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Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2017

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

5. Goodwill and Intangible Assets

Goodwill — Goodwill by operating segment as of December 31, 2017 and 2016 and changes for the years then ended are as follows (in thousands):

		Contract				Pressure				Directional				Oilfield
		Drilling				Pumping				Drilling				Rental				Total
Balance December 31, 2015 and 2016		$	86,234			$	—			$	—			$	—			$	86,234
Goodwill acquired			308,826				121,444				88,685				6,284				525,239
Balance December 31, 2017		$	395,060			$	121,444			$	88,685			$	6,284			$	611,473

There were no accumulated impairment losses related to goodwill as of December 31, 2017 or 2016.  

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 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 this is the case, any necessary goodwill impairment is determined using a quantitative impairment test.  From time to time, the Company may perform quantitative testing for goodwill impairment in lieu of performing the qualitative assessment.  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 such shortfall.

In January 2017, the FASB issued an accounting standards update to eliminate Step 2 from the goodwill impairment test.  An entity will now perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.  An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, but the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  The Company adopted this update in 2017. Prior to adoption the Company first determined whether it was more likely than not that the fair value of a reporting unit was less than its carrying value after considering qualitative, market and other factors, and if so, the resulting goodwill impairment was determined using a two-step quantitative impairment test.  The first step of the quantitative testing was 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 exceeded its fair value, the second step of the quantitative testing was performed whereby the fair value of the reporting unit was 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 was less than the carrying value of goodwill, an impairment loss was recognized in the amount of such shortfall.

In connection with its annual goodwill impairment assessment as of December 31, 2017 and 2016, the Company determined based on an assessment of qualitative factors that it was more likely than not that the fair values of its reporting units were greater than the respective carrying amount.  In making this determination, the Company considered the current and expected levels of commodity prices for oil and natural gas, which influence the overall level of business activity in its reporting units, as well as the Company’s operating results for 2017 and 2016 and forecasted operating results for the respective succeeding year.  Management also considered the Company’s overall market capitalization at December 31, 2017 and 2016.

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, the Company lowered its expectations with respect to future activity levels in both the contract drilling and pressure pumping businesses.  As a result 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 its contract drilling and pressure pumping services, the Company performed a quantitative Step 1 impairment assessment of its goodwill as of September 30, 2015.  In completing the Step 1 assessment, the fair value of each reporting unit was estimated using both the income and market valuation methods.  The estimate of fair value for 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 Step 1 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 third quarter of 2015, the Company recognized an impairment charge of $125 million associated with the impairment of all of the goodwill in its pressure pumping reporting unit.     

In connection with its annual impairment asset at December 31, 2015, the Company performed a quantitative Step 1 impairment assessment of the goodwill in its contract drilling reporting unit.  In completing the Step 1 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 quantitative Step 1 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.

Intangible Assets — In 2017, intangible assets were recorded in the Company’s directional drilling operating segment with the acquisition of MS Directional and in the contract drilling operating segment with the SSE merger (See Note 2).  In addition, intangible assets were recorded in the pressure pumping operating segment in connection with the 2010 acquisition of the assets of a pressure pumping business.  The Company’s intangible assets were recorded at fair value on the date of acquisition and are amortized on a straight line basis.  The following table identifies the segment and weighted average useful life of each of the Company’s intangible assets:

				Weighted Average
		Segment		Useful Life
				(in years)
Customer relationships		Pressure pumping		7.00
Customer relationships		Directional drilling		3.00
Developed technology		Directional drilling		10.00
Favorable drilling contracts		Contract drilling		0.83
Internal use software		Directional drilling		5.00

The Company concluded that no triggering events necessitating an impairment assessment of the intangible assets had occurred in 2017, 2016 or 2015.  The assessment of the recoverability of the respective operating segments asset group included the respective intangible assets, and no impairment was indicated.

The gross carrying amount and accumulated amortization of intangible assets as of December 31, 2017 and 2016 are as follows (in thousands):

		2017												2016
		Gross Carrying				Accumulated				Net Carrying				Gross Carrying				Accumulated				Net Carrying
		Amount				Amortization				Amount				Amount				Amortization				Amount
Customer relationships		$	26,200			$	(1,943	)		$	24,257			$	25,500			$	(22,768	)		$	2,732
Developed technology			48,000				(1,137	)			46,863				—				—				—
Favorable drilling contracts			22,500				(18,482	)			4,018				—				—				—
Internal use software			482				(21	)			461				—				—				—
		$	97,182			$	(21,583	)		$	75,599			$	25,500			$	(22,768	)		$	2,732

Amortization expense on intangible assets of approximately $24.3 million, $3.6 million and $3.6 million for the years ended December 31, 2017, 2016 and 2015, respectively.  The remaining amortization expense associated with finite-lived intangible assets is expected to be as follows (in thousands):

Year ending December 31,
2018		$	17,580
2019			13,630
2020			11,686
2021			4,896
2022			4,875
Thereafter			22,932
Total		$	75,599

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- References

No definition available.

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- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 350
-URI http://asc.fasb.org/topic&trid=2144416

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