily vessels that had been stacked for an extended period, for vessels to be considered for disposal and identified 46 vessels to be classified as held for sale. Beginning late in the first quarter of 2020, the industry and world economies were affected by a global pandemic and a concurrent reduction in the demand for and the price of crude oil. The pandemic and oil price impact severely affected the oil and gas industry which caused us to re-evaluate the remainder of our stacked vessel fleet and expand our disposal program to include more vessels. In 2020, we added 32 vessels to our assets held for sale, sold 53 of the vessels that were classified as held for sale, and had 23 vessels, valued at $34.4 million, remaining in the held for sale account as of December 31, 2020. During the nine months of 2021, we added two vessels to assets held for sale, sold nine of our vessels held for sale, and re-activated two vessels from assets held for sale back into the active fleet, leaving 14 vessels, valued at $17.9 million, remaining in the held for sale account as of September 30, 2021. In addition, we sold 10 vessels from our active fleet in the nine month period of 2021 and three vessels from our active fleet in the nine month period of 2020. One of the active vessel sales in 2021 was to a third-party operator which has a person in senior management who is an immediate family member of a Director. This vessel was sold for proceeds of $11.4 million, all of which has been collected, and we recognized a gain of $4.3 million on the sale. The total vessel and other sales for the nine months of 2021 contributed approximately $34.0 million in proceeds and we incurred a net $3.0 million loss on the dispositions. The vessel and other sales for the nine months of 2020 contributed $31.5 million in proceeds and we recognized a $7.5 million net gain on the dispositions.

During the nine months ended September 30, 2021 and 2020, we recorded $1.9 million and $65.7 million, respectively, in impairment related to assets held for sale. We consider the valuation approach for our assets held for sale to be a Level 3 fair value measurement due to the level of estimation involved in valuing assets to be recycled or sold. We determined the fair value of the vessels held for sale using two methodologies depending on the vessel and on our planned method of disposition. We designated certain vessels to be recycled and valued those vessels using recycling yard pricing schedules based on dollars per ton. We generally value vessels that will be sold rather than recycled at the midpoint of a value range based on sales agreements or using comparative sales in the marketplace. Subsequent to the original valuation, we revalue individual assets held for sale if we determine that the ultimate disposition price will be below the value range used in the original estimate. In addition, in conjunction with the reactivation of a vessel from assets held for sale to the active fleet in the third quarter of 2021 and the concurrent valuation of such vessel at its fair value, we recaptured $1.7 million of impairment charged to expense in the second quarter of 2020. We do not separate our asset impairment expense by segment because of the significant movement of our assets between segments.

The following table presents the activity in our asset held for sale account for the periods indicated:

	Three Months Ended
(In thousands, except for number of vessels data)	Number of Vessels			September 30, 2021			Number of Vessels			September 30, 2020
Beginning balance		14		$	17,214			46		$	29,064
Additions		2			4,089			—			—
Sales		(1	)		(1,250	)		(22	)		(9,901	)
Transfers		(1	)		(250	)		—			—
Impairment		—			(1,912	)		—			—
Ending balance		14			17,891			24		$	19,163

	Nine Months Ended
(In thousands, except for number of vessels data)	Number of Vessels			September 30, 2021			Number of Vessels			September 30, 2020
Beginning balance		23		$	34,396			46		$	39,287
Additions		2			4,089			22			65,812
Sales		(9	)		(15,432	)		(44	)		(20,247	)
Transfers		(2	)		(3,250	)		—			—
Impairment		—			(1,912	)		—			(65,689	)
Ending balance		14		$	17,891			24		$	19,163

We evaluated our inventory as of September 30, 2021 and 2020, and charged $1.9 million for each period to impairment expense for obsolete marine service and vessel supplies and parts inventory. We considered this valuation approach to be a Level 3 fair value measurement due to the level of estimation involved in valuing obsolete inventory.

In early 2020, it became evident that a novel coronavirus originating in Asia (COVID-19) could become a pandemic with worldwide reach. By mid- March, when the World Health Organization declared the outbreak to be a pandemic (the COVID-19 pandemic), much of the industrialized world had initiated severe measures to lessen its impact. The ongoing COVID-19 pandemic created significant volatility, uncertainty, and economic disruption beginning in the first quarter of 2020. With respect to our particular sector, the COVID-19 pandemic resulted in a much lower demand for oil as national, regional, and local governments imposed travel restrictions, border closings, restrictions on public gatherings, stay at home orders, and limitations on business operations in order to contain its spread. During this same time period, oil-producing countries struggled to reach consensus on worldwide production levels, resulting in both a market oversupply of oil and a precipitous fall in oil prices. Combined, these conditions adversely affected our operations and business beginning in the latter part of the first quarter of 2020 and continuing throughout the remainder of 2020 and through the first nine months of 2021. The reduction in demand for hydrocarbons together with an unprecedented decline in the price of oil has resulted in our primary customers, the oil and gas companies, making material reductions to their planned spending on offshore projects, compounding the effect of COVID-19 on offshore operations. Further, these conditions, separately or together, have continued to impact the demand for our services, the utilization and/or rates we can achieve for our assets and services, and the outlook for our industry in general.

In the first and second quarters of 2020, we considered these events to be indicators that the value of our active offshore vessel fleet may be impaired. As a result, as of March 31, 2020 and June 30, 2020, we performed Step 1 evaluations of our active offshore fleet under FASB Accounting Standards Codification 360, which governs the methodology for identifying and recording impairment of long-lived assets to determine if any of our asset groups have net book value in excess of undiscounted future net cash flows. Our evaluations did not indicate impairment of any of our asset groups. Beginning with the third quarter of 2020, conditions related to the COVID-19 pandemic and oil price environment stabilized and in the fourth quarter of 2020 industry conditions marginally improved. Similarly, in the first nine months of 2021 we have not seen indications in the industry that would indicate impairment of any of our asset groups. As a result, we did not identify additional events or conditions that would require us to perform a Step 1 evaluation as of September 30, 2021. We will continue to monitor the expected future cash flows and the fair market value of our asset groups for impairment.