LEASE OBLIGATIONS

6 Months Ended

Jun. 30, 2019

NOTE 13—LEASE OBLIGATIONS

The following tables summarize our leased assets and lease liability obligations:

		June 30, 2019		December 31, 2018
		(In millions)
Leases	Classification
Assets
Operating lease assets	Operating lease right-of-use assets	$	383	$	-
Finance lease assets ⁽¹⁾	Property, plant and equipment, net		67		70
	Total leased assets		450		70
Liabilities
Current
Operating	Current portion of long-term lease obligations		88		-
Finance	Current portion of long-term lease obligations		8		8
			96		8
Noncurrent
Operating	Long-term lease obligations		316		-
Finance	Long-term lease obligations		63		66
			379		66

	Total lease liabilities	$	475	$	74

(1)

Our finance leases are represented by:

(a)

A jack-up barge utilized in our MENA region; and

(b)

The Amazon, a pipelay and construction vessel, was purchased by us in February 2017, sold to an unrelated third party (the “Amazon Owner”) and leased back under a long-term bareboat charter that gave us the right to use the vessel and was recorded as an operating lease. On July 27, 2018, we entered into agreements (the “Amazon Modification Agreements”) providing for certain modifications to the Amazon vessel and related financing and amended bareboat charter arrangements. The total cost of the modifications, including project management and other fees and expenses, is expected to be in the range of approximately $260 million to $290 million. The Amazon Owner is expected to fund the cost of the modifications primarily through an export credit-backed senior loan provided by a group of lenders, supplemented by expected direct capital expenditures by us of approximately $58 million over the course of the modifications. The amended bareboat charter arrangement is accounted for as a finance lease, recognizing Property, plant and equipment and Lease obligation for the present value of future minimum lease payments. The cost of modifications will be recorded in Property, plant and equipment with a corresponding liability for direct capital expenditures not incurred by us. The finance lease obligation will increase upon completion of the modifications and funding by the Amazon Owner. As of June 30, 2019, Property, plant and equipment, net included a $50 million asset (net of accumulated amortization of $6 million) and a finance lease liability of approximately $50 million. As of December 31, 2018, Property, plant and equipment, net included a $52 million asset (net of accumulated amortization of $3 million) and a finance lease liability of approximately $53 million.

Our lease cost was as follows:

		Three months ended		Six months ended
		June 30, 2019
	Classification	(In millions)
Operating lease cost (1)	SG&A Expenses	$	21	$	42
Operating lease cost (1)	Cost of operations		11		30
Finance lease cost
Amortization of leased assets	Cost of operations		1		3
Interest on lease liabilities	Net Interest Expense		2		3
Net lease cost		$	35	$	78

⁽¹⁾	^{Includes short-term leases and immaterial variable lease costs.}

Future minimum lease payments for our operating and finance lease obligations as of June 30, 2019 are as follows:

	Operating leases			Finance leases			Total
	(In millions)
2019	$	46		$	6		$	52
2020		86			12			98
2021		77			11			88
2022		69			11			80
2023		58			11			69
After 2023		322			46			368
Total lease payments		658			97			755
Less: Interest		(254	)		(26	)		(280	)
Present value of lease liabilities	$	404		$	71		$	475

Lease term and discount rates for our operating and finance lease obligations are as follows:

Lease Term and Discount Rate	June 30, 2019
Weighted-average remaining lease term (years)
Operating leases	7.2
Finance leases	8.6
Weighted-average discount rate
Operating leases		9.5	%
Finance leases		8.9	%

Supplemental information for our operating and finance lease obligations are as follows:

Other information	June 30, 2019
	(In millions)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	(58	)
Financing cash flows from finance leases		(4	)
Leased assets obtained in exchange for new operating lease liabilities		383
Leased assets obtained in exchange for new finance lease liabilities		-