Leases

12 Months Ended

Dec. 31, 2023

Leases [Abstract]

Leases

Leases

Lessee

Operating Leases

We enter into various lease agreements to support our operations including drilling rigs, well fracturing equipment, compressors, buildings, vessels, vehicles and miscellaneous field equipment. We primarily act as a lessee in these transactions and the majority of our existing leases are classified as either short-term or long-term operating leases.

Our drilling rig agreements are classified as either short-term or long-term leases based on the noncancellable period for which we have the right to use the equipment and assessment of options present in each agreement. We also incur variable lease costs under these agreements primarily related to various additional on-demand equipment and labor. The lease costs associated with the drilling rigs are primarily capitalized as part of the well costs.

Our existing long-term leases are comprised of compressors, drilling rigs, vessels, vehicles and miscellaneous field equipment. Our lease agreements may require both fixed and variable payments; none of the variable payments are rate or index-based, therefore only fixed payments were considered for recognizing lease liabilities and right-of-use (‘ROU’) assets related to long-term leases. Also, based on our election not to separate the lease and nonlease components, fixed payments related to equipment, crew and other nonlease components are included in the initial measurement of lease liabilities and ROU assets for all asset classes, except for vessels. For vessels, the contractual consideration was allocated between lease and nonlease components based on estimates provided by service providers.

Our leased assets may be used in joint oil and gas operations with other working interest owners. We recognize lease liabilities and ROU assets only when we are the signatory to a contract as an operator of joint properties. Such lease liabilities and ROU assets are determined based on gross contractual obligations. As we use the leased assets for joint operations, we have the contractual right to recover the other working interest owners’ share of lease costs. As a result, our lease costs are presented on a net basis, reduced for any costs recoverable from other working interest owners.

Finance Leases

In 2018, we signed an agreement with an owner/lessor to construct and lease a new build-to-suit office building in Houston, Texas. The initial lease term is five years and commenced in September 2021 after the new Houston office was ready for occupancy. In March 2022, we made our first cash lease payment. During the years ended December 31, 2023, and 2022, we have made cash lease payments totaling approximately $22 million and $11 million, respectively. At the end of the initial lease term, we can negotiate to extend the lease term for an additional five years, subject to the approval of the participants; purchase the property subject to certain terms and conditions; or remarket the property to an unrelated third party. The lease contains a residual value guarantee of 100% of the total acquisition and construction costs.

Balance Sheet Information

Balance sheet information related to ROU assets and lease liabilities was as follows:

		December 31,
(In millions)		2023		2022
ROU assets:	Balance Sheet Location:
Operating leases(a)	Other noncurrent assets	$	225	$	123
Finance leases	Other noncurrent assets	18		24
Total ROU assets		$	243	$	147
Lease liabilities:
Current liabilities
Operating leases	Other current liabilities	$	109	$	94
Finance leases	Other current liabilities	7		6
Noncurrent liabilities
Operating leases(a)	Deferred credits and other liabilities	120		32
Finance leases	Deferred credits and other liabilities	12		18
Total lease liabilities		$	248	$	150

(a)As of December 31, 2023, our noncurrent operating ROU asset and lease liability balances increased by $102 million and $88 million, respectively, when compared to the prior year ending balances. The increase is primarily a result of entering into long-term leases for compressors in certain operating areas.

Statements of Income Information

The table below presents our net lease costs for the years ended December 31, 2023, 2022 and 2021:

	December 31,
(In millions)	2023		2022		2021
Operating lease costs:
Short-term lease costs(a)	$	76	$	164	$	121
Long-term lease costs(b)	120		74		64
Variable lease costs(c)	24		37		33
Finance lease costs:
Amortization of ROU assets	6		4		3
Total lease costs	$	226	$	279	$	221
Other information:
Cash paid for amounts included in the measurement of operating lease liabilities	$	149	$	90	$	73
ROU assets obtained in exchange for new operating lease liabilities(d)	56		117		15
ROU assets obtained in exchange for new finance lease liabilities(e)	—		—		28
Changes to ROU assets resulting from modifications or cancellations of operating leases	$	179	$	40	$	(13)

(a)Represents our net share of lease costs arising from leases of less than one year but longer than one month that were not included in the lease liability.

(b)Represents our net share of the ROU asset amortization and the interest expense.

(c)Represents our net share of variable lease payments that were not included in the lease liability.

(d)Represents the cumulative value of operating lease ROU assets recognized at lease inception and is amortized as the ROU asset is utilized.

(e)Represents the cumulative value of finance lease ROU assets recognized at lease inception and is amortized as the ROU asset is utilized.

Annual Lease Maturities

The remaining annual undiscounted cash flows associated with long-term leases and the reconciliation of these cash flows to the lease liabilities recognized on the consolidated balance sheet is summarized below:

(In millions)	Operating Lease Obligations		Finance Lease Obligations		Total Lease Obligations
2024	$	123	$	7	$	130
2025	67		7		74
2026	55		6		61
2027	1		—		1
2028	—		—		—
Thereafter	—		—		—
Total undiscounted lease payments	$	246	$	20	$	266
Less: amount representing interest	17		1		18
Total lease liabilities	$	229	$	19	$	248
Less: current portion of lease liability as of December 31, 2023	109		7		116
Long-term lease liability as of December 31, 2023	$	120	$	12	$	132

Other Information

We use our periodic incremental borrowing rate to discount future contractual payments to their present values. For our operating leases, the weighted average lease term is two years, and the discount rate is 5.72% as of December 31, 2023. For our finance leases, the weighted-average remaining lease term is three years, and the discount rate is 2.23% as of December 31, 2023.

Lessor

Our wholly owned subsidiary, MEGPL, is a lessor for residential housing in E.G., which is occupied by EGHoldings, a related party equity method investee – see Note 17. The lease was classified as an operating lease and expires in 2024, with a lessee option to extend through 2034. Lease payments are fixed for the entire duration of the agreement at approximately $6 million per year. Our lease income is reported in other income in our consolidated statements of income for all periods presented. The undiscounted cash flows to be received under this lease agreement are summarized below:

(In millions)	Operating Lease Future Cash Receipts
2024	$	6
2025	6
2026	6
2027	6
2028	6
Thereafter	36
Total undiscounted cash flows	$	66

Leases

Leases

Lessee

Operating Leases

We enter into various lease agreements to support our operations including drilling rigs, well fracturing equipment, compressors, buildings, vessels, vehicles and miscellaneous field equipment. We primarily act as a lessee in these transactions and the majority of our existing leases are classified as either short-term or long-term operating leases.

Our drilling rig agreements are classified as either short-term or long-term leases based on the noncancellable period for which we have the right to use the equipment and assessment of options present in each agreement. We also incur variable lease costs under these agreements primarily related to various additional on-demand equipment and labor. The lease costs associated with the drilling rigs are primarily capitalized as part of the well costs.

Our existing long-term leases are comprised of compressors, drilling rigs, vessels, vehicles and miscellaneous field equipment. Our lease agreements may require both fixed and variable payments; none of the variable payments are rate or index-based, therefore only fixed payments were considered for recognizing lease liabilities and right-of-use (‘ROU’) assets related to long-term leases. Also, based on our election not to separate the lease and nonlease components, fixed payments related to equipment, crew and other nonlease components are included in the initial measurement of lease liabilities and ROU assets for all asset classes, except for vessels. For vessels, the contractual consideration was allocated between lease and nonlease components based on estimates provided by service providers.

Our leased assets may be used in joint oil and gas operations with other working interest owners. We recognize lease liabilities and ROU assets only when we are the signatory to a contract as an operator of joint properties. Such lease liabilities and ROU assets are determined based on gross contractual obligations. As we use the leased assets for joint operations, we have the contractual right to recover the other working interest owners’ share of lease costs. As a result, our lease costs are presented on a net basis, reduced for any costs recoverable from other working interest owners.

Finance Leases

In 2018, we signed an agreement with an owner/lessor to construct and lease a new build-to-suit office building in Houston, Texas. The initial lease term is five years and commenced in September 2021 after the new Houston office was ready for occupancy. In March 2022, we made our first cash lease payment. During the years ended December 31, 2023, and 2022, we have made cash lease payments totaling approximately $22 million and $11 million, respectively. At the end of the initial lease term, we can negotiate to extend the lease term for an additional five years, subject to the approval of the participants; purchase the property subject to certain terms and conditions; or remarket the property to an unrelated third party. The lease contains a residual value guarantee of 100% of the total acquisition and construction costs.

Balance Sheet Information

Balance sheet information related to ROU assets and lease liabilities was as follows:

		December 31,
(In millions)		2023		2022
ROU assets:	Balance Sheet Location:
Operating leases(a)	Other noncurrent assets	$	225	$	123
Finance leases	Other noncurrent assets	18		24
Total ROU assets		$	243	$	147
Lease liabilities:
Current liabilities
Operating leases	Other current liabilities	$	109	$	94
Finance leases	Other current liabilities	7		6
Noncurrent liabilities
Operating leases(a)	Deferred credits and other liabilities	120		32
Finance leases	Deferred credits and other liabilities	12		18
Total lease liabilities		$	248	$	150

(a)As of December 31, 2023, our noncurrent operating ROU asset and lease liability balances increased by $102 million and $88 million, respectively, when compared to the prior year ending balances. The increase is primarily a result of entering into long-term leases for compressors in certain operating areas.

Statements of Income Information

The table below presents our net lease costs for the years ended December 31, 2023, 2022 and 2021:

	December 31,
(In millions)	2023		2022		2021
Operating lease costs:
Short-term lease costs(a)	$	76	$	164	$	121
Long-term lease costs(b)	120		74		64
Variable lease costs(c)	24		37		33
Finance lease costs:
Amortization of ROU assets	6		4		3
Total lease costs	$	226	$	279	$	221
Other information:
Cash paid for amounts included in the measurement of operating lease liabilities	$	149	$	90	$	73
ROU assets obtained in exchange for new operating lease liabilities(d)	56		117		15
ROU assets obtained in exchange for new finance lease liabilities(e)	—		—		28
Changes to ROU assets resulting from modifications or cancellations of operating leases	$	179	$	40	$	(13)

(a)Represents our net share of lease costs arising from leases of less than one year but longer than one month that were not included in the lease liability.

(b)Represents our net share of the ROU asset amortization and the interest expense.

(c)Represents our net share of variable lease payments that were not included in the lease liability.

(d)Represents the cumulative value of operating lease ROU assets recognized at lease inception and is amortized as the ROU asset is utilized.

(e)Represents the cumulative value of finance lease ROU assets recognized at lease inception and is amortized as the ROU asset is utilized.

Annual Lease Maturities

The remaining annual undiscounted cash flows associated with long-term leases and the reconciliation of these cash flows to the lease liabilities recognized on the consolidated balance sheet is summarized below:

(In millions)	Operating Lease Obligations		Finance Lease Obligations		Total Lease Obligations
2024	$	123	$	7	$	130
2025	67		7		74
2026	55		6		61
2027	1		—		1
2028	—		—		—
Thereafter	—		—		—
Total undiscounted lease payments	$	246	$	20	$	266
Less: amount representing interest	17		1		18
Total lease liabilities	$	229	$	19	$	248
Less: current portion of lease liability as of December 31, 2023	109		7		116
Long-term lease liability as of December 31, 2023	$	120	$	12	$	132

Other Information

We use our periodic incremental borrowing rate to discount future contractual payments to their present values. For our operating leases, the weighted average lease term is two years, and the discount rate is 5.72% as of December 31, 2023. For our finance leases, the weighted-average remaining lease term is three years, and the discount rate is 2.23% as of December 31, 2023.

Lessor

Our wholly owned subsidiary, MEGPL, is a lessor for residential housing in E.G., which is occupied by EGHoldings, a related party equity method investee – see Note 17. The lease was classified as an operating lease and expires in 2024, with a lessee option to extend through 2034. Lease payments are fixed for the entire duration of the agreement at approximately $6 million per year. Our lease income is reported in other income in our consolidated statements of income for all periods presented. The undiscounted cash flows to be received under this lease agreement are summarized below:

(In millions)	Operating Lease Future Cash Receipts
2024	$	6
2025	6
2026	6
2027	6
2028	6
Thereafter	36
Total undiscounted cash flows	$	66