4. Goodwill and Intangible Assets

Goodwill — Goodwill by operating segment as of December 31, 2015 and 2014 and changes for the years then ended are as follows (in thousands):

	Contract		Pressure
	Drilling		Pumping			Total

Balance December 31, 2013	$	86,234	$	67,575		$	153,809
Changes to goodwill	—			56,986			56,986
Balance December 31, 2014		86,234		124,561			210,795
Changes to goodwill	—			(124,561	)		(124,561	)
Balance December 31, 2015	$	86,234	$	—		$	86,234

There were no accumulated impairment losses related to goodwill in the contract drilling operating segment as of December 31, 2015 or 2014.

Goodwill is evaluated at least annually as of December 31, or when circumstances require, to determine if the fair value of recorded goodwill has decreased below its carrying value. For purposes of impairment testing, goodwill is evaluated at the reporting unit level. The Company’s reporting units for impairment testing have been determined to be its operating segments. The Company first determines whether it is more likely than not that the fair value of a reporting unit is less than its carrying value after considering qualitative, market and other factors, and if it is, then goodwill impairment is determined using a two-step quantitative impairment test. From time to time, the Company may perform the first step of the quantitative testing for goodwill impairment in lieu of performing the qualitative assessment. The first step of the quantitative testing is to compare the fair value of an entity’s reporting units to the respective carrying value of those reporting units. If the carrying value of a reporting unit exceeds its fair value, the second step of the quantitative testing is performed whereby the fair value of the reporting unit is allocated to its identifiable tangible and intangible assets and liabilities with any remaining fair value representing the fair value of goodwill. If this resulting fair value of goodwill is less than the carrying value of goodwill, an impairment loss would be recognized in the amount of the shortfall.

During the first quarter of 2015, oil prices averaged $48.54 per barrel and reached a low of $43.39 per barrel in March 2015. Oil prices improved during the second quarter of 2015 and averaged $57.85 per barrel. Although the price improvement was earlier than the Company projected, this improvement was generally consistent with the Company’s assumption at December 31, 2014, that oil prices would improve in late 2015 and continue to improve in 2016, resulting in improved activity levels for both the contract drilling and pressure pumping businesses. During the second quarter of 2015 as oil prices increased, the Company received requests from customers to reactivate drilling rigs to resume operations in the third quarter of 2015. The Company believed this was an indication that future activity levels would be improving for both the contract drilling and pressure pumping businesses. During the third quarter of 2015, however, oil prices declined and averaged $46.42 per barrel and reached a new low for 2015 of $38.22 per barrel in August 2015. With lower oil prices in August, the Company lowered its expectations with respect to future activity levels in both the contract drilling and pressure pumping businesses. In light of the Company’s revised expectations of the duration of the lower oil and natural gas commodity price environment and the related deterioration of the markets for contract drilling and pressure pumping services during the third quarter of 2015, the Company performed a quantitative impairment assessment of its goodwill as of September 30, 2015. In completing the first step of the assessment, the fair value of each reporting unit was estimated using both the income and market valuation methods. The estimate of the fair value of each reporting unit required the use of significant unobservable inputs, representative of a Level 3 fair value measurement. The inputs included assumptions related to the future performance of the Company’s contract drilling and pressure pumping reporting units, such as future oil and natural gas prices and projected demand for the Company’s services, and assumptions related to discount rates, long-term growth rates and control premiums.

Based on the results of the first step of the goodwill impairment test as of September 30, 2015, the fair value of the contract drilling reporting unit exceeded its carrying value by approximately 15%, and management concluded that no impairment was indicated in its contract drilling reporting unit; however, impairment was indicated in its pressure pumping reporting unit. In the three months ended September 30, 2015, the Company recognized an impairment charge of $125 million associated with the impairment of all of the goodwill of the pressure pumping reporting unit.

The Company performed a quantitative impairment assessment of the goodwill of its contract drilling reporting unit as of December 31, 2015. In completing the first step of the assessment, the fair value of the contract drilling reporting unit was estimated using both the income and market valuation methods. The estimate of the fair value of the reporting unit required the use of significant unobservable inputs, representative of a Level 3 fair value measurement. The inputs included assumptions related to the future performance of the Company’s contract drilling reporting unit, such as future oil and natural gas prices and projected demand for the Company’s services, and assumptions related to discount rates, long-term growth rates and control premiums. Based on the results of the first step of the quantitative impairment assessment of its goodwill as of December 31, 2015, the fair value of the contract drilling reporting unit exceeded its carrying value by approximately 16%, and management concluded that no impairment was indicated in its contract drilling reporting unit.

In connection with its annual goodwill impairment assessment as of December 31, 2014, the Company determined based on an assessment of qualitative factors that it was more likely than not that the fair values of the Company’s reporting units were greater than their carrying amounts and further testing was not necessary. In making this determination, the Company considered the continued demand experienced during 2014 for its services in the contract drilling and pressure pumping businesses. The Company also considered the current and expected levels of commodity prices for oil and natural gas, which influence its overall level of business activity in these operating segments. Additionally, operating results for 2014 and forecasted operating results for 2015 were also taken into account. The Company’s overall market capitalization and the large amount of calculated excess of the fair values of the Company’s reporting units over their carrying values from its 2013 quantitative impairment assessment were also considered.

The Company has undertaken extensive efforts in the past several years to upgrade its fleet of equipment and believes that it is well positioned from a competitive standpoint to satisfy demand for high technology drilling of unconventional horizontal wells, which should help mitigate decreases in demand for drilling conventional vertical wells that has resulted primarily from currently low oil and natural gas prices. In the event that market conditions were to remain weak for a protracted period, the Company may be required to record an impairment of goodwill in its contract drilling reporting unit in the future, and such impairment could be material.

Intangible Assets — Intangible assets were recorded in the pressure pumping operating segment in connection with the fourth quarter 2010 acquisition of the assets of a pressure pumping business. As a result of the purchase price allocation, the Company recorded intangible assets related to a non-compete agreement and the customer relationships acquired. These intangible assets were recorded at fair value on the date of acquisition.

The non-compete agreement had a term of three years from October 1, 2010. The value of this agreement was estimated using a with and without scenario where cash flows were projected through the term of the agreement assuming the agreement is in place and compared to cash flows assuming the non-compete agreement was not in place. The intangible asset associated with the non-compete agreement was amortized on a straight-line basis over the three-year term of the agreement. Amortization expense of $350,000 was recorded in the year ended December 31, 2013 associated with the non-compete agreement. The non-compete agreement expired in 2013.

The value of the customer relationships was estimated using a multi-period excess earnings model to determine the present value of the projected cash flows associated with the customers in place at the time of the acquisition and taking into account a contributory asset charge. The resulting intangible asset is being amortized on a straight-line basis over seven years. Amortization expense of $3.6 million was recorded in each of the years ended December 31, 2015, 2014 and 2013, associated with customer relationships.

The Company concluded no triggering events necessitating an impairment assessment of the non-compete agreement had occurred in 2013. The Company concluded no triggering events necessitating an impairment assessment of the customer relationships had occurred in 2014 or 2013. The assessment of the recoverability of the pressure pumping asset group included the customer relationship intangible asset, and no impairment was indicated.

The following table presents the gross carrying amount and accumulated amortization of the customer relationships as of December 31, 2015 and 2014 (in thousands):

	2015							2014
	Gross Carrying		Accumulated			Net Carrying		Gross Carrying		Accumulated			Net Carrying
	Amount		Amortization			Amount		Amount		Amortization			Amount

Customer relationships	$	25,500	$	(19,125	)	$	6,375	$	25,500	$	(15,482	)	$	10,018