PROPERTY, PLANT AND EQUIPMENT

9 Months Ended

Jun. 30, 2021

Property, Plant and Equipment [Abstract]

NOTE 4 PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of June 30, 2021 and September 30, 2020 consisted of the following:


(in thousands)	Estimated Useful Lives	June 30, 2021		September 30, 2020
Drilling services equipment	4 - 15 years	$	6,456,608	$	7,313,234
Tubulars	4 years	602,689		615,281
Real estate properties	10 - 45 years	43,358		43,389
Other	2 - 23 years	464,571		464,704
Construction in progress (1)		47,844		49,592
		7,615,070		8,486,200
Accumulated depreciation		(4,333,988)		(4,839,859)
Property, plant and equipment, net		$	3,281,082	$	3,646,341

Assets held-for-sale		$	10,088	$	—

(1)Included in construction in progress are costs for projects in progress to upgrade or refurbish certain rigs in our existing fleet. Additionally, we include other capital maintenance purchase-orders that are open/in process. As these various projects are completed, the costs are then classified to their appropriate useful life category.

Depreciation

Depreciation expense in the Unaudited Condensed Consolidated Statements of Operations was $102.7 million and $108.4 million, including $1.3 million and $0.9 million in abandonments, for the three months ended June 30, 2021 and 2020, respectively. Depreciation expense in the Unaudited Condensed Consolidated Statements of Operations was $312.4 million and $366.8 million, including $1.7 million and $2.6 million in abandonments for the nine months ended June 30, 2021 and 2020, respectively.

Assets Held-for-Sale

The following table summarizes the balance (in thousands) of our assets held-for-sale at the dates indicated below:


Balance at September 30, 2020	$	—
Plus:
Asset additions	13,516
Less:
Sale of assets held-for-sale	(3,428)
Balance at June 30, 2021	$	10,088

In March 2021, the Company's leadership continued the execution of the current strategy, which was initially introduced in 2019, focusing on operating various types of highly capable upgraded rigs and phasing out the older, less capable fleet. As a result, the Company has undertaken a plan to sell 71 Domestic non-super-spec rigs, all within our North America Solutions segment, the majority of which were previously decommissioned, written down and/or held as capital spares. The book values of those assets were written down to their fair value less cost to sell of $13.5 million, and were reclassified as held-for-sale in the second and third quarter of fiscal year 2021. As a result, we recognized a non-cash impairment charge of $2.1 million and $56.4 million, during the three and nine months ended June 30, 2021, respectively,, in the Unaudited Condensed Consolidated Statement of Operations.

During the three months ended June 30, 2021, we completed the sale of assets with a net book value of $3.4 million that were classified as held-for-sale during the second quarter of fiscal year 2021.

The significant assumptions utilized in the valuation were based on our intended method of disposal, historical sales of similar assets, and market quotes and are classified as Level 2 and Level 3 inputs by ASC Topic 820, Fair Value Measurement and Disclosures. Although we believe the assumptions used in our analysis are reasonable and appropriate, different assumptions and estimates could materially impact the analysis and our resulting conclusion.

Impairments

During the three months ended March 31, 2020, several significant economic events took place that severely impacted the demand on drilling services, including the significant drop in crude oil prices caused by OPEC+'s price war coupled with a decrease in the demand due to the COVID-19 pandemic. To maintain a competitive edge in a challenging market, the Company’s management introduced a new strategy focused on operating various types of highly capable upgraded rigs and phasing out the older, less capable fleet. This resulted in grouping the super-spec rigs of our legacy Domestic FlexRig3 asset group with our FlexRig5 asset group, creating a new "Domestic super-spec FlexRig" asset group, while combining the legacy Domestic conventional asset group, FlexRig4 asset group and FlexRig3 non-super-spec rigs into one asset group (Domestic non-super- spec asset group). Given the low utilization, previously projected, for our Domestic non-super-spec asset group and all International asset groups, we considered these economic factors to be indicators that these asset groups may be impaired.

At March 31, 2020, we performed impairment testing on our Domestic non-super-spec and International conventional, FlexRig3, and FlexRig4 asset groups, which had an aggregate net book value of $605.8 million. We concluded that the net book value of each asset group was not recoverable through estimated undiscounted cash flows and recorded a non-cash impairment charge of $441.4 million in the Unaudited Condensed Consolidated Statement of Operations during the nine months ended June 30, 2020. Of the $441.4 million total impairment charge recorded, $292.4 million and $149.0 million was recorded in the North America Solutions and International Solutions segment, respectively. Impairment was measured as the amount by which the net book value of each asset group exceeds its fair value.

The Company also recorded an additional non-cash impairment charge related to in-progress drilling equipment and rotational inventory of $44.9 million and $38.6 million, respectively, which had aggregate book values of $68.4 million and $38.6 million, respectively, in the Unaudited Condensed Consolidated Statement of Operations during the nine months ended June 30, 2020. Of the $83.5 million total impairment charge recorded for in-progress drilling equipment and rotational inventory, $75.8 million and $7.7 million was recorded in the North America Solutions and International Solutions segment, respectively.

(Gain) Loss on Sale of Assets

We had a gain on sale of assets of $3.4 million and $4.2 million for the three months ended June 30, 2021 and 2020, respectively, a loss of $2.7 million and a gain of $18.8 million for the nine months ended June 30, 2021 and 2020, respectively. Of the total $3.4 million gain recognized during the three months ended June 30, 2021, $1.4 million was related to the sale of assets previously classified as held-for-sale on our Unaudited Condensed Consolidated Balance Sheets and the remaining $2.0 million was primarily related to customer reimbursement for the replacement value of drill pipe damaged or lost in drilling operations.

During the second quarter of fiscal year 2021, we sold excess drilling equipment and spares, which resulted in a net loss of $23.0 million for the nine months ended June 30, 2021. This loss was offset by various gains on asset sales related to customer reimbursement for the replacement value of drill pipe damaged or lost in drilling operations.

During the first quarter of fiscal year 2021, we closed on the sale of an offshore platform rig within our Offshore Gulf of Mexico operating segment for total consideration of $12.0 million with an aggregate net book value of $2.8 million, resulting in a gain of $9.2 million during the nine months ended June 30, 2021. Additionally, we recorded various gains on asset sales related to customer reimbursement for the replacement value of drill pipe damaged or lost in drilling operations.