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Property and Equipment
9 Months Ended
Sep. 30, 2015
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment Disclosure [Text Block]
Property and Equipment
During the nine months ended September 30, 2015 and 2014, we had capital expenditures of $130.7 million and $130.6 million, respectively, which includes $2.5 million and $0.3 million, respectively, of capitalized interest costs incurred during the construction periods of new-build drilling rigs and other drilling equipment. Capital expenditures during 2015 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 September 30, 2015 and December 31, 2014, capital expenditures incurred for property and equipment not yet placed in service was $67.3 million and $82.7 million, respectively.
During the nine months ended September 30, 2015, we recorded total gains on disposition of our property and equipment of $2.6 million, primarily for the sales of 28 of our mechanical and lower horsepower electric drilling rigs and other drilling equipment which we sold for aggregate net proceeds of $36.3 million, of which $1.1 million was recognized as a receivable at September 30, 2015. During the nine months ended September 30, 2014, we recorded total gains on disposition of our property and equipment of $1.6 million, of which $1.1 million was related to the sale of our trucking assets in February 2014. Additionally, in September 2014, we sold our fishing and rental services operations for total consideration of $16.1 million, resulting in a pretax gain of $10.7 million.
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.
Beginning in October 2014, domestic and international oil prices have declined significantly resulting in a downturn in our industry, affecting both drilling and production services. In drilling, all rig classes were severely impacted by the industry downturn. However, AC drilling rigs equipped with either a walking or skidding system are the best suited for horizontal pad drilling and we believe they are the most desirable rig design available. As the downturn worsened through 2015 resulting in significantly reduced revenue and utilization rates, and projections that reflect a more delayed recovery than previously anticipated, we performed impairment testing on all the non-AC electric drilling rigs in our fleet, including the eight drilling rigs in Colombia, and our coiled tubing operations as of June 30, 2015.
Our analysis at June 30, 2015 indicated that the carrying value of our coiled tubing reporting unit and the carrying value of our six pad-capable non-AC drilling rigs in our fleet (those that are equipped with either a walking or skidding system) were recoverable and thus there was no impairment present at June 30, 2015. However, our analysis indicated that the carrying values of the six non-AC drilling rigs in our domestic fleet which are not pad-capable, and our Colombian assets as a group, exceeded our estimated undiscounted cash flows for these assets. Therefore, an impairment charge was necessary to reduce the carrying values of these assets to their estimated fair values, which were based on market appraisals which are considered Level 3 inputs as defined by ASC Topic 820, Fair Value Measurements and Disclosures. As a result, we recognized impairment charges of $50.2 million during the second quarter of 2015 to reduce the carrying values of all eight drilling rigs in Colombia and related drilling equipment, $3.6 million to reduce the carrying value of inventory in Colombia, $6.4 million to reduce the carrying value of nonrecoverable prepaid taxes associated with our Colombian operations, and $9.7 million to reduce the carrying values of the six non-AC electric drilling rigs in our domestic fleet that are not pad-capable, to their estimated fair values.
During the three and nine months ended September 30, 2015, we also recognized impairment charges of $2.3 million and $9.7 million, respectively, to reduce the carrying values of assets which were classified as held for sale, to their estimated fair values, based on expected sales prices. As of September 30, 2015, our condensed consolidated balance sheet reflects assets held for sale of $2.1 million, which represents the fair value of certain drilling equipment, one real estate property and other production services equipment. During the nine months ended September 30, 2014, we recorded impairment charges of $0.7 million to reduce the carrying value of certain drilling equipment and real estate property which were held for sale to their estimated fair value less costs to sell.
These impairment charges are not expected to have an impact on our liquidity or debt covenants; however, they are a reflection of the overall downturn in our industry and decline in our projected future cash flows.
With the downturn persisting through 2015, our projected cash flows have declined further as compared to our projections made earlier in the year. At September 30, 2015, we performed impairment testing on our coiled tubing operations and seven drilling rigs, including our domestic pad-capable non-AC rigs, which have a net book value of $83.2 million and $55.7 million, respectively. We concluded that the carrying value of these assets is recoverable, but that these assets are at risk for future impairment if our projected cash flows decline further.
In order to estimate our future undiscounted cash flows from the use and eventual disposition of our drilling assets, we incorporated probabilities of selling these assets in the near term, versus working them at a significantly reduced expected rate of utilization through the end of their remaining useful lives. 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 assets. 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 or remain 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.
The most significant inputs used in our impairment analysis of our coiled tubing operations include the projected utilization and pricing of our coiled tubing services, which are classified as Level 3 inputs as defined by ASC Topic 820, Fair Value Measurements and Disclosures. 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 we fail to meet the projected increases in utilization and pricing for our coiled tubing services, or in the event of significant unfavorable changes in the forecasted cash flows or key assumptions used in our analysis, the most significant of these being the projected utilization and pricing of our coiled tubing services, then we may incur a future impairment.