Property and Equipment

Our total capital expenditures of $188.1 million during 2014 primarily relate to our five new-build drilling rigs which began construction during 2014, as well as unit additions to our production services fleets. As of December 31, 2014 and 2013, capital expenditures incurred for property and equipment not yet placed in service was $82.7 million and $19.4 million, respectively. During the years ended December 31, 2014, 2013 and 2012, we capitalized $0.7 million, $0.9 million and $10.2 million, respectively, of interest costs incurred primarily during the construction periods of new-build drilling rigs and other drilling equipment.

As of December 31, 2014 and 2013, the estimated useful lives and costs of our asset classes are as follows:



		December 31, 2014		December 31, 2013
	Lives	Cost (amounts in thousands)
Drilling rigs and equipment	2 - 25	$	1,168,404	$	1,223,621
Well servicing rigs and equipment	3 - 20	232,771		205,409
Wireline units and equipment	2 - 10	146,748		128,800
Coiled tubing units and equipment	1 - 7	60,389		47,761
Fishing and rental tools and equipment	3 - 15	—		17,264
Vehicles	3 - 15	55,014		65,796
Office equipment	1 - 10	11,521		9,274
Buildings and improvements	2 - 40	25,007		23,931
Land	—	2,419		2,268
		$	1,702,273	$	1,724,124

We recorded gains on disposition of our property and equipment of $1.7 million, $1.4 million and $1.2 million during the years ended December 31, 2014, 2013 and 2012, respectively, in our drilling and production services costs and expenses. In February 2014, we completed the sale of our trucking assets for a sales price of $4.5 million which included a fleet of 40 trucks and related transportation equipment that we used to transport our drilling rigs to and from drilling sites. By owning our own trucks, we were historically able to reduce the overall cost and downtime between rig moves. However, with the industry trend toward pad drilling, we upgraded a number of our drilling rigs in recent years to equip them with walking or skidding systems, which enable the drilling rigs to move between wells in pad drilling, and thus operating our own trucking fleet became less beneficial. The net book value of the trucking assets sold was $3.4 million, for which we recognized a total gain of $1.1 million. During the second quarter of 2013, we sold two mechanical drilling rigs that were previously idle in our East Texas division, for which we recognized an associated gain of approximately $0.8 million. Additionally, we disposed of a total of four wireline units during 2013, as well as other wireline equipment.

We evaluate for potential impairment of long-lived tangible and intangible assets subject to amortization when indicators of impairment are present. Circumstances that could indicate a potential impairment include significant adverse changes in industry trends, economic climate, legal factors, and an adverse action or assessment by a regulator. More specifically, significant adverse changes in industry trends include significant declines in revenue rates, utilization rates, oil and natural gas market prices and industry rig counts. In performing an impairment evaluation, we estimate the future undiscounted net cash flows from the use and eventual disposition of long-lived tangible and intangible assets grouped at the lowest level that cash flows can be identified. For our Production Services Segment, we perform an impairment evaluation and estimate future undiscounted cash flows for the individual reporting units (well servicing, wireline and coiled tubing). For our Drilling Services Segment, we perform an impairment evaluation and estimate future undiscounted cash flows for individual domestic drilling rig assets and for our Colombian drilling rig assets as a group. If the sum of the estimated future undiscounted net cash flows is less than the carrying amount of the asset group, then we would determine the fair value of the asset group. The amount of an impairment charge would be measured as the difference between the carrying amount and the fair value of these assets. The assumptions used in the impairment evaluation for long-lived assets are inherently uncertain and require management judgment.

Since October 2014, domestic and international oil prices have declined significantly to historically low price levels resulting in a downturn in our industry. As a result, we performed an impairment evaluation of all our long-lived assets, in accordance with ASC Topic 360, Property, Plant and Equipment, which resulted in $71.0 million of impairment charges to reduce the carrying value of our 31 mechanical and lower horsepower electric drilling rigs to their estimated fair value.

In recent years, and especially during the recent downturn, demand has significantly decreased for certain mechanical and /or lower horsepower drilling rigs, particularly in vertical well markets. The decline is primarily due to higher demand for drilling rigs that are able to drill horizontally and the increased use of "pad drilling." Pad drilling enables a series of horizontal wells to be drilled in succession by a walking or skidding drilling rig at a single pad-site location, thereby improving the productivity of exploration and production activities. This trend has resulted in significantly reduced demand for drilling rigs that do not have the ability to walk or skid and to drill horizontal wells, and could further reduce the overall demand for all drilling rigs. Mechanical and lower horsepower drilling rigs are the most impacted by the industry downturn and are typically the first rigs to become idle.

As of December 31, 2014, we owned a total of 31 mechanical and lower horsepower electric drilling rigs, which includes the nine rigs that were idle and classified as held for sale as of year-end and 15 rigs that we expect to place as held for sale during the first quarter of 2015, after their current contracts are completed. (See Note 14, Subsequent Events.) With the significant decline in oil prices over the recent months, we performed impairment testing on all the mechanical and lower horsepower drilling rigs in our fleet. In order to estimate our future undiscounted cash flows from the use and eventual disposition of these assets, we incorporated probabilities of selling these rigs in the near term, versus working them at a significantly reduced expected rate of utilization through the end of their remaining useful lives. Our testing indicated that the carrying value of these assets was more than our estimated undiscounted cash flows, resulting in a total impairment of $71.0 million to reduce the carrying value of these assets to their estimated fair value of $34.0 million, which was based on market appraisals, which are considered Level 3 inputs as defined by ASC Topic 820, Fair Value Measurements and Disclosures.This impairment charge is not expected to have an impact on our liquidity or debt covenants; however, it is a reflection of the overall downturn in our industry, drop in oil prices in the fourth quarter of 2014 and decline in our projected future cash flows. We also performed an impairment test on our drilling rigs in Colombia. Our net book value in these rigs was $87.5 million as of December 31, 2014 and our analysis indicated that no impairment exists.

The most significant assumptions used in our analysis are the expected margin per day and utilization, as well as the estimated proceeds upon any future sale or disposal of the rig. Although we believe the assumptions and estimates used in our analysis are reasonable and appropriate, different assumptions and estimates could materially impact the analysis and resulting conclusions.

If the demand for our drilling services remains at current levels or declines further and any of our rigs become idle for an extended amount of time, then our estimated cash flows may further decrease, and the probability of a near term sale may increase. If any of the foregoing were to occur, we may incur additional impairment charges.

Additionally, we recorded $2.0 million of impairment charges during the year ended December 31, 2014 to reduce the carrying values of certain other assets, which were placed as held for sale during the year, to their estimated fair values, based on expected sales price. As of December 31, 2014, our consolidated balance sheet reflects assets held for sale of $9.9 million, which represents the fair value of nine drilling rigs, four wireline units, two real estate properties and other drilling equipment. In January and February 2015, we sold six drilling rigs and one real estate property for $17.8 million. We did not incur any additional loss upon the sale of these assets. (See Note 14, Subsequent Events.)

During the years ended December 31, 2013 and 2012, we recorded impairment charges on our property and equipment of $9.5 million and $1.1 million, respectively. During the third quarter of 2013, we decided to place eight of our mechanical drilling rigs as held for sale, and we recognized an impairment loss of $9.2 million in order to reduce the carrying value of these assets to their estimated fair value, based on their sales price. The sales of all eight drilling rigs were completed in late October 2013 and we did not incur any additional gain or loss upon the sale of these rigs. We also recorded an impairment of $0.3 million during the third quarter of 2013 in association with our decision to sell certain production services equipment. In March 2012, we retired two mechanical drilling rigs, with most of their components to be used as spare parts, as well as two wireline units and other wireline equipment, and recognized an associated impairment charge of $1.1 million.