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Impairments and Other Charges | 6 Months Ended
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Jun. 30, 2020
Impairments and Other Charges [Abstract] |
Impairments and Other Charges | Impairments and Other Charges The oil and gas industry experienced an unprecedented disruption during the first half of 2020 as a result of a combination of factors, including the substantial decline in global demand for oil caused by the COVID-19 pandemic and subsequent mitigation efforts, and disagreements between the Organization of Petroleum Exporting Countries and other oil producing nations (OPEC+) in February 2020 regarding limits on production of oil. These events created a substantial surplus of oil. WTI oil spot prices decreased from a high of $63 per barrel in early January to a low of negative $37 per barrel in late April, a level which had never been experienced, and then rose to a high of $41 per barrel in early July. The drop to a negative per barrel price for WTI was a short term effect of a combination of forward contracts expiring, coupled with the decrease in demand and the absence of available storage capacity. As a result, global activity declined significantly, with the global rig count sinking to the lowest level since 1973. The U.S. average rig count for the second quarter declined 50% compared to the first quarter, while the international rig count dropped 22%. These market conditions have significantly impacted our business and our outlook globally, with a more severe impact to our North America business in the near-term. Customers continue to revise their capital budgets in order to adjust spending levels in response to the lower commodity prices, and we have experienced significant activity reductions and pricing pressure for our products and services, which we expect to continue. In line with these rapidly changing market conditions, our market capitalization also deteriorated as a result during the first half of 2020. We determined these recent events constituted a triggering event that required us to review the recoverability of our long-lived assets and perform an interim goodwill impairment assessment as of May 1, 2020. We also took actions to rationalize our portfolio of real estate facilities and initiate reductions in our global workforce in an effort to mitigate the impact of market deterioration and better align our workforce and cost structure with anticipated activity levels. As part of our real estate rationalization, we identified owned properties to sell and leased properties to abandon. We determined the fair value of our long-lived assets based on a discounted cash flow analysis, with the exception of real estate facilities which are classified as held for sale for which fair value was based on third party sales price estimates. We determined the fair value for each reporting unit in our goodwill impairment assessment using both a discounted cash flow analysis and a multiples-based market approach for comparable companies. Given the current volatile market environment, we utilized third-party valuation advisors to assist us with these valuations. These analyses included significant judgment, including management’s short-term and long-term forecast of operating performance, discount rates based on our weighted average cost of capital, revenue growth rates, profitability margins, capital expenditures, the timing of future cash flows based on an eventual recovery of the oil and gas industry, and in the case of long-lived assets, the remaining useful life and service potential of the asset. These impairment assessments incorporate inherent uncertainties, including projected commodity pricing, supply and demand for our services and future market conditions, which are difficult to predict in volatile economic environments and could result in impairment charges in future periods if actual results materially differ from the estimated assumptions utilized in our forecasts. Based upon our impairment assessments, we determined the carrying amount of some of our long-lived assets exceeded their respective fair values. Therefore, we recorded impairments and other charges of approximately $1.3 billion during the three months ended June 30, 2020 relating to these assets. Long-lived asset impairments include impairments of property, plant and equipment, intangible assets, and real estate facilities. As a result of our goodwill impairment assessment, we determined that the fair value of each reporting unit exceeded its net book value and, therefore, no goodwill impairments were deemed necessary. We will continue to evaluate these reporting units for potential goodwill impairment in the third quarter of 2020 as market conditions evolve. The following table presents various pre-tax charges we recorded during the three and six months ended June 30, 2020 and 2019, which are reflected within "Impairments and other charges" on our condensed consolidated statements of operations.
| Three Months Ended June 30 |  | Six Months Ended June 30 |
Millions of dollars | 2020 | 2019 | 2020 | 2019
Long-lived asset impairments | $ | 1,252 |  | $ | 108 |  | $ | 2,268 |  | $ | 150 |
Inventory costs and write-downs | 494 |  | 33 |  | 494 |  | 33 |
Severance costs | 241 |  | 58 |  | 273 |  | 77 |
Other | 160 |  | 48 |  | 185 |  | 48 |
Total impairments and other charges | $ | 2,147 |  | $ | 247 |  | $ | 3,220 |  | $ | 308 |
Of the $2.1 billion of impairments and other charges recorded during the three months ended June 30, 2020, approximately $1.4 billion was attributable to our Completion and Production segment and approximately $770 million was attributable to our Drilling and Evaluation segment. The $1.3 billion of long-lived asset impairments consists of the following: $368 million attributable to hydraulic fracturing equipment, the majority of which was located in North America; $281 million related to real estate properties; $122 million related to right-of-use assets, primarily operating leases; $146 million related to well intervention services equipment; $131 million related to intangible assets; and $204 million associated with other fixed asset impairments, including disposals. Inventory costs and write-downs in the table above primarily represent disposal of excess inventory, including drilling fluids and other chemicals, and write-downs in which some of our inventory cost exceeded its market value. Given the dynamic nature of the COVID-19 pandemic and related market conditions, we cannot reasonably estimate the period of time that these events will persist or the full extent of the impact they will have on our business. If market conditions continue to deteriorate, including crude oil prices further declining and remaining at low levels for a sustained period of time, we may record further asset impairments, which may include an impairment of the carrying value of our goodwill.

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- Definition The entire disclosure of costs incurred for restructuring including, but not limited to, exit and disposal activities, remediation, implementation, integration, asset impairment, and charges against earnings from the write-down of assets. + References No definition available. + Details
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