NOTE 13. LEASES

On January 1, 2019, Harvest adopted ASU No. 2016‑02, Leases (Topic 842) (“Topic 842”), using a modified retrospective method. Accordingly, the comparative information for the year ended December 31, 2018 has not been adjusted and continues to be reported under the previous lease standard. At adoption on January 1, 2019, an operating lease right of use asset of $1.8 million and an operating lease liability of $1.8 million was recorded. There was no cumulative earnings effect adjustment.

There were no significant changes to the timing and amount of lease expense recognized in “Lease operating expenses” in the consolidated statements of operations. However, as a result of the adoption of Topic 842, the Company recognized right of use assets and lease liabilities for certain commitments related to real estate, vehicles and field equipment that were previously accounted for as operating leases. The Company determines if an arrangement is a lease at inception. Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Contracts with lease terms less than 12 months are not recorded on the consolidated balance sheet, but instead are disclosed as short-term lease cost.

During the normal course of business, Harvest leases office space, vehicles, IT equipment and field equipment. The Company’s leases have remaining lease terms of 1 year to 3 years, some of which include options to renew. The exercise of lease renewal options is at the Company’s sole discretion. The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants.

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company used the incremental borrowing rate on January 1, 2019 for operating leases that commenced prior to that date.

Operating leases are included in other assets, other current liabilities and other long-term liabilities on the consolidated balance sheet as of December 31, 2019. Operating lease right of use assets and lease liabilities included on the consolidated balance sheets were as follows (in thousands):


	December 31, 2019
Other assets	$	1,036

Other current liabilities		586
Other long-term liabilities		450
Total operating lease liabilities	$	1,036

Weighted average remaining lease term (in years)		1.9

Weighted average discount rate		5.8%

During the year ended December 31, 2019, the Company paid $3.4 million of lease cost. Furthermore, during the year ended December 31, 2019, the Company recognized lease cost, net of reimbursements from other working interest owners, of $0.9 million for operating leases and $2.4 million for short-term leases, which is included in “Lease operating expenses” in the Company’s consolidated statement of operations.

Maturities of operating lease liabilities as of December 31, 2019, were as follows (in thousands):


2020	$	623
2021		418
2022		42
2023		4
Total lease payments		1,087
Less: imputed interest		(51)
Present value of lease liabilities	$	1,036