## NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

## Property, plant and equipment 

Property, plant and equipment are stated at cost less accumulated depreciation and impairment, if any. 

Cost includes expenditures directly attributable to the acquisition of the item. The cost of assets constructed by the Company includes the cost of all materials and services used in the construction and direct labour on the project. Costs cease to be capitalized as soon as the asset is ready for productive use. Subsequent costs associated with equipment upgrades that result in increased capabilities or performance enhancements of property, plant and equipment are capitalized. Costs incurred to repair or maintain property, plant and equipment are charged to expense as incurred. The carrying amount of a replaced asset is derecognized when replaced. 

Depreciation is provided on property, plant and equipment and leasehold improvements excluding land. Depreciation methods and rates have been selected so as to amortize the net cost of each asset over its expected useful life to its estimated residual value. 

Drilling rigs are depreciated using the unit of production method. Depreciation is calculated for each of the rig’s major components resulting in an average useful life of 3,600 operating days per rig. Major renovations are depreciated over the remaining useful life of the related asset or to the date of the next major renovation, whichever is sooner. Drilling rigs are subject to certain minimum annual depreciation. 

Major inspection and overhaul expenditures are depreciated on a straight-line basis over 3 years. 

Replacement drill pipe and other ancillary drilling equipment are depreciated using a straight-line basis at rates varying from 6% to 12.5% per annum. 

Buildings, furniture, fixtures and equipment are depreciated using the declining balance method at rates varying from 4% to 25% per annum. 

The estimated useful lives, residual values and depreciation methods are reviewed at the end of each annual reporting period. 

## Impairment of property, plant and equipment 

Assets that are subject to depreciation are tested for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that have an indefinite useful life are not subject to amortization and are tested for impairment annually. 

An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to sell and value in use, being the present value of the expected future cash flows of the relevant assets or cash generating units. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separate identifiable cash flows (Cash Generating Units). The Cash Generating Units for the Company’s drilling rigs are conventional singles, conventional doubles, conventional triples and pad rigs. 

