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Note 5 - Investment in Unconsolidated Affiliates

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Equity Method Investments and Joint Ventures Disclosure [Text Block]

(5)

INVESTMENT IN UNCONSOLIDATED AFFILIATES

We maintained the following balances with our unconsolidated affiliates:

		December 31,				December 31,
(in thousands)		2020				2019
Due from affiliates:
Angolan joint venture (Sonatide)		$	41,623			$	89,246
Nigerian joint venture (DTDW)			20,427				36,726
			62,050				125,972
Due to affiliates:
Sonatide		$	32,767			$	31,475
DTDW			20,427				18,711
			53,194				50,186
Due from affiliates, net of due to affiliates		$	8,856			$	75,786

Amounts due from Sonatide

Amounts due from Sonatide (Due from affiliate in the consolidated balance sheets) at December 31, 2020 and December 31, 2019 of approximately $41.6 million and $89.2 million, respectively, represent cash received by Sonatide from customers and due to us, amounts due from customers that are expected to be remitted to us through Sonatide and costs incurred by us on behalf of Sonatide. The following table displays the activity in the due from affiliate account related to Sonatide for the periods indicated:

		Year Ended December 31,
(In thousands)		2020				2019				2018
Due from Sonatide at beginning of year		$	89,246			$	109,176			$	230,315
Revenue earned by the company through Sonatide			44,254				52,372				56,916
Less amounts received from Sonatide			(36,160	)			(60,486	)			(76,878	)
Less amounts used to offset Due to Sonatide obligations (A)			(11,848	)			(10,551	)			(78,993	)
Less impairment of due from affiliate			(40,900	)			—				(20,083	)
Other			(2,969	)			(1,265	)			(2,101	)
		$	41,623			$	89,246			$	109,176

(A)

We reduced the respective due from affiliates and due to affiliates balances each period through netting transactions based on agreement with the joint venture.

The obligation to us from Sonatide is denominated in U.S. dollars; however, the underlying third-party customer payments to Sonatide were satisfied, in part, in Angolan kwanzas. In late 2019, we were informed that, as part of a broad privatization program, Sonagal intends to seek to divest itself from Sonatide.

In the second quarter of 2020 Sonatide declared a $35.0 million dividend. On June 22, 2020, Sonangol received $17.8 million and we received $17.2 million. Our share of the dividend is reflected as dividend income from unconsolidated company in the consolidated statement of operations because (i) our investment in Sonatide had previously been written down to zero, (ii) the distributions are not refundable and (iii) we are not liable for the obligations of or committed to provide financial support to Sonatide. In addition, as a result of the aforementioned dividend payment, the cash balances of the joint venture were significantly reduced and we determined that, as a result, a significant portion of our net due from Sonatide balance was compromised.

Sonatide had approximately $9.4 million of cash on hand, including $1.6 million denominated in Angolan kwanzas at December 31, 2020 plus approximately $9.8 million of net trade accounts receivable, providing approximately $19.2 million of current assets to satisfy the net due from Sonatide. Given prior discussions with our partner regarding how the net losses from the devaluation of certain Angolan kwanza denominated accounts should be shared, we continue to evaluate our net due from Sonatide balance for potential impairment based on available liquidity held by Sonatide. We determined that a portion of our net due from balance was compromised and in December 2018 we recorded an approximate $20.0 million asset impairment charge. During the year ended December 31, 2020, we recorded a $40.9 million affiliate credit loss impairment expense. We will continue to monitor the net due from Sonatide balance for possible additional impairment in future periods.

Amounts due to Sonatide

Amounts due to Sonatide (Due to affiliate in the consolidated balance sheets) at December 31, 2020 and 2019 of approximately $32.8 million and $31.5 million, respectively, primarily represents commissions payable and other costs paid by Sonatide on our behalf. The following table displays the activity in the due to affiliate account related to Sonatide for the periods indicated:

		Year Ended December 31,
(In thousands)		2020				2019				2018
Due to Sonatide at beginning of year		$	31,475			$	29,347			$	99,448
Plus commissions payable to Sonatide			4,152				4,937				5,502
Plus amounts paid by Sonatide on behalf of the company			9,037				9,654				14,778
Less commissions paid to Sonatide			—				(5,961	)			(13,906	)
Less amounts used to offset Due from Sonatide obligations (A)			(11,848	)			(10,551	)			(78,993	)
Other			(49	)			4,049				2,518
		$	32,767			$	31,475			$	29,347

(A)

We reduced the respective due from affiliates and due to affiliates balances each period through netting transactions based on agreement with the joint venture.

Sonatide Operations

Sonatide’s principal earnings are from the commissions paid by us to the joint venture for company vessels chartered in to Angola. In addition, Sonatide owns two vessels that may generate operating income and cash flow.

Company operations in Angola

For the year ended December 31, 2020, our Angolan operation generated vessel revenues of approximately $45.3 million or 11.7% of our consolidated vessel revenues, from an average of approximately 23 company owned vessels that are marketed through Sonatide, 6 of which were stacked on average during the year ended December 31, 2020.

For the year ended December 31, 2019, our Angolan operation generated vessel revenues of approximately $52.1 million or 10.9% of our consolidated vessel revenues, from an average of approximately 32 company owned vessels that are marketed through Sonatide, 13 of which were stacked on average during the year ended December 31, 2019.

For the year ended December 31, 2018, our Angolan operations generated vessel revenues of approximately $59.0 million, or 15%, of our consolidated vessel revenue, from an average of approximately 37 company-owned vessels that are marketed through Sonatide, 16 of which were stacked on average during the year ended December 31, 2018.

Amounts due from DTDW

We own 40% of DTDW in Nigeria. Our partner, who owns 60%, is a Nigerian national. DTDW owns one offshore service vessel and has long term debt of $4.7 million which is secured by the vessel and guarantees from the DTDW partners. We also operate company owned vessels in Nigeria for which the joint venture receives a commission. As of December 31, 2020, we had no company owned vessels operating in Nigeria and the DTDW owned vessel was not employed. At the beginning of 2020 we had expected that we would be operating numerous vessels in Nigeria, but in the second quarter of 2020 the COVID-19 pandemic and resulting oil price reduction (further described in Note 8) caused our primary customer in Nigeria to eliminate all planned operations for 2020. As a result, the near-term cash flow projections indicate that DTDW does not have sufficient funds to meet its obligations to us or to the holder of its long-term debt. Therefore, we recorded affiliate credit loss impairment expense for the year ending December 31, 2020 totaling $12.1 million. In addition, based on our analysis we have determined that DTDW will be unable to pay its debt obligation and the debt will not be satisfied by liquidating the vessel and, as a result, we recorded additional impairment expense of $2.0 million for our expected share of the obligation guarantee during the year ended December 31, 2020.