NOTE 5 PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of September 30, 2018 and 2017 consisted of the following (in thousands):


	Estimated Useful Lives	September 30, 2018		September 30, 2017
Contract drilling equipment	4 - 15 years	$	8,442,081	$	8,197,572
Real estate properties	10 - 45 years		68,888		66,005
Other	2 - 23 years		471,310		450,031
Construction in progress			163,968		169,326
			9,146,247		8,882,934
Accumulated depreciation			(4,288,865)		(3,881,883)
Property, plant and equipment, net		$	4,857,382	$	5,001,051

Impairments

Consistent with our policy, we evaluate our drilling rigs and related equipment for impairment whenever events or changes in circumstances indicate the carrying value of these assets may exceed the estimated undiscounted future net cash flows. Our evaluation, among other things, includes a review of external market factors and an assessment on the future marketability of specific rigs’ asset group. Given the continued low utilization within our International FlexRig4 asset group and two of our domestic and international conventional rigs’ asset groups, together with the continued delivery of new, more capable rigs, we considered these economic factors to be indicators that these asset groups may potentially be impaired.

At September 30, 2018, we performed impairment testing on our International FlexRig4 asset group, which has an aggregate net book value of $63.0 million. We concluded that the net book value of the drilling rigs’ asset group is recoverable through estimated undiscounted cash flows with a surplus. The most significant assumptions used in our undiscounted cash flow model include: timing on awards of future drilling contracts, oil prices, operating dayrates, operating costs, rig reactivation costs, drilling rig utilization, revenue efficiency, estimated remaining economic useful life and net proceeds received upon future sale/disposition. The assumptions are consistent with the Company’s internal budgets and forecasts for future years. These significant assumptions are classified as Level 3 inputs by ASC Topic 820 Fair Value Measurement and Disclosures as they are based upon unobservable inputs and primarily rely on management assumptions and forecasts. Although we believe the assumptions used in our analysis are reasonable and appropriate and the asset group weighted average of expected future undiscounted net cash flows exceeds the net book value of the asset group as of the fiscal year 2018 year-end impairment evaluation, different assumptions and estimates could materially impact the analysis and our resulting conclusion.

At September 30, 2018, we engaged a third party independent accounting firm who performed a market valuation, utilizing the market approach, on two of our domestic and international conventional rigs’ asset groups, which have an aggregate net book values of $9.0 million and $15.2 million, respectively. We concluded that the fair values of these two asset groups exceed the net book values by approximately 64 percent and 141 percent, respectively, and as such, no impairment was recorded. The significant assumptions in the valuation exercise are classified as Level 2 and Level 3 inputs by ASC Topic 820 Fair Value Measurement and Disclosures.

During the fourth quarter of fiscal year 2018, after ceasing operations in Ecuador, we entered into a sales negotiation with respect to the six conventional rigs, within a separate international conventional rigs’ asset group, with net book values of $20.8 million, present in the country, pursuant to which the rigs, together with associated equipment and machinery would be sold to a third party to be recycled. Certain components of these rigs, with an $8.5 million net book value, that are not subject to the sale agreement, will be transferred to the United States to be utilized on other FlexRigs with high activity and demand. The sales transaction was completed in November 2018. We recorded a non-cash impairment charge within our International Land segment of $9.2 million ($7.0 million, net of tax, or $0.06 per diluted share), which is included in Asset Impairment Charge on the Consolidated Statement of Operations for the fiscal year ended September 30, 2018. As a result, the remaining rig within the same asset group, not to be disposed of, was written down resulting in an additional impairment charge of $1.4 million ($1.0 million, net of tax, or $0.01 per diluted share). The assets were recorded at fair value based on the sales agreement and as such are classified as Level 2 within the fair value hierarchy.

Furthermore, during the fourth quarter of fiscal year 2018, within our U.S. Land segment, management committed to a plan to auction several previously decommissioned rigs during fiscal year 2019. As a result, we wrote them down to their estimated fair values. We recorded a non-cash impairment charge of $5.7 million ($4.2 million, net of tax, or $0.04 per diluted share), which is included in Asset Impairment Charge on the Consolidated Statements of Operations for the fiscal year ended September 30, 2018. The assets were recorded at fair value based on the auction price and as such are classified as Level 2 of the fair value hierarchy.

During fiscal year 2016, we recorded an asset impairment charge in the U.S. Land segment of $6.3 million to reduce the carrying value of rig and rig related equipment classified as held for sale to their estimated fair values, based on expected sales prices.

Depreciation

Depreciation in the Consolidated Statements of Operations of $583.8 million, $585.5 million and $598.6 million includes abandonments of $27.7 million, $42.6 million and $39.3 million for fiscal years 2018, 2017 and 2016, respectively. During 2018, we have shortened the estimated useful lives of certain components of rigs planned for conversion, with a total net book value of $3.7 million, resulting in an increase in depreciation expense during 2018 of approximately $9.7 million. This will also increase the depreciation expense for the next three months by approximately $0.9 million and will decrease the depreciation expense for fiscal years 2019, 2020, 2021, 2022, and 2023 by $2.3 million, $2.3 million, $2.2 million, $1.3 million, and $0.4 million, respectively, and thereafter by $1.0 million.

Gain on Sale of Assets

We had a gain on sales of assets of $22.7 million and $20.6 million in fiscal years 2018 and 2017, respectively. These gains were primarily related to drill pipe damaged or lost in drilling operations.