The following discussion should be read in conjunction with "Selected Financial Data" and the consolidated financial statements included elsewhere in this document. See also "Forward-Looking Statements" on page 2. Discussions of year-to-year comparisons of 2020 and 2019 items that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 on our Annual report on Form 10-K for the year ended December 31, 2020, which Item is incorporated herein by reference.
RPC, Inc. ("RPC") provides a broad range of specialized oilfield services primarily to independent and major oilfield companies engaged in exploration, production and development of oil and gas properties throughout the United States, including the southwest, mid-continent, Gulf of Mexico and Appalachian regions, and in selected international markets. The Company's revenues and profits are generated by providing equipment and services to customers who operate oil and gas properties and invest capital to drill new wells and enhance production or perform maintenance on existing wells.
Our key business and financial strategies are:
- To focus our management resources on and invest our capital in equipment and
geographic markets that we believe will earn high returns on capital.
- To maintain a flexible cost structure that can respond quickly to volatile
industry conditions and business activity levels.
- To maintain capital strength sufficient to allow us to remain a going concern
and maintain our operational strength during protracted industry downturns.
- To maintain an efficient, low-cost capital structure which includes an
appropriate use of debt financing.
To optimize asset utilization with the goal of increasing revenues and
- generating leverage of direct and overhead costs, balanced against increasingly
high maintenance requirements and low financial returns experienced during
times of low customer pricing for our services.
- To deliver product and services to our customers safely.
- To secure adequate sources of supplies of raw materials used in our operations.
- To maintain and selectively increase market share.
To maximize stockholder return by optimizing the balance between cash invested
- in the Company's productive assets, the payment of dividends to stockholders,
and the repurchase of our common stock on the open market.
- To align the interests of our management and stockholders.
In assessing the outcomes of these strategies and RPC's financial condition and operating performance, management generally reviews periodic forecast data, monthly actual results, and other similar information. We also consider trends related to certain key financial data, including revenues, utilization of our equipment and personnel, maintenance and repair expenses, pricing for our services and equipment, profit margins, selling, general and administrative expenses, cash flows and the return on our invested capital. Additionally, we compare our trends to those of our peers. We continuously monitor factors that impact current and expected customer activity levels, such as the price of oil and natural gas, changes in pricing for our services and equipment and utilization of our equipment and personnel. Our financial results are affected by geopolitical factors such as political instability in the petroleum-producing regions of the world, overall economic conditions and weather in the United States, the prices of oil and natural gas, and our customers' drilling and production activities.
The oil and gas industry experienced an unprecedented disruption during 2020 due to the substantial decline in global oil demand caused partly by the COVID-19 pandemic. Although global demand began to rebound in 2021, the pandemic could continue to impact the economic conditions in the United States, as federal, state and local governments react to the public health crisis, creating uncertainties in the United States, as well as the global economy. RPC instituted strict procedures to assess employee health and
safety in its facilities and operational locations and attempted to hire redundant crews in order to continue to provide services to its customers.
Current industry conditions are characterized by oil prices which have risen from less than $20 per barrel in the second quarter of 2020 to approximately $86 per barrel early in the first quarter of 2022, the highest recorded oil price since the fourth quarter of 2014. While there are many factors influencing the price of oil, we note that the global oil market was oversupplied by approximately six percent during the second and third quarters of 2020 but was undersupplied by approximately two percent during the third and fourth quarters of 2020 and throughout 2021. We believe that the imbalance in global supply and demand have been an important catalyst for the significant increase in the price of oil since the cyclical low during the second quarter of 2020. In response to this significant increase in the price of oil, the U.S. domestic rig count has risen from a low of 244 in the third quarter of 2020 to 610 early in the first quarter of 2022. In addition, well completions have increased from 1,110 in the third quarter of 2020 to 2,578 in the fourth quarter of 2021.
RPC believes that oil production in the United States has also become an increasingly important determinant of global oil prices, because the United States has grown to be the world's largest producer of oil and is more flexible in its ability to increase or decrease drilling and production activities more rapidly than the state-owned oil companies which comprise OPEC membership. During the past several years, improving drilling and completion activity have caused U.S. domestic oil production to continue to rise to a record production level in December 2019. Oil production fell during 2020 during the downturn caused by the COVID-19 pandemic, but by the end of 2021 had increased by approximately 17 percent compared to the lowest oil production recorded during the second quarter of 2020. Customer activities directed towards natural gas drilling and production have been weak for several years because of the high production of shale-directed natural gas wells, the high amount of natural gas production associated with oil-directed shale wells in the U.S. domestic market, and relatively constant consumption of natural gas in the United States. One of these factors has been mitigated by the decline in oil-directed drilling. As a result, the price of natural gas has recovered from a low of $1.63 per Mcf during the second quarter of 2020 to $4.30 per Mcf early in the first quarter of 2022. The price increases in natural gas during the 2021 and early 2022 are encouraging, and RPC believes that they have encouraged our customers to increase drilling and completion activities.
The Company's strategy of utilizing equipment in unconventional basins continued. During 2021, we made capital expenditures, excluding the equipment acquired under a finance lease, totaling $67.6 million, an increase of $2.6 million compared to the prior year. Capital expenditures during 2021 were primarily directed towards capitalized maintenance and selected growth opportunities.
Revenues during 2021 totaled $864.9 million, an increase of 44.6 percent compared to 2020. This increase was primarily due to higher customer activity levels during 2021 compared to the prior year which was negatively impacted by COVID-19 shutdowns. Cost of revenues increased $182.5 million in 2021 compared to the prior year primarily due to increases in expenses consistent with higher activity levels, such as materials and supplies expenses, employment costs and fuel costs. In addition, these costs increased due to higher market prices for materials and supplies, fuel and other raw materials. As a percentage of revenues, cost of revenues decreased to 76.7 percent in 2021 compared to 80.4 percent in 2020 due to the leverage of higher revenues over direct employment costs and improved pricing for RPC's services.
Selling, general and administrative expenses as a percentage of revenues decreased to 14.3 percent in 2021 compared to 20.7 percent in 2020, primarily due to leverage of higher revenues over costs that are relatively fixed during the short term.
Income before income taxes was $16.4 million for 2021 compared to loss before income taxes of $309.4 million in 2020. Net income for 2021 was $7.2 million, or $0.03 earnings per share compared to net loss of $212.2 million, or $1.00 loss per share in 2020. The net loss in 2020 includes non cash charges of $211.0 million related primarily to asset impairments.
Cash flows from operating activities decreased to $47.7 million in 2021 compared to $78.0 million in 2020 primarily due to increased working capital requirements in 2021 compared to decreased working capital requirements in 2020. As of December 31, 2021, there were no outstanding borrowings under our credit facility.
Drilling activity in the U.S. domestic oilfields, as measured by the rotary drilling rig count, reached a cyclical peak of 1,083 during the fourth quarter of 2018. Between the fourth quarter of 2018 and the third quarter of 2020, the drilling rig count fell by 77 percent. During the third quarter of 2020, the U.S. domestic drilling rig count reached the lowest level recorded up to that time. The principal catalyst for this steep rig count decline was the decrease in the price of oil in the world markets resulting from the decline in global oil demand associated with the COVID-19 pandemic which began in the first quarter of 2020.
RPC monitors rig count efficiencies and well completion trends because the majority of our services are directed toward well completions. Improvements in drilling rig efficiencies have increased the number of potential well completions for a given drilling rig
count; therefore, the statistics regarding well completions are more meaningful indicators of the outlook for RPC's activity levels and revenues. Annual well completions during 2018 increased by approximately 25 percent compared to 2017, and by approximately five percent in 2019 compared to 2018. Well completions in 2020 decreased by approximately 49 percent compared to 2019. However, well completions in 2021 increased by approximately 33 percent compared to 2020.
The current and projected prices of oil, natural gas and natural gas liquids are important catalysts for U.S. domestic drilling activity. Following the trough of the most recent oilfield downturn in the second quarter of 2020, the price of oil has risen by more than 215 percent early in the first quarter of 2022 compared to the average price of oil in the second quarter of 2020. The price of natural gas has risen by approximately 150 percent during the same time period, due to steady demand for natural gas and normal seasonal demand in the first quarter of 2022. Following a low price of $0.23 per gallon in the first quarter of 2020, the price of benchmark natural gas liquids has risen to $1.18 per gallon early in the first quarter of 2022. The price increases in these commodities during the past year are encouraging, and RPC believes that they have encouraged our customers to increase drilling and completion activities.
The majority of the U.S. domestic rig count remains directed towards oil. Early in the first quarter of 2022, approximately 82 percent of the U.S. domestic rig count was directed towards oil, an increase compared with approximately 77 percent during the same period in the prior year. We believe that oil-directed drilling will remain the majority of domestic drilling, and that natural gas-directed drilling will remain a low percentage of U.S. domestic drilling in the near term. However, we believe that natural gas-directed drilling has increased and will continue to increase in natural gas-directed basins in the United States due to the current and projected high prices of natural gas. This trend should be favorable for the demand for RPC's services in these basins.
We continue to monitor the market for our services and the competitive environment, including the current trends and expectations with regard to environmental concerns and related impact on our fleets. The growing efficiency with which oilfield completion crews are providing services is a catalyst for the oversupplied nature of the oilfield services market. We believe that most of the feasible efficiency gains have been realized, and a number of our smaller competitors have ceased operations. These factors, combined with the increase in drilling and completion and the improvement in commodity prices, leads us to believe that the competitive market for our services will improve during the near term.
During the third quarter of 2021, RPC entered into an agreement for a new Tier IV dual-fuel pressure pumping fleet, which immediately went to work at the beginning of the fourth quarter. In 2019, RPC expanded its fleet of revenue-producing equipment, while also retiring older equipment which could no longer function effectively in service-intensive operating environments. We continue to selectively upgrade our existing equipment to operate using multiple fuel sources and to take advantage of advances in technology and data collection. We will continue to monitor current and expected customer activity levels and projected financial returns as we consider activating additional idle equipment during the near term. Our consistent response to the near-term potential of lower activity levels and competitive pricing has been to undertake moderate fleet expansions which we believe will allow us to maintain a strong balance sheet, while also positioning RPC for long-term growth and strong financial returns.
Average natural gas price (per thousand cubic feet (mcf))
Amount in 2020 includes $212,292 related to technical services, $4,660 (1) related to pension settlement loss and the remainder related to corporate
(2) Amount in 2019 includes $80,263 related to technical services and $2,010
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
Revenues. Revenues in 2021 increased $266.6 million or 44.6 percent compared to 2020 primarily due to higher activity levels as 2020 was negatively impacted by COVID-19 shutdowns. The Technical Services segment revenues in 2021 increased $258.6 million or 46.5 percent compared to the prior year. The increase is due primarily to higher activity levels and higher pricing within most of our service lines as compared to the prior year. The Support Services segment revenues in 2021 increased $8.1 million or 19.3 percent compared to 2020 due primarily to higher activity levels in the rental tools service line, which is the largest service line within this segment. Technical Services reported operating income of $24.4 million during 2021 compared to an operating loss of $82.5 million in the prior year, while Support Services reported an operating loss of $5.7 million in 2021 compared to an operating loss of $6.7 million in the prior year. The average price of oil increased 72.5 percent and the average price of natural gas increased 93.0 percent during 2021 compared to the prior year. The average domestic rig count during 2021 was 9.5 percent higher than 2020. International revenues, which decreased from $35.9 million in 2020 to $31.2 million in 2021, were four percent of consolidated revenues in 2021 compared to six percent in 2020. International revenues decreased in 2021 primarily due to lower customer activity levels in Algeria, and Saudi Arabia, partially offset by higher activity in Canada compared to the prior year. Our international revenues are impacted by the timing of project initiation and their ultimate duration.
Cost of revenues. Cost of revenues in 2021 increased $182.5 million or 38.0 percent compared to 2020 primarily due to increases in expenses consistent with higher activity levels, such as materials and supplies expenses, employment costs and fuel costs. In addition, these costs increased due to higher market prices for materials and supplies, fuel and other raw materials. As a percentage of revenues, cost of revenues decreased to 76.7 percent in 2021 compared to 80.4 percent in 2020 due to the leverage of higher revenues over direct employment costs and improved pricing for RPC's services.
Selling, general and administrative expenses. Selling, general and administrative expenses decreased slightly to $123.6 million in 2021 compared to $123.7 million in 2020. Selling, general and administrative expenses as a percentage of revenues decreased to 14.3 percent of revenues in 2021 compared to 20.7 percent of revenues in 2020 due to higher revenues over costs that are relatively fixed during the short term.
Depreciation and amortization. Depreciation and amortization were $72.7 million in 2021, a decrease of $22.8 million, compared to $95.5 million in 2020. Depreciation and amortization decreased significantly because of the asset impairment charges recorded during the first quarter of 2020.
Impairment and other charges. There were no impairment and other charges for the year ended December 31, 2021 compared to $217.5 million in 2020. Impairment and other charges in 2020 was comprised primarily of the total amount by which several of our asset groups' carrying amounts exceeded their fair value, a non-cash pension settlement loss, costs to finalize the disposal of our former sand facility and employee severance costs.
Gain on disposition of assets, net. Gain on disposition of assets, net was $10.9 million in 2021 compared to $9.5 million in 2020. The gain on disposition of assets, net is generally comprised of gains or losses related to various property and equipment dispositions or sales to customers of lost or damaged rental equipment.
Other income (expense), net. Other income, net was $2.0 million in 2021 compared to other expense, net of $0.1 million in 2020.
Interest expense and interest income. Interest expense was $1.9 million in 2021 compared to $0.4 million in 2020. The increase in interest expense during 2021compared to the same period in the prior year is primarily due to interest expense related to the resolution of a long-term contractual dispute with a vendor and an indirect tax audit assessment. Interest expense in 2021 and 2020 also includes fees on the unused portion of the credit facility. Interest income decreased to $0.1 million in 2021 compared to $0.5 million in 2020 due to lower interest rates earned on cash balances.
Income tax provision (benefit). Income tax provision was $9.2 million in 2021, compared to an income tax benefit of $97.2 million in 2020. The effective tax rate was 56.1 percent for 2021 compared to 31.4 percent for 2020. The effective tax rate in 2021 results from low income before income taxes coupled with unfavorable discrete tax adjustments.
Net income (loss) and diluted earnings (loss) per share. Net income was $7.2 million in 2021, or $0.03 diluted earnings per share, compared to net loss of $212.2 million in 2020, or $1.00 diluted loss per share. This improvement in earnings per share was due to higher profitability, partially due to impairment charges recorded in 2020, as average shares outstanding was essentially unchanged.
The Company's cash and cash equivalents were $82.4 million as of December 31, 2021, $84.5 million as of December 31, 2020 and $50.0 million as of December 31, 2019.
(In thousands) Net cash provided by operating activities $ 47,719 $ 77,958 $ 209,141 Net cash used for investing activities (47,631) (42,659) (235,788) Net cash used for financing activities (2,151) (826) (39,592)
Cash provided by operating activities for 2021 decreased by $30.2 million compared to the prior year. Cash provided by operating activities during 2021 resulted from net income of $7.2 million coupled with an unfavorable change in accounts receivable of $91.1 million, partially offset by favorable changes in other components of our working capital (accounts payable and taxes receivable) of $57.3 million. Working capital increased primarily due to higher activity levels, partially offset by receipts of income tax refunds related to net operating loss carrybacks.
Cash used for investing activities for 2021 increased by $4.0 million compared to 2021, primarily due to an increase in capital expenditures, partially offset by a decrease in proceeds from the sale of assets.
Cash used for financing activities for 2021 increased by $1.3 million primarily as a result of cash paid for a finance lease, partially offset by lower cost of repurchases of the Company's shares for taxes related to the vesting of restricted shares. There were no dividends paid to common stockholders in 2021 or 2020.
The Company's financial condition as of December 31, 2021 remains strong. We believe the liquidity provided by our existing cash and cash equivalents and our overall strong capitalization will provide sufficient liquidity to meet our requirements for at least the
next twelve months. The Company's decisions about the amount of cash to be used for investing and financing activities are influenced by our capital position, and the expected amount of cash to be provided by operations. RPC does not expect to need our revolving credit facility to meet these liquidity requirements in the near term.
The Company currently has a $100 million revolving credit facility that matures in October 2023, as recently amended. The facility contains customary terms and conditions, including restrictions on indebtedness, dividend payments, business combinations and other related items. On September 25, 2020, the Company further amended the revolving credit facility. Among other matters, the amendment (1) reduced the maximum amount available for borrowing from $125 million to $100 million, (2) decreased the minimum tangible net worth covenant level from not less than $600 million to not less than $400 million, and (3) increased the margin spreads and commitment fees payable by 37.5 and 5 basis points, respectively, at each pricing level of the applicable rate without any changes to the leverage ratios used to calculate such spreads. As of December 31, 2021, RPC had no outstanding borrowings under the revolving credit facility, and letters of credit outstanding relating to self-insurance programs and contract bids totaled $16.3 million; therefore, a total of $83.7 million of the facility was available. The Company was in compliance with the credit facility financial covenants as of December 31, 2021. For additional information with respect to RPC's facility, see Note 9 of the consolidated financial statements.
Capital expenditures were $67.6 million in 2021, and we currently expect capital expenditures to be approximately $120 million in 2022, comprised primarily of capitalized maintenance for existing equipment and selected growth opportunities. During the third quarter of 2021, RPC made the strategic decision to add a Tier IV dual-fuel fleet. This fleet was put into service late in the third quarter and is reflected as a finance lease with a balloon payment at the end of 12 months. The actual amount of capital expenditures will depend primarily on equipment maintenance requirements, expansion opportunities, and equipment delivery schedules.
The Company has ongoing sales and use tax audits in various jurisdictions subject to varying interpretations of statutes. The Company has recorded the exposure from these audits to the extent issues are resolved or can be reasonably estimated. There are issues that could result in unfavorable outcomes that cannot be currently estimated. See Note 12 for additional information.
During the fourth quarter of 2021, the Company initiated actions to terminate the defined benefit pension plan and as such, the year-end pension obligation has been valued on a termination basis. Specifically, the actuaries utilized an approach based on their experience with other plan terminations that (i) estimated a take rate for lump sums; (ii) for those participants electing a lump-sum, calculated the amount using the November 2021 IRS segment rates and (iii) for those participants with annuities purchased, calculated the amount using estimated insurance settlement rates. The Company currently expects to make no cash contributions to the plan in 2022 and approximately $6.0 million in final cash contribution to the benefit plan in early 2023 as part of termination.
As of December 31, 2021, the Company's stock buyback program authorizes the aggregate repurchase of up to 41,578,125 shares, including an additional 10,000,000 shares authorized for repurchase by the Board of Directors on February 12, 2018. No shares were purchased on the open market during the twelve months ended December 31, 2021, and 8,248,184 shares remain available to be repurchased under the current authorization. The Company may repurchase outstanding common shares periodically based on market conditions and our capital allocation strategies considering restrictions under our credit facility. The stock buyback program does not have a predetermined expiration date.
On July 22, 2019, the Board of Directors voted to suspend RPC's dividend to common stockholders. The Company expects to resume cash dividends to common stockholders, subject to the earnings and financial condition of the Company and other relevant factors. The Company has no timetable for the resumption of dividends.
The Company's obligations and commitments that require future payments include our credit facility, certain non-cancelable leases, purchase obligations, amounts related to the usage of corporate aircraft and other long-term liabilities. See note 16 for details regarding RPC's lease obligations.
The Company's assets and liabilities measured at fair value are classified in the fair value hierarchy (Level 1, 2 or 3) based on the inputs used for valuation. Assets and liabilities that are traded on an exchange with a quoted price are classified as Level 1. Assets and liabilities that are valued using significant observable inputs in addition to quoted market prices are classified as Level 2. The Company currently has no assets or liabilities measured on a recurring basis that are valued using unobservable inputs and therefore no assets or liabilities measured on a recurring basis are classified as Level 3. For defined benefit plan and Supplemental Executive
Retirement Plan ("SERP") investments measured at net asset value, the values are computed using inputs such as cost, discounted future cash flows, independent appraisals and market based comparable data or on net asset values calculated by the fund when not publicly available.
The Company purchases its equipment and materials from suppliers who provide competitive prices, and employs skilled workers from competitive labor markets. If inflation in the general economy increases, the Company's costs for equipment, materials and labor could increase as well. In addition, increases in activity in the domestic oilfield can cause upward wage pressures in the labor markets from which it hires employees, especially if employment in the general economy increases. Also, activity increases can cause increases in the costs of certain materials and key equipment components used to provide services to the Company's customers. Beginning in 2018, prices for the raw material comprising the Company's single largest purchase began to decline due to increased sources of supply of the material, particularly in geographic markets located close to the largest U.S. oil and gas basin. In addition, labor costs declined throughout 2020 due to the significant decline in oilfield activity. However, during the fourth quarter of 2020 and throughout 2021, the price of labor began to rise due to increasing oilfield activity and the departure of skilled labor from the domestic oilfield industry during 2020. Early in the first quarter of 2022, market prices of some raw materials have increased significantly. We have successfully passed some of these costs to customers, but due to the competitive nature of the oilfield services business, there is no assurance that we will continue to so in the future.
The Company does not have any material off balance sheet arrangements.
See "NOTE 14: RELATED PARTY TRANSACTIONS" of the consolidated financial statements, which is incorporated herein by reference, for a description of related party transactions.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require significant judgment by management in selecting the appropriate assumptions for calculating accounting estimates. These judgments are based on our historical experience, terms of existing contracts, trends in the industry, and information available from other outside sources, as appropriate. Senior management has discussed the development, selection and disclosure of its critical accounting policies requiring significant judgements and estimates with the Audit Committee of our Board of Directors. The Company believes the following critical accounting policies involve estimates that require a higher degree of judgment and complexity:
Credit loss allowance for accounts receivable - Substantially all of the Company's receivables are due from oil and gas exploration and production companies in the United States, selected international locations and foreign, nationally owned oil companies. Our credit loss allowance is determined using a combination of factors to ensure that our receivables are not overstated due to uncollectibility. Our established credit evaluation procedures seek to minimize the amount of business we conduct with higher risk customers. Our customers' ability to pay is directly related to their ability to generate cash flow on their projects and is significantly affected by the volatility in the price of oil and natural gas. Credit loss allowance for accounts receivable are recorded in selling, general and administrative expenses. Accounts are written off against the allowance when the Company determines that amounts are uncollectible and recoveries of amounts previously written off are recorded when collected. Significant recoveries will generally reduce the required provision in the period of recovery, thereby causing credit loss allowance to fluctuate significantly from period to period. Recoveries were insignificant in 2021, 2020 and 2019. We record specific provisions when we become aware of a customer's inability to meet its financial obligations, such as in the case of bankruptcy filings or deterioration in the customer's operating results or financial position. If circumstances related to a customer changes, our estimate of the realizability of the receivable would be further adjusted, either upward or downward.
The estimated credit loss allowance is based on our evaluation of the overall trends in the oil and gas industry, financial condition of our customers, our historical write-off experience, current economic conditions, and in the case of international customers, our judgments about the economic and political environment of the related country and region. In addition to reserves established for specific customers, we establish general reserves by using different percentages depending on the age of the receivables which we adjust periodically based on management judgment and the economic strength of our customers. The net credit loss allowance as a percentage of revenues ranged from 0.03 percent to 0.8 percent over the last three years. Increasing or decreasing the estimated general reserve percentages by 0.50 percentage points as of December 31, 2021 would have resulted in a change of $4.3 million in the recorded provision for current expected credit losses.
Insurance expenses -The Company self-insures, up to certain policy-specified limits, certain risks related to general liability, workers' compensation, vehicle and equipment liability. The cost of claims under these self-insurance programs is estimated and accrued using individual case-based valuations and statistical analysis and is based upon judgment and historical experience; however, the ultimate cost of many of these claims may not be known for several years. These claims are monitored and the cost estimates are revised as developments occur relating to such claims. The Company has retained an independent third party actuary to assist in the calculation of a range of exposure for these claims. As of December 31, 2021, the Company estimates the range of exposure to be from $19.4 million to $24.5 million. The Company has recorded liabilities at December 31, 2021 of $21.9 million which represents management's best estimate of probable loss.
Long-lived assets including goodwill - RPC carries a variety of long-lived assets on its balance sheet including property, plant and equipment and goodwill. Impairment is the condition that exists when the carrying amount of a long-lived asset exceeds its fair value. Goodwill is the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed. The Company conducts impairment tests on goodwill annually, during the fourth quarter, or more frequently if events or changes in circumstances indicate an impairment may exist. In addition, the Company conducts impairment tests on long-lived assets, other than goodwill, whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
For the impairment testing on long-lived assets, other than goodwill, a long-lived asset is grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Estimated future undiscounted cash flows expected to result from the use and eventual disposition of the asset group are compared to its carrying amount. If the undiscounted cash flows are less than the asset group's carrying amount, then the Company is required to determine the asset group's fair value by using a discounted cash flow analysis. This analysis is based on estimates such as management's short-term and long-term forecast of operating performance, including revenue growth rates and expected profitability margins, estimates of the remaining useful life and service potential of the assets within the asset group, and a discount rate based on weighted average cost of capital. An impairment loss is measured and recorded as the amount by which the asset group's carrying amount exceeds its fair value. Assessment of goodwill impairment is conducted at the level of each reporting unit, which is the same as our reportable segments, Technical Services and Support Services, comparing the estimated fair value of each reporting unit to the reporting unit's carrying value, including goodwill. The fair value of each reporting unit is estimated using an income approach and a market approach. The income approach uses discounted cash flow analysis based on management's short-term and long-term forecast of operating performance. This analysis includes significant assumptions regarding discount rates, revenue growth rates, expected profitability margins, forecasted capital expenditures and the timing of expected future cash flows based on market conditions. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, an impairment loss is measured and recorded.
During the year ended December 31, 2020, the Company recorded an asset impairment loss totaling $204.8 million related to its long-lived asset groups, in response to the drastic decline in oilfield drilling and completion activities that began in the first quarter of 2020. See Note 3 of the consolidated financial statements for additional information which is incorporated herein by reference.
See Note 1 of the consolidated financial statements, which is incorporated herein by reference for a description of recent accounting standards, including the expected dates of adoption and estimated effects on results of operations and financial condition.
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