PROPERTY, PLANT AND EQUIPMENT

9 Months Ended

Jun. 30, 2019

Property, Plant and Equipment [Abstract]

Property, plant and equipment as of June 30, 2019 and September 30, 2018 consisted of the following:



(in thousands)	Estimated Useful Lives	June 30, 2019			September 30, 2018
Contract drilling equipment	4 - 15 years	$	8,486,332		$	8,442,081
Real estate properties	10 - 45 years	71,114			68,888
Other	2 - 23 years	469,933			471,310
Construction in progress		158,936			163,968
		9,186,315			9,146,247
Accumulated depreciation		(4,602,642		)	(4,288,865		)
Property, plant and equipment, net		$	4,583,673		$	4,857,382

Depreciation

Depreciation expense in the Unaudited Condensed Consolidated Statements of Operations was $141.9 million and $143.1 million for the three months ended June 30, 2019 and 2018, respectively, and $423.6 million and $430.0 million for the nine months ended June 30, 2019 and 2018, respectively. Included in depreciation expense is abandonments of $1.4 million and $7.0 million for the three months ended June 30, 2019 and 2018, respectively, and $6.8 million and $22.5 million for the nine months ended June 30, 2019 and 2018, respectively.

During the nine months ended June 30, 2019, we shortened the estimated useful life of certain components of rigs planned for conversion resulting in an increase in depreciation expense during the nine months ended June 30, 2019 of approximately $4.5 million. This will also increase the depreciation expense for the next three months by approximately $0.7 million and will decrease the depreciation expense for fiscal years 2020, 2021, 2022, 2023, and 2024 by $0.8 million, $0.8 million, $0.6 million, $0.3 million, and $0.3 million, respectively and thereafter by $0.5 million.

Gain on Sale of Assets

We had gains on sales of assets of $10.0 million and $4.3 million for the three months ended June 30, 2019 and 2018, respectively, and $27.1 million and $15.1 million for the nine months ended June 30, 2019 and 2018, respectively. These gains were primarily related to reimbursement for drill pipe damaged or lost in drilling operations.

Impairments

During the third quarter of fiscal year 2019, the Company's management performed a detailed assessment, considering a number of approaches, to maximize the utilization and enhance the margins of the domestic and international FlexRig4 asset groups. In June 2019, this assessment concluded that marketing a smaller fleet of these two asset groups would provide the best economic outcome. As such, the decision was made to downsize the number of domestic and international FlexRig4 drilling rigs, to be marketed to our customers, from 71 rigs to 20 domestic rigs and from 10 rigs to 8 international rigs, and utilize the major interchangeable components of the decommissioned drilling rigs within these asset groups as capital spares for all of our remaining rig fleet. This has reduced the aggregate net book values of the asset groups as of June 30, 2019 from $317.8 million to $107.5 million for domestic rigs and from $55.7 million to $47.8 million for international rigs. Following the downsizing process, we performed a detailed study to optimize the quantities of capital spares and drilling support equipment required to support the future operations of our rig fleet going forward. These decisions and analysis resulted in a write down of excess capital spares and drilling support equipment, which had an aggregate net book value of $235.3 million, to their estimated proceeds to ultimately be received on sale or disposal based on our historical experience with sales and disposals of similar assets, resulting in an impairment of $224.3 million, which was recorded in our Unaudited Condensed Consolidated Statement of Operations for the three months ended June 30, 2019. Of the $224.3 million total impairment charge recorded, $216.9 million and $7.4 million was recorded in our U.S. Land and International Land segment, respectively, during the three months ended June 30, 2019. The significant assumptions in the valuation are classified as Level 2 inputs by ASC Topic 820, Fair Value Measurement and Disclosures.

Due to the downsizing of our domestic and international FlexRig4 asset groups, at June 30, 2019, we performed impairment testing on these two asset groups. We concluded that the net book values of the asset groups are 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, 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 groups as of June 30, 2019, different assumptions and estimates could materially impact the analysis and our resulting conclusion.