Leases

12 Months Ended

Dec. 31, 2022

Leases [Abstract]

Leases

Leases

Lessee Accounting

As a lessee, we lease land, buildings, pipelines, transportation and other equipment to support our operations. These leases can be categorized into operating and finance leases.

Our leases have remaining terms of less than 1 year to 22 years, some of which include options to extend the leases for up to 10 years.

Finance Lease Obligations

We have finance lease obligations related to vehicle leases with initial terms of 33 to 48 months. The total cost of assets under finance leases was $7.6 million and $6.0 million as of December 31, 2022 and December 31, 2021, respectively, with accumulated depreciation of $4.0 million and $3.6 million as of December 31, 2022 and December 31, 2021, respectively. We include depreciation of finance leases in depreciation and amortization in our consolidated statements of income.

In addition, we have a finance lease obligation related to a pipeline lease with an initial term of 10 years with one remaining subsequent renewal option for an additional 10 years.

Supplemental balance sheet information related to leases was as follows (in thousands, except for lease term and discount rate):

	December 31, 2022		December 31, 2021
Operating leases:
Operating lease right-of-use assets, net	$	2,317	$	2,275
Current operating lease liabilities	968		620
Noncurrent operating lease liabilities	1,720		2,030
Total operating lease liabilities	$	2,688	$	2,650
Finance leases:
Properties and equipment	$	7,649	$	6,031
Accumulated amortization	(3,979)		(3,632)
Properties and equipment, net	$	3,670	$	2,399
Current finance lease liabilities	4,389		3,786
Noncurrent finance lease liabilities	62,513		64,649
Total finance lease liabilities	$	66,902	$	68,435
Weighted average remaining lease term (in years)
Operating leases	4.6		5.8
Finance leases	13.9		15.0
Weighted average discount rate
Operating leases	4.6%		4.8%
Finance leases	5.7%		5.6%

Supplemental cash flow and other information related to leases were as follows:

	Year Ended December 31, 2022		Year Ended December 31, 2021
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases	$	1,062	$	1,142
Operating cash flows on finance leases	$	4,255	$	4,104
Financing cash flows on finance leases	$	3,743	$	3,549

Maturities of lease liabilities were as follows:

	December 31, 2022
	Operating		Finance
	(In thousands)
2023	$	1,028	$	7,925
2024	608		7,504
2025	491		7,044
2026	326		7,165
2027	205		6,448
2027 and thereafter	318		61,038
Total lease payments	2,976		97,124
Less: Imputed interest	(288)		(30,222)
Total lease obligations	2,688		66,902
Less: Current lease liabilities	(968)		(4,389)
Long-term lease liabilities	$	1,720	$	62,513

The components of lease expense were as follows:

	Years Ended December 31,
	2022		2021
	(In thousands)
Operating lease costs	$	1,048	$	1,077
Finance lease costs
Amortization of assets	877		803
Interest on lease liabilities	3,797		3,953
Variable lease cost	471		215
Total net lease cost	$	6,193	$	6,048

Lessor Accounting

As discussed in Note 1, the majority of our contracts with customers meet the definition of a lease. See Note 1 for further discussion of the impact of adoption of this standard on our activities as a lessor.

Substantially all of the assets supporting contracts meeting the definition of a lease have long useful lives, and we believe these assets will continue to have value when the current agreements expire due to our risk management strategy for protecting the residual fair value of the underlying assets by performing ongoing maintenance during the lease term. HF Sinclair, generally has the option to purchase assets located within HF Sinclair, refinery boundaries, including refinery tankage, truck racks and refinery processing units, at fair market value when the related agreements expire.

During the year ended December 31, 2022, we entered into new agreements, and amended other agreements, with HF Sinclair, related to our newly acquired Sinclair Transportation assets. Certain of these agreements met the criteria of sales-type leases. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at contract inception, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease. Because we recorded these assets at fair values under purchase price accounting, there was no gain or loss on these sales-type leases during the year ended December 31, 2022. The balance sheet impacts were composed of the following:

	(In thousands)
Net investment in leases	$	234,736
Properties and equipment, net	(234,736)
Gain on sales-type leases	$	—

During the year ended December 31, 2021, we entered into new agreements, and amended other agreements, with HF Sinclair, related to our Cheyenne assets, Tulsa West lube racks, various crude tanks and new Navajo tanks, and the agreements we previously entered into relating to the Cushing Connect Pipeline became effective. These agreements met the criteria of sales-type leases. We recognized a gain on sales-type leases during the year ended December 31, 2021 composed of the following:

	(In thousands)
Net investment in leases	148,419
Properties and equipment, net	(130,301)
Deferred Revenue	6,559
Gain on sales-type leases	$	24,677

These sales-type lease transactions, including the related gains, were non-cash transactions.

Lease income recognized was as follows:

	Years Ended December 31,
	2022		2021
	(In thousands)
Operating lease revenues	$	310,968	$	326,902
Direct financing lease interest income	2,115		2,089
Gain on sales-type leases	—		24,677
Sales-type lease interest income	89,285		27,836
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable	22,659		9,160

For our sales-type leases, we included customer obligations related to minimum volume requirements in guaranteed minimum lease payments. Portions of our minimum guaranteed pipeline tariffs for assets subject to sales-type lease accounting are recorded as interest income with the remaining amounts recorded as a reduction in net investment in leases. We recognized any billings for throughput volumes in excess of minimum volume requirements as variable lease payments, and these variable lease payments were recorded in lease revenues.

Annual minimum undiscounted lease payment receipts under our leases were as follows as of December 31, 2022:

	Operating		Finance		Sales-type
Years Ending December 31,	(In thousands)
2023	$	271,439	$	2,243	$	103,876
2024	241,746		2,226		100,580
2025	165,560		2,244		97,153
2026	151,015		2,262		97,153
2027	118,472		2,280		97,153
Thereafter	346,975		34,940		820,234
Total lease payment receipts	$	1,295,207	46,195		1,316,149
Less: Imputed interest			(29,931)		(1,189,628)
			16,264		126,521
Unguaranteed residual assets at end of leases			—		402,934
Net investment in leases			$	16,264	$	529,455

Net investments in leases recorded on our balance sheet were composed of the following:

	December 31, 2022				December 31, 2021
	Sales-type Leases		Direct Financing Leases		Sales-type Leases		Direct Financing Leases
	(In thousands)				(In thousands)
Lease receivables (1)	$	418,989	$	16,264	$	207,768	$	16,371
Unguaranteed residual assets	110,466		—		90,097		—
Net investment in leases	$	529,455	$	16,264	$	297,865	$	16,371

(1)    Current portion of lease receivables included in prepaid and other current assets on the balance sheet.

Leases

Leases

Lessee Accounting

As a lessee, we lease land, buildings, pipelines, transportation and other equipment to support our operations. These leases can be categorized into operating and finance leases.

Our leases have remaining terms of less than 1 year to 22 years, some of which include options to extend the leases for up to 10 years.

Finance Lease Obligations

We have finance lease obligations related to vehicle leases with initial terms of 33 to 48 months. The total cost of assets under finance leases was $7.6 million and $6.0 million as of December 31, 2022 and December 31, 2021, respectively, with accumulated depreciation of $4.0 million and $3.6 million as of December 31, 2022 and December 31, 2021, respectively. We include depreciation of finance leases in depreciation and amortization in our consolidated statements of income.

In addition, we have a finance lease obligation related to a pipeline lease with an initial term of 10 years with one remaining subsequent renewal option for an additional 10 years.

Supplemental balance sheet information related to leases was as follows (in thousands, except for lease term and discount rate):

	December 31, 2022		December 31, 2021
Operating leases:
Operating lease right-of-use assets, net	$	2,317	$	2,275
Current operating lease liabilities	968		620
Noncurrent operating lease liabilities	1,720		2,030
Total operating lease liabilities	$	2,688	$	2,650
Finance leases:
Properties and equipment	$	7,649	$	6,031
Accumulated amortization	(3,979)		(3,632)
Properties and equipment, net	$	3,670	$	2,399
Current finance lease liabilities	4,389		3,786
Noncurrent finance lease liabilities	62,513		64,649
Total finance lease liabilities	$	66,902	$	68,435
Weighted average remaining lease term (in years)
Operating leases	4.6		5.8
Finance leases	13.9		15.0
Weighted average discount rate
Operating leases	4.6%		4.8%
Finance leases	5.7%		5.6%

Supplemental cash flow and other information related to leases were as follows:

	Year Ended December 31, 2022		Year Ended December 31, 2021
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases	$	1,062	$	1,142
Operating cash flows on finance leases	$	4,255	$	4,104
Financing cash flows on finance leases	$	3,743	$	3,549

Maturities of lease liabilities were as follows:

	December 31, 2022
	Operating		Finance
	(In thousands)
2023	$	1,028	$	7,925
2024	608		7,504
2025	491		7,044
2026	326		7,165
2027	205		6,448
2027 and thereafter	318		61,038
Total lease payments	2,976		97,124
Less: Imputed interest	(288)		(30,222)
Total lease obligations	2,688		66,902
Less: Current lease liabilities	(968)		(4,389)
Long-term lease liabilities	$	1,720	$	62,513

The components of lease expense were as follows:

	Years Ended December 31,
	2022		2021
	(In thousands)
Operating lease costs	$	1,048	$	1,077
Finance lease costs
Amortization of assets	877		803
Interest on lease liabilities	3,797		3,953
Variable lease cost	471		215
Total net lease cost	$	6,193	$	6,048

Lessor Accounting

As discussed in Note 1, the majority of our contracts with customers meet the definition of a lease. See Note 1 for further discussion of the impact of adoption of this standard on our activities as a lessor.

Substantially all of the assets supporting contracts meeting the definition of a lease have long useful lives, and we believe these assets will continue to have value when the current agreements expire due to our risk management strategy for protecting the residual fair value of the underlying assets by performing ongoing maintenance during the lease term. HF Sinclair, generally has the option to purchase assets located within HF Sinclair, refinery boundaries, including refinery tankage, truck racks and refinery processing units, at fair market value when the related agreements expire.

During the year ended December 31, 2022, we entered into new agreements, and amended other agreements, with HF Sinclair, related to our newly acquired Sinclair Transportation assets. Certain of these agreements met the criteria of sales-type leases. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at contract inception, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease. Because we recorded these assets at fair values under purchase price accounting, there was no gain or loss on these sales-type leases during the year ended December 31, 2022. The balance sheet impacts were composed of the following:

	(In thousands)
Net investment in leases	$	234,736
Properties and equipment, net	(234,736)
Gain on sales-type leases	$	—

During the year ended December 31, 2021, we entered into new agreements, and amended other agreements, with HF Sinclair, related to our Cheyenne assets, Tulsa West lube racks, various crude tanks and new Navajo tanks, and the agreements we previously entered into relating to the Cushing Connect Pipeline became effective. These agreements met the criteria of sales-type leases. We recognized a gain on sales-type leases during the year ended December 31, 2021 composed of the following:

	(In thousands)
Net investment in leases	148,419
Properties and equipment, net	(130,301)
Deferred Revenue	6,559
Gain on sales-type leases	$	24,677

These sales-type lease transactions, including the related gains, were non-cash transactions.

Lease income recognized was as follows:

	Years Ended December 31,
	2022		2021
	(In thousands)
Operating lease revenues	$	310,968	$	326,902
Direct financing lease interest income	2,115		2,089
Gain on sales-type leases	—		24,677
Sales-type lease interest income	89,285		27,836
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable	22,659		9,160

For our sales-type leases, we included customer obligations related to minimum volume requirements in guaranteed minimum lease payments. Portions of our minimum guaranteed pipeline tariffs for assets subject to sales-type lease accounting are recorded as interest income with the remaining amounts recorded as a reduction in net investment in leases. We recognized any billings for throughput volumes in excess of minimum volume requirements as variable lease payments, and these variable lease payments were recorded in lease revenues.

Annual minimum undiscounted lease payment receipts under our leases were as follows as of December 31, 2022:

	Operating		Finance		Sales-type
Years Ending December 31,	(In thousands)
2023	$	271,439	$	2,243	$	103,876
2024	241,746		2,226		100,580
2025	165,560		2,244		97,153
2026	151,015		2,262		97,153
2027	118,472		2,280		97,153
Thereafter	346,975		34,940		820,234
Total lease payment receipts	$	1,295,207	46,195		1,316,149
Less: Imputed interest			(29,931)		(1,189,628)
			16,264		126,521
Unguaranteed residual assets at end of leases			—		402,934
Net investment in leases			$	16,264	$	529,455

Net investments in leases recorded on our balance sheet were composed of the following:

	December 31, 2022				December 31, 2021
	Sales-type Leases		Direct Financing Leases		Sales-type Leases		Direct Financing Leases
	(In thousands)				(In thousands)
Lease receivables (1)	$	418,989	$	16,264	$	207,768	$	16,371
Unguaranteed residual assets	110,466		—		90,097		—
Net investment in leases	$	529,455	$	16,264	$	297,865	$	16,371

(1)    Current portion of lease receivables included in prepaid and other current assets on the balance sheet.

Leases

Leases

Lessee Accounting

As a lessee, we lease land, buildings, pipelines, transportation and other equipment to support our operations. These leases can be categorized into operating and finance leases.

Our leases have remaining terms of less than 1 year to 22 years, some of which include options to extend the leases for up to 10 years.

Finance Lease Obligations

We have finance lease obligations related to vehicle leases with initial terms of 33 to 48 months. The total cost of assets under finance leases was $7.6 million and $6.0 million as of December 31, 2022 and December 31, 2021, respectively, with accumulated depreciation of $4.0 million and $3.6 million as of December 31, 2022 and December 31, 2021, respectively. We include depreciation of finance leases in depreciation and amortization in our consolidated statements of income.

In addition, we have a finance lease obligation related to a pipeline lease with an initial term of 10 years with one remaining subsequent renewal option for an additional 10 years.

Supplemental balance sheet information related to leases was as follows (in thousands, except for lease term and discount rate):

	December 31, 2022		December 31, 2021
Operating leases:
Operating lease right-of-use assets, net	$	2,317	$	2,275
Current operating lease liabilities	968		620
Noncurrent operating lease liabilities	1,720		2,030
Total operating lease liabilities	$	2,688	$	2,650
Finance leases:
Properties and equipment	$	7,649	$	6,031
Accumulated amortization	(3,979)		(3,632)
Properties and equipment, net	$	3,670	$	2,399
Current finance lease liabilities	4,389		3,786
Noncurrent finance lease liabilities	62,513		64,649
Total finance lease liabilities	$	66,902	$	68,435
Weighted average remaining lease term (in years)
Operating leases	4.6		5.8
Finance leases	13.9		15.0
Weighted average discount rate
Operating leases	4.6%		4.8%
Finance leases	5.7%		5.6%

Supplemental cash flow and other information related to leases were as follows:

	Year Ended December 31, 2022		Year Ended December 31, 2021
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases	$	1,062	$	1,142
Operating cash flows on finance leases	$	4,255	$	4,104
Financing cash flows on finance leases	$	3,743	$	3,549

Maturities of lease liabilities were as follows:

	December 31, 2022
	Operating		Finance
	(In thousands)
2023	$	1,028	$	7,925
2024	608		7,504
2025	491		7,044
2026	326		7,165
2027	205		6,448
2027 and thereafter	318		61,038
Total lease payments	2,976		97,124
Less: Imputed interest	(288)		(30,222)
Total lease obligations	2,688		66,902
Less: Current lease liabilities	(968)		(4,389)
Long-term lease liabilities	$	1,720	$	62,513

The components of lease expense were as follows:

	Years Ended December 31,
	2022		2021
	(In thousands)
Operating lease costs	$	1,048	$	1,077
Finance lease costs
Amortization of assets	877		803
Interest on lease liabilities	3,797		3,953
Variable lease cost	471		215
Total net lease cost	$	6,193	$	6,048

Lessor Accounting

As discussed in Note 1, the majority of our contracts with customers meet the definition of a lease. See Note 1 for further discussion of the impact of adoption of this standard on our activities as a lessor.

Substantially all of the assets supporting contracts meeting the definition of a lease have long useful lives, and we believe these assets will continue to have value when the current agreements expire due to our risk management strategy for protecting the residual fair value of the underlying assets by performing ongoing maintenance during the lease term. HF Sinclair, generally has the option to purchase assets located within HF Sinclair, refinery boundaries, including refinery tankage, truck racks and refinery processing units, at fair market value when the related agreements expire.

During the year ended December 31, 2022, we entered into new agreements, and amended other agreements, with HF Sinclair, related to our newly acquired Sinclair Transportation assets. Certain of these agreements met the criteria of sales-type leases. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at contract inception, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease. Because we recorded these assets at fair values under purchase price accounting, there was no gain or loss on these sales-type leases during the year ended December 31, 2022. The balance sheet impacts were composed of the following:

	(In thousands)
Net investment in leases	$	234,736
Properties and equipment, net	(234,736)
Gain on sales-type leases	$	—

During the year ended December 31, 2021, we entered into new agreements, and amended other agreements, with HF Sinclair, related to our Cheyenne assets, Tulsa West lube racks, various crude tanks and new Navajo tanks, and the agreements we previously entered into relating to the Cushing Connect Pipeline became effective. These agreements met the criteria of sales-type leases. We recognized a gain on sales-type leases during the year ended December 31, 2021 composed of the following:

	(In thousands)
Net investment in leases	148,419
Properties and equipment, net	(130,301)
Deferred Revenue	6,559
Gain on sales-type leases	$	24,677

These sales-type lease transactions, including the related gains, were non-cash transactions.

Lease income recognized was as follows:

	Years Ended December 31,
	2022		2021
	(In thousands)
Operating lease revenues	$	310,968	$	326,902
Direct financing lease interest income	2,115		2,089
Gain on sales-type leases	—		24,677
Sales-type lease interest income	89,285		27,836
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable	22,659		9,160

For our sales-type leases, we included customer obligations related to minimum volume requirements in guaranteed minimum lease payments. Portions of our minimum guaranteed pipeline tariffs for assets subject to sales-type lease accounting are recorded as interest income with the remaining amounts recorded as a reduction in net investment in leases. We recognized any billings for throughput volumes in excess of minimum volume requirements as variable lease payments, and these variable lease payments were recorded in lease revenues.

Annual minimum undiscounted lease payment receipts under our leases were as follows as of December 31, 2022:

	Operating		Finance		Sales-type
Years Ending December 31,	(In thousands)
2023	$	271,439	$	2,243	$	103,876
2024	241,746		2,226		100,580
2025	165,560		2,244		97,153
2026	151,015		2,262		97,153
2027	118,472		2,280		97,153
Thereafter	346,975		34,940		820,234
Total lease payment receipts	$	1,295,207	46,195		1,316,149
Less: Imputed interest			(29,931)		(1,189,628)
			16,264		126,521
Unguaranteed residual assets at end of leases			—		402,934
Net investment in leases			$	16,264	$	529,455

Net investments in leases recorded on our balance sheet were composed of the following:

	December 31, 2022				December 31, 2021
	Sales-type Leases		Direct Financing Leases		Sales-type Leases		Direct Financing Leases
	(In thousands)				(In thousands)
Lease receivables (1)	$	418,989	$	16,264	$	207,768	$	16,371
Unguaranteed residual assets	110,466		—		90,097		—
Net investment in leases	$	529,455	$	16,264	$	297,865	$	16,371

(1)    Current portion of lease receivables included in prepaid and other current assets on the balance sheet.