Impairments

9 Months Ended

Sep. 30, 2021

Property, Plant and Equipment [Abstract]

Impairments

IMPAIRMENTS

We review and evaluate our long-lived assets, including intangible assets, for impairment when events or changes in circumstances indicate that the related carrying amount of those assets may not be recoverable, and changes to our estimates could affect our assessment of asset recoverability.

Oil and Natural Gas Properties

There were no impairments recorded during the three and nine months ended September 30, 2021.

During the one month ended September 30, 2020, the application of the full cost accounting rules resulted in a pre-tax non-cash ceiling impairment of $13.2 million primarily due to the use of average 12-month historical commodity prices for the ceiling test compared to forward prices for the fresh start fair value estimates.

During the three months ended March 31, 2020, due to the increased uncertainty in our business, we determined our undeveloped acreage would not be fully developed and thus the carrying values of certain of our unproved oil and gas properties were not recoverable resulting in an impairment of $226.5 million. That impairment had a corresponding increase to our depletion base and contributed to our recorded full cost ceiling impairment during the three months ended March 31, 2020. We recorded a non-cash full cost ceiling test write-down of $267.8 million pre-tax ($220.8 million, net of tax) in the three months ended March 31, 2020 due to the reduction for the 12-month average commodity prices and the impairment of our unproved oil and gas properties described above. There were no additional triggering events identified during the eight months ended August 31, 2020.

In addition to the impairment evaluations of our proved and unproved oil and gas properties in the three months ended March 31, 2020, we also evaluated the carrying value of our salt water disposal assets. Based on our revised forecast, we determined that some were no longer expected to be used and wrote off the assets for total expense of $17.6 million during the three months ended March 31, 2020. These amounts are reported in loss on abandonment of assets in our unaudited condensed consolidated statements of operations. There were no additional triggering events identified during the eight months ended August 31, 2020.

Contract Drilling

There were no impairments recorded during the three and nine months ended September 30, 2021.

During the two months ended August 31, 2020, we recorded expense of $1.1 million related to the write-down of certain equipment that we consider abandoned. These amounts are reported in loss on abandonment of assets in our unaudited condensed consolidated statements of operations.

At March 31, 2020, due to market conditions, we performed impairment testing on two asset groups which were comprised of our SCR diesel-electric drilling rigs and our BOSS drilling rigs. We concluded that the net book value of the SCR drilling rigs asset group was not recoverable through estimated undiscounted cash flows and recorded a non-cash impairment charge of $407.1 million in the three months ended March 31, 2020. We also recorded additional non-cash impairment charges of $3.0 million for other miscellaneous drilling equipment. These charges are included within impairments in our unaudited condensed consolidated statements of operations.

We used the income approach to determine the fair value of the SCR drilling rigs asset group. This approach uses significant assumptions including management’s best estimates of the expected future cash flows and the estimated useful life of the asset group. Fair value determination requires a considerable amount of judgement and is sensitive to changes in underlying assumptions and economic factors. As a result, there is no assurance the fair value estimates made for the impairment analysis will be accurate in the future. There were no additional triggering events identified during the eight months ended August 31, 2020 or one month ended September 30, 2020.

We concluded that no impairment was needed on the BOSS drilling rigs asset group as of March 31, 2020 as the undiscounted cash flows exceeded the $242.5 million carrying value of the asset group by a relatively minor margin. Some of the more sensitive assumptions used in evaluating the contract drilling rigs asset groups for potential impairment included forecasted utilization, gross margins, salvage values, discount rates, and terminal values. There were no additional triggering events identified during the eight months ended August 31, 2020 or one month ended September 30, 2020.

Mid-Stream

There were no impairments recorded during the three and nine months ended September 30, 2021. We will continue to monitor for potential impairment in the fourth quarter of 2021 as certain systems negotiate renewed terms with their current volume commitments nearing an end.

During the three months ended March 31, 2020, we determined that the carrying value of certain long-lived asset groups in southern Kansas, and central Oklahoma where lower pricing is expected to impact drilling and production levels, are not recoverable and exceeded their estimated fair value. We recorded non-cash impairment charges of $64.0 million based on the estimated fair value of the asset groups. These charges are included within impairments in our unaudited condensed consolidated statement of operations. There were no additional triggering events identified during the eight months ended August 31, 2020 or one month ended September 30, 2020.