SEC Filing | Helix Energy Solutions Group, Inc.

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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



☐		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

https://cdn.kscope.io/e8366201fd850be3fd4aa4d0c17fafc1-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:

	Condensed Consolidated Balance Sheets – September 30, 2019 (Unaudited) and December 31, 2018	3

	Condensed Consolidated Statements of Operations (Unaudited) – Three and nine months ended September 30, 2019 and 2018	4

	Condensed Consolidated Statements of Comprehensive Income (Unaudited) – Three and nine months ended September 30, 2019 and 2018	5

	Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) – Three months ended September 30, 2019 and 2018	6

	Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) – Nine months ended September 30, 2019 and 2018	7

	Condensed Consolidated Statements of Cash Flows (Unaudited) – Nine months ended September 30, 2019 and 2018	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45

Item 4.	Controls and Procedures	45

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 6.	Exhibits	46

	Signatures	47

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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.

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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.

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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.

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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		Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity			Redeemable Noncontrolling Interests

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			Retained Earnings		Accumulated Other Comprehensive Loss			Total Shareholders’ Equity			Redeemable Noncontrolling Interests

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.

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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			Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity			Redeemable Noncontrolling Interests

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			Retained Earnings		Accumulated Other Comprehensive Loss			Total Shareholders’ Equity			Redeemable Noncontrolling Interests

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.

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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.

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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.

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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

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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.

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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	$