4. Property and Equipment

Property and equipment consisted of the following at December 31, 2016 and 2015 (in thousands):

	2016			2015
Equipment	$	6,809,129		$	6,963,148
Oil and natural gas properties		201,568			200,923
Buildings		97,029			96,470
Land		22,270			22,370
Total property and equipment		7,129,996			7,282,911
Less accumulated depreciation, depletion and impairment		(3,721,033	)		(3,362,203	)
Property and equipment, net	$	3,408,963		$	3,920,708

Depreciation, depletion, amortization and impairment — The following table summarizes depreciation, depletion, amortization and impairment expense related to property and equipment and intangible assets for 2016, 2015 and 2014 (in thousands):

	2016		2015		2014
Depreciation and impairment expense	$	657,571	$	845,543	$	693,390
Amortization expense		3,643		3,643		3,643
Depletion expense		7,220		15,573		21,697
Total	$	668,434	$	864,759	$	718,730

On a periodic basis, the Company evaluates its fleet of drilling rigs for marketability based on the condition of inactive rigs, expenditures that would be necessary to bring them to working condition and the expected demand for drilling services by rig type (such as drilling conventional, vertical wells versus drilling longer, horizontal wells using higher specification rigs). The components comprising rigs that will no longer be marketed are evaluated, and those components with continuing utility to the Company’s other marketed rigs are transferred to other rigs or to the Company’s yards to be used as spare equipment. The remaining components of these rigs are retired. In 2016, the Company retired 19 mechanical rigs but recorded no impairment charge as it had written down 15 of those rigs in 2015 that remained marketed. In 2015, the Company identified 24 mechanical rigs and 9 non-APEX® electric rigs that would no longer be marketed. Also, the Company had 15 additional mechanical rigs that were not operating. Although these 15 rigs remained marketed at that time, the Company had lower expectations with respect to utilization of these rigs due to the industry shift to higher specification drilling rigs. In 2015, the Company recorded a charge of $131 million related to the retirement of the 33 rigs, the 15 mechanical rigs that remained marketed but were not operating, and the write-down of excess spare rig components to their realizable values. In 2014, the Company identified 55 mechanical rigs that it determined would no longer be marketed, and the Company recorded a charge of $77.9 million related to the retirement of these mechanical rigs and the write-off of excess spare components for the reduced size of the Company’s mechanical fleet.

The Company also periodically evaluates its pressure pumping assets, and in 2015, the Company recorded a charge of $22.0 million for the write-down of pressure pumping equipment and certain closed facilities. There were no similar charges in 2016 or 2014.

The Company reviews its long-lived assets, including property and equipment, for impairment whenever events or changes in circumstances indicate that their carrying amounts of certain assets may not be recovered over their estimated remaining useful lives (“triggering events”). In connection with this review, assets are grouped at the lowest level at which identifiable cash flows are largely independent of other asset groupings. The Company estimates future cash flows over the life of the respective assets or asset groupings in its assessment of impairment. These estimates of cash flows are based on historical cyclical trends in the industry as well as the Company’s expectations regarding the continuation of these trends in the future. Provisions for asset impairment are charged against income when estimated future cash flows, on an undiscounted basis, are less than the asset’s net book value. Any provision for impairment is measured at fair value.

Based on recent commodity prices, the Company’s results of operations for the year ended December 31, 2016 and management’s expectations of operating results in future periods, the Company concluded that no triggering events occurred during the year ended December 31, 2016 with respect to its contract drilling or pressure pumping segments. Management’s expectations of future operating results were based on the assumption that activity levels in both segments will begin to recover by early 2017 in response to improved future oil prices.

During the third quarter of 2015, oil prices declined and averaged $46.42 per barrel, reaching a new low for 2015 of $38.22 per barrel in August 2015. In light of these lower oil prices in August 2015, the Company lowered its expectations with respect to future activity levels in both the contract drilling and pressure pumping businesses. As a result of these 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, management concluded a triggering event had occurred and deemed it necessary to assess the recoverability of long-lived asset groups for both contract drilling and pressure pumping. The Company performed a Step 1 analysis as required by ASC 360-10-35 to assess the recoverability of long-lived assets within its contract drilling and pressure pumping segments. With respect to these assets, future cash flows were estimated over the expected remaining life of the assets, and the Company determined that, on an undiscounted basis, expected cash flows exceeded the carrying value of the long-lived assets, and no impairment was indicated. Expected cash flows, on an undiscounted basis, exceeded the carrying values of the long-lived assets within the contract drilling and pressure pumping segments by approximately 120% and 60%, respectively.

Due to the continued deterioration of crude oil prices in the fourth quarter of 2015, management deemed it necessary to once again assess the recoverability of long-lived assets groups for both contract drilling and pressure pumping. The Company performed a Step 1 analysis as required by ASC 360-10-35 to assess the recoverability of long-lived assets within its contract drilling and pressure pumping segments. With respect to these assets, future cash flows were estimated over the expected remaining life of the assets, and the Company determined that, on an undiscounted basis, expected cash flows exceeded the carrying value of the long-lived assets, and no impairment was indicated. Expected cash flows, on an undiscounted basis, exceeded the carrying values of the long-lived assets within the contract drilling and pressure pumping segments by approximately 120% and 100%, respectively.

For both of the assessments performed in 2015, the expected cash flows for the contract drilling segment included the backlog of commitments for contract drilling revenues under term contracts, which was approximately $801 million and $710 million at September 30, 2015 and December 31, 2015, respectively. Rigs not under term contracts would be subject to pricing in the spot market. Utilization and rates for rigs in the spot market and for the pressure pumping segment were estimated based upon the Company’s historical experience in prior downturns. Also, the expected cash flows for the contract drilling and pressure pumping segments were based on the assumption that activity levels in both segments would begin to recover in the first quarter of 2017 in response to improved oil prices. While management believed these assumptions with respect to future pricing for oil and natural gas were reasonable, actual future prices may vary significantly from the ones that were assumed. The timeframe over which oil and natural gas prices will recover is highly uncertain. Potential events that could affect the Company’s assumptions regarding future prices and the timeframe for a recovery are affected by factors such as:

•

market supply and demand,

•

the desire and ability of the Organization of Petroleum Exporting Countries, commonly known as OPEC, to set and maintain production and price targets,

•

the level of production by OPEC and non-OPEC countries

•

domestic and international military, political, economic and weather conditions,

•

legal and other limitations or restrictions on exportation and/or importation of oil and natural gas,

•

technical advances affecting energy consumption and production,

•

the price and availability of alternative fuels,

•

the cost of exploring for, developing, producing and delivering oil and natural gas, and

•

regulations regarding the exploration, development, production and delivery of oil and natural gas.

All of these factors are beyond the Company’s control. If the current oil and natural gas commodity price environment were to continue through 2017 and beyond, the Company’s actual cash flows would likely be less than the expected cash flows used in the aforementioned 2015 assessments and could result in impairment charges in the future, and any such impairment charges could be material.

The Company concluded that no triggering events occurred during the year ended December 31, 2014 with respect to its contract drilling or pressure pumping segments based on the Company’s results of operations for the year ended December 31, 2014 and the prevailing commodity prices at that time.

With respect to the long-lived assets in the Company’s oil and natural gas exploration and production segment, the Company assessed the recoverability of long-lived assets each quarter due to revisions in oil and natural gas reserve estimates and expectations about future commodity prices. The Company’s analysis indicated that the carrying amounts of certain oil and natural gas properties were not recoverable at various testing dates in 2016 and 2015. The Company’s estimates of expected future net cash flows from impaired properties are used in measuring the fair value of such properties. The Company recorded impairment charges of $2.8 million in 2016, $10.7 million in 2015 and $20.9 million in 2014 related to its oil and natural gas properties.