Loss on Impairment

9 Months Ended

Sep. 30, 2021

Asset Impairment Charges [Abstract]

Loss on Impairment

Note 11— 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. During the period from February 6 through September 30, 2021 and the period from January 1 through February 5, 2021, no impairment was recognized on our fleet.

In connection with the preparation of our financial statements for the first quarter of 2020, we conducted a review of our fleet to determine recoverability and recognized approximately $1.1 billion in impairment charges for four floaters, and $5.5 million of impairment charges related to certain capital spare equipment. For our impaired floaters, we estimated the fair value by applying the income valuation approach utilizing significant unobservable inputs, representative of a Level 3 fair value measurement. The review included an assessment of certain assumptions, including future marketability of each unit in light of the then-current market conditions and their 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.

While we have experienced favorable trends in 2021, the global economic turmoil that began in 2020 continues to evolve and its duration and ultimate disruption to our customers’ and our business cannot be estimated at this time. The worldwide supply of rigs still exceeds current demand from customers in both the floater and jackup markets. If we experience prolonged unfavorable changes to current market conditions, reactivation costs or dayrates or 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.