Impairments and Other Charges

12 Months Ended

Dec. 31, 2020

Impairments and Other Charges

Impairments and Other Charges

Note 3 Impairments and Other Charges

The components of impairments and other charges are provided below:

	Year Ended December 31,
	2020		2019		2018
Impairments and Other Charges
Goodwill impairments	$	27,798		155,973		—
Intangible asset impairment		83,624		47,731		—
US Drilling		87,333		—		35,057
Canada Drilling		—		17,818		—
International Drilling		117,113		17,927		75,751
Drilling Solutions		28,624		—		—
Rig Technologies		2,936		7,823		14,047
Oil and gas related assets		24,543		—		—
Severance and transaction related costs		19,070		11,447		14,323
Other assets		19,590		43,220		—
Total	$	410,631	$	301,939	$	139,178

We review our assets for impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the estimated undiscounted future cash flows are not sufficient to support the asset’s recorded value, an impairment charge is recognized to the extent the carrying amount of the long-lived asset exceeds its estimated

fair value. Management considers a number of factors such as estimated future cash flows from the assets, appraisals and current market value analysis in determining fair value. The determination of future cash flows requires the estimation of utilization, dayrates, operating margins, sustaining capital and remaining economic life. Such estimates can change based on market conditions, technological advances in the industry or changes in regulations governing the industry. A significantly prolonged period of lower oil and natural gas prices could continue to adversely affect the demand for and prices of our services, which could result in future impairment charges.

For the year ended December 31, 2020

Goodwill impairments

We have historically performed our annual goodwill impairment test during the second quarter of each year. In addition to our annual impairment test, we are required to regularly assess whether a triggering event has occurred which would require interim impairment testing. Due to industry conditions during the first quarter of 2020 and the corresponding impact on future expectations of demand for our products and services, including the effect on our stock price, we determined a triggering event had occurred and performed a quantitative impairment assessment of our goodwill. Based on the results of our goodwill test performed, we recognized impairment charges to write off the remaining goodwill balances attributable to our Drilling Solutions and Rig Technologies operating segments of $11.4 million and $16.4 million, respectively.

Intangible asset impairments

We also reviewed our intangible assets for impairment in the first quarter of 2020 as a result of the industry conditions. The fair value of our intangible assets are determined using discounted cash flow models. Based on our updated projections of future cash flows, the fair value of our intangible assets did not support the carrying value. As such, we recognized an impairment of $83.6 million to write off all remaining intangible assets attributable to our Drilling Solutions and Rig Technologies operating segments.

US Drilling

Due to the sharp decline in activity in the US in the first part of the year, we recorded impairments of $33.3 million and functionally retired $54.0 million of our lower specification rigs in the Lower 48 and Alaska markets totaling approximately $87.3 million. We determined that the assets were either functionally obsolete, would be no longer used, or the carrying value was not fully recoverable and was in excess of its fair value.

International Drilling

We impaired $30.5 million and wrote down or retired $86.6 million totaling $117.1 million during 2020, which represented most of our rig and drilling-related equipment in several international markets which have been impacted by current market conditions and other factors, including Venezuela, Iraq, Algeria and certain offshore markets in the eastern hemisphere. Due to our lack of work in these markets and limited visibility to any possibility of further work, we have taken steps to exit or relocate these assets to other markets, or in some cases, to retire, sell or otherwise dispose of these assets.

Drilling Solutions

We impaired or retired $28.6 million of fixed assets, equipment and inventory in our Drilling Solutions segment as a result of the significant decline in utilization experienced over the first half of the year. We determined that the assets were either functionally obsolete, would be no longer used, or the carrying value was not fully recoverable and was in excess of its fair value.

Rig Technologies

As a result of our periodic analysis on inventories for our Rig Technologies segment, we recorded a $2.9 million provision for obsolescence.

Oil & gas related assets

During 2020, we recognized an impairment of $24.5 million to various assets related to our retained interest in the oil and gas properties located on the North Slope of Alaska.

Severance and transaction related costs

During 2020, we recognized charges of $19.1 million due to severance and other related costs incurred to right-size our cost structure.

Other assets

We wrote down or provided for $19.6 million of certain other assets including receivables related to our operations. The charges were primarily attributable to markets which have been adversely impacted by foreign sanctions or other political risk issues as well as bankruptcies or other financial problems.

For the year ended December 31, 2019

Goodwill impairments

As part of our annual goodwill impairment test performed during the second quarter of 2019, we determined the carrying value of some of our reporting units exceeded their fair value. As such, we recognized impairments of $75.6 million for the remaining goodwill balance attributable to our International Drilling operating segment and $18.0 million for a partial impairment to our goodwill balance attributable to the acquisition of 2TD reported within our Rig Technologies operating segment. These non-cash pre-tax impairment charges were primarily the result of a sustained decline in our market capitalization and lower future cash flow projections due to expectations for future commodity prices below previous projections and the resulting impact on the lower demand projections for our products and services within these reporting units.

During the fourth quarter of 2019, due to current industry conditions such as the drop in U.S. rig count as well as the recent commodity prices and the corresponding impact on future expectations of demand for our products and services, including the effect that these factors have had on our stock price, we performed a quantitative impairment assessment of our goodwill as of December 31, 2019. Based on the results of our goodwill test, we recognized additional impairment charges of $52.2 million for the remaining goodwill balance attributable to our U.S. Drilling operating segment and $10.1 million for the remaining goodwill balance attributable to the acquisition of 2TD within our Rig Technologies operating segment.

Intangible asset impairments

During the fourth quarter of 2019, we also determined the fair value of our rotary steerable tools in-process research and development intangible asset associated with our acquisition of 2TD was less than the current book value. As such, we recognized an impairment of $47.7 million to write off the intangible asset due to uncertainty in commercialization and demand stemming from lower commodity prices and rig counts.

Canada

As a result of the extended period of reduced demand for some of our legacy asset classes, we retired some of our rigs within the Canada drilling segment, which totaled approximately $17.8 million.

International Drilling

During 2019, we retired some of our rigs resulting in a loss of $15.4 million. In addition, we recorded impairments totaling $2.5 million comprised of underutilized offshore platform rigs. These impairments resulted from lack of future contractual opportunities on specific rigs as a result of current market conditions across certain geographic regions.

Rig Technologies

As a result of our periodic analysis on inventories for our Rig Technologies segment, we recorded a $7.8 million provision for obsolescence.

Severance and transaction related costs

During 2019, we recognized charges of $11.4 million due to severance and other related costs incurred to right-size our cost structure.

Other assets

During 2019, we recorded provisions aggregating to $43.2 million for certain assets, including receivables related to our international activities. The provisions were attributable to a number of foreign countries, which have been adversely impacted by foreign sanctions or other political risk issues, bankruptcies or other financial problems.

For the year ended December 31, 2018

US Drilling

As a result of a decline in oil and gas prices in the fourth quarter and the extended period of reduced demand for some of our legacy asset groups, we retired 13 of or remaining SCR rigs for a loss of $14.6 million. Additionally, we recorded impairments of $20.5 million for underutilized rigs.

International Drilling

During 2018, we recognized a loss of $64.7 million on the sale of three offshore drilling rigs and eight workover rigs. In addition, impairments of $11.1 million were deemed necessary due to lack of future contractual opportunities on specific rigs as a result of a change in market conditions across certain geographic regions.

Rig Technologies

As a result of our periodic analysis on inventories for our Rig Technologies segment, we recorded a $14.0 million provision for obsolescence.

Severance and transaction related costs

During 2018, we incurred $14.3 million in transaction related costs, including professional fees, severances, facility closure costs and other cost rationalization items, primarily in connection with the acquisition of Tesco.