PROPERTY, PLANT AND EQUIPMENT

9 Months Ended

Jun. 30, 2023

Property, Plant and Equipment [Abstract]

PROPERTY, PLANT AND EQUIPMENT

NOTE 3 PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of June 30, 2023 and September 30, 2022 consisted of the following:

(in thousands)	Estimated Useful Lives	June 30, 2023		September 30, 2022
Drilling services equipment	4 - 15 years	$	6,382,505	$	6,369,888
Tubulars	4 years	571,490		569,496
Real estate properties	10 - 45 years	47,045		45,557
Other	2 - 23 years	438,908		422,479
Construction in progress1		92,829		70,119
		7,532,777		7,477,539
Accumulated depreciation		(4,600,184)		(4,516,730)
Property, plant and equipment, net		$	2,932,593	$	2,960,809
Assets held-for-sale		$	988	$	4,333

(1)Included in construction in progress are costs for projects in progress to upgrade or refurbish certain rigs in our existing fleet. Additionally, we include other advances for capital maintenance purchase-orders that are open/in process. As these various projects are completed, the costs are then classified to their appropriate useful life category.

Depreciation

Depreciation expense during the three months ended June 30, 2023 and 2022 was $93.2 million and $97.5 million, including abandonments of $0.2 million and $1.4 million, respectively. Depreciation expense during the nine months ended June 30, 2023 and 2022 was $282.7 million and $293.5 million including abandonments of $2.4 million and $5.2 million, respectively. These expenses are recorded within Depreciation and amortization on our Unaudited Condensed Consolidated Statements of Operations.

In November 2022, a fire at a wellsite caused substantial damage to one of our super spec-rigs within our North America Solutions segment. The major components were destroyed beyond repair and considered a total loss, and, as a result, these assets were written off and the rig was removed from our available rig count. At the time of the loss, the rig was fully insured under replacement cost insurance. The insurance recovery is expected to exceed the net book value of the components written off. The loss of $9.2 million and an offsetting insurance recovery for the same amount are recorded within Depreciation and amortization in our Unaudited Condensed Consolidated Statement of Operations for the nine months ended June 30, 2023. During the third quarter of fiscal year 2023 we collected $7.8 million of the total expected insurance proceeds. Future proceeds in excess of the recognized loss will be recognized once all contingencies related to the insurance claim have been resolved.

Assets Held-for-Sale

The following is a summary of the changes in the balance (in thousands) of our assets held-for-sale for the period indicated below:

Balance at September 30, 2022	$	4,333
Plus:
Asset additions	1,177
Less:
Sale of assets held-for-sale	(1,789)
Impairment expense	(2,733)
Balance at June 30, 2023	$	988

Fiscal Year 2023 Activity

During the nine months ended June 30, 2023, the Company initiated a plan to decommission and scrap four international FlexRig® drilling rigs and four conventional drilling rigs located in Argentina that are not suitable for unconventional drilling. As a result, these rigs were reclassified to Assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets. The rigs’ aggregate net book value of $8.8 million was written down to the estimated scrap value of $0.7 million, which resulted in a non-cash impairment charge of $8.1 million within our International Solutions segment and recorded in our Unaudited Condensed Consolidated Statement of Operations during the nine months ended June 30, 2023.

During the nine months ended June 30, 2023, our North America Solutions assets that were previously classified as Assets held-for-sale at September 30, 2022 were either sold or written down to scrap value. The aggregate net book value of these remaining assets was $3.0 million, which exceeded the estimated scrap value of $0.3 million, resulting in a non-cash impairment charge of $2.7 million. During the same period, we also identified additional equipment that met the asset held-for-sale criteria and was reclassified as Assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets. The aggregate net book value of the equipment of $1.4 million was written down to its estimated scrap value of $0.1 million, resulting in a non-cash impairment charge of $1.3 million during the nine months ended June 30, 2023. These impairment charges are recorded within our North America Solutions segment in our Unaudited Condensed Consolidated Statement of Operations.

Fiscal Year 2022 Activity

During the nine months ended June 30, 2022, we closed on the sale of our trucking and casing running assets for total consideration less costs to sell of $6.0 million, in addition to the possibility of future earnout proceeds, resulting in a loss of $3.4 million recorded in Other (gain) loss on sale of assets within our Unaudited Condensed Consolidated Statements of Operations. We recognized earnout proceeds associated with the sale of our trucking and casing running assets of $1.4 million and $0.9 million during the nine months ended June 30, 2023 and 2022, respectively, in Other (gain) loss on sale of assets on the Unaudited Condensed Consolidated Statements of Operations.

During the nine months ended June 30, 2022, we identified two partial rig substructures that met the asset held-for-sale criteria and were reclassified as Assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets. The combined net book value of the rig substructures of $2.0 million were written down to their estimated scrap value of $0.1 million, resulting in a non-cash impairment charge of $1.9 million within our North America Solutions segment and recorded in the Unaudited Condensed Consolidated Statement of Operations for the nine months ended June 30, 2022. During the same period, we completed the sale of these assets with a net book value of approximately $0.1 million, resulting in no gain or loss as a result of the sale. During the same period, we identified two international FlexRig® drilling rigs located in Colombia that met the asset held-for-sale criteria and were reclassified as Assets held-for-sale on our Unaudited Condensed Consolidated Balance Sheets. In conjunction with establishing a plan to sell the two international FlexRig® drilling rigs, we recognized a non-cash impairment charge of $2.5 million within our International Solutions segment and recorded in the Unaudited Condensed Consolidated Statement of Operations during the nine months ended June 30, 2022, as the rigs aggregate net book value of $3.4 million exceeded the fair value of the rigs less estimated cost to sell of $0.9 million. During the nine months ended June 30, 2022, we completed the sale of these assets for total consideration of $0.9 million, resulting in no gain or loss as a result of the sale.

During the nine months ended June 30, 2022, ADNOC Drilling accepted delivery of five rigs with an aggregate net book value of $34.5 million. As a result, we recognized a gain of $1.1 million, after incurring $15.7 million of selling costs, during the nine months ended June 30, 2022 in Other (gain) loss on sale of assets within our Unaudited Condensed Consolidated Statement of Operations. Upon final acceptance of delivery, these rigs were removed from assets classified as held-for-sale as of June 30, 2022.

The significant assumptions utilized in the valuations of held-for-sale were based on our intended method of disposal, historical sales of similar assets, and market quotes and are classified as Level 2 and Level 3 inputs by ASC Topic 820, Fair Value Measurement and Disclosures. Although we believe the assumptions used in our analysis are reasonable and appropriate, different assumptions and estimates could materially impact the analysis and our resulting conclusion.

Gain on Reimbursement of Drilling Equipment

We recognized gains of $10.6 million and $37.9 million during the three and nine months ended June 30, 2023, respectively, and $9.9 million and $21.6 million during the three and nine months ended June 30, 2022, respectively, related to customer reimbursement for the current replacement value of lost or damaged drill pipe. Gains related to these asset sales are recorded in Gains on reimbursement of drilling equipment within our Unaudited Condensed Consolidated Statements of Operations.