Leases

12 Months Ended

Dec. 31, 2019

In February 2016, the FASB established ASC 842, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. ASC 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases, ASU No. 2018-11, Targeted Improvements and ASU No 2019-01, Codification Improvements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases except those with a term of 12 months or less. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. We adopted the new standard on its effective date of January 1, 2019, which is also our date of initial application. Consequently, we have not updated financial information nor provided disclosures required under the new standard for dates and periods before January 1, 2019. Our disclosures for dates and periods before January 1, 2019, are provided in accordance with the requirements of ASC Topic 840, Leases (“ASC 840”).

We have elected the package of transition practical expedients, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. Additionally, we have elected not to apply the recognition requirements of ASC Topic 842 to leases with durations of 12 months or less. Upon adoption of ASC 842, we carried over our existing capital lease obligations (now “financing leases” under ASC 842) and capital lease asset (now “right of use asset” under ASC 842) at their previous carrying value. In recognizing right of use assets and corresponding lease liabilities, the Company considers whether the lease agreements contain options to renew or purchase, and the likelihood that those options will be exercised.

Financing leases

We previously had lease financing agreements which were entered into during 2013 with U.S. Bank for $24,500 through the sale and subsequent leaseback of existing CO₂ compressors owned by us. The lease financing obligations were for terms of 84 months and included the option to purchase the equipment for a specified price at 72 months as well as an option to purchase the equipment at the end of the lease term for its then-current fair market value. There were no residual value guarantees and nonlease components under these leases. At the inception of the lease, our measurement of the lease liability assumed that the mid-term purchase option would be exercised. Since the lease contract had not been modified and there were no triggering events subsequent to our adoption of ASC 842, we did not perform any reassessment of the lease prior to its termination discussed below. Lease payments related to the equipment were recognized as principal and interest expense based on a weighted average implicit interest rate of 3.8%. Minimum lease payments were approximately $3,181 annually. In conjunction with the sale of our EOR assets in November 2017, these compressors were subleased to the buyer of those assets while we remained the primary obligor in relation to U.S. Bank. In September 2019, U.S. Bank entered into agreements with the Sublessee that resulted in the discharge of the remaining obligations with respect to these compressor leases in the amount of $9,832.

During 2019, we entered into lease financing agreements for our fleet trucks and office copiers for $1,911. The fleet truck financing obligations are for 48-month terms with the option for us to purchase the vehicle at any time during the lease term by paying the lessor’s remaining unamortized cost in the vehicle. At the end of the lease term, the lessor’s remaining unamortized cost in the vehicle will be a de minimis amount and hence ownership of the vehicle can be transferred to us at minimal cost. There are no residual value guarantees or nonlease components under these leases. We also entered into a lease financing arrangement for a limited number of office copiers in 2019.

Operating leases

We previously also had operating leases for CO₂ compressors deployed in our former EOR operations. The operating lease obligations, which we entered into in 2014 and 2016, were for terms of 84 months without any specified purchase options. There were no residual value guarantees or nonlease components under these leases. In conjunction with the sale of our EOR assets in November 2017, these compressors were subleased to the buyer of those assets although we remained the primary obligor in relation to U.S. Bank. Similar to the financing leases discussed above, all our obligations under these compressor leases were discharged by U.S. Bank in September 2019.

During the fourth quarter of 2018, we entered into 15-month leasing arrangements for two drilling rigs. These agreements specify a minimum daily rate on the rigs that we utilize to measure the lease liability upon adoption of ASC 842. The actual daily rate may vary from the minimum rate depending on whether the rig is being mobilized, demobilized, engaged in drilling or on standby. The daily rate includes a non-lease labor component that we have elected not to separate from the lease component for this asset class. Our fixed commitment under those lease agreements terminated on December 31, 2019. Each of the two drilling rigs operating on our behalf during the first quarter of 2020 are contracted on a well-by-well basis.

On August 30, 2019, in conjunction with the sale of the building housing our headquarters, we entered into a leaseback agreement with the buyer for a portion of the office space in the building for a period of two years with a renewal option that includes one-year extensions for up to two years. The office space lease includes typical non-lease components such as utilities, maintenance and janitorial services for that we have elected not to separate from the lease component.

Short term leases

Our short term leases are those with lease terms of 12 months or less and generally consist of wellhead compressors, generators and drilling rigs with terms ranging from one month to six months. As discussed above, we have elected not to recognize right of use assets or lease liabilities for leases with durations of 12 months or less.

Subleases

As discussed above, we previously had subleases consisting of CO₂ compressors that were utilized in our former EOR operations and leased as both financing and operating leases from U.S. Bank but subsequently subleased to the purchaser of our EOR assets (the “Sublessee”). Minimum payments under the subleases were equal to the original leases and as such we did not record any losses upon initiation of the subleases. All the subleases were classified as operating leases from a lessor’s standpoint. All payments received from the Sublessee were reflected as “Sublease revenue” on our statement of operations. Minimum payments made to U.S. Bank on the original operating leases were reflected as “Other” expense on our statement of operations. With respect to the financing leases, upon executing the subleases, we reclassified the amount associated with these leases from the full cost amortization base to “Property and equipment, net” on our balance sheet, amortized the asset on a straight line basis prospectively while continuing to incur interest expense. In September 2019, U.S. Bank entered into agreements with the Sublessee that resulted in the discharge of all our obligations with respect to the originating leases and to the subleases.

Lease assets and liabilities

Our operating and financing lease assets and liabilities are recorded on our balance sheet as of December 31, 2019 as follows:



	As of December 31, 2019
	Operating leases		Financing leases
Right of use asset:
Right of use assets from operating leases (1)	$	2,444	$	—
Plant, property and equipment, net (2)	—		1,659
Total lease assets	$	2,444	$	1,659
Lease liability:
Account payable and accrued liabilities	$	1,259	$	—
Long-term debt and financing leases, classified as current	—		432
Long-term debt and financing leases, less current maturities	—		1,221
Noncurrent operating lease obligations	917		—
Total lease liabilities	$	2,176	$	1,653

________________________________

(1) Consisted of a lease of office space.

(2) Consisted of leased fleet vehicles and office equipment.

Our income, expenses and cash flows related to our leases is as follows for the year ended December 31, 2019:



	Year ended
	December 31, 2019
Lease cost
Finance lease cost:
Amortization of right-of-use assets	$	2,073
Interest on lease liabilities	344
Operating lease cost	1,342
Short-term lease cost	780
Variable lease cost	253
Sublease income	(3,195		)
Total lease cost	$	1,597

Capitalized operating lease cost (1)	$	13,523

Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for finance leases	$	(344	)
Operating cash flows for operating leases	(1,610		)
Investing cash flows for operating leases	(9,448		)
Financing cash flows for finance leases	(2,102		)
Right-of-use assets obtained in exchange for new finance lease liabilities	1,911

________________________________


(1)	The operating lease cost are related to drilling rigs and are capitalized as part of oil and natural gas properties on our balance sheets.



	As of
	December 31, 2019
Weighted-average remaining lease term - finance leases	3.6 years
Weighted-average remaining lease term - operating leases	1.7 years
Weighted-average discount rate - finance leases	6.67	%
Weighted-average discount rate - operating leases	8.72	%

Our rent expense for the years ended December 31, 2019, 2018 and 2017 was $5,542, $3,684 and $4,971, respectively.

Discount rate

Whenever possible, we utilize the implied rate in our lease agreements to measure our lease liabilities. In the absence of a readily available implied rate, we utilize our incremental borrowing rate. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The lease liabilities we recorded on our balance sheet on the effective date of ASC 842 were measured utilizing an incremental borrowing rate derived from the yield and/or credit rating on our unsecured Senior Notes and adjusted to a collateralized basis utilizing a recovery rate model that uses observed recovery rates on defaulted debt instruments.

Lease maturities

Our lease payments for each of the next five years and thereafter are as follows:



	As of December 31, 2019				As of December 31, 2018 (1)
	Operating leases		Financing leases		Operating leases		Financing leases
2019	$	1,389	$	530	$	13,890	$	12,332
2020	941		530		1,330		—
2021	—		531		1,297		—
2022	—		226		278		—
2023	—		55		205		—
Thereafter	—		—		—		—
Total minimum lease payments	2,330		1,872		17,000		12,332
Less: imputed interest	154		219		*		*
Total lease liability	2,176		1,653		*		*
Less: current maturities of lease obligations	1,259		432		*		*
Noncurrent lease obligations	$	917	$	1,221	*		*

________________________________


(1)	Represents undiscounted firm commitments as of December 31, 2018

* Disclosure not required under ASC 840.

Method of adoption

We adopted ASC 842 effective January 1, 2019, using the modified retrospective approach. Based on an assessment of our leasing contracts, we did not record a cumulative effect adjustment to the opening balance of accumulated deficit.

Reconciliation of Balance Sheet Statement

In accordance with ASC 842, the disclosure of the impact of adoption on our balance statement is as follows:



	As of January 1, 2019
	Balances upon adoption		Balances without adoption of ASC 842		Effect of change
Assets
Right of use asset from operating leases, net	$	14,999	$	—	$	14,999
Liabilities
Accounts payable and accrued liabilities	12,467		—		12,467
Noncurrent operating lease obligation	2,532		—		2,532

Leases

Financing leases

Operating leases

Short term leases

Subleases

Lease assets and liabilities

Our operating and financing lease assets and liabilities are recorded on our balance sheet as of December 31, 2019 as follows:



	As of December 31, 2019
	Operating leases		Financing leases
Right of use asset:
Right of use assets from operating leases (1)	$	2,444	$	—
Plant, property and equipment, net (2)	—		1,659
Total lease assets	$	2,444	$	1,659
Lease liability:
Account payable and accrued liabilities	$	1,259	$	—
Long-term debt and financing leases, classified as current	—		432
Long-term debt and financing leases, less current maturities	—		1,221
Noncurrent operating lease obligations	917		—
Total lease liabilities	$	2,176	$	1,653

________________________________

(1) Consisted of a lease of office space.

(2) Consisted of leased fleet vehicles and office equipment.

Our income, expenses and cash flows related to our leases is as follows for the year ended December 31, 2019:



	Year ended
	December 31, 2019
Lease cost
Finance lease cost:
Amortization of right-of-use assets	$	2,073
Interest on lease liabilities	344
Operating lease cost	1,342
Short-term lease cost	780
Variable lease cost	253
Sublease income	(3,195		)
Total lease cost	$	1,597

Capitalized operating lease cost (1)	$	13,523

Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for finance leases	$	(344	)
Operating cash flows for operating leases	(1,610		)
Investing cash flows for operating leases	(9,448		)
Financing cash flows for finance leases	(2,102		)
Right-of-use assets obtained in exchange for new finance lease liabilities	1,911

________________________________


(1)	The operating lease cost are related to drilling rigs and are capitalized as part of oil and natural gas properties on our balance sheets.



	As of
	December 31, 2019
Weighted-average remaining lease term - finance leases	3.6 years
Weighted-average remaining lease term - operating leases	1.7 years
Weighted-average discount rate - finance leases	6.67	%
Weighted-average discount rate - operating leases	8.72	%

Our rent expense for the years ended December 31, 2019, 2018 and 2017 was $5,542, $3,684 and $4,971, respectively.

Discount rate

Lease maturities

Our lease payments for each of the next five years and thereafter are as follows:



	As of December 31, 2019				As of December 31, 2018 (1)
	Operating leases		Financing leases		Operating leases		Financing leases
2019	$	1,389	$	530	$	13,890	$	12,332
2020	941		530		1,330		—
2021	—		531		1,297		—
2022	—		226		278		—
2023	—		55		205		—
Thereafter	—		—		—		—
Total minimum lease payments	2,330		1,872		17,000		12,332
Less: imputed interest	154		219		*		*
Total lease liability	2,176		1,653		*		*
Less: current maturities of lease obligations	1,259		432		*		*
Noncurrent lease obligations	$	917	$	1,221	*		*

________________________________


(1)	Represents undiscounted firm commitments as of December 31, 2018

* Disclosure not required under ASC 840.

Method of adoption

Reconciliation of Balance Sheet Statement

In accordance with ASC 842, the disclosure of the impact of adoption on our balance statement is as follows:



	As of January 1, 2019
	Balances upon adoption		Balances without adoption of ASC 842		Effect of change
Assets
Right of use asset from operating leases, net	$	14,999	$	—	$	14,999
Liabilities
Accounts payable and accrued liabilities	12,467		—		12,467
Noncurrent operating lease obligation	2,532		—		2,532

Leases

Financing leases

Operating leases

Short term leases

Subleases

Lease assets and liabilities

Our operating and financing lease assets and liabilities are recorded on our balance sheet as of December 31, 2019 as follows:



	As of December 31, 2019
	Operating leases		Financing leases
Right of use asset:
Right of use assets from operating leases (1)	$	2,444	$	—
Plant, property and equipment, net (2)	—		1,659
Total lease assets	$	2,444	$	1,659
Lease liability:
Account payable and accrued liabilities	$	1,259	$	—
Long-term debt and financing leases, classified as current	—		432
Long-term debt and financing leases, less current maturities	—		1,221
Noncurrent operating lease obligations	917		—
Total lease liabilities	$	2,176	$	1,653

________________________________

(1) Consisted of a lease of office space.

(2) Consisted of leased fleet vehicles and office equipment.

Our income, expenses and cash flows related to our leases is as follows for the year ended December 31, 2019:



	Year ended
	December 31, 2019
Lease cost
Finance lease cost:
Amortization of right-of-use assets	$	2,073
Interest on lease liabilities	344
Operating lease cost	1,342
Short-term lease cost	780
Variable lease cost	253
Sublease income	(3,195		)
Total lease cost	$	1,597

Capitalized operating lease cost (1)	$	13,523

Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for finance leases	$	(344	)
Operating cash flows for operating leases	(1,610		)
Investing cash flows for operating leases	(9,448		)
Financing cash flows for finance leases	(2,102		)
Right-of-use assets obtained in exchange for new finance lease liabilities	1,911

________________________________


(1)	The operating lease cost are related to drilling rigs and are capitalized as part of oil and natural gas properties on our balance sheets.



	As of
	December 31, 2019
Weighted-average remaining lease term - finance leases	3.6 years
Weighted-average remaining lease term - operating leases	1.7 years
Weighted-average discount rate - finance leases	6.67	%
Weighted-average discount rate - operating leases	8.72	%

Our rent expense for the years ended December 31, 2019, 2018 and 2017 was $5,542, $3,684 and $4,971, respectively.

Discount rate

Lease maturities

Our lease payments for each of the next five years and thereafter are as follows:



	As of December 31, 2019				As of December 31, 2018 (1)
	Operating leases		Financing leases		Operating leases		Financing leases
2019	$	1,389	$	530	$	13,890	$	12,332
2020	941		530		1,330		—
2021	—		531		1,297		—
2022	—		226		278		—
2023	—		55		205		—
Thereafter	—		—		—		—
Total minimum lease payments	2,330		1,872		17,000		12,332
Less: imputed interest	154		219		*		*
Total lease liability	2,176		1,653		*		*
Less: current maturities of lease obligations	1,259		432		*		*
Noncurrent lease obligations	$	917	$	1,221	*		*

________________________________


(1)	Represents undiscounted firm commitments as of December 31, 2018

* Disclosure not required under ASC 840.

Method of adoption

Reconciliation of Balance Sheet Statement

In accordance with ASC 842, the disclosure of the impact of adoption on our balance statement is as follows:



	As of January 1, 2019
	Balances upon adoption		Balances without adoption of ASC 842		Effect of change
Assets
Right of use asset from operating leases, net	$	14,999	$	—	$	14,999
Liabilities
Accounts payable and accrued liabilities	12,467		—		12,467
Noncurrent operating lease obligation	2,532		—		2,532