Loss on Impairment

3 Months Ended

Mar. 31, 2020

Asset Impairment Charges [Abstract]

Loss on Impairment

Note 9— Loss on Impairment

Asset Impairments

We evaluate our property and equipment for impairment whenever there are changes in facts that suggest that the value of the asset is not recoverable. In connection with the preparation of our financial statements for the first quarter of 2020 and in light of the rapid and unexpected decline in demand for our services resulting from the global COVID-19 pandemic, the steep decline in the demand for oil and the substantial surplus in the supply of oil, we conducted a review of our fleet to determine recoverability. The review included an assessment of certain assumptions, including future marketability of each unit in light of the current market conditions and its current technical specifications. Assumptions used in our assessment included, but were not limited to, timing of future contract awards and expected operating dayrates, operating costs, utilization rates, discount rates, capital expenditures, reactivation costs, estimated economic useful lives and, in certain cases, our belief that a drilling unit is no longer marketable and is unlikely to return to service in the near to medium term.

Based upon our impairment analysis, we impaired the carrying value to their corresponding estimated fair values for the Noble Bully I, Noble Bully II, Noble Danny Adkins and Noble Jim Day. For our impaired units, we estimated the fair value of these units by applying the income valuation approach utilizing significant unobservable inputs, representative of a Level 3 fair value measurement. If we experience prolonged unfavorable changes to current market conditions, reactivation costs or dayrates, if we are unable to secure new or extended contracts for our active rigs at favorable rates, it is reasonably possible that the estimate of undiscounted cash flows may change in the near term, resulting in the need to write down the affected assets to their corresponding estimated fair values. During the three months ended March 31, 2020, we recognized approximately $1.1 billion in impairment charges related to the Noble Bully I, Noble Bully II, Noble Danny Adkins and Noble Jim Day, and $5.5 million of impairment charges related to certain capital spare equipment. The impact of the current global economic turmoil continues to evolve and its duration and ultimate disruption to our customers’ and our business cannot be estimated at this time. Should such disruption continue, weaker economic conditions generally could result in further impairments, During the three months ended March 31, 2019, we recognized no impairment charges on our fleet.