NOTE 4 PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of March 31, 2019 and September 30, 2018 consisted of the following (in thousands):


	Estimated Useful Lives	March 31, 2019		September 30, 2018
Contract drilling equipment	4 - 15 years	$	8,636,213	$	8,442,081
Real estate properties	10 - 45 years		69,937		68,888
Other	2 - 23 years		481,053		471,310
Construction in progress			189,831		163,968
			9,377,034		9,146,247
Accumulated depreciation			(4,490,086)		(4,288,865)
Property, plant and equipment, net		$	4,886,948	$	4,857,382

Depreciation

Depreciation expense in the Unaudited Condensed Consolidated Statements of Operations was $141.7 million and $144.0 million for the three months ended March 31, 2019 and 2018, respectively, and $281.7 million and $286.5 million for the six months ended March 31, 2019 and 2018, respectively. Included in depreciation expense is abandonments of $4.4 million and $8.2 million for the three months ended March 31, 2019 and 2018, respectively, and $5.4 million and $15.5 million for the six months ended March 31, 2019 and 2018, respectively.

During the six months ended March 31, 2019, we shortened the estimated useful life of certain components of rigs planned for conversion resulting in an increase in depreciation expense during the six months ended March 31, 2019 of approximately $3.6 million. This will also increase the depreciation expense for the next three months by approximately $0.6 million and will decrease the depreciation expense for fiscal years 2020, 2021, 2022, 2023, and 2024 by $0.7 million, $0.7 million, $0.5 million, $0.2 million, and $0.2 million, respectively and thereafter by $0.3 million.

Gain on Sale of Assets

We had gains on sales of assets of $11.5 million and $5.3 million for the three months ended March 31, 2019 and 2018, respectively, and $17.1 million and $10.8 million for the six months ended March 31, 2019 and 2018, respectively. These gains were primarily related to drill pipe damaged or lost in drilling operations.

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 domestic and international FlexRig4 asset groups, together with the continued delivery of new, more capable rigs, and market volatility, we considered these economic factors to be indicators that these asset groups may potentially be impaired.

As a result, at February 28, 2019, we performed impairment testing on our domestic and international FlexRig4 asset groups, which have an aggregate net book value of $366.9 million and $60.5 million, respectively. We concluded that the net book values of the asset groups are recoverable through estimated undiscounted cash flows with a thin 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, estimated remaining useful life and net proceeds received upon future sale/disposition. The assumptions are consistent with the Company’s internal 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 probability-weighted average of expected future undiscounted net cash flows exceed the net book value for each of the domestic and international FlexRig4 asset group as of February 28, 2019, different assumptions and estimates could materially impact the analysis and our resulting conclusion.

Due to the sensitivity of the recoverability models used to test the domestic and international FlexRig4 asset groups for impairment at February 28, 2019, we engaged a third party independent accounting firm who performed a fair market analysis of each of the asset groups, utilizing a combination of the income, market and replacement cost approaches. We concluded that the weighted average fair value of each of these two asset groups exceeded their respective net book value by approximately 5 percent for the domestic FlexRig4 asset group and 14 percent for the international FlexRig4 asset group. The significant assumptions in the valuation are based on those of a market participant and are classified as Level 2 and Level 3 inputs by ASC Topic 820 Fair Value Measurement and Disclosures. Management is performing a detailed assessment to determine the best approach to maximize the utilization of these two asset groups. We determined that there were no events or conditions that have occurred to date that would result in a change in our analysis; however, it is reasonably possible that the estimates of undiscounted cash flows or the fair market value estimates related to these asset groups may change in the future, which could result in the recognition of impairment expense.