ARS


HORNBECK OFFSHORE SERVICES, INC.


ANNUAL REPORT TO STOCKHOLDERS




For the Year Ended December 31, 2015



EXPLANATORY NOTE


This Annual Report to Stockholders of Hornbeck Offshore Services, Inc. (the "Company") for the year ended December 31, 2015 includes the Company's previously filed Annual Report on Form 10-K for the year ended December 31, 2015 as well as additional disclosures on the last page of this report that are required to be included in annual reports to stockholders.



 
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
 
FORM 10-K
 
 
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2015
OR
¨
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 001-32108
 
 
Hornbeck Offshore Services, Inc.
(Exact Name of Registrant as Specified in Its Charter) 
 
Delaware
  
72-1375844
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification Number)
103 Northpark Boulevard, Suite 300
Covington, Louisiana 70433
(985) 727-2000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices) 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
    
Name of exchange, on which registered
Common Stock, $0.01 par value
    
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None. 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  o    No  x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o No x 
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  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  x
 
Accelerated filer  o
 
Non-accelerated filer  o
 
Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨    No  x
The aggregate market value of the Common Stock held by non-affiliates computed by reference to the price at which the Common Stock was last sold as of the last day of registrant’s most recently completed second fiscal quarter is $701,294,925.
The number of outstanding shares of Common Stock as of January 31, 2016 is 35,985,010 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive 2016 proxy statement, anticipated to be filed with the Securities and Exchange Commission within 120 days after the close of the Registrant’s fiscal year, are incorporated by reference into Part III of this Annual Report on Form 10-K.
 


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HORNBECK OFFSHORE SERVICES, INC. AND SUBSIDIARIES
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
               Purchases of Equity Securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                Stockholder Matters
 
 
 
 
 
 
 
 
 

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 Forward Looking Statements
This Annual Report on Form 10-K contains “forward-looking statements,” as contemplated by the Private Securities Litigation Reform Act of 1995, in which the Company discusses factors it believes may affect its performance in the future. Forward-looking statements are all statements other than historical facts, such as statements regarding assumptions, expectations, beliefs and projections about future events or conditions. You can generally identify forward-looking statements by the appearance in such a statement of words like “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “remain,” “should,” “will,” or other comparable words or the negative of such words. The accuracy of the Company’s assumptions, expectations, beliefs and projections depends on events or conditions that change over time and are thus susceptible to change based on actual experience, new developments and known and unknown risks. The Company gives no assurance that the forward-looking statements will prove to be correct and does not undertake any duty to update them. The Company’s actual future results might differ from the forward-looking statements made in this Annual Report on Form 10-K for a variety of reasons, including sustained low oil and natural gas prices; significant and sustained or additional declines in oil and natural gas prices; a sustained weakening of demand for the Company’s services; unplanned customer suspensions, cancellations, rate reductions or non-renewals of vessel charters, vessel management contracts, or failures to finalize commitments to charter or manage vessels; sustained or further reductions in capital spending budgets by customers; the inability to accurately predict vessel utilization levels and dayrates; fewer than anticipated deepwater and ultra-deepwater drilling units operating in the GoM or other regions where the Company operates; the effect of inconsistency by the United States government in the pace of issuing drilling permits and plan approvals in the GoM or other drilling regions; the Company’s inability to successfully complete the remainder of its current vessel newbuild program on-time and on-budget, which involves the construction and integration of highly complex vessels and systems; the inability to successfully market the vessels that the Company owns, is constructing or might acquire; the government's cancellation or non-renewal of the management, operations and maintenance contracts for vessels; an oil spill or other significant event in the United States or another offshore drilling region that could have a broad impact on deepwater and other offshore energy exploration and production activities, such as the suspension of activities or significant regulatory responses; the imposition of laws or regulations that result in reduced exploration and production activities or that increase the Company’s operating costs or operating requirements; environmental litigation that impacts customer plans or projects; disputes with customers; bureaucratic, administrative or operating barriers that delay vessels in foreign markets from going on-hire or result in contractual penalties or deductions imposed by foreign customers; industry risks; the impact stemming from the reduction of Petrobras' announced plans for or administrative barriers to exploration and production activities in Brazil; less than expected growth in Mexican offshore activities; age or other restrictions imposed on our vessels by customers; unanticipated difficulty in effectively competing in or operating in international markets; less than anticipated subsea infrastructure and field development demand in the GoM and other markets affecting our MPSVs; the level of fleet additions by the Company and its competitors that could result in vessel over capacity in the markets in which the Company competes; economic and geopolitical risks; weather-related risks; the shortage of or the inability to attract and retain qualified personnel, when needed, including vessel personnel for active and newly constructed vessels; any success in unionizing the Company's U.S. fleet personnel; regulatory risks; the repeal or administrative weakening of the Jones Act or changes in the interpretation of the Jones Act related to the U.S. citizenship qualification; drydocking delays and cost overruns and related risks; vessel accidents, pollution incidents or other events resulting in lost revenue, fines, penalties or other expenses that are unrecoverable from insurance policies or other third parties; unexpected litigation and insurance expenses; or fluctuations in foreign currency valuations compared to the U.S. dollar and risks associated with expanded foreign operations, such as non-compliance with or the unanticipated effect of tax laws, customs laws, immigration laws, or other legislation that result in higher than anticipated tax rates or other costs or the inability to repatriate foreign-sourced earnings and profits. In addition, the Company’s future results may be impacted by adverse economic conditions, such as inflation, deflation, or lack of liquidity in the capital markets,

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that may negatively affect it or parties with whom it does business resulting in their non-payment or inability to perform obligations owed to the Company, such as the failure of customers to fulfill their contractual obligations or the failure by individual banks to provide funding under the Company’s credit agreement, if required. Further, the Company can give no assurance regarding when and to what extent it will effect share repurchases. Should one or more of the foregoing risks or uncertainties materialize in a way that negatively impacts the Company, or should the Company’s underlying assumptions prove incorrect, the Company’s actual results may vary materially from those anticipated in its forward-looking statements, and its business, financial condition and results of operations could be materially and adversely affected and, if sufficiently severe, could result in noncompliance with certain covenants of our currently undrawn revolving credit facility. Additional factors that you should consider are set forth in detail in the “Risk Factors” section of this Annual Report on Form 10-K as well as other filings the Company has made and will make with the Securities and Exchange Commission which, after their filing, can be found on the Company’s website, www.hornbeckoffshore.com.
The Company makes references to certain industry-related terms in this Annual Report on Form 10-K. A glossary and definitions of such terms can be found in Item 9B—Other Information on page 47.



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PART I
ITEM 1—Business
COMPANY OVERVIEW
Hornbeck Offshore Services, Inc. was incorporated under the laws of the State of Delaware in 1997. In this Annual Report on Form 10-K, references to “Company,” “we,” “us,” “our” or like terms refer to Hornbeck Offshore Services, Inc. and its subsidiaries, except as otherwise indicated. Hornbeck Offshore Services, Inc. is a leading provider of marine transportation, subsea installation and accommodation support services to exploration and production, oilfield service, offshore construction and U.S. military customers. Since our establishment, we have primarily focused on providing innovative technologically advanced marine solutions to meet the evolving needs of the deepwater and ultra-deepwater energy industry in domestic and select foreign locations. Throughout our history, we have expanded our fleet of vessels primarily through a series of new vessel construction programs, as well as through acquisitions of existing vessels. Until August 29, 2013, we operated a Downstream tug and tank barge fleet, which we sold on that date. We maintain our headquarters at 103 Northpark Boulevard, Suite 300, Covington, Louisiana, 70433; our telephone number is (985) 727-2000.
We own and operate one of the youngest and largest fleets of U.S.-flagged, new generation OSVs and MPSVs. In late 2011, we commenced our fifth OSV newbuild program, which also includes the construction of MPSVs. Since that time, we have grown our new generation fleet from 51 OSVs and four MPSVs to 62 OSVs and six MPSVs, after accounting for the sale of five OSVs in 2014 and 2015. Upon completion of the four vessels currently contracted to be constructed under this newbuild program in 2016 and 2017, our expected fleet will be comprised of 62 OSVs and ten MPSVs. Together, these vessels support the deep-well, deepwater and ultra-deepwater activities of the offshore oil and gas industry. Such activities include oil and gas exploration, field development, production, construction, installation, IRM, well-stimulation and other enhanced oil recovery activities. We have also developed a specialized application of our new generation OSVs for use by the U.S. military. Our new generation OSVs and MPSVs have enhanced capabilities that allow us to more effectively support the premium drilling and installation equipment and facilities required for the offshore deep-well, deepwater and ultra-deepwater energy industry. We are among the leading operators of new generation OSVs in two of our three core markets and one of the top three operators of such equipment worldwide, based on DWT. Our fleet is among the youngest in the industry, with a weighted-average age, based on DWT, of seven years and, upon completion of our current newbuild program in late 2017, we believe that the weighted-average age of our fleet will be eight years.
While we have historically operated our vessels predominately in the U.S. GoM, we have diversified our market presence and now operate in three core geographic markets: the GoM, Mexico and Brazil. In addition to our core markets, we frequently operate in other foreign regions on a project or term charter basis. We have recently operated in the Middle East, the Mediterranean Sea, the Black Sea and Latin America, including Nicaragua, Guyana, Trinidad and recently Argentina. We have further diversified by providing specialized vessel solutions to non-oilfield customers such as the United States military as well as oceanographic research and other customers that utilize sophisticated marine platforms in their operations. In addition, we provide vessel management services for other vessel owners, such as crewing, daily operational management and maintenance activities. We also operate a shore-base support facility located in Port Fourchon, Louisiana. See "Item 2-Properties" for a listing of our shoreside support facilities.
Although all of our vessels are physically capable of operating in both domestic and international waters, approximately 85% are qualified under Section 27 of the Merchant Marine Act of 1920, as amended, or the Jones Act, to engage in the U.S. coastwise trade. All but one of the vessels being constructed under our fifth OSV newbuild program are eligible for Jones Act coastwise trading privileges. Foreign owned, flagged, built or crewed vessels are restricted in their ability to conduct U.S. coastwise trade and are typically excluded from such trade in the GoM. Of the public company OSV peer group, we own the largest fleet of Jones Act-qualified, new generation OSVs, which we believe offers us a competitive advantage in the GoM. From time to time, we may elect to reflag certain of our vessels to the flag of another nation. For instance, since 2009, we have reflagged seven Jones Act-qualified OSVs to Mexican and other flags, including recently one under Brazilian registry. Once a Jones Act-qualified vessel is reflagged or a new vessel is foreign flagged, it permanently loses the right to engage in U.S. coastwise trade.

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We intend to continue our efforts to maximize stockholder value through our long-term return-oriented growth strategy. We will, as opportunities arise, acquire or construct additional vessels, as well as divest certain assets that we consider to be non-core or otherwise not in-line with our long-term strategy or prevailing industry trends.
DESCRIPTION OF OUR BUSINESS
The Deepwater Offshore Energy Industry
The modern quest to explore for and produce energy resources located offshore began in the 1940’s. While these offshore operations began in shallow waters, relatively close to shore, technological advances have permitted them to migrate to ever deeper waters and well depths. Until the late 1970's, most offshore activity was technologically and logistically restricted to that which was accessible on the continental shelf, or waters of up to about 500 feet of depth. Since that time, a number of advances have opened drilling regions in deepwater. The initial push into deeper waters was facilitated through the development of “floating” drilling units that could be positioned over a drilling site without being fixed to the seafloor. Petrobras pioneered these techniques in Brazil beginning in the late 1970’s as it lacked an accessible “shallow water” continental shelf. The first deepwater project in the United States Gulf of Mexico was completed in 1993 in nearly 3,000 feet of water by Shell Oil Company. The Auger facility produced a then unheard of 46,000 barrels per day from a reservoir tapped at 25,000 feet. Today, exploration and production activities have pushed into the ultra-deepwater, where wells are routinely drilled in water depths of more than 8,000 feet, the deepest having been drilled in approximately 10,000 feet of water.
In addition to the ability to operate in very deepwater, technological advances have also allowed hydrocarbon resources to be detected, drilled for and produced at extreme well depths. “Pre-salt” discoveries in Brazil are being drilled and produced in waters exceeding 5,000 feet and at well depths of more than 35,000 feet. In 2014, Chevron announced first oil from its Jack/St. Malo facility in the GoM, which is expected to produce previously undetectable lower tertiary hydrocarbons at an astounding rate of 94,000 barrels per day from deposits more than 20,000 feet below the seabed situated in 7,000 feet of water. In addition to contending with extreme deepwater and deep well depths, these projects present challenges involving high temperatures and pressures within reservoirs and the associated difficulties of safely bringing those resources to the surface and then transporting them to shoreside locations. Despite these challenges, today deepwater production accounts for approximately 80% percent of all offshore production in the United States.
Deepwater Regions
The energy industry has had success in many deepwater regions throughout the world. Deepwater drilling efforts are underway in the Mediterranean Sea, the Indian Ocean and Asia. However, the so-called “golden triangle” of deepwater activity is comprised of deposits found offshore West Africa, the Eastern coast of South America - dominated by Brazil - and the GoM.
As large international oil companies have been pushed out of participating in many regions of the world by national oil companies intent upon retaining for themselves the economic benefits of national exploitation, the deepwater GoM has grown in significance. The deepwater GoM is among the most abundant hydrocarbon regions in the world. Political stability in the United States and accessibility of deepwater lease blocks allows major oil companies to plan, execute and finance the significant long-term commitments that deepwater success requires. While the scale and complexity associated with deepwater projects is considerable, the significant size of the resource discoveries allows companies to replenish reserves on a large scale from relatively few projects. Unlike most on-shore exploration and production projects, deepwater projects require long-lead times to plan and execute, but also enjoy long production lives once online. For instance, the first exploratory wells at the Jack/St. Malo fields were drilled in 2003 and 2004 and first oil was not produced until 2014. Now online, Chevron projects that Jack/St. Malo are expected to produce an estimated 500 million oil equivalent barrels over 30 years. Consequently, short term fluctuations in oil and gas prices typically do not have the same impact on sanctioned deepwater projects as such fluctuations may have on other on-shore and continental shelf projects. As a result of the current on-going commodity price declines, we are observing that some previously sanctioned deepwater projects are being deferred.
An emerging opportunity for the deepwater offshore energy industry is presented by recent changes in Mexico, which is opening its petroleum sector to foreign investment for the first time in recent history. In December 2013, the Mexican congress ended PEMEX's 75 year-old monopoly on drilling activities in Mexico and voted in favor of allowing the government to grant contracts and licenses for exploration and production of oil and gas to foreign firms, which previously had been prohibited under Mexico’s constitution. The constitutional and legislative changes in Mexico are expected to allow technology not previously available in Mexico to be deployed there in order to exploit the Mexican deepwater GoM.

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In addition, these reforms are intended to expand competition, increase foreign investment in Mexico's energy sector and improve the operational efficiency of PEMEX. During 2015, Mexico hosted the first two auctions for offshore oil and natural gas blocks allowed by the energy reforms. Mexico has not yet held a deepwater auction; however, the first is expected to occur in 2016.
Brazil, through its state-owned national oil company, Petrobras, has been a pioneer in deepwater drilling. Today it is a dominant player in the global deepwater energy industry claiming 34% of global deepwater and ultra-deepwater production. Petrobras claims approximately 13.8 billion barrels of proven deepwater and ultra-deepwater resources, the vast majority of which are located in pre-salt formations, which are the driving force behind an ambitious national plan to dramatically increase production by 2020 to 4.2 million barrels per day. Petrobras previously announced plans to spend $220 billion in order to achieve its aggressive goals; however, recent declines in the price of oil combined with a wide reaching corruption probe involving Petobras has resulted in a significant pull-back in planned deepwater spending. Petrobras' slowed expansion plans might open opportunities in Brazil for other major oil companies to participate on a larger scale in Brazil's deepwater markets.
The Subsea Oilfield
Deepwater successes have driven further innovation around the infrastructure required to produce and transport ashore the abundant resources that have been discovered. In shallower regions, once hydrocarbons are discovered, they are typically produced by installing a fixed platform over the well site onto which are installed all of the equipment and infrastructure necessary to produce the hydrocarbons and move them ashore through pipelines. Platforms also provide a locale from which well maintenance and similar activities can be performed. The size, pressures, temperatures and water depths of deepwater hydrocarbon deposits require enormous amounts of infrastructure to develop, produce and maintain their wells. These challenges have pushed the development of technologies to allow infrastructure to be placed directly onto the seafloor, as opposed to a fixed platform. The process of building out this subsea oilfield requires the use of vessels to transport infrastructure to location, install infrastructure to subsea points and inspect, repair and maintain it all over the multi-decade life of the field. When hydrocarbons are brought to the surface, they are brought from multiple subsea locations through pipelines to a single deepwater floating production facility that often serves as a production hub for multiple fields. These production facilities take years to design, engineer, transport, install and, often, cost billions of dollars and represent a significant source of demand for vessel services.
OSVs
OSVs primarily serve exploratory and developmental drilling rigs and production facilities and support offshore and subsea construction, installation, IRM and decommissioning activities. OSVs differ from other ships primarily due to their cargo-carrying flexibility and capacity. In addition to transporting deck cargo, such as pipe or drummed material and equipment, OSVs also transport liquid mud, potable and drilling water, diesel fuel, dry bulk cement and personnel between shore bases and offshore rigs and production facilities. Deepwater environments require OSVs with capabilities that allow them to more effectively support drilling and related subsea construction projects that occur far from shore, in deepwater and increasingly at extreme well depths. In order to best serve these projects, we have designed our various classes of new generation vessels in a manner that seeks to maximize their liquid mud and dry bulk cement capacities, as well as their open larger areas of open deck space. Deepwater operations also require vessels having dynamic positioning, or anchorless station-keeping capability, driven primarily by safety concerns that preclude vessels from physically mooring to floating deepwater installations. DP systems have experienced steady increases in technology over time with the highest DP rating currently being DP-3. The number following the DP notation generally indicates the degree of redundancy built into the vessel’s systems and the range of usefulness of the vessel in deepwater construction and subsea operations. Higher numbers represent greater DP capabilities. Today, deepwater drilling operations in the GoM overwhelmingly prefer a DP-2 notation and a vessel with 2,500 DWT capacity or greater. We consider these vessels to be high-spec new generation OSVs. Currently, 52 of our vessels are DP-2 and two are DP-3. All four of the remaining MPSVs contracted to be constructed under our fifth OSV newbuild program are expected to be DP-2. Ultra-deepwater projects, which occur in waters of greater than 5,000 feet, are driving a need for DP-2 vessels with very large capacities. The distance of these projects from shore, together with their water and well depths dictate the use of massive volumes of bulk drilling materials and related supplies. The OSVs that have been delivered as part of our fifth OSV newbuild program are among the largest in the world. With DWT capacities of 5,500 DWT to 6,200 DWT, we believe these ultra high-spec vessels provide our ultra-deepwater drilling customers vessel solutions that help them to maximize efficiencies and improve the logistical challenges prevalent in their projects.
Vessels that do not carry a DP-2 notation or have less than 2,500 DWT capacity typically operate in more shallow U.S. waters or in foreign locations in which DP-2 has not yet emerged as the dominant standard. Currently, 14 of our

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vessels are DP-1, comprising 10% of our fleet by DWT. The remaining 90% of our fleet is considered high-spec, including 58% of our overall fleet that is ultra high-spec.
MPSVs
MPSVs also support the deepwater activities of the energy industry. MPSVs are distinguished from OSVs in that they are significantly larger and more specialized vessels that are principally used for IRM activities, such as the subsea installation of well heads, risers, jumpers, umbilicals and other equipment placed on the seafloor. MPSVs are also utilized in connection with the setting of pipelines, the commissioning and de-commissioning of offshore facilities, the maintenance and/or repair of subsea equipment and the intervention of such wells, well testing and flow-back operations and other sophisticated deepwater operations. To perform these various functions, MPSVs are or can be equipped with a variety of lifting and deployment systems, including large capacity cranes, winches or reel systems, well intervention equipment, ROVs and accommodation facilities. The typical MPSV is outfitted with one or more deepwater cranes employing active heave compensation technology, one or more ROVs and accommodations for the offshore crew, including customer personnel. MPSVs can also be outfitted as a flotel to provide accommodations to large numbers of offshore construction and technical personnel involved in large-scale offshore projects, such as the commissioning of a floating offshore production facility. When in a flotel mode, the MPSV provides living quarters for personnel, catering, laundry, medical services, recreational facilities and offices. In addition, flotels coordinate and help to provide the facilities necessary for the offshore workers being accommodated to safely move from the vessel to other offshore structures being supported through the use of articulated gangways that allow personnel to "walk to work." Generally, MPSVs command higher day rates than OSVs due to their significantly larger relative size and versatility, as well as higher construction and operating costs.
370 class MPSVs
We have devised MPSVs that, in addition to the array of services described above, are also capable of being utilized to transport deck or bulk cargoes in capacities exceeding most other new generation OSVs. We own and operate two proprietary 370 class DP-2 new generation MPSVs with such capabilities. These MPSVs have approximately double the deadweight and three times the liquid mud barrel-capacity of one of our 265 class new generation OSVs and more than four times the liquid mud barrel-capacity of one of our 240 class new generation OSVs. Moreover, with their large tanks, these MPSVs have assisted in large volume deepwater well testing and flow-back operations, as well as supporting large drilling operations in remote or harsh conditions. Both of our 370 class MPSVs have certifications by the USCG that permit Jones Act-qualified operations as a supply vessel, industrial/construction vessel and as a petroleum and chemical tanker under subchapters “L”, “I”, “D”, and “O”, respectively. We believe that these vessels are not only the largest supply vessels in the world, but are also the only vessels in the world to have received all four of these certifications.
400 class and 310 class MPSVs
Until recently, due to a lack of Jones Act-qualified MPSVs, customers typically chartered an OSV to carry equipment to location, which was then installed by a foreign flag MPSV. By eliminating the need for two vessels, we believe our customers will improve efficiencies and mitigate operational risks. Our Jones Act-qualified MPSVs will include a heave-compensated, knuckle-boom crane, helideck, accommodations for approximately 90-100 persons and will be suitable for two or more work-class ROVs. Moreover, our Jones Act-qualified MPSVs will also be equipped with below-deck cargo tanks, allowing them to expand their mission utility to include services more typically provided by OSVs.
We recently announced upgrades to the four remaining MPSVs under construction in our ongoing newbuild program. These four vessels are under construction at two shipyards. The modifications to the first two MPSVs, which are expected to be delivered in the second and third quarters of 2016, will increase the berthing capacity, expand the cargo-carrying capabilities and expand the work area for ROVs. The modifications to the other two MPSVs will include the addition of a 60-foot mid-body plug, installation of an additional crane, increased berthing capacity, expanded cargo-carrying capacities and expanded work areas for ROVs. These two 400 class MPSVs are scheduled to be delivered in the second and fourth quarters of 2017. Because all four of these MPSVs are Jones Act-qualified, we expect that they will enable our customers to transport equipment from shore to the installation site to be installed by the MPSV. We believe that, once delivered, the 400 class MPSVs will be the largest and most capable Jones Act-qualified MPSVs available on the market.

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We also outfitted one of our 310 class OSVs that was placed in service under our ongoing newbuild program as a 310 class MPSV in flotel configuration. This new U.S.-flagged, Jones Act-qualified MPSV includes a 35-ton knuckle-boom crane, a motion-compensated gangway and accommodations for 194 persons. Being Jones Act-qualified will give it mission flexibility that foreign flag flotels lack in the GoM.
430 class
We also operate the HOS Iron Horse and HOS Achiever, which are 430 class DP-3 new generation MPSVs. A DP-3 notation requires greater vessel and ship-system redundancies. DP-3 systems also include separate vessel compartments with fire-retardant walls for generators, prime movers, switchboards and most other DP components. These 430 class MPSVs are designed to handle a variety of global offshore energy applications, many of which are not dependent on the exploratory rig count. They are excellent platforms for those specialty services described above for our 370 class MPSVs with the exception of handling liquid cargoes. The HOS Iron Horse and the HOS Achiever are not U.S.-flagged vessels, however, they can engage in certain legally permissible operations in the U.S. that do not constitute coastwise trade. The HOS Achiever had previously operated as a flotel, but during the fourth quarter of 2013, the HOS Achiever's capabilities were expanded with the outfitting of additional accommodations for up to 270 personnel onboard, including the vessel's marine crew, hotel and catering staff. The increased accommodations allow this vessel to support the commissioning of deepwater installations around the world. Because flotel services do not typically involve the transportation of passengers, foreign-flag vessels, such as our 430 class MPSVs, can provide this service in the U.S.
We believe that our reputation for safety and technologically superior vessels, combined with our size and scale in certain core markets relative to our public company OSV peer group, enhance our ability to compete for work awarded by large international oil and gas producers, who are among our primary customers. Approximately 90% of our total forward-contracted revenue is currently with major oil companies, national oil companies, and the U.S. government. These customers demand a high level of safety and technological advancements to meet the more stringent regulatory standards in the GoM. As our customers’ needs and requirements become more demanding, we expect that smaller vessel operators may struggle to meet these standards.

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The following table provides information, as of February 17, 2016, regarding our fleet of 62 new generation OSVs, six MPSVs, four MPSVs yet to be delivered under our fifth OSV newbuild program that we own, and the four new generation OSVs that we manage for the U.S. Navy.
Our Vessels 
Name(1)
 
Design
 
Current
Service
Function
 
Current
Location
 
In-Service
Date
 
Deadweight
(long tons)
 
Liquid Mud
Capacity
(barrels)
 
Brake
Horsepower
 
DP
Class(2)
OWNED VESSELS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MPSVs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HOS Iron Horse
 
430
 
Multi-Purpose (FF)
 
GoM
 
Nov 2009
 
9,000
 
n/a
 
8,000
 
DP-3
HOS Achiever
 
430
 
Flotel (FF)
 
GoM
 
Oct 2008
 
8,500
 
n/a
 
8,000
 
DP-3
HOS Warhorse
 
400ES
 
Multi-Purpose
 
TBD
 
2Q2017 est.(3)
 
6,200 est
 
14,100 est.
 
9,000 est.
 
DP-2
HOS Wild Horse
 
400ES
 
Multi-Purpose
 
TBD
 
4Q2017 est.(3)
 
6,200 est.
 
14,100 est.
 
9,000 est.
 
DP-2
HOS Centerline
 
370
 
Multi-Purpose
 
GoM
 
Mar 2009
 
8,000
 
32,000
 
6,000
 
DP-2
HOS Strongline
 
370
 
Multi-Purpose
 
GoM
 
Mar 2010
 
8,000
 
32,000
 
6,000
 
DP-2
HOS Bayou
 
310
 
Multi-Purpose
 
GoM
 
Dec 2014 
 
5,600
 
20,000
 
7,300
 
DP-2
HOS Warland
 
310ES
 
Multi-Purpose
 
TBD
 
2Q2016 est.(3)
 
6,200 est.
 
20,000 est.
 
9,000 est.
 
DP-2
HOS Woodland
 
310ES
 
Multi-Purpose
 
TBD
 
3Q2016 est.(3)
 
6,200 est.
 
20,000 est.
 
9,000 est.
 
DP-2
HOS Riverbend
 
300
 
Flotel
 
GoM
 
Feb 2014
 
5,500
 
21,100
 
6,700
 
DP-2
OSVs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
300 class (Over 5,000 DWT)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HOS Commander
 
320
 
Supply
 
Latin America
 
Nov 2013
 
6,100
 
21,000
 
6,100
 
DP-2
HOS Carolina
 
320
 
Supply
 
GoM
 
Feb 2014
 
6,100
 
21,000
 
6,100
 
DP-2
HOS Claymore
 
320
 
Supply
 
GoM
 
Mar 2014
 
6,100
 
21,000
 
6,100
 
DP-2
HOS Captain
 
320
 
Supply
 
GoM
 
Jul 2014
 
6,100
 
21,000
 
6,100
 
DP-2
HOS Clearview
 
320
 
Supply
 
GoM
 
Aug 2014
 
6,100
 
21,000
 
6,100
 
DP-2
HOS Crockett
 
320
 
Supply
 
GoM
 
Dec 2014
 
6,100
 
21,000
 
6,100
 
DP-2
HOS Caledonia
 
320
 
Supply
 
GoM
 
Jan 2015
 
6,100
 
21,000
 
6,100
 
DP-2
HOS Crestview
 
320
 
Supply
 
GoM
 
Feb 2015
 
6,100
 
21,000
 
6,100
 
DP-2
HOS Cedar Ridge
 
320
 
Supply
 
GoM
 
Nov 2015
 
6,100
 
21,000
 
6,100
 
DP-2
HOS Carousel
 
320
 
Supply
 
GoM
 
June 2015
 
6,100
 
21,000
 
6,100
 
DP-2
HOS Black Foot
 
310
 
Supply
 
GoM
 
Jul 2014
 
6,200
 
21,500
 
7,300
 
DP-2
HOS Black Rock
 
310
 
Supply
 
GoM
 
Aug 2014
 
6,200
 
21,500
 
7,300
 
DP-2
HOS Black Watch
 
310
 
Supply
 
GoM
 
Oct 2014
 
6,200
 
21,500
 
7,300
 
DP-2
HOS Brass Ring
 
310
 
Supply (FF)
 
Latin America
 
Jan 2016
 
6,200
 
21,500
 
7,300
 
DP-2
HOS Briarwood
 
310
 
Supply
 
GoM
 
Jan 2016
 
6,200
 
21,500
 
7,300
 
DP-2
HOS Red Dawn
 
300
 
Supply
 
GoM
 
Jun 2013
 
5,500
 
21,000
 
6,700
 
DP-2
HOS Red Rock
 
300
 
Supply
 
GoM
 
Oct 2013
 
5,500
 
21,000
 
6,700
 
DP-2
HOS Renaissance
 
300
 
Supply
 
GoM
 
Nov 2013
 
5,500
 
21,000
 
6,700
 
DP-2
HOS Coral
 
290
 
Supply
 
GoM
 
Mar 2009
 
5,600
 
15,200
 
6,100
 
DP-2
280 class (3,500 to 5,000 DWT)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HOS Ridgewind
 
265
 
Supply
 
Middle East
 
Nov 2001
 
3,756
 
10,700
 
6,700
 
DP-2
HOS Brimstone
 
265
 
Stacked
 
GoM
 
Jun 2002
 
3,756
 
10,400
 
6,700
 
DP-2
HOS Stormridge
 
265
 
Stacked
 
GoM
 
Aug 2002
 
3,756
 
10,400
 
6,700
 
DP-2
HOS Sandstorm
 
265
 
Stacked
 
GoM
 
Oct 2002
 
3,756
 
10,400
 
6,700
 
DP-2
240 class (2,500 to 3,500 DWT)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
HOS Saylor
 
240
 
Well Stimulation (FF)
 
Mexico
 
Oct 1999
 
3,322
 
n/a
 
8,000
 
DP-1
HOS Navegante
 
240
 
Stacked (FF)
 
GoM
 
Jan 2000
 
3,322
 
6,000
 
7,845
 
DP-2
HOS Resolution
 
250 EDF
 
Stacked
 
GoM
 
Oct 2008
 
2,950
 
8,300
 
6,000
 
DP-2
HOS Mystique
 
250 EDF
 
ROV Support
 
GoM
 
Jan 2009
 
2,950
 
8,300
 
6,000
 
DP-2
HOS Pinnacle
 
250 EDF
 
Stacked
 
GoM
 
Feb 2010
 
2,950
 
8,300
 
6,000
 
DP-2
HOS Windancer
 
250 EDF
 
Stacked
 
GoM
 
May 2010
 
2,950
 
8,300
 
6,000
 
DP-2
HOS Wildwing
 
250 EDF
 
Stacked
 
GoM
 
Sept 2010
 
2,950
 
8,300
 
6,000
 
DP-2
HOS Bluewater
 
240 ED
 
Stacked
 
GoM
 
Mar 2003
 
2,850
 
8,300
 
4,000
 
DP-2
HOS Gemstone
 
240 ED
 
Stacked
 
GoM
 
Jun 2003
 
2,850
 
8,300
 
4,000
 
DP-2
HOS Greystone
 
240 ED
 
Stacked
 
GoM
 
Sep 2003
 
2,850
 
8,300
 
4,000
 
DP-2
HOS Silverstar
 
240 ED
 
Stacked
 
GoM
 
Jan 2004
 
2,850
 
8,300
 
4,000
 
DP-2
HOS Polestar
 
240 ED
 
Stacked
 
GoM
 
May 2008
 
2,850
 
8,300
 
4,000
 
DP-2
HOS Shooting Star
 
240 ED
 
Stacked
 
GoM
 
Jul 2008
 
2,850
 
8,300
 
4,000
 
DP-2
HOS North Star
 
240 ED
 
Stacked
 
GoM
 
Nov 2008
 
2,850
 
8,300
 
4,000
 
DP-2
HOS Lode Star
 
240 ED
 
Stacked
 
GoM
 
Feb 2009
 
2,850
 
8,300
 
4,000
 
DP-2
HOS Silver Arrow
 
240 ED
 
Stacked
 
Other U.S.
 
Oct 2009
 
2,850
 
8,300
 
4,000
 
DP-2
HOS Sweet Water
 
240 ED
 
Stacked
 
GoM
 
Dec 2009
 
2,850
 
8,300
 
4,000
 
DP-2

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Name(1)
 
Design
 
Current
Service
Function
 
Current
Location
 
In-Service
Date
 
Deadweight
(long tons)
 
Liquid Mud
Capacity
(barrels)
 
Brake
Horsepower
 
DP
Class(2)
HOS Beignet
 
S240 E
 
Stacked
 
GoM
 
May 2013(4)
 
2,800
 
8,000
 
4,000
 
DP-2
HOS Boudin
 
S240 E
 
Stacked
 
GoM
 
May 2013(4)
 
2,700
 
8,000
 
4,000
 
DP-2
HOS Bourre'
 
S240 E
 
Stacked
 
GoM
 
Sep 2013(4)
 
2,800
 
8,000
 
4,000
 
DP-2
HOS Coquille
 
S240 E
 
Stacked
 
GoM
 
Sep 2013(4)
 
2,700
 
8,000
 
4,000
 
DP-2
HOS Cayenne
 
S240 E
 
Stacked
 
GoM
 
Nov 2013(4)
 
2,800
 
8,000
 
4,000
 
DP-2
HOS Chicory
 
S240 E
 
Stacked
 
GoM
 
Nov 2013(4)
 
2,700
 
8,000
 
4,000
 
DP-2
200 class (1,500 to 2,500 DWT)
 
 
 
 
 
 
 
 
 
 
 
 
HOS Innovator
 
240 E
 
Stacked
 
GoM
 
Apr 2001
 
2,380
 
5,500
 
4,500
 
DP-2
HOS Dominator
 
240 E
 
Military
 
Other U.S.
 
Feb 2002
 
2,380
 
6,400
 
4,500
 
DP-2
HOS Deepwater
 
240
 
Supply (FF)
 
Mexico
 
Nov 1999
 
2,250
 
6,300
 
4,500
 
DP-1
HOS Cornerstone
 
240
 
Stacked
 
GoM
 
Mar 2000
 
2,250
 
6,300
 
4,500
 
DP-2
HOS Beaufort
 
200
 
Stacked
 
GoM
 
Mar 1999
 
2,250
 
4,100
 
4,200
 
DP-1
HOS Hawke
 
200
 
Well Stimulation (FF)
 
Mexico
 
Jul 1999
 
2,250
 
4,100
 
4,200
 
DP-1
HOS Douglas
 
200
 
Stacked
 
GoM
 
Apr 2000
 
2,250
 
4,100
 
4,200
 
DP-1
HOS Nome
 
200
 
Stacked
 
GoM
 
Aug 2000
 
2,250
 
4,100
 
4,200
 
DP-1
HOS Crossfire
 
200
 
Supply (FF)
 
Mexico
 
Nov 1998
 
1,750
 
3,600
 
4,000
 
DP-1
HOS Super H
 
200
 
Stacked
 
GoM
 
Jan 1999
 
1,750
 
3,600
 
4,000
 
DP-1
HOS Brigadoon
 
200
 
Supply (FF)
 
Mexico
 
Mar 1999
 
1,750
 
3,600
 
4,000
 
DP-1
HOS Thunderfoot
 
200
 
Supply (FF)
 
Mexico
 
May 1999
 
1,750
 
3,600
 
4,000
 
DP-1
HOS Dakota
 
200
 
Supply (FF)
 
Mexico
 
Jun 1999
 
1,750
 
3,600
 
4,000
 
DP-1
HOS Explorer
 
220
 
Stacked
 
GoM
 
Feb 1999
 
1,607
 
3,100
 
3,900
 
DP-1
HOS Voyager
 
220
 
Stacked
 
GoM
 
May 1998
 
1,607
 
3,100
 
3,900
 
DP-1
HOS Pioneer
 
220
 
Stacked
 
GoM
 
Jun 2000
 
1,607
 
3,100
 
4,200
 
DP-1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MANAGED VESSELS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
240 class (2,500 to 3,500 DWT)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Black Powder
 
250 EDF
 
Military
 
Other U.S.
 
Jun 2009
 
2,900
 
8,300
 
6,000
 
DP-2
Westwind
 
250 EDF
 
Military
 
Other U.S.
 
Jun 2009
 
2,900
 
8,300
 
6,000
 
DP-2
Eagleview
 
250 EDF
 
Military
 
Other U.S.
 
Oct 2009
 
2,900
 
8,300
 
6,000
 
DP-2
Arrowhead
 
250 EDF
 
Military
 
Other U.S.
 
Jan 2009
 
2,900
 
8,300
 
6,000
 
DP-2
 
FF—foreign-flagged
TBD—to be determined
(1) 
Excludes one conventional OSV acquired with the Sea Mar Fleet in August 2007. This vessel, the Cape Breton, is considered a non-core asset and is currently inactive.
(2) 
“DP-1,” “DP-2” and “DP-3” mean various classifications, or equivalent, of dynamic positioning systems on new generation vessels to automatically maintain a vessel’s position and heading through anchor-less station keeping.
(3) 
These vessels are currently being constructed under our fifth OSV newbuild construction program with anticipated in-service dates during 2016 and 2017.
(4) 
These six vessels were converted into 240 class DP-2 OSVs as part of our 200 class OSV retrofit program. These six vessels were originally constructed and placed in service in their prior 200 class DP-1 configuration in 1999 or 2000 and were acquired by us in August 2007.
We own long-term lease rights to two adjacent shore-base facilities located in Port Fourchon, Louisiana, named HOS Port. Port Fourchon’s proximity to the deepwater GoM provides a strategic logistical advantage for servicing drilling rigs, production facilities and other offshore installations and sites. Developed as a multi-use facility, Port Fourchon has historically been a land base for offshore oil support services and the Louisiana Offshore Oil Port, or LOOP. According to industry sources, Port Fourchon services nearly all deepwater rigs and almost half of all shallow water rigs in the GoM. The HOS Port facility has three years remaining on its current leases and three additional five-year renewal options on each parcel. The combined acreage of HOS Port is approximately 60 acres with total waterfront bulkhead of nearly 3,000 linear feet. HOS Port not only supports our existing fleet and customers’ deepwater logistics requirements, but it underscores our long-term commitment to and our long-term outlook for the deepwater GoM.
Principal Markets
OSVs and MPSVs operate worldwide, but are generally concentrated in relatively few offshore regions with high levels of exploration and development activity, such as the GoM, the North Sea, Southeast Asia, West Africa, Latin America, and the Middle East. Our core geographic markets are the GoM, Mexico and Brazil. In these markets we provide services to several major integrated oil companies as well as mid-size and large independent oil companies with deepwater and ultra-deepwater activities and to national oil companies such as PEMEX and Petrobras. We also occasionally operate in select international markets, which have included the rest of Latin America, West Africa, the Mediterranean Sea, the Black Sea and the Caribbean basin. We are often subcontracted by other oilfield service companies, both in the GoM and internationally, to provide a new generation fleet that enables them to render offshore oilfield services, such as well stimulation or other enhanced oil recovery activities, diving and ROV operations,

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construction, installation, maintenance, repair and decommissioning services. We also provide a specialized application of our new generation OSVs for use by the United States military.
While there is some vessel migration between regions, key factors such as mobilization costs, vessel suitability and government statutes prohibiting foreign-flagged vessels from operating in certain waters, or coastwise cabotage laws such as the Jones Act, can limit the migration of OSVs. Because MPSVs are generally utilized for non-cargo operations, they are less limited by cabotage laws. Demand for OSVs, as evidenced by dayrates and utilization rates, is primarily related to offshore oil and natural gas exploration, development and production activity. Such activity is influenced by a number of factors, including the actual and forecasted price of oil and natural gas, the level of drilling permit activity, capital budgets of offshore exploration and production companies, and repair and maintenance needs in the deepwater oilfield.
Offshore exploration and production activities are increasingly focused on deep wells (as defined by total well depth rather than water depth), whether on the Outer Continental Shelf or in the deepwater or ultra-deepwater. These types of wells require high-specification equipment and have resulted in an on-going newbuild cycle for drilling rigs and for OSVs. As a result of the projected deepwater drilling activity levels worldwide, there were 68 floating rigs under construction or on order on February 17, 2016 and, as of that date, there were options outstanding to build 22 additional floating rigs. In addition, on that date, there were 123 high-spec jack-up rigs under construction or on order worldwide, and there were options outstanding to build 45 additional high-spec jack-up rigs. Each drilling rig working on deep-well projects typically requires more than one OSV to service it, and the number of OSVs required is dependent on many factors, including the type of activity being undertaken, the location of the rig and the size and capacity of the OSVs. During normal operating conditions, based on the historical data for the number of floating rigs and OSVs working, we believe that two to four OSVs per rig are required in the GoM and even more OSVs are necessary per rig in Brazil where greater logistical challenges result in longer vessel turnaround times to service drill sites. Typically, during the initial drilling stage, more OSVs are required to supply drilling mud, drill pipe and other materials than at later stages of the drilling cycle. In addition, generally more OSVs are required the farther a drilling rig is located from shore. Under normal weather conditions, the transit time to deepwater drilling rigs in the GoM and Brazil can typically range from six to 24 hours for a new generation vessel. In Brazil, transit time for a new generation vessel to some of the newer, more logistically remote deepwater drilling rig locations are more appropriately measured in days, not hours. In addition to drilling rig support, deepwater and ultra-deepwater exploration and production activities will result in the expansion of other specialty-service offerings for our vessels. These markets include subsea construction support, installation, IRM work, and life-of-field services, which include well-stimulation, workovers and decommissioning.
Our charters are the product of either direct negotiation or a competitive proposal process, which evaluates vessel capability, availability and price. Our primary method of chartering in the GoM is through direct vessel negotiations with our customers on either a long-term or spot basis. In the international market, we sometimes charter through local entities in order to comply with cabotage or other local requirements. Some charters are solicited by customers through international vessel brokerage firms, which earn a commission that is customarily paid by the vessel owner. Our U.S. Navy charter was the product of a competitive procurement process conducted by the Military Sealift Command and our operations and management agreement was a sole source selection based upon certain capabilities that are unique to the Company. All of our charters, whether long-term or spot, are priced on a dayrate basis, whereby for each day that the vessel is under contract to the customer, we earn a fixed amount of charter-hire for making the vessel available for the customer’s use. Many long-term contracts and all government, including national oil company, charters contain early termination options in favor of the customer; however, some have fees designed to discourage early termination. Long-term charters sometimes contain provisions that permit us to increase our dayrates in order to be compensated for certain increased operational expenses or regulatory changes.
Competition
The offshore support vessel industry is highly competitive. Competition primarily involves such factors as:
quality, capability and age of vessels;
quality, capability and nationality of the crew members;
ability to meet the customer’s schedule;
safety record, reputation, experience and;
price.

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Our high-spec OSVs are predominately U.S.-flagged vessels, which qualify them under the Jones Act to engage in domestic coastwise trade. The Jones Act restricts the ability of vessels that are foreign-built, foreign-owned, foreign-crewed or foreign-flagged from engaging in coastwise trade in the United States including its territories, like Puerto Rico. The transportation services typically provided by OSVs constitute coastwise trade as defined by the Jones Act. Consequently, competition for our services in the GoM is largely restricted to other U.S. vessel owners and operators, both publicly and privately held. We believe that we operate the second largest fleet by DWT of new generation Jones Act-qualified OSVs in the United States. See "Item 1A-Risk Factors" for a more detailed discussion of the Jones Act. Internationally, our OSVs compete against other U.S. owners, as well as foreign owners and operators of OSVs. Some of our international competitors may benefit from a lower cost basis in their vessels, which are usually not constructed in U.S. shipyards, as well as from lower crewing costs and favorable tax regimes. While foreign vessel owners cannot engage in U.S. coastwise trade, some cabotage laws in other parts of the world permit temporary waivers for foreign vessels if domestic vessels are unavailable. We and other U.S. and foreign vessel owners have been able to obtain such waivers in the foreign jurisdictions in which we operate.
Many of the services provided by MPSVs do not involve the transportation of merchandise and therefore are generally not considered coastwise trade under U.S. and foreign cabotage laws. Consequently, our MPSVs face, and the HOSMAX MPSVs being constructed under our fifth OSV newbuild program will face, competition from both foreign-flagged vessels and U.S.-flagged vessels for non-coastwise trade activities. However, because our MPSVs will be Jones Act-qualified, we believe our customers will achieve greater efficiency as our MPSVs will eliminate the need for customers to separately charter a Jones Act-qualified vessel to transport project cargo from a U.S. point to an installation site. In addition, our U.S.-flagged MPSVs will compete for projects with other international MPSVs as well as participate in the GoM and international OSV markets as large-capacity carriers of drilling fluids, petroleum products and deck cargos in support of deep-well exploration, development and production operations. Competition in the MPSV industry is significantly affected by the particular capabilities of a vessel to meet the requirements of a customer’s project. While operating in the GoM, our foreign-flagged DP-3 MPSVs are required to utilize U.S. crews while foreign-owned vessels have historically been allowed to employ non-U.S. mariners, often from low-wage nations. U.S. crews are often more expensive than foreign crews. Also, foreign MPSV owners may have more favorable tax regimes than ours. Consequently, prices for foreign-owned MPSVs in the GoM are often lower than prices we can charge. Finally, some potential MPSV customers are also owners of MPSVs that will compete with our vessels. However, we have, for some time, observed a clear preference by our customers for a “one-stop” Jones Act solution, which would provide improved efficiencies, derived from a single U.S.-flagged vessel as well as greater regulatory certainty as compliance questions continue to arise from the use of foreign-flagged vessels in the subsea GoM. In the post-Macondo GoM, we see this Jones Act preference as a long-term trend, not only for construction vessels but for vessels of all types working offshore.
We continue to observe intense scrutiny by our customers on the safety and environmental management systems of vessel operators. As a consequence, we believe that deepwater customers are increasingly biased towards companies that have demonstrated a financial and operational commitment and capacity to employ such systems. We believe this trend will, over time, make it difficult for small enterprises to compete effectively in the deepwater OSV and MPSV markets. Additionally, we have observed less willingness by operators to utilize DP-1 vessels in deepwater operations in the GoM. This trend will likely result in the retirement of non-DP vessels and a migration of DP-1 vessels to non-deepwater regions, such as the shelf, and certain international regions. In 2014, PEMEX announced its intention to use only vessels that are less that 15 years old. We and other market participants in Mexico, however, have successfully challenged this restriction, but PEMEX may renew its attempt in the future.
Although some of our principal competitors are larger, have greater financial resources and have more extensive international operations than we do, we believe that our financial strength, operating capabilities and reputation for quality and safety enable us to compete effectively with other fleets in the market areas in which we operate or intend to operate. In particular, we believe that the relatively young age and advanced features of our OSVs and MPSVs provide us with a competitive advantage. The ages of our high-spec new generation OSVs range from less than one year to 17 years with a weighted-average fleet age, based on DWT, of seven years. In fact, over 60% of our active new generation OSVs have been placed in-service since January 1, 2008. The average age of the industry’s conventional U.S.-flagged OSV fleet is approximately 35 years and domestic new generation OSV fleet is approximately nine years. We believe that most of these older vessels are cold-stacked and many of them have been or will be permanently retired in the next few years due to physical and economic obsolescence. Worldwide competition for new generation vessels has been impacted in recent years by the increase in newbuild OSVs placed in-service to address greater customer interest in deep-well, deepwater and ultra-deepwater drilling activity. Upon completion of our fifth OSV newbuild program, we expect to own a fleet of 72 Upstream vessels of which 90% will be DP-2 or DP-3 with a weighted-average fleet age, based on DWT, of eight years in 2017.

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Our success depends in large part on our ability to attract and retain highly skilled and qualified personnel. Our inability to hire, train and retain a sufficient number of qualified employees could impact our ability to manage, maintain and grow our business. In crewing our vessels, we require skilled employees who can perform physically demanding work. As the result of our stacking 33 vessels since October 2014, we have reduced our mariner headcount significantly. When these stacked vessels return to service, we will need to hire and train mariners to operate our vessels.
CUSTOMER DEPENDENCY
Our customers are generally limited to large, independent, integrated or nationally-owned energy companies. These firms are relatively few in number. The percentage of revenues attributable to a customer in any particular year depends on the level of oil and natural gas exploration, development and production activities undertaken, the availability and suitability of our vessels for the customer’s projects or products and other factors, many of which are beyond our control. For the year ended December 31, 2015, Royal Dutch Shell plc (including worldwide affiliates) and Seabed Geosolutions (US) Inc. each accounted for 10% or more of our consolidated revenues. For a discussion of significant customers in prior periods, see Note 12 to our consolidated financial statements.
GOVERNMENT REGULATION
Environmental Laws and Regulations
Our operations are subject to a variety of federal, state, local and international laws and regulations regarding the discharge of materials into the environment or otherwise relating to environmental protection. The requirements of these laws and regulations have become more complex and stringent in recent years and may, in certain circumstances, impose strict liability, rendering a company liable for environmental damages and remediation costs without regard to negligence or fault on the part of such party. Aside from possible liability for damages and costs including natural resource damages associated with releases of oil or hazardous materials into the environment, such laws and regulations may expose us to liability for the conditions caused by others or even acts of ours that were in compliance with all applicable laws and regulations at the time such acts were performed. Failure to comply with applicable laws and regulations may result in the imposition of administrative, civil and criminal penalties, revocation of permits, issuance of corrective action orders and suspension or termination of our operations. Moreover, it is possible that future changes in the environmental laws, regulations or enforcement policies that impose additional or more restrictive requirements or claims for damages to persons, property, natural resources or the environment could result in substantial costs and liabilities to us and could have a material adverse effect on our financial condition, results of operations or cash flows. We believe that we are in substantial compliance with currently applicable environmental laws and regulations.
OPA 90 and regulations promulgated pursuant thereto amend and augment the oil spill provisions of the Clean Water Act and impose a variety of duties and liabilities on “responsible parties” related to the prevention and/or reporting of oil spills and damages resulting from such spills in or threatening U.S. Waters, including the Outer Continental Shelf or adjoining shorelines. A “responsible party” includes the owner or operator of an onshore facility, pipeline or vessel or the lessee or permittee of the area in which an offshore facility is located. OPA 90 assigns liability to each responsible party for containment and oil removal costs, as well as a variety of public and private damages including the costs of responding to a release of oil, natural resource damages, damages for injury to, or economic losses resulting from, destruction of real or personal property of persons who own or lease such affected property. For any vessels, other than “tank vessels,” that are subject to OPA 90, the liability limits are the greater of $1,100 per gross ton or $939,800. A party cannot take advantage of liability limits if the spill was caused by gross negligence or willful misconduct or resulted from violation of a federal safety, construction or operating regulation. In addition, for vessels carrying crude oil from a well situated on the Outer Continental Shelf, the limits apply only to liability for damages (e.g. natural resources, real or personal property, subsistence use, reserves, profits and earnings capacity, and public services damages). The owner or operator of such vessel is liable for all removal costs resulting from a discharge without limits. If the party fails to report a spill or to cooperate fully in the cleanup, the liability limits likewise do not apply and certain defenses may not be available. Moreover, OPA 90 imposes on responsible parties the need for proof of financial responsibility to cover at least some costs in a potential spill. As required, we have provided satisfactory evidence of financial responsibility to the USCG for all of our vessels over 300 tons.

OPA 90 also imposes ongoing requirements on a responsible party, including preparedness and prevention of oil spills and preparation of an oil spill response plan. We have engaged the Marine Spill Response Corporation to serve as our Oil Spill Removal Organization for purposes of providing oil spill removal resources and services for our operations in U.S. waters as required by the USCG. In addition, our Tank Vessel Response Plan and Non-Tank Vessel Response Plan have been approved by the USCG.

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The Clean Water Act imposes strict controls on the discharge of pollutants into the navigable waters of the United States. The Clean Water Act also provides for civil, criminal and administrative penalties for any unauthorized discharge of oil or other hazardous substances in reportable quantities and imposes liability for the costs of removal and remediation of an unauthorized discharge, including the costs of restoring damaged natural resources. Many states have laws that are analogous to the Clean Water Act and also require remediation of accidental releases of petroleum in reportable quantities. Our OSVs routinely transport diesel fuel to offshore rigs and platforms and also carry diesel fuel for their own use. Our OSVs also transport bulk chemical materials used in drilling activities and liquid mud, which contain oil and oil by-products. We maintain vessel response plans as required by the Clean Water Act to address potential oil and fuel spills.
The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, also known as “CERCLA” or “Superfund,” and similar laws impose liability for releases of hazardous substances into the environment. CERCLA currently exempts crude oil from the definition of hazardous substances for purposes of the statute, but our operations may involve the use or handling of other materials that may be classified as hazardous substances. CERCLA assigns strict liability to each responsible party for response costs, as well as natural resource damages. Under CERCLA, responsible parties include not only owners and operators of vessels but also any person who arranged for the disposal or treatment, or arranged with a transporter for transport for disposal or treatment of hazardous substances, and any person who accepted hazardous substances for transport to disposal or treatment facilities. Thus, we could be held liable for releases of hazardous substances that resulted from operations by third parties not under our control or for releases associated with practices performed by us or others that were standard in the industry at the time.
The Resource Conservation and Recovery Act regulates the generation, transportation, storage, treatment and disposal of onshore hazardous and non-hazardous wastes and requires states to develop programs to ensure the safe treatment, storage and disposal of wastes. We generate non-hazardous wastes and small quantities of hazardous wastes in connection with routine operations. We believe that all of the wastes that we generate are handled in all material respects in compliance with the Resource Conservation and Recovery Act and analogous state statutes.
The USCG published its final Ballast Rule on March 23, 2012, which became effective on June 21, 2012, and the United States EPA renewed the Vessel General Permit under the National Pollutant Discharge Elimination System on December 19, 2013. These regulations require all our existing vessels to meet certain standards pertaining to ballast water discharges, on certain dates between January 2014 and January 2016. An exemption to certain compliance requirements is provided for vessels that operate within an isolated geographic region, as determined by the USCG. Most of our vessels operating in the GoM are exempt from the ballast water treatment requirements. However, for non-exempt vessels, ballast water treatment equipment may be required to be utilized on the vessel. As of February 26, 2016, the USCG has not approved any ballast water treatment systems and, as a result, it has granted extensions for compliance with such ballast water treatment requirements. We have currently estimated the cost of compliance to be approximately $250,000 per non-exempt vessel that may be fitted with a system. 
The EPA also imposed emissions regulations affecting vessels that operate in the United States. These regulations impose standards that may require modifications to our vessels at a cost that we have as yet been unable to estimate. Moreover, the EPA’s decision to regulate “greenhouse gases” as a pollutant may result in further regulations and compliance costs.
Climate Change
Greenhouse gas emissions have increasingly become the subject of international, national, regional, state and local attention. The EPA has adopted regulations under the Clean Air Act that require new and existing industrial facilities to obtain permits for carbon dioxide equivalent emissions above emission thresholds. In addition, the EPA adopted rules that mandate reporting of greenhouse gas data and other information by i) industrial sources, ii) suppliers of certain products, and iii) facilities that inject carbon dioxide underground. To the extent that these regulations may apply, we could be responsible for costs associated with complying with such regulations. Cap and trade initiatives to limit greenhouse gas emissions have been introduced in the European Union. Similarly, numerous bills related to climate change have been introduced in the U.S. Congress, which could adversely impact most industries. In addition, future regulation of greenhouse gas could occur pursuant to future treaty obligations, statutory or regulatory changes or new climate change legislation in the jurisdictions in which we operate. It is uncertain whether any of these initiatives will be implemented. However, based on published media reports, we believe that it is unlikely that the current proposed initiatives in the U.S. will be implemented without substantial modification. If such initiatives are implemented, we do not believe that such initiatives would have a direct, material adverse effect on our operating results.

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Restrictions on greenhouse gas emissions or other related legislative or regulatory enactments could have an effect in those industries that use significant amounts of petroleum products, which could potentially result in a reduction in demand for petroleum products and, consequently and indirectly, our offshore transportation and support services. We are currently unable to predict the manner or extent of any such effect. Furthermore, one of the asserted long-term physical effects of climate change may be an increase in the severity and frequency of adverse weather conditions, such as hurricanes, which may increase our insurance costs or risk retention, limit insurance availability or reduce the areas in which, or the number of days during which, our customers would contract for our vessels in general and in the GoM in particular. We are currently unable to predict the manner or extent of any such effect.
EMPLOYEES
On December 31, 2015, we had 1,233 employees, including 975 operating personnel and 258 corporate, administrative and management personnel. Excluded from these personnel totals are 212 third-country nationals that we contracted to serve on our vessels as of December 31, 2015. These non-U.S. mariners are typically provided by international crewing agencies. With the exception of 137 employees located in Brazil and Mexico, none of our employees are represented by a union or employed pursuant to a collective bargaining agreement or similar arrangement. We have not experienced any strikes or work stoppages, and our management believes that we continue to experience good relations with our employees.
GEOGRAPHIC AREAS
The table below presents revenues by geographic region for the past three fiscal years (in thousands):
 
Year Ended December 31,
 
2015
 
2014
 
2013
United States
$
328,262

 
$
490,314

 
$
415,898

International
147,808

 
144,479

 
132,247

 
$
476,070

 
$
634,793

 
$
548,145

The table below presents net property, plant and equipment by geographic region for the past three fiscal years (in thousands):
 
December 31,
 
2015
 
2014
 
2013
United States
$
2,218,646

 
$
2,052,145

 
$
1,913,293

International
356,015

 
407,341

 
212,081

 
$
2,574,661

 
$
2,459,486

 
$
2,125,374

Foreign Operations
Operating in foreign markets presents many political, social and economic challenges. Although we take measures to mitigate these risks, they cannot be completely eliminated. See "Item—1A Risk Factors" for a further discussion of the risks of operating in foreign markets.
SEASONALITY
Demand for our offshore support services is directly affected by the levels of offshore drilling and production activity. Budgets of many of our customers are based upon a calendar year, and demand for our services has historically been stronger in the second and third calendar quarters when allocated budgets are expended by our customers and weather conditions are more favorable for offshore activities. Many other factors, such as the expiration of drilling leases and the supply of and demand for oil and natural gas, may affect this general trend in any particular year. In addition, we typically have an increase in demand for our vessels to survey and repair offshore infrastructure immediately following major hurricanes or other named storms in the GoM.

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WEBSITE AND OTHER ACCESS TO COMPANY REPORTS AND OTHER MATERIALS
Our website address is http://www.hornbeckoffshore.com. We make available on this website, free of charge, access to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and amendments to those reports, as well as other documents that we file with, or furnish to, the Commission pursuant to Sections 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after such documents are filed with, or furnished to, the Commission. We intend to use our website as a means of disclosing material non-public information and for complying with disclosure obligations under Regulation FD. Such disclosures will be included on our website under the heading “Investors—IR Home.” Accordingly, investors should monitor such portion of our website, in addition to following our press releases, Commission filings and public conference calls and webcasts. Periodically, we also update our investor presentations which can be viewed on our website. You may read and copy any materials we file with the Commission at the Commission’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You can obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-732-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission at http://www.sec.gov. Our Corporate Governance Guidelines, Code of Conduct, titled "Navigating with Integrity," (which applies to all employees, including our Chief Executive Officer and certain Financial and Accounting Officers), Code of Business Conduct and Ethics for Members of the Board of Directors, and the charters for our Audit, Nominating/Corporate Governance and Compensation Committees, can all be found on the Investor Relations page of our website under “Corporate Governance”. We intend to disclose any changes to or waivers from the Code of Conduct that would otherwise be required to be disclosed under Item 5.05 of Form 8-K on our website. We will also provide printed copies of these materials to any stockholder upon request to Hornbeck Offshore Services, Inc., Attn: General Counsel, 103 Northpark Boulevard, Suite 300, Covington, Louisiana 70433. The information on our website is not, and shall not be deemed to be, a part of this report or incorporated into any other filings we make with the Commission.
ITEM 1A—Risk Factors
Our results of operations and financial condition can be adversely affected by numerous risks. You should carefully consider the risks described below as well as the other information we have provided in this Annual Report on Form 10-K. The risks described below are not the only ones we face. You should also consider the factors contained in our “Forward Looking Statements” disclaimer found on page ii of this Annual Report on Form 10-K. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations.
As a result of the ongoing declines in oil prices that began in late 2014 and have continued through 2015 and into 2016, our clients have reduced and may further reduce spending on exploration and production projects, resulting in a decrease in demand for our services.
Oil and natural gas prices, and market expectations of potential changes in these prices, significantly impact the level of worldwide drilling and production services activities. Reduced demand for oil and natural gas or periods of surplus oil and natural gas generally result in lower prices for these commodities and often impact the economics of planned drilling projects and ongoing production projects, resulting in the curtailment, reduction, delay or postponement of such projects for an indeterminate period of time. When drilling and production activity and spending declines, both vessel dayrates and utilization for our vessels historically decline as well. This has been the case, beginning in October 2014 through 2015 and continuing in 2016.
Oil prices worldwide have dropped significantly. If the current depressed oil and natural gas prices persist for a prolonged period, or decline further, oil and gas exploration and production companies will likely cancel or curtail additional drilling programs and lower production spending on existing wells even more than they have already, thereby further reducing demand for our services.
Any prolonged reduction in the overall level of exploration and development activities, whether resulting from changes in oil and gas prices or otherwise, could materially and adversely affect us by negatively impacting:
our revenues, cash flows and profitability;
the fair market value of our vessels;
our ability to maintain or increase our borrowing capacity;
our ability to obtain additional capital to finance our business and make acquisitions, and the cost of that capital;
the collectability of our receivables; and

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our ability to retain skilled personnel whom we would need in the event of an upturn in the demand for our services.
If any of the foregoing were to occur, it could have a material adverse effect on our business and financial results.
Increases in the supply of vessels could decrease dayrates.
In addition to our fifth OSV newbuild program, which in nearing completion, certain of our competitors previously announced plans to construct new vessels to be deployed in domestic and foreign locations, thus adding to the available vessel capacity. A remobilization to the GoM oilfield of U.S.-flagged vessels currently operating in other regions or in non-oilfield applications would result in an increase in vessel capacity in the GoM, one of our core markets. Similarly, vessel capacity in foreign markets, including our core markets of Mexico and Brazil, may also be impacted by U.S.-flagged or other vessels migrating to such foreign locations. Further, a repeal, suspension or significant modification of the Jones Act, or the administrative erosion of its benefits, permitting vessels that are either foreign-flagged, foreign-built, foreign-owned, foreign-controlled or foreign-operated to engage in the U.S. coastwise trade, would also result in an increase in capacity. Any increase in the supply of OSVs or MPSVs, whether through new construction, refurbishment or conversion of vessels from other uses, remobilization or changes in law or its application, could not only increase competition for charters and lower utilization and dayrates, which would adversely affect our revenues and profitability, but could also worsen the impact of any downturn in the oil and gas industry on our results of operations and financial condition. Because some services provided by MPSVs are not protected by the Jones Act, foreign competitors may bring additional MPSVs to the GoM or build additional MPSVs that we will compete with domestically or internationally for such services.
The failure to successfully complete our fifth OSV newbuild program or repairs, maintenance and routine drydockings on-schedule and on-budget could adversely affect our financial condition and results of operations.
In November 2011, we commenced and later expanded our fifth OSV newbuild program. We contracted with three domestic shipyards on the Gulf Coast to construct a total of 19 new generation, high-spec OSVs, all of which have already been delivered, and five MPSVs, one of which has been delivered. We routinely engage shipyards to drydock our vessels for regulatory compliance and to provide repair and maintenance. Our vessel newbuild program and drydockings are subject to the risks of delay and cost overruns inherent in any large construction project, including shortages of equipment, lack of shipyard availability, unforeseen engineering problems, work stoppages, weather interference, unanticipated cost increases, including costs of steel, inability to obtain necessary certifications and approvals and shortages of materials or skilled labor. Significant delays under our fifth OSV newbuild program could have a material adverse effect on anticipated contract commitments or anticipated revenues. Significant delays with respect to other possible newbuild programs or the conversion or drydockings of vessels could result in similar adverse effects to our anticipated contract commitments or revenues. Significant cost overruns or delays for vessels under construction not adequately protected by liquidated damages provisions, in general could adversely affect our financial condition and results of operations.
Additional reductions in Petrobras' announced plans for exploration and production activities offshore
Brazil could have a material adverse effect on the market for high-spec OSVs.

Petrobras accounts for a substantial portion of global deepwater drilling activity and has publicly announced plans to reduce its investment in exploration and production activities by roughly $30 billion from 2015 through 2019. This reduction and any decision by Petrobras to further reduce the scope or pace of its announced exploration and production plans offshore Brazil could negatively impact the worldwide market for high-spec OSVs and could have a material adverse effect on our financial condition and results of operations.
The level of offshore oil and gas exploration, development and production activity has historically been volatile and is likely to continue to be so in the future. The level of activity is subject to large fluctuations in response to relatively minor changes in a variety of factors that are beyond our control
Changes in, among others, the following factors can negatively impact our performance:
worldwide demand for oil and natural gas;
prevailing oil and natural gas prices and expectations about future prices and price volatility;
changes in capital spending budgets by our customers;

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the ability of oil and gas companies to generate or otherwise obtain funds for exploration and production;
local and international political and economic conditions and policies;
unavailability of drilling rigs in our core markets of the GoM, Mexico and Brazil;
the cost of offshore exploration for, and production and transportation of, oil and natural gas;
successful exploration for, and production and transportation of, oil and natural gas from onshore sources;
consolidation of oil and gas and oil service companies operating offshore;
availability and rate of discovery of new oil and natural gas reserves in offshore areas;
technological advances affecting energy production and consumption;
the ability or willingness of the Organization of Petroleum Exporting Countries, or OPEC, to set and maintain production levels for oil;
oil and natural gas production levels by non-OPEC countries;
weather conditions; and
environmental and other regulations affecting our customers and their other service providers.
Since late 2014 we have observed a significant decline in oil prices, which has caused oil companies to announce and implement significant reductions in their capital spending programs, that is the source upon which much of our business activity depends. A prolonged reduction in oil prices could have a significant adverse and long-term impact on the Company’s financial condition and results of operations.
Intense competition in our industry could reduce our profitability and market share.
Contracts for our vessels are generally awarded on an intensely competitive basis. Some of our competitors, including diversified multinational companies, have substantially greater financial resources and larger operating staffs than we do. They may be better able to compete in making vessels available more quickly and efficiently, meeting the customer’s schedule and withstanding the effect of declines in dayrates and utilization rates. They may also be better able to weather a downturn in the oil and gas industry. As a result, we could lose customers and market share to these competitors. Some of our competitors may also be willing to accept lower dayrates in order to maintain utilization, which can have a negative impact on dayrates and utilization. Similarly, competition in various markets may also be impacted by U.S.-flagged vessels migrating in and out of foreign locations due to the pace of drilling permit activity in the GoM. Moreover, customer demand for vessels under our fifth OSV newbuild program may not be as strong as we have anticipated and our inability to obtain contracts on anticipated terms or at all may have a material adverse effect on our revenues and profitability.
We may not have the funds available or be able to obtain the funds necessary to meet the obligations relating to our fifth OSV newbuild program, our 2019 convertible senior notes, our 2020 senior notes, or our 2021 senior notes.
Under our fifth OSV newbuild program, we are spending approximately $1,335 million, excluding capitalized construction period interest, for the construction of vessels currently under contract, of which $1,201.7 million has been paid as of December 31, 2015. The amounts required to fund our fifth OSV newbuild program represent a substantial capital commitment. We expect the remaining obligations relating to this newbuild program to be paid, over time through 2017, based on construction milestones. Our 2019 convertible senior notes, our 2020 senior notes, and our 2021 senior notes, which collectively have a face value of $1,125 million, mature in September 2019, April 2020, and March 2021, respectively. In addition, upon the occurrence of certain change of control events, as defined in the indentures governing the 2020 senior notes and the 2021 senior notes, holders of such notes would have the right to require us to repurchase such notes at 101% of their principal amount, plus accrued and unpaid interest. Further, upon certain fundamental changes as defined in the indenture governing the 2019 convertible senior notes, holders of such notes would have the right to require us to repurchase such notes at 100% of their principal amount, plus any accrued and unpaid interest. To the extent that our cash on hand and cash flow from operations are not sufficient to meet these obligations as they come due, we plan to borrow on our currently undrawn credit facility, sell non-core assets and arrange for additional financing. Nevertheless, there can be no assurance that we will be able to sell our non-core assets or arrange for additional

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financing on acceptable terms. Failure to meet our obligations related to our fifth OSV newbuild program, our 2019 convertible senior notes, our 2020 senior notes, and our 2021 senior notes may result in the acceleration of our other indebtedness and result in a material adverse effect on our financial condition and results of operations.
We have grown, and may continue to grow, through acquisitions that give rise to risks and challenges that could adversely affect our future financial results.
We regularly consider possible acquisitions of single vessels, vessel fleets and businesses that complement our existing operations to enable us to grow our business. Acquisitions can involve a number of special risks and challenges, including:
diversion of management time and attention from our existing business and other business opportunities;
delays in closing or the inability to close an acquisition for any reason, including third party consents or approvals;
any unanticipated negative impact on us of disclosed or undisclosed matters relating to any vessels or operations acquired;
loss or termination of employees, including costs associated with the termination or replacement of those employees;
assumption of debt or other liabilities of the acquired business, including litigation related to the acquired business;
the incurrence of additional acquisition-related debt as well as increased expenses and working capital requirements;
dilution of stock ownership of existing stockholders;
increased costs and efforts in connection with compliance with Section 404 of the Sarbanes-Oxley Act; and
substantial accounting charges for restructuring and related expenses, impairment of goodwill, amortization of intangible assets, and stock-based compensation expense.
Even if we consummate an acquisition, the process of integrating acquired operations into our own may result in unforeseen operating difficulties and costs and may require significant management attention and financial resources. In addition, integrating acquired businesses may impact the effectiveness of our internal controls over financial reporting. Any of the foregoing, and other factors, could harm our ability to achieve anticipated levels of utilization and profitability from acquired vessels or businesses or to realize other anticipated benefits of acquisitions.
We can give no assurance that we will be able to identify desirable acquisition candidates or that we will be successful in entering into definitive agreements or closing such acquisitions on satisfactory terms. An inability to acquire additional vessels or businesses may limit our growth potential.
The early termination of contracts on our vessels could have an adverse effect on our operations.
Some of the long-term contracts for our vessels and all contracts with governmental entities and national oil companies contain early termination options in favor of the customer; however, some have early termination remedies or other provisions designed to discourage the customers from exercising such options. We cannot assure that our customers would not choose to exercise their termination rights in spite of such remedies or the threat of litigation with us. Until replacement of such business with other customers, any termination could temporarily disrupt our business or otherwise adversely affect our financial condition and results of operations. We might not be able to replace such business on economically equivalent terms. In addition, during the current and prior downturns, we have experienced customers requesting contractual concessions even though contrary to existing contractual terms. While not legally required to give concessions, commercial considerations may dictate that we do so, given the relatively few deepwater customers operating in the GoM.

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Our contracts with the United States Government could be impacted by budget cuts.
Our government contracts depend upon annual funding commitments authorized by Congress. In a period of government budget cuts or other political events, our contracts might not be re-authorized, resulting in a decline in our anticipated revenues.
We are subject to complex laws and regulations, including environmental regulations that can adversely affect the cost, manner or feasibility of doing business.
Increasingly stringent federal, state, local and foreign laws and regulations governing worker health and safety and the manning, construction and operation of vessels significantly affect our operations. Many aspects of the marine industry are subject to extensive governmental regulation by the USCG, the National Transportation Safety Board, the EPA and the United States Customs Service, and their foreign equivalents, and to regulation by private industry organizations such as the American Bureau of Shipping. The USCG and the National Transportation Safety Board set safety standards and are authorized to investigate vessel accidents and recommend improved safety standards, while the USCG and Customs Service are authorized to inspect vessels at will. Our operations are also subject to international conventions, federal, state, local and international laws and regulations that control the discharge of pollutants into the environment or otherwise relate to environmental protection. Compliance with such laws, regulations and standards may require installation of costly equipment, increased manning, specific training, and/or operational changes. While we endeavor to comply with all applicable laws, circumstances might exist where we might not come into complete compliance with applicable laws and regulations which could result in administrative and civil penalties, criminal sanctions, imposition of remedial obligations or the suspension or termination of our operations. Some environmental laws impose strict liability for remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. These laws and regulations may expose us to liability for the conduct of, or conditions caused by, others, including charterers. Moreover, these laws and regulations could change in ways that substantially increase costs that we may not be able to pass along to our customers. Any changes in applicable conventions or laws, regulations or standards that would impose additional requirements or restrictions on our or our oil and gas exploration and production customers’ operations could adversely affect our financial condition and results of operations. It is possible that laws and regulations may become even more stringent, which could also adversely affect our financial condition and results of operations.
We are also subject to the Merchant Marine Act of 1936, which provides that, upon proclamation by the President of a national emergency or a threat to the security of the national defense, the Secretary of Transportation may requisition or purchase any vessel or other watercraft owned by United States citizens (which includes United States corporations), including vessels under construction in the United States. If one of our OSVs or MPSVs were purchased or requisitioned by the federal government under this law, we would be entitled to be paid the fair market value of the vessel in the case of a purchase or, in the case of a requisition, the fair market value of charter hire. We would also not be entitled to be compensated for any consequential damages we suffer as a result of the requisition or purchase of any of our OSVs or MPSVs. The purchase or the requisition for an extended period of time of one or more of our vessels could adversely affect our results of operations and financial condition.
Finally, we are subject to the Merchant Marine Act of 1920, commonly referred to as the Jones Act, which requires that vessels engaged in coastwise trade to carry cargo between U.S. ports be documented under the laws of the United States and be controlled by U.S. citizens. A corporation is not considered a U.S. citizen unless, among other things, at least 75% of the ownership of voting interests with respect to its equity securities are held by U.S. citizens. We endeavor to ensure that we would be determined to be a U.S. citizen as defined under these laws by including in our certificate of incorporation certain restrictions on the ownership of our capital stock by non-U.S. citizens and establishing certain mechanisms to maintain compliance with these laws. If we are determined at any time not to be in compliance with these citizenship requirements, our vessels might become ineligible to engage in the coastwise trade in U.S. domestic waters, and our business and operating results would be adversely affected.
The Jones Act’s provisions restricting coastwise trade to vessels controlled by U.S. citizens have been circumvented in recent years by foreign interests that seek to engage in trade reserved for vessels controlled by U.S. citizens and otherwise qualifying for coastwise trade. Legal challenges against such actions are difficult, costly to pursue and are of uncertain outcome. In addition, the Jones Act is often criticized and there are efforts underway by affected interest groups to seek its repeal. To the extent such efforts are successful and foreign competition is permitted, such competition could have a material adverse effect on domestic companies in the offshore service vessel industry and on our financial

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condition and results of operations. In addition, in the interest of national defense, the Secretary of Homeland Security is authorized to suspend the coastwise trading restrictions imposed by the Jones Act on vessels not controlled by U.S. citizens. Such waivers are granted from time-to-time.
Our business involves many operating risks that may disrupt our business or otherwise result in substantial losses, and insurance may be unavailable or inadequate to protect us against these risks.
Our vessels are subject to operating risks such as:
catastrophic marine disaster;
adverse weather and sea conditions;
mechanical failure;
collisions or allisions;
oil and hazardous substance spills;
navigation errors;
acts of God; and
war and terrorism.
The occurrence of any of these events may result in damage to or loss of our vessels or other property, injury or death of people or contamination of the environment. If any of these events were to occur, we could be exposed to liability for resulting damages and possible penalties that, pursuant to typical marine indemnity policies, we must pay and then seek reimbursement from our insurer. Affected vessels may also be removed from service and thus be unavailable for income-generating activity. While we believe our insurance coverage is adequate and insures us against risks that are customary in the industry, we may be unable to renew such coverage in the future at commercially reasonable rates. Moreover, existing or future coverage may not be sufficient to cover claims that may arise and we do not maintain insurance for loss of income resulting from a marine casualty.
Our operations in international markets and shipyard activities in foreign shipyards subjects us to risks inherent in conducting business internationally.
We derive a portion of our revenues from foreign sources. In addition, certain of our shipyard repair and procurement activities are being conducted with foreign vendors. We therefore face risks inherent in conducting business internationally, such as legal and governmental regulatory requirements, potential vessel seizure or nationalization of assets, import-export quotas or other trade barriers, difficulties in collecting accounts receivable and longer collection periods, political and economic instability, kidnapping of or assault on personnel, piracy, adverse tax consequences, difficulties and costs of staffing international operations and language and cultural differences. We do not hedge against foreign currency risk. While we endeavor to contract in U.S. Dollars when operating internationally, some contracts may be denominated in a foreign currency, which would result in a foreign currency exposure risk. All of these risks are beyond our control and difficult to insure against. We cannot predict the nature and the likelihood of any such events. If such an event should occur, however, it could have a material adverse effect on our financial condition and results of operations.
We may lose the right to operate in some international markets in which we have a presence.
In certain foreign markets in which we operate, most notably Mexico, we sometimes depend upon governmental waivers of cabotage laws. These waivers could be revoked or made more burdensome, which could result in our inability to continue our operations or materially increase the costs of operating in such foreign locations. In addition, our foreign customers are often large state-owned oil companies that have monopolies or near monopolies in their home countries. These companies sometimes impose contractual requirements or restrictions that cannot be negotiated away and that can impose significant operating risks upon us. We have attempted to challenge these contractual actions in foreign markets, which entails significant risks.

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Future results of operations depend on the long-term financial stability of our customers.
Some of the contracts we enter into for our vessels are full utilization contracts with initial terms ranging from one to five years. We enter into these long-term contracts with our customers based on a credit assessment at the time of execution. Our financial condition in any period may therefore depend on the long-term stability and creditworthiness of our customers. We can provide no assurance that our customers will fulfill their obligations under our long-term contracts and the insolvency or other failure of a customer to fulfill its obligations under such contract could adversely affect our financial condition and results of operations.
We may be unable to attract and retain qualified, skilled employees necessary to operate our business.
Our success depends in large part on our ability to attract and retain highly skilled and qualified personnel. Our inability to hire, train and retain a sufficient number of qualified employees could impair our ability to manage, maintain and grow our business.
In crewing our vessels, we require skilled employees who can perform physically demanding work. As a result of the recent volatility of the oil and gas industry, we have significantly reduced our mariner headcount. Additionally, as a result of such volatility, vessel employees and potential employees may choose to pursue employment in fields that offer a more desirable work environment at wage rates that are competitive with ours. Further, unlike the current weak market conditions, during normal market conditions, we face strong competition within the broader oilfield industry for employees and potential employees, including competition from drilling rig operators for our fleet personnel. As the vessels being constructed in our fifth OSV newbuild program are delivered and placed in service, we may have difficulty hiring employees or finding suitable replacements as needed. Once normal market conditions return, should a reduced pool of workers arise, it is possible that we would have to raise wage rates to attract workers and to retain our current employees. In such circumstances, should we not be able to increase our service rates to our customers to compensate for wage-rate increases or recruit qualified personnel to operate our vessels at full utilization, our financial condition and results of operations may be adversely affected.
Our employees are covered by federal laws that may subject us to job-related claims in addition to those provided by state laws.
Some of our employees are covered by provisions of the Jones Act, the Death on the High Seas Act and general maritime law. These laws preempt state workers’ compensation laws and permit these employees and their representatives to pursue actions against employers for job-related incidents in federal courts based on tort theories. Because we are not generally protected by the damage limits imposed by state workers’ compensation statutes for these types of claims, we may have greater exposure for any claims made by these employees.
Our success depends on key members of our management, the loss of whom could disrupt our business operations.
We depend to a large extent on the efforts and continued employment of our executive officers and key management personnel. We do not maintain key-man insurance. The loss of services of one or more of our executive officers or key management personnel could have a negative impact on our financial condition and results of operations.
Restrictions contained in the indentures governing our 2020 senior notes, our 2021 senior notes, and in the agreement governing our revolving credit facility may limit our ability to obtain additional financing and to pursue other business opportunities.
Covenants contained in the indenture governing our 2020 senior notes, in the indenture governing our 2021 senior notes and in the agreement governing our revolving credit facility require us to meet certain financial tests, which may limit or otherwise restrict:
our flexibility in operating, planning for, and reacting to changes, in our business;
our ability to dispose of assets, withstand current or future economic or industry downturns and compete with others in our industry for strategic opportunities; and

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our ability to obtain additional financing for working capital, capital expenditures, including our newbuild programs, acquisitions, general corporate and other purposes.
We have high levels of fixed costs that will be incurred regardless of our level of business activity.
Our business has high fixed costs. Downtime or low productivity due to reduced demand, as is currently being experienced, from weather interruptions or other causes can have a significant negative effect on our operating results and financial condition. In addition, given our recent vessel stackings, our fixed costs are borne by a substantially smaller active fleet of vessels.
Our revenues and operating results may vary significantly from quarter to quarter due to a number of factors such as volatility in our vessel dayrates, changes in utilization, vessel incidents and other unforeseen matters. Many of these factors that may cause our actual financial results to vary from our publicly disclosed earnings guidance and forecasts are outside of our control.
Our actual financial results might vary from those anticipated by us or by securities analysts and investors, and these variations could be material. From time to time we publicly provide various forms of guidance, which reflect our projections about future market expectations and operating performance. The numerous assumptions underlying such guidance may be impacted by factors that are beyond our control and might not turn out to be correct. Although we believe that the assumptions underlying our projections are reasonable when such projections are made, actual results could be materially different, particularly with respect to our MPSVs.
We are susceptible to unexpected increases in operating expenses such as crew wages, materials and supplies, maintenance and repairs, and insurance costs.
Many of our operating costs, such as crew wages, materials and supplies, maintenance and repairs, and insurance costs, are unpredictable and vary based on events beyond our control. Our gross margins will vary based on fluctuations in our operating costs. If our costs increase or we encounter unforeseen costs, we may not be able to recover such costs from our customers, which could adversely affect our financial position, results of operations and cash flows.
Stacked vessels may introduce additional operational issues.
In recognition of weak market conditions, we have stacked 33 OSVs on various dates since October 1, 2014 and we may choose to stack additional vessels should market conditions warrant. In connection with such stackings, we have reduced our mariner headcount significantly. Operationally, we limit the number of persons available to maintain such stacked vessels. Also, we have fewer revenue-producing units in service that can contribute to our results and contribute cash flows to cover our fixed costs and commitments. When stacked vessels return to service, we will incur previously deferred drydocking costs for regulatory recertifications and may incur costs to hire and train mariners to operate such vessels. Delay in reactivating stacked vessels and the costs and other expenses related to the reactivation of stacked vessels could have a material adverse effect on our cash flows and results of operations.
We may be adversely affected by uncertainty in the global financial markets.
Our future results may be impacted by volatility, weakness or deterioration in the debt and equity capital markets. Inflation, deflation, or other adverse economic conditions may negatively affect us or parties with whom we do business resulting in their non-payment or inability to perform obligations owed to us, such as the failure of customers to honor their commitments, the failure of shipyards and major suppliers to complete orders or the failure by banks to provide expected funding under our revolving credit agreement. Additionally, credit market conditions may slow our collection efforts as customers experience increased difficulty in obtaining requisite financing, potentially leading to lost revenue and higher than normal accounts receivable. This could result in greater expense associated with collection efforts and increased bad debt expense.
Any significant softening in the already limited global economic recovery may adversely impact our ability to issue additional debt and equity in the future on acceptable terms. We cannot be certain that additional funding will be available if needed and to the extent required, on acceptable terms.

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We may be unable to collect amounts owed to us by our customers.
We typically grant our customers credit on a short-term basis. Related credit risks are inherent as we do not typically collateralize receivables due from customers. We provide estimates for uncollectible accounts based primarily on our judgment using historical losses, current economic conditions and individual evaluations of each customer as evidence supporting the receivables valuations stated on our financial statements. However, our receivables valuation estimates may not be accurate and receivables due from customers reflected in our financial statements may not be collectible.
Future changes in legislation, policy, restrictions or regulations for drilling in the United States that cause delays or deter new drilling could have a material adverse effect on our financial position, results of operations and cash flows.
In response to the April 20, 2010, Deepwater Horizon incident, the regulatory agencies with jurisdiction over oil and gas exploration, including the DOI, imposed temporary moratoria on drilling operations, by requiring operators to reapply for exploration plans and drilling permits that had previously been approved, and by adopting numerous new regulations and new interpretations of existing regulations regarding offshore operations that are applicable to our customers and with which their new applications for exploration plans and drilling permits must prove compliant. Compliance with these new regulations and new interpretations of existing regulations have materially increased the cost of drilling operations in the GoM. These additional compliance costs could materially adversely impact our business, financial position or results of operations.
The fundamental change purchase feature of our 2019 convertible senior notes and the change of control purchase features of our 2020 senior notes and our 2021 senior notes and provisions of our certificate of incorporation, bylaws, stockholder rights plan and Delaware law may delay or prevent an otherwise beneficial takeover attempt of the Company.
The terms of our 2019 convertible senior notes require us to purchase the notes for cash in the event of a fundamental change. Upon a change in control, our 2020 senior notes and our 2021 senior notes require us to repurchase such senior notes at 101% of aggregate principal. A takeover of the Company would trigger the requirement that we purchase the 2019 convertible senior notes, the 2020 senior notes and the 2021 senior notes. Furthermore, our certificate of incorporation and bylaws, Delaware corporations law, and our stockholder rights plan contain provisions that could have the effect of making it more difficult for a third party to acquire, or discourage a third party from attempting to acquire, control of us. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock and may have the effect of delaying or preventing a takeover of the Company that would otherwise be beneficial to investors.
The convertible note hedge transactions may affect the value of our common stock.
In connection with the original issuance of our 2019 convertible senior notes, we entered into convertible note hedge transactions with counterparties that include the initial purchasers of such notes or their affiliates. The convertible note hedge transactions cover, subject to customary anti-dilution adjustments, the aggregate number of shares of our common stock that initially underlie the notes, and are expected to reduce the potential equity dilution, and/or offset cash payments due, upon conversion of the notes in the event the volume-weighted average price of our common stock on each trading day of the relevant conversion period or other relevant valuation period is greater than the strike price of the convertible note hedge transactions. Concurrently with entering into the convertible note hedge transactions, we also entered into separate warrant transactions with the same counterparties relating to the same number of shares of our common stock, subject to customary anti-dilution adjustments, pursuant to which we sold warrants to the counterparties. If the warrants are exercised, such exercise would mitigate some of the reduction upon exercise of the convertible note hedge transactions, and could have a dilutive effect on our earnings per share to the extent that the volume-weighted average price of our common stock during the measurement period at maturity of the warrants exceeds the strike price of the sold warrants.
In connection with establishing their initial hedges of these transactions, such counterparties or their affiliates entered into various cash-settled over-the-counter derivative transactions with respect to our common stock. The counterparties or their affiliates may modify their hedge positions by unwinding these derivative transactions, entering into or unwinding additional cash-settled over-the-counter derivative transactions and/or purchasing or selling our common

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stock or other of our securities in secondary market transactions from time to time following the pricing of the notes and prior to maturity of the notes (and are likely to do so during any conversion period related to any conversion of the notes).
The potential effect, if any, of these convertible note hedge and warrant transactions or any of these hedging activities on the market price of our common stock will depend in part on market conditions and cannot be ascertained at this time, but any of these activities could materially and adversely affect the value of our common stock.
We do not make any representation or prediction as to the direction or magnitude of any potential effect that the transactions described above may have on the price of our common stock. In addition, we do not make any representation that the counterparties to those transactions will engage in these transactions or activities or that these transactions and activities, once commenced, will not be discontinued without notice; the counterparties or their affiliates may choose to engage in, or discontinue engaging in, any of these transactions or activities with or without notice at any time, and their decisions will be in their sole discretion and not within our control.
We are subject to counterparty risk with respect to the convertible note hedge transactions.
The counterparties to the convertible note hedge transactions are financial institutions, and we will be subject to the risk that any or all of them might default under the convertible note hedge transactions. Our exposure to the credit risk of the counterparties will not be secured by any collateral. Global economic conditions experienced between 2008 and 2010 resulted in the actual or perceived failure or financial difficulties of many financial institutions. If a counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings, with a claim equal to our exposure at that time under our transactions with that counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our common stock. In addition, upon a default by a counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the counterparties to the convertible note hedge transactions.
Conversion of the 2019 convertible senior notes or exercise of the warrants issued in the warrant transactions may dilute the ownership interest of existing stockholders.
The conversion of the 2019 convertible senior notes or exercise of some or all of the warrants we issued in the warrant transactions may dilute the ownership interests of existing stockholders. Although the convertible note hedge transactions are expected to reduce potential dilution upon conversion of our convertible notes, the warrant transactions could have a dilutive effect on our earnings per share to the extent that the price of our common stock exceeds the strike price of the warrants. Any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the anticipated exercise of the warrants for shares of our common stock could depress the price of our common stock. Current accounting standards require us to use the treasury method for determining potential dilution in our diluted earnings per share computation since it is our intention to settle the principal amount of the notes in cash. However, if due to changes in facts and circumstances beyond our control such intention were to change, or it becomes probable that we will be unable to settle the principal in cash, we could be required to change our methodology for determining fully diluted earnings per share to the if-converted method. The if-converted method would result in a substantial dilutive effect on diluted earnings per share compared to the treasury method.
Our stock price has been volatile, declining precipitously from time to time during the period from 2013 through the present, and it could decline again.
The securities markets in general and our common stock in particular have experienced significant price and volume volatility in recent years. The market price and trading volume of our common stock may continue to experience significant fluctuations due not only to general stock market conditions but also to a change in sentiment in the market regarding our operations or business prospects or those of companies in our industry. In addition to the other risk factors discussed above, the price and volume volatility of our common stock may be affected by:
operating results that vary from the expectations of securities analysts and investors;
factors influencing the levels of global oil and natural gas exploration and exploitation activities, such as the current depressed prices for oil or natural gas;

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disasters such as the Deepwater Horizon incident in the Gulf of Mexico in 2010;
the operating and securities price performance of companies that investors or analysts consider comparable to us;
actions by rating agencies related to our 2019 convertible senior notes, our 2020 senior notes, or our 2021 senior notes;
the ability or willingness of OPEC to set and maintain production levels for oil;
oil and gas production levels by non-OPEC countries;
geopolitical risks;
announcements of strategic developments, acquisitions and other material events by us or by our competitors; and
changes in global financial markets and global economies and general market conditions, such as interest rates, commodity and equity prices and the value of financial assets.
ITEM 1B—Unresolved Staff Comments
None.
ITEM 2—Properties
Our principal executive offices are in Covington, Louisiana, where we lease approximately 65,000 square feet of office space under a lease with an initial term expiring in September 2025 and three additional five-year renewal periods. Our primary domestic operating office is located in Port Fourchon, Louisiana. We also maintain four international offices from which we operate our fleet of vessels in Mexico and Brazil, as set forth below. For more information, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included within this report. We believe that our facilities, including waterfront locations used for vessel dockage and certain vessel repair work, provide an adequate base of operations for the foreseeable future.
Our principal properties as of December 31, 2015 are as follows: 
Location
 
Description
 
Area Using Property
 
Owned/Leased
Covington, Louisiana, USA
 
Corporate Headquarters
 
Corporate
 
Leased
Hammond, Louisiana, USA
 
Warehouse
 
GoM
 
Owned
Port Fourchon, Louisiana, USA
 
Dock, Office, Warehouse, Yard
 
GoM
 
Leased
Paraiso, Tabasco, Mexico
 
Office
 
Mexico
 
Leased
Ciudad Del Carmen, Campeche, Mexico
 
Office
 
Mexico
 
Leased
Barra da Tijuca, Rio de Janeiro, Brazil
 
Office
 
Brazil
 
Leased
Macae, Rio de Janeiro, Brazil
 
Office
 
Brazil
 
Leased
Houston, Texas, USA
 
Office
 
GoM
 
Leased
In addition to the foregoing, our revenues are principally derived from our vessels described in "Item 1—Business" of this Annual Report on Form 10-K.
Item 3—Legal Proceedings
None.
Item 4—Mine Safety Disclosures
None.

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PART II
Item 5—Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock, $0.01 par value, trades on the New York Stock Exchange, or NYSE, under the trading symbol “HOS”. The following table sets forth, for the quarterly periods indicated, the high and low sale prices for our common stock as reported by the NYSE during 2015 and 2014. 
 
2015
 
2014
 
High
 
Low
 
High
 
Low
First Quarter
$
25.40

 
$
17.91

 
$
49.04

 
$
38.17

Second Quarter
$
25.22

 
$
18.64

 
$
47.08

 
$
37.44

Third Quarter
$
20.98

 
$
13.33

 
$
47.45

 
$
32.46

Fourth Quarter
$
17.80

 
$
8.23

 
$
33.54

 
$
19.16

On January 31, 2016, we had 23 holders of record of our common stock.
We have not previously declared or paid, and we do not plan to declare or pay in the foreseeable future, any cash dividends on our common stock. In October 2014, our Board of Directors approved the buyback of up to $150 million of our common stock. Our current intention is to retain all additional cash that our business generates to cover all of our growth capital expenditures, commercial-related capital expenditures, annually recurring cash debt service, maintenance capital expenditures and cash income taxes, as well as discretionary share repurchases from time to time and to fund future growth. Any future payment of cash dividends or stock repurchases will depend upon the financial condition, capital requirements, plans to reduce our long-term debt and earnings of the Company, as well as other factors that our Board of Directors may deem relevant. In addition, the indentures governing our 2020 senior notes, our 2021 senior notes and the agreement governing our revolving credit facility include restrictions on our ability to pay cash dividends on our common stock. See "Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 6 to our consolidated financial statements for further discussion.
See "Item 12-Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for information regarding shares of common stock authorized for issuance under our equity compensation plans.
Repurchase of Common Stock
On October 28, 2014, our Board of Directors authorized us to repurchase up to $150 million in shares of our common stock using different methods including, but not limited to, open-market purchases, privately negotiated transactions, accelerated share repurchases and Rule 10b5-1 trading plans. The timing and amount of the repurchases depends on several factors, such as market conditions, applicable legal requirements, available liquidity, the discretion of management and other appropriate factors. The repurchase program does not obligate us to acquire any particular amount of common stock and may be modified, suspended or discontinued at any time. As of December 31, 2015, we had repurchased and retired 891,396 shares at an average price of $28.05 per share. The repurchased shares cost a total of $25 million and represented roughly 2.5% of our total shares outstanding prior to the commencement of the program. As of February 26, 2016, no additional shares had been repurchased.


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Item 6—Selected Financial Data
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except operating and per share data)
Our selected historical consolidated financial information as of and for the years ended December 31, 2015, 2014, 2013, 2012 and 2011, was derived from our audited historical consolidated financial statements prepared in accordance with GAAP. Certain reclassifications have been made to prior period results to conform to current year presentation. See Note 2 for a discussion of such reclassifications. The data should be read in conjunction with and is qualified in its entirety by reference to Managements Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements and the notes to those statements included elsewhere in this Annual Report on Form 10-K. In 2013, we closed the sale of our Downstream segment to Genesis Marine, LLC. The historical results for the Downstream segment and the gain on the sale of that segment have been presented as discontinued operations for all periods in the Selected Historical Consolidated Financial Information presented herein. See Note 13 of the Consolidated Financial Statements for more information.
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Revenues
$
476,070

 
$
634,793

 
$
548,145

 
$
463,309

 
$
330,836

Operating expenses
219,260

 
296,500

 
239,239

 
226,462

 
177,868

Depreciation and amortization
109,029

 
115,450

 
85,962

 
73,675

 
67,910

General and administrative expenses
48,297

 
54,245

 
53,428

 
45,178

 
32,327

Gain (loss) on sale of assets
44,060

 
822

 
1,587

 
(350
)
 
980

Operating income
143,544

 
169,420

 
171,103

 
117,644

 
53,711

Loss on early extinguishment of debt

 

 
(25,776
)
 
(6,048
)
 

Interest income
1,525

 
1,086

 
2,515

 
2,167

 
829

Interest expense
39,496

 
30,733

 
47,352

 
57,869

 
59,649

Other income (expenses)(1)
1,005

 
501

 
(92
)
 
185

 
231

Income (loss) before income taxes
106,578

 
140,274

 
100,398

 
56,079

 
(4,878
)
Income tax expense (benefit)
39,757

 
52,367

 
36,320

 
21,384

 
(1,358
)
Income (loss) from continuing operations
66,821

 
87,907

 
64,078

 
34,695

 
(3,520
)
Income from discontinued operations, net of tax

 
618

 
47,315

 
2,322

 
959

Net income (loss)
66,821

 
88,525

 
111,393

 
37,017

 
(2,561
)
Per Share Data:
 
 
 
 
 
 
 
 
 
Basic earnings (loss) per common share from continuing operations
$
1.87

 
$
2.43

 
$
1.79

 
$
0.98

 
$
(0.12
)
Basic earnings per common share from discontinued operations

 
0.02

 
1.31

 
0.07

 
0.03

Basic earnings (loss) per common share
$
1.87

 
$
2.45

 
$
3.10

 
$
1.05

 
$
(0.09
)
Diluted earnings (loss) per common share from continuing operations
$
1.84

 
$
2.40

 
$
1.76

 
$
0.97

 
$
(0.12
)
Diluted earnings per common share from discontinued operations

 
0.01

 
1.29

 
0.06

 
0.03

Diluted earnings (loss) per common share
$
1.84

 
$
2.41

 
$
3.05

 
$
1.03

 
$
(0.09
)
Weighted average basic shares outstanding
35,755

 
36,172

 
35,895

 
35,311

 
27,876

Weighted average diluted shares outstanding(2)
36,302

 
36,692

 
36,548

 
36,080

 
27,876

Balance Sheet Data (at period end):
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
259,801

 
$
185,123

 
$
439,291

 
$
576,678

 
$
356,849

Working capital(3)
278,491

 
253,566

 
446,489

 
360,120

 
397,995

Property, plant, and equipment from continuing operations, net
2,574,661

 
2,459,486

 
2,125,374

 
1,643,623

 
1,431,414

Property, plant, and equipment from discontinued operations, net

 

 
759

 
168,487

 
174,371

Total assets(4)
2,984,416

 
2,860,935

 
2,743,015

 
2,584,971

 
2,124,656

Total short-term debt(5)

 

 

 
238,071

 

Total long-term debt(6) (7)
1,070,281

 
1,057,487

 
1,045,297

 
833,326

 
762,179

Total stockholders’ equity
1,446,163

 
1,370,765

 
1,295,428

 
1,165,845

 
1,072,988

Statement of Cash Flows Data:
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) continuing operations:
 
 
 
 
 
 
 
 
 
Operating activities
$
215,843

 
$
163,106

 
$
207,067

 
$
128,865

 
$
52,582

Investing activities
(141,349
)
 
(401,515
)
 
(526,630
)
 
(255,323
)
 
(62,889
)
Financing activities
1,023

 
(19,664
)
 
(61,344
)
 
334,391

 
228,830

Net cash provided by (used in) discontinued operations:
 
 
 
 
 
 
 
 
 
Operating activities
$

 
$
2,374

 
$
15,368

 
$
13,847

 
$
11,068

Investing activities

 
1,638

 
228,689

 
(1,772
)
 
675

Other Financial Data (unaudited):
 
 
 
 
 
 
 
 
 
EBITDA(8)
$
253,578

 
$
285,371

 
$
231,197

 
$
185,456

 
$
121,852

Capital expenditures
293,349

 
408,693

 
542,651

 
258,325

 
72,176

Other Operating Data (unaudited)(9):
 
 
 
 
 
 
 
 
 
Average number of new generation OSVs(10)
60.0

 
57.4

 
50.7

 
51.0

 
51.0

Average number of active new generation OSVs(11)
42.0

 
56.6

 
50.3

 
48.3

 
41.8

Average new generation OSV fleet capacity (DWT)
206,030

 
177,033

 
132,564

 
128,190

 
128,190

Average new generation OSV vessel capacity (DWT)
3,436

 
3,076

 
2,609

 
2,514

 
2,514

Average new generation OSV utilization rate(12)
54.4
%
 
79.6
%
 
83.7
%
 
83.2
%
 
71.5
%
Effective new generation OSV utilization rate (13)
77.8
%
 
80.7
%
 
84.4
%
 
87.8
%
 
87.2
%
Average new generation OSV dayrate(14)
$
26,278

 
$
27,416

 
$
26,605

 
$
23,445

 
$
21,121

Effective dayrate(15)
$
14,295

 
$
21,823

 
$
22,268

 
$
19,506

 
$
15,102


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(1) 
Represents other operating income and expenses, including equity in income from investments and foreign currency transaction gains or losses.
(2) 
For the year ended December 31, 2015, the Company had 322 anti-dilutive stock options. For the years ended December 31, 2014, 2013 and 2012, the Company had no anti-dilutive stock options. Due to a net loss, we excluded, for the calculation of loss per share, the effect of equity awards representing the rights to acquire 1,209 shares of common stock for the year ended December 31, 2011 because the effect was anti-dilutive. See Note 3 of our consolidated financial statements for more information about diluted shares outstanding.
(3) 
Includes working capital (deficit) from discontinued operations in the amount of $470, $1,461, $(1,750), and $210 as of December 31, 2014, 2013, 2012 and 2011, respectively.
(4) 
Includes total assets from discontinued operations in the amount of $470, $2,337, $176,277, and $183,472 as of December 31, 2014, 2013, 2012, and 2011, respectively.
(5) 
Excludes imputed original issue discount associated with our 2026 convertible senior notes in the amount of $11,093 as of December 31, 2012. Also excludes deferred financing costs associated with our 2026 convertible senior notes in the amount of $836 as of December 31, 2012. These notes were putable by the holders to the Company on November 15, 2013 and therefore were classified as short-term debt. These notes were converted or redeemed in full by the Company in November 2013.
(6) 
Excludes original issue discount associated with our 2014 senior notes in the amount of $215 as of December 31, 2011; original issue discount associated with our 2017 senior notes in the amount of $4,771 and $5,571 as of December 31, 2012 and 2011, respectively; imputed original issue discount associated with our 2026 convertible senior notes in the amount of $23,566 as of December 31, 2011; and imputed original issue discount associated with our 2019 convertible senior notes in the amount of $41,600, $51,528, $60,908 and $69,699 as of December 31, 2015, 2014, 2013 and 2012, respectively.
(7) 
Excludes deferred financing costs associated with our 2014 senior notes in the amount of $635 as of December 31, 2011 and deferred financing costs associated with our 2017 senior notes in the amount of $3,702 and $4,323 as of December 31, 2012 and 2011, respectively, and our 2019 convertible senior notes in the amount of $4,095, $5,073, $5,996 and $6,801 as of December 31, 2015, 2014, 2013 and 2012, respectively and deferred financing costs associated with our 2020 senior notes in the amount of $3,944, $4,863, $5,782 and $6,701 as of December 31, 2015, 2014, 2013 and 2012, respectively; and deferred financing costs associated with our 2021 senior notes in the amount of $5,080, $6,049, $7,017 as of December 31, 2015, 2014 and 2013, respectively; and deferred financing costs associated with our 2026 convertible senior notes in the amount of $1,839 as of December 31, 2011.
(8) 
See our discussion of EBITDA as a non-GAAP financial measure immediately following these footnotes.
(9) 
Excluded from the Other Operating Data are the results of operations for our MPSVs, our shore-base facility, and vessel management services. Due to the fact that each of our MPSVs have a workload capacity and significantly higher income generating potential than each of our new generation OSVs, the utilization and dayrate levels of our MPSVs could have a very large impact on our results of operations. For this reason, our consolidated operating results, on a period-to-period basis, are disproportionately impacted by the level of dayrates and utilization achieved by our MPSVs.
(10) 
We owned 60 new generation OSVs as of December 31, 2015. Our average number of new generation OSVs for the years ended December 31, 2015, 2014, 2013, 2012, and 2011, reflect the deliveries of certain vessels under our fourth and fifth OSV newbuild programs. Please refer to Our Vessels on page 6 of this Form 10-K for more information about vessel names and placed in-service dates. Excluded from this data is one conventional OSV, which is stacked, and is considered a non-core asset.
(11) 
In response to weak market conditions, we elected to stack certain of our new generation OSVs on various dates in 2009 and 2010. Based on improved market conditions, we had re-activated all of our stacked new generation OSVs by June 30, 2013. During 2014, we experienced weak market conditions for which we elected to stack certain of our new generation OSVs on various dates during the fourth quarter of 2014 and throughout 2015.
(12) 
Utilization rates are average rates based on a 365-day year. Vessels are considered utilized when they are generating revenues.
(13) 
Effective utilization rate is based on a denominator comprised only of vessel-days available for service by the active fleet, which excludes the impact of stacked vessel days due.
(14) 
Average dayrates represent average revenue per day, which includes charter hire, crewing services and net brokerage revenues, based on the number of days during the period that the OSVs generated revenue.
(15) 
Effective dayrate represents the average dayrate multiplied by the average utilization rate.

Non-GAAP Financial Measures
We disclose and discuss EBITDA as a non-GAAP financial measure in our public releases, including quarterly earnings releases, investor conference calls and other filings with the Commission. We define EBITDA as earnings (net income) before interest, income taxes, depreciation and amortization. Our measure of EBITDA may not be comparable to similarly titled measures presented by other companies. Other companies may calculate EBITDA differently than we do, which may limit their usefulness as comparative measures.
We view EBITDA primarily as a liquidity measure and, as such, we believe that the GAAP financial measure most directly comparable to this measure is cash flows provided by operating activities. Because EBITDA is not a measure of financial performance calculated in accordance with GAAP, it should not be considered in isolation or as a substitute for operating income, net income or loss, cash flows provided by operating, investing and financing activities, or other income or cash flow statement data prepared in accordance with GAAP.
EBITDA is widely used by investors and other users of our financial statements as a supplemental financial measure that, when viewed with our GAAP results and the accompanying reconciliation, we believe provides additional information that is useful to gain an understanding of the factors and trends affecting our ability to service debt, pay deferred taxes and fund drydocking charges and other maintenance capital expenditures. We also believe the disclosure of EBITDA helps investors meaningfully evaluate and compare our cash flow generating capacity from quarter to quarter and year to year.
EBITDA is also a financial metric used by management (i) as a supplemental internal measure for planning and forecasting overall expectations and for evaluating actual results against such expectations; (ii) as a significant criteria for annual incentive cash bonuses paid to our executive officers and other shore-based employees; (iii) to compare to the EBITDA of other companies when evaluating potential acquisitions; and (iv) to assess our ability to service existing fixed charges and incur additional indebtedness.

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The following table provides the detailed components of EBITDA from continuing operations as we define that term for the years ended December 31, 2015, 2014, 2013, 2012, and 2011 respectively (in thousands).
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
Components of EBITDA:
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
66,821

 
$
87,907

 
$
64,078

 
$
34,695

 
$
(3,520
)
Interest, net:
 
 
 
 
 
 
 
 
 
Debt obligations
39,496

 
30,733

 
47,352

 
57,869

 
59,649

Interest income
(1,525
)
 
(1,086
)
 
(2,515
)
 
(2,167
)
 
(829
)
Total interest, net
37,971

 
29,647

 
44,837

 
55,702

 
58,820

Income tax expense (benefit)
39,757

 
52,367

 
36,320

 
21,384

 
(1,358
)
Depreciation
82,566

 
71,301

 
55,332

 
52,005

 
52,453

Amortization
26,463

 
44,149

 
30,630

 
21,670

 
15,457

EBITDA
$
253,578

 
$
285,371

 
$
231,197

 
$
185,456

 
$
121,852

The following table reconciles EBITDA from continuing operations to cash flows provided by operating activities for the years ended December 31, 2015, 2014, 2013, 2012, and 2011 respectively (in thousands). 
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
EBITDA Reconciliation to GAAP:
 
 
 
 
 
 
 
 
 
EBITDA
$
253,578

 
$
285,371

 
$
231,197

 
$
185,456

 
$
121,852

Cash paid for deferred drydocking charges
(13,267
)
 
(43,609
)
 
(35,875
)
 
(39,211
)
 
(16,832
)
Cash paid for interest
(50,492
)
 
(50,548
)
 
(53,636
)
 
(38,597
)
 
(43,811
)
Cash paid for taxes
(4,808
)
 
(5,679
)
 
(4,537
)
 
(1,332
)
 
(1,272
)
Changes in working capital
65,415

 
(32,213
)
 
33,458

 
3,571

 
(13,297
)
Stock-based compensation expense
10,293

 
10,324

 
11,888

 
10,805

 
6,403

(Gain) loss on sale of assets
(44,060
)
 
(822
)
 
(1,587
)
 
350

 
(980
)
Loss on early extinguishment of debt

 

 
25,776

 
6,048

 

Changes in other, net
(816
)
 
282

 
383

 
1,775

 
519

Cash flows provided by continuing operations
$
215,843

 
$
163,106

 
$
207,067

 
$
128,865

 
$
52,582

In addition, we also make certain adjustments, as applicable, to EBITDA for losses on early extinguishment of debt, stock-based compensation expense and interest income, to internally evaluate our performance based on the computation of ratios historically used in certain financial covenants of our credit agreements with various lenders. We believe that these ratios can be material components of financial covenants and, when applicable, failure to comply with such covenants could result in the acceleration of indebtedness or the imposition of restrictions on our financial flexibility. The recent changes to the applicable covenants contained in our credit facility are described in Note 6 of our consolidated financial statements included herein.
The following table provides certain detailed adjustments to EBITDA, as defined in our revolving credit facility for the years ended December 31, 2015, 2014, 2013, 2012, and 2011, respectively (in thousands).
Adjustments to EBITDA for Computation of Financial Ratios Used in Debt Covenants 
 
Year Ended December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
Loss on early extinguishment of debt
$

 
$

 
$
25,776

 
$
6,048

 
$

Stock-based compensation expense
10,293

 
10,324

 
11,914

 
10,891

 
6,525

Interest income
1,525

 
1,086

 
2,515

 
2,167

 
829


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Set forth below are the material limitations associated with using EBITDA as a non-GAAP financial measure compared to cash flows provided by operating activities.
EBITDA does not reflect the future capital expenditure requirements that may be necessary to replace our existing vessels as a result of normal wear and tear,
EBITDA does not reflect the interest, future principal payments and other financing-related charges necessary to service the debt that we have incurred in acquiring and constructing our vessels,
EBITDA does not reflect the deferred income taxes that we will eventually have to pay once we are no longer in an overall tax net operating loss carryforward position, as applicable, and
EBITDA does not reflect changes in our net working capital position.
Management compensates for the above-described limitations in using EBITDA as a non-GAAP financial measure by only using EBITDA to supplement our GAAP results.

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Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and their notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements or as a result of certain factors such as those set forth in our Forward Looking Statements disclaimer on page ii of this Annual Report on Form 10-K.
General
During 2015, oil prices have remained in a trading range of $35 to $65 per barrel and an average of $49 with a more recent price in the $28 to $40 range. The drop in oil price is due to surplus oil, driven in part by a significant rise in U.S. shale oil production as well as other previously unavailable sources of supply and OPEC suppliers in the Middle East and Russia not reducing their output. In addition, economic weakness in many regions of the world, notably Europe and China, has reduced the previously expected oil consumption growth rate. As a result of lower oil prices, major and independent oil companies with deepwater operations have significantly reduced their capital spending budgets, which are the principal demand drivers for our services. Less spending by our customers combined with a global oversupply of OSVs, including high-spec OSVs in our core markets, for the current market conditions, have resulted in reductions in both our dayrates and utilization.
We believe that the long-term nature of deepwater projects insulates them, somewhat, from a short-term fall in oil prices and that many sanctioned or on-going projects will proceed. However, deepwater activities will be affected by lower prices, even if they are affected less than other activities. We have experienced and continue to experience requests by our deepwater customers for price reductions in order to help mitigate the impact that lower prices are having and will continue to have on oil company operating results and cashflows. In addition, sustained low prices have caused un-sanctioned projects to be delayed or cancelled altogether, which could be manifested in less activity later, even if oil prices recover. Many of our operations are in support of deepwater projects that are in their final stages or of projects that do not involve deepwater and are more susceptible to immediate wind-down. We cannot predict whether, to what extent, or when oil prices will improve.
In the GoM, 18 high-spec OSVs have been delivered into the domestic market during 2015, including five of our own. We expect an additional 18 high-spec OSVs to be delivered into domestic service during 2016 and 2017. We do not anticipate significant growth in the supply of high-spec OSVs beyond the currently anticipated level of 210 of such vessels by the first quarter of 2017. During the fourth quarter of 2015, there was an average of roughly 48 floating rigs available in the GoM, while an average of 39 were working. As of February 17, 2016, there were 50 rigs available and 35 were working. However, ten floating rigs have contracts that will expire during 2016 and one rig is scheduled to leave the region. We do not know whether the remaining rigs will receive contract renewals for operations in the GoM. We expect three new rigs to arrive in the GoM during 2016. Once a rig arrives in the GoM, it can take several months to commence work and, therefore, we do not know the timing of when operations of newly arrived rigs will begin. Given these market conditions, we anticipate our average dayrates and utilization levels to be adversely affected compared to our 2015 and 2014 results. However, the GoM is one of the premier deepwater markets in the world and we are committed to supporting our customers in this market. We feel that once the current supply and demand fundamentals return to normal conditions our results from operations will improve.
In recognition of these weak market conditions, we stacked 28 OSVs on various dates from October 1, 2014 through December 31, 2015. Post year-end, we have stacked an additional five new generation OSVs to date. These 33 stacked vessels represent 49% of our fleetwide vessel headcount, but only 33% of our total OSV and MPSV deadweight tonnage. By stacking vessels, we expect to significantly reduce our cash outlays and lower our risk profile; however, we will have fewer revenue-producing units in service that can contribute to our results and contribute cash flows to cover our fixed costs and commitments. We may choose to stack additional vessels should market conditions warrant.
In Mexico, while the energy reform continues to progress, questions remain on the timing of the incremental activity expected in the deepwater GoM given the current oil price environment. PEMEX budget reductions have resulted in contract cancellations and slower than expected growth in the market for our vessels in Mexico. We have

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noticed that PEMEX is reviewing its vessel needs and, in certain circumstances, is not exercising options for vessels that are currently operating in its chartered fleet. We expect that certain of our Mexican-flagged vessels will be affected and will likely be stacked, if not renewed. Nevertheless, we consider Mexico to be a long-term market for our services, especially in light of energy reforms being carried out there. Despite current oil prices, we recently observed improved bidding results from several international companies related to shallow water auctions in Mexico. We will continue to explore opportunities to place additional vessels into Mexico to support PEMEX in its ongoing shallow water activity and non-PEMEX customers in support of future shelf and deepwater activity there. In 2014, PEMEX announced its intention to use only vessels that are less that 15 years old. We and other market participants in Mexico, however, have successfully challenged this restriction, but PEMEX may renew its attempt in the future.
In Brazil, Petrobras generally appears to be moving towards an "all Brazilian flag" vessel fleet, which will limit opportunities in Brazil for foreign flag vessels, except where highly specialized services are required. In January 2016, we placed one of our newbuild HOSMAX 310 class OSVs into Brazilian registry. We will continue to monitor this market to charter our vessels to Petrobras or other companies operating in that region.
Market conditions
As of February 17, 2016, we had 17% of our new generation OSV vessel-days contracted for the fiscal year ending December 31, 2016. Our forward OSV contract coverage for the fiscal year ending December 31, 2017 currently stands at 3%. MPSV contract coverage for the fiscal years ending December 31, 2016 and 2017 is currently 5% and 0%, respectively.
The principal threat facing all of our markets is the fall in oil prices and resultant reduction in capital spending by our customers.
Our Vessels
All of our current vessels are qualified under the Jones Act to engage in U.S. coastwise trade, except for seven foreign-flagged new generation OSVs, two foreign-flagged well-stimulation vessels and two foreign-flagged MPSVs. As of December 31, 2015, our 32 active new generation OSVs, six MPSVs and four managed OSVs were operating in domestic and international areas as noted in the following table: 
Operating Areas
 
Domestic
 
GoM
27

Other U.S. coastlines(1)
5

 
32

Foreign
 
Mexico
8

Middle East
1

Europe
1

 
10

Total Active Vessels(2)
42

 
 
(1) 
Includes one owned vessel and four managed vessels that are currently supporting the military.
(2) 
Excluded from this table are 28 new generation OSVs and one non-core conventional OSV that were stacked as of December 31, 2015.
OSV Newbuild Program #5. Recently, we announced the expansion of our fifth OSV newbuild program to enhance the four remaining MPSVs to be delivered. These enhancements include additional accommodations, additional ROV workspaces, additional crane lifting capacities and, for the final two MPSVs, a 60 foot mid-body section. Our fifth OSV newbuild program now consists of four 300 class OSVs, five 310 class OSVs, ten 320 class OSVs, three 310 class MPSVs and two 400 class MPSVs. As of February 17, 2016, we had delivered and placed in service 20 vessels under such newbuild program. Delivery of the four remaining vessels under this 24-vessel domestic newbuild program is expected to occur on various dates during 2016 and 2017. We expect to own and operate 62 new generation OSVs as of December 31, 2016, as well as manage four vessels for the U.S. Navy. These aggregate OSV vessel additions result in a projected average new generation OSV fleet complement of 61.9 and 62.0 for fiscal years 2016 and 2017, respectively. With the addition of the four MPSVs, we expect to own and operate eight and ten MPSVs as of December 31, 2016 and 2017, respectively. These MPSV additions result in a projected average MPSV fleet complement of 6.9, 8.7 and 10.0 vessels for the fiscal years 2016, 2017 and 2018, respectively. The aggregate cost of our fifth OSV newbuild program, excluding construction period interest, is expected to be approximately

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$1,335.0 million, approximately 90% of which has already been incurred. For further information regarding our fifth OSV newbuild program, please refer to the Capital Expenditures and Related Commitments section.
Operating Costs
Our operating costs are primarily a function of fleet size, areas of operations and utilization levels. The most significant direct operating costs are wages paid to vessel crews, maintenance and repairs, and marine insurance. Because most of these expenses are incurred regardless of vessel utilization, our direct operating costs as a percentage of revenues may fluctuate considerably with changes in dayrates and utilization. Since October 1, 2014, we have stacked 33 vessels. By removing these vessels from our active operating fleet, we have been able to significantly reduce our operating costs, including crew costs. If market conditions worsen, we may elect to stack additional vessels. Our fixed operating costs are now spread over 29 owned and operated vessels and four vessels managed for the U.S. Navy.
In certain foreign markets in which we operate, we are susceptible to higher operating costs, such as materials and supplies, crew wages, maintenance and repairs, taxes, importation duties, and insurance costs. Difficulties and costs of staffing international operations, including vessel crews, and language and cultural differences generally contribute to a higher cost structure in foreign locations compared to our domestic operations. We may not be able to recover higher international operating costs through higher dayrates charged to our customers. Therefore, when we increase our international complement of vessels, our gross margins may fluctuate depending on the foreign areas of operation and the complement of vessels operating domestically.
In addition to the operating costs described above, we incur fixed charges related to the depreciation of our fleet and amortization of costs for routine drydock inspections and maintenance and repairs necessary to ensure compliance with applicable regulations and to maintain certifications for our vessels with the USCG and various classification societies. The aggregate number of drydockings and other repairs undertaken in a given period determines the level of maintenance and repair expenses and marine inspection amortization charges. We capitalize costs incurred for drydock inspection and regulatory compliance and amortize such costs over the period between such drydockings, typically 30 months. Applicable maritime regulations require us to drydock our vessels twice in a five-year period for inspection and routine maintenance and repair. If we undertake a disproportionately large number of drydockings in a particular fiscal period, comparative results may be affected. While we can defer required drydockings of stacked vessels, we will be required to conduct such deferred drydockings prior to such vessels returning to service, which could delay their return to active service.
Critical Accounting Estimates
Our consolidated financial statements included in this Annual Report on Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles. In other circumstances, we are required to make estimates, judgments and assumptions that we believe are reasonable based upon available information. We base our estimates and judgments on historical experience and various other factors that we believe are reasonable based upon the information available. Actual results may differ from these estimates under different assumptions and conditions. We believe that of our significant accounting policies discussed in Note 2 to our consolidated financial statements, the following may involve estimates that are inherently more subjective.
Carrying Value of Vessels. We depreciate our OSVs and MPSVs over estimated useful lives of 25 years each. Salvage value for our new generation marine equipment is typically 25% of the originally recorded cost for these asset types. In assigning depreciable lives to these assets, we have considered the effects of both physical deterioration largely caused by wear and tear due to operating use and other economic and regulatory factors that could impact commercial viability. To date, our experience confirms that these policies are reasonable, although there may be events or changes in circumstances in the future that indicate that recovery of the carrying amount of our vessels might not be possible.
We presently review our vessels for impairment using the following asset groups: New Generation OSVs, MPSVs and Conventional OSV. As of December 31, 2015, we only had one remaining conventional OSV, which remains cold-stacked and has a net book value of only $0.4 million. Management has concluded that these groupings are currently appropriate because our vessels are highly relevant and mobile and are consistent based on the operating and marketing characteristics desired by our customers. When analyzing asset groups for impairment, we consider both historical and projected operating cash flows, operating income, and EBITDA based on current operating environment and future conditions that we can reasonably anticipate, such as inflation or prospective wage costs. These projections are based on, but not limited to, job location, current market dayrates included in recent sales proposals,

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utilization and contract coverage; along with anticipated market drivers, such as drilling rig movements, results of offshore lease sales and discussions with our customers regarding their ongoing drilling plans. We also consider recent vessel sales and recent vessel appraisals.
If events or changes in circumstances as set forth above indicate that the asset group’s carrying amount may not be recoverable, we would then be required to estimate the undiscounted future cash flows expected to result from the use of the asset group and its eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the vessel, we would be required to reduce the carrying amount to fair value. Examples of events or changes in circumstances that could indicate that the recoverability of the carrying amount of our asset groups should be assessed might include a significant change in regulations such as OPA 90, a significant decrease in the market value of the asset group and current period operating or cash flow losses combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the asset group.
We reviewed ASC 360 regarding triggering events that would require an impairment analysis and concluded that there were no such events in 2015 or 2014. Our review gave consideration to the current market conditions, which include the recent commodity price decline, a reduction in certain projected capital budgets for our customers and our competitors' filings. While we expect this environment to have a negative impact on vessel utilization and dayrates, we view the deepwater and ultra deepwater projects of our customers, which are the principal markets for our vessel fleet, to be somewhat insulated from short-term commodity price cycles compared to onshore shale and shallow shelf offshore exploration and production activities. However, continued commodity price declines or protracted extensions of the current price cycle could result in additional delays or cancellations of deepwater projects, which may adversely affect long-term fleet utilization. We recently updated our analysis of whether a triggering event has occurred and we concluded that one has not. While the Company has historically operated its vessels predominately in the GoM, we will continue to deploy vessels to international markets as conditions warrant. Our technologically advanced vessels are capable of working in and are effectively mobilized to different markets, so neither the geographic location of vessels, nor reduced drilling activity in a particular exploration area is considered on its own as an impairment trigger. In addition, since we consider cyclicality and volatility to be normal for our industry, we do not consider strategically stacking vessels that we intend to reactivate to be a triggering event. We believe that the fair values of all of our asset groups exceed their carrying values. In order for the fair values of any of our assets to be below their respective carrying values, current and projected effective dayrates would have to be significantly below the lowest levels experienced in the Company’s history. In addition, those market conditions would have to be sustained for the remaining economic useful lives of each vessel class, which is also unlikely.
Recertification Costs. Our vessels are required by regulation to be recertified after certain periods of time. These recertification costs are incurred while the vessel is in drydock where other routine repairs and maintenance are performed and, at times, major replacements and improvements are performed. We expense routine repairs and maintenance as they are incurred. Recertification costs can be accounted for in one of two ways: (1) defer and amortize or (2) expense as incurred. We defer and amortize recertification costs over the length of time that the recertification is expected to last, which is generally 30 months. Major replacements and improvements, which extend the vessel’s economic useful life or functional operating capability, are capitalized and depreciated over the vessel’s remaining economic useful life. Inherent in this process are judgments we make regarding whether the specific cost incurred is capitalizable and the period that the incurred cost will benefit.
Mobilization Costs. Vessels will routinely move to and from international and domestic operating areas. Mobilization costs associated with relocating vessels typically include fuel, crew costs, vessel modifications, materials and supplies, importation taxes or other pre-positioning expenses required by the customer. The extent of mobilization costs incurred to relocate a vessel is directly related to the customer contract terms and area of operation. Some of our charter agreements provide for us to recover mobilization costs through billings to our customers. Unless mobilization costs are rebillable to customers, we expense these costs as incurred.
Revenue Recognition. We charter our vessels to customers under time charters based on a daily rate of hire and recognize revenue as earned on a daily basis during the contract period of the specific vessel.
Allowance for Doubtful Accounts. Our customers are primarily national oil companies, major and independent, domestic and international, oil and gas and oil service companies. Our customers are granted credit on a short-term basis and related credit risks are considered minimal. We usually do not require collateral. We provide an estimate for uncollectible accounts based primarily on management’s judgment. Management uses the relative age of receivable balances, historical losses, current economic conditions and individual evaluations of each customer to make adjustments to the allowance for doubtful accounts. Our historical losses have not been significant. However,

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because amounts due from individual customers can be significant, future adjustments to the allowance can be material if one or more individual customer’s balances are deemed uncollectible.
Income Taxes. We follow accounting standards for income taxes that require the use of the liability method of computing deferred income taxes. Under this method, deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The assessment of the realization of deferred tax assets, particularly those related to tax net operating loss carryforwards and foreign tax credit carryforwards, involves the use of management’s judgment to determine whether it is more likely than not that we will realize such tax benefits in the future prior to their expiration. We continue to review our projected operating results related to the realization of these foreign tax credit carryforwards and if current market conditions persist or worsen through 2018, we may not realize the full benefit of these carryforwards. In addition, each reporting period, we assess and adjust for any significant changes to our liability for unrecognized income tax benefits. We account for any interest and penalties relating to uncertain tax positions in general and administrative expenses.
Stock-Based Compensation Expense. All equity-settled share-based payments to employees and directors, including grants of stock options and restricted stock units, are recognized in the income statement based on their fair values at the date of grant. All cash-settled share-based payments to employees and directors are recognized in the income statement based on their fair values at the end of the reporting period.
Legal Contingencies. We are involved in a variety of claims, lawsuits, investigations and proceedings, as described in Note 10 to our consolidated financial statements. We determine whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. We assess our potential liability by analyzing our litigation and regulatory matters using available information. We develop our views on estimated losses in consultation with outside counsel handling our defense in these matters, which involves an analysis of potential results, assuming a combination of litigation and settlement strategies. Should developments in any of these matters cause a change in our determination such that we expect an unfavorable outcome and result in the need to recognize a material accrual, or should any of these matters result in a final adverse judgment or be settled for a significant amount, they could have a material adverse effect on our results of operations in the period or periods in which such change in determination, judgment or settlement occurs.
Results of Operations
The tables below set forth the average dayrates, utilization rates and effective dayrates for our new generation OSVs and the average number and size of such vessels owned during the periods indicated. These vessels generate a substantial portion of our revenues and operating profit. Excluded from the OSV information below is the results of operations for our MPSVs, our shore-base facility, and vessel management services, including the four vessels managed for the U.S. Navy. The Company does not provide average or effective dayrates for its MPSVs. MPSV dayrates are impacted by highly variable customer-required cost-of-sales associated with ancillary equipment and services, such as ROVs, accomodation units and cranes, which are typically recovered through higher dayrates charged to the customer. Due to the fact that each of our MPSVs have a workload capacity and significantly higher income generating potential than each of the Company’s new generation OSVs, the utilization and dayrate levels of our MPSVs could have a very large impact on our results of operations. For this reason, our consolidated operating results, on a period-to-period basis, are disproportionately impacted by the level of dayrates and utilization achieved by our six MPSVs.

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Years Ended December 31,
 
2015
 
2014
 
2013
Offshore Supply Vessels:
 
 
 
 
 
Average number of new generation OSVs(1)
60.0

 
57.4

 
50.7

Average number of active new generation OSVs(2)
42.0

 
56.6

 
50.3

Average new generation OSV fleet capacity (DWT)
206,030

 
177,033

 
132,564

Average new generation OSV capacity (DWT)
3,436

 
3,076

 
2,609

Average new generation OSV utilization rate(3)
54.4
%
 
79.6
%
 
83.7
%
Effective new generation OSV utilization rate(4)
77.8
%
 
80.7
%
 
84.4
%
Average new generation OSV dayrate(5)
$
26,278

 
$
27,416

 
$
26,605

Effective dayrate(6)
$
14,295

 
$
21,823

 
$
22,268

 
(1) 
We owned 60 new generation OSVs as of December 31, 2015. Our average number of new generation OSVs for the year ended December 31, 2015 reflects the deliveries of certain vessels under our fifth OSV newbuild program. Please refer to Our Vessels on page 6 of this Form 10-K for more information about vessel names and placed in-service dates. Excluded from this data is one conventional OSV that we consider to be a non-core asset.
(2) 
In response to weak market conditions, we elected to stack 28 new generation OSVs on various dates since October 2014. Subsequent to year-end, we have stacked an additional five new generation OSVs. Active new generation OSVs represent vessels that are immediately available for service during each respective period.
(3) 
Utilization rates are average rates based on a 365-day year. Vessels are considered utilized when they are generating revenues.
(4) 
Effective utilization rate is based on a denominator comprised only of vessel-days available for service by the active fleet, which excludes the impact of stacked vessel days.
(5) 
Average new generation OSV dayrates represent average revenue per day, which includes charter hire, crewing services and net brokerage revenues, based on the number of days during the period that the OSVs generated revenues.
(6) 
Effective dayrate represents the average dayrate multiplied by the average utilization rate.

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YEAR ENDED DECEMBER 31, 2015 COMPARED TO YEAR ENDED DECEMBER 31, 2014
Summarized financial information for the years ended December 31, 2015 and 2014, respectively, is shown below in the following table (in thousands, except percentage changes):
 
Year Ended
December 31,
 
Increase (Decrease)
 
 
2015
 
2014
 
$ Change
 
% Change
 
Revenues: