Note 6. Property, Plant and Equipment
December 31	2016		2015

(In millions)

Pipeline equipment (net of accumulated depreciation of $2,174 and $1,887)	$	7,631	$	7,462
Offshore drilling equipment (net of accumulated depreciation of $3,310 and $3,335)		5,693		6,071
Other (net of accumulated depreciation of $873 and $811)		1,527		1,450
Construction in process		379		494

Property, plant and equipment	$	15,230	$	15,477

Depreciation expense and capital expenditures are as follows:


Year Ended December 31	2016				2015				2014

	Depre- ciation		Capital Expend.		Depre- ciation		Capital Expend.		Depre- ciation		Capital Expend.

(In millions)

CNA Financial	$	67	$	128	$	74	$	123	$	69	$	72
Diamond Offshore		384		629		494		812		457		2,050
Boardwalk Pipeline		321		648		327		390		292		378
Loews Hotels		63		164		54		389		37		289
Corporate		6		3		6		4		6		24

Total	$	841	$	1,572	$	955	$	1,718	$	861	$	2,813

Capitalized interest related to the construction and upgrade of qualifying assets amounted to approximately $51 million, $36 million and $80 million for the years ended December 31, 2016, 2015 and 2014.

Offshore Drilling Equipment

Purchase of Assets

In 2016, Diamond Offshore took delivery of one ultra-deepwater semisubmersible rig. The net book value of this newly constructed rig was $774 million at December 31, 2016, of which $270 million was reported in Construction in process at December 31, 2015.

In 2015, Diamond Offshore took delivery of one ultra-deepwater drillship. The net book value of this newly constructed rig was $655 million at December 31, 2015, of which $225 million was reported in Construction in process at December 31, 2014.

Sale of Assets

In February of 2016, Diamond Offshore entered into a ten-year agreement with a subsidiary of GE Oil & Gas (“GE”) to provide services with respect to certain blowout preventer and related well control equipment on four newly-built drillships. Such services include management of maintenance, certification and reliability with respect to such equipment. In connection with the contractual services agreement with GE, Diamond Offshore agreed to sell the well control equipment to a GE affiliate and subsequently lease back such equipment pursuant to separate ten-year operating leases. In 2016, Diamond Offshore completed four sale and leaseback transactions with respect to the well control equipment on its ultra-deepwater drillships and received an aggregate of $210 million in proceeds, which was less than the carrying value of the equipment. The resulting difference was recorded as prepaid rent with no gain or loss recognized on the transactions, and will be amortized over the terms of the operating leases. Future commitments under the operating leases and contractual services agreements for the ultra-deepwater drillships are estimated to aggregate approximately $655 million over the term of the agreements.

During 2016, Diamond Offshore recognized $34 million in aggregate expense related to the well control equipment leases and contractual services agreement.

Asset Impairments

During 2016, in response to the continuing industry-wide decline in utilization for semisubmersible rigs, further exacerbated by additional and more frequent contract cancelations by customers, declining dayrates, as well as the results of a third-party strategic review of Diamond Offshore’s long-term business plan completed in the second quarter of 2016, Diamond Offshore reassessed its projections for a recovery in the offshore drilling market. As a result, Diamond Offshore concluded that an expected market recovery is now likely further in the future than had previously been estimated. Consequently, Diamond Offshore believes its cold-stacked rigs, as well as those rigs expected to be cold-stacked in the near term after they come off contract, will likely remain cold-stacked for an extended period of time. Diamond Offshore also believes that the re-entry costs for these rigs will be higher than previously estimated, negatively impacting the undiscounted, probability-weighted cash flow projections utilized in its earlier impairment analysis. In addition, in response to the declining market, Diamond Offshore also reduced anticipated market pricing and expected utilization of these rigs after reactivation. In 2016, Diamond Offshore evaluated 15 of its drilling rigs with indications that their carrying amounts may not be recoverable. Based on updated assumptions and analyses, Diamond Offshore determined that the carrying values of eight of these rigs were impaired, including one rig that had previously been impaired in a prior year. The impaired rigs consisted of three ultra-deepwater, three deepwater and two mid-water semisubmersible rigs.

Diamond Offshore estimated the fair value of the eight impaired rigs using an income approach. The fair value of each rig was estimated based on a calculation of the rig’s discounted future net cash flows over its remaining economic life, which utilized significant unobservable inputs, including, but not limited to, assumptions related to estimated dayrate revenue, rig utilization, estimated reactivation and regulatory survey costs, as well as estimated proceeds that may be received on ultimate disposition of the rig. The fair value estimates were representative of Level 3 fair value measurements due to the significant level of estimation involved and the lack of transparency as to the inputs used. During the second quarter of 2016, Diamond Offshore recognized an impairment loss of $672 million ($263 million after tax and noncontrolling interests).

During 2015, Diamond Offshore evaluated 25 of its drilling rigs with indications that their carrying amounts may not be recoverable. Based on this analysis, Diamond Offshore determined that the carrying value of 17 of these rigs, consisting of two ultra-deepwater, one deepwater and nine mid-water floaters and five jack-up rigs, were impaired. The fair value of 16 impaired rigs was determined utilizing a market approach, which required an estimate of the value that would be received for each rig in the principal or most advantageous market for that rig in an orderly transaction between market participants. Such estimates were based on various inputs, including historical contracted sales prices for similar rigs in the fleet, nonbinding quotes from rig brokers and/or indicative bids, where applicable. Diamond Offshore estimated the fair value of the one remaining impaired rig using an income approach, as discussed above. The fair value estimates are representative of Level 3 fair value measurements due to the significant level of estimation involved and the lack of transparency as to the inputs used. During 2015, Diamond Offshore recognized aggregate impairment losses of $861 million ($341 million after tax and noncontrolling interests).

During 2014, Diamond Offshore initiated a plan to retire and scrap six mid-water drilling rigs. Using an undiscounted, projected probability-weighted cash flow analysis, it was determined that the carrying values of these six rigs were impaired. Diamond Offshore determined the fair value of the impaired rigs by applying a combination of income and market approaches which were representative of Level 3 fair value measurements due to the significant level of estimation involved and the lack of transparency as to the inputs used. As a result of the valuations, an impairment loss aggregating $109 million ($55 million after tax and noncontrolling interests) was recognized during 2014.

Of the rigs impaired during the three-year period ended December 31, 2016, 20 rigs have been sold and eight rigs are currently cold-stacked. Two other previously impaired rigs are currently operating under contract. The impairment losses recorded during the years ended December 31, 2016, 2015 and 2014 are reported within Other operating expenses on the Consolidated Statements of Income.

If market fundamentals in the offshore oil and gas industry deteriorate further or if Diamond Offshore is unable to secure new or extend existing contracts for its current, actively-marketed drilling fleet or reactivate any of its cold stacked rigs or if Diamond Offshore experiences unfavorable changes to actual dayrates and rig utilization, additional impairment losses may be required to be recognized in future periods if the carrying value of any of the drilling rigs is not recoverable.