LEASE OBLIGATIONS

3 Months Ended

Mar. 31, 2020

NOTE 12—LEASE OBLIGATIONS

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

			March 31, 2020		December 31, 2019
		Balance Sheet classification	(In millions)
Assets
Operating lease assets	Operating lease right-of-use assets		$	330	$	349
Finance lease assets	Property, plant and equipment, net			50		50
	Total leased assets			380		399

Current liabilities
Operating leases	Current portion of long-term lease obligations			93		93
Finance leases ⁽¹⁾	Finance lease obligation			45		47
	Current lease obligations			138		140
Noncurrent liabilities
Operating leases	Long-term lease obligations			279		294

	Total lease obligations		$	417	$	434

⁽¹⁾	As a result of the debt compliance matters, we determined that the classification of our finance lease obligations was current and, accordingly, we recorded those obligations within Current Liabilities on the Balance Sheets as of March 31, 2020 and December 31, 2019.

Our finance leases as of March 31, 2020 and December 31, 2019, included the lease of the Amazon, a pipelay and construction vessel, which 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. This lease 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 $295 million to $325 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 $80 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 March 31, 2020 and December 31, 2019, Property, plant and equipment, net included a $49 million asset (net of accumulated amortization of $6 million) and a finance lease liability of approximately $44 million and $46 million, respectively, associated with the Amazon vessel.

The commencement of the Chapter 11 Cases constituted events of default under the Amazon charter. However, the ability of the owners to exercise remedies was stayed upon commencement of the Chapter 11 Cases and continues to be stayed.

Our lease cost was as follows:

		Three months ended March 31,
		2020		2019
	Statements of Operations classification	(In millions)
Operating lease cost ⁽¹⁾	SG&A expenses	$	11	$	12
Operating lease cost ⁽¹⁾	Cost of operations		22		24
Finance lease cost
Amortization of leased assets	Cost of operations		-		2
Interest on lease liabilities	Net interest expense		1		1
Net lease cost		$	34	$	39

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