On February 25, 2016, the FASB issued Accounting Standard Update (“ASU”) No. 2016-02, Leases, which requires lessees to record lease liabilities and right-of-use assets as of the date of adoption and was incorporated into GAAP as Accounting Standards Codification (“ASC”) Topic 842. The new lease standard does not substantially change accounting by lessors. The Company adopted the new standard effective January 1, 2019. The Company is a lessee to both operating and finance lease arrangements. The standard resulted in an increased in assets and liabilities related to our operating leases.

The Company leases certain office space, processing plants, drilling rigs and completion services, gas gathering lines, compressor stations, and other office and field equipment. Leases with an initial term of 12 months or less are considered short-term and are not recorded on the balance sheet. Instead, the short-term leases are recognized in expense on a straight-line basis over the lease term.

Most leases include one or more options to renew, with renewal terms that can extend the lease from one to 20 years or more. The exercise of the lease renewal options are at the Company’s sole discretion. The depreciable lives of the leased assets are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Certain of the Company’s lease agreements include minimum payments based on a percentage of produced volumes over contractual levels and others include rental payments adjusted periodically for inflation.

The Company has elected the effective date method for adoption of the new leasing standard under Topic 842. This method allows the Company to not make retrospective adjustments for leases that were in effect prior to the adoption date of January 1, 2019 when disclosing comparable prior periods, but instead, account for the prior period leases under Topic 840, which was the guidance in place at the time of the original reporting.

The Company considers all contracts that have assets specified in the contract, either explicitly or implicitly, that the Company has substantially all of the capacity of the asset, and has the right to obtain substantially all of the economic benefits of that asset, without the lessor’s ability to have a substantive right to substitute that asset, as leased assets under Topic 842. For any contract deemed to include a leased asset, that asset is capitalized on the balance sheet as a right-of-use asset and a corresponding lease liability is recorded at the present value of the known future minimum payments of the contract using a discount rate on the date of commencement. The leased asset classification is determined at the date of recording as either operating or financing, depending upon certain criteria of the contract.

The discount rate used for present value calculations is the discount rate implicit in the contract. If an implicit rate is not determinable, a collateralized incremental borrowing rate is used at the date of commencement. The Company used the collateralized incremental borrowing rate, adjusted for length of lease term, for all of its present value calculations at the initial adoption of Topic 842.

The Company has made an accounting policy election to adopt the practical expedient for combining lease and non-lease components on an asset class basis. This expedient allows the Company to combine non-lease components such as real estate taxes, insurance, maintenance, and other operating expenses associated with the leased premises with the lease component of a lease agreement on an asset class basis when the non-lease components of the agreement cannot be easily bifurcated from the lease payment. Currently, the Company is only applying this expedient to certain office space agreements.

The Company’s lease assets as of September 30, 2019 consisted of the following items (in thousands):

(1)

Gas gathering lines and compressor stations leases includes $1.3 billion related to Antero Midstream Corporation.

(2)

Financing lease assets are recorded net of accumulated amortization of $9 million as of September 30, 2019.

The Company’s lease liabilities as of September 30, 2019 consisted of the following items (in thousands):


	September 30, 2019
	Operating Leases		Finance Leases
Location on the balance sheet:
Short-term lease liabilities	$	408,814		1,176
Long-term lease liabilities		2,821,334		1,863
Total lease liabilities	$	3,230,148		3,039

The processing plants, gathering lines and compressor stations that are classified as lease liabilities are classified as such under ASC 842 because Antero is the sole customer of the assets and because Antero makes the decisions that most impact the economic performance of the assets.

Supplemental Information Related to Leases

Costs associated with operating leases were included in the statement of operations and comprehensive income (loss) for the three and nine months ended September 30, 2019 (in thousands):


Statement of Operations Location	Three months ended September 30, 2019		Nine months ended September 30, 2019
Gathering, compression, processing, and transportation	$	237,618	$	644,007
General and administrative		2,859		8,395
Contract termination and rig stacking		—		10,692
Total Lease Expense	$	240,477	$	663,094

Costs associated with finance leases of less than $1 million for each of the three and nine months ended September 30, 2019 were included in interest expense.

We capitalized $53 million and $161 million, respectively, of costs related to operating leases and less than $1 million of costs related to finance leases during each of the three and nine months ended September 30, 2019, respectively.

Short-term lease costs that are more than one month but less than 12 months are excluded from the above amounts and total $115 million at September 30, 2019.

Supplemental Cash Flow Information Related to Leases

The following is the Company’s supplemental cash flow information related to leases for the three and nine months ended September 30, 2019 (in thousands):


	Three months ended September 30, 2019				Nine months ended September 30, 2019
	Operating Leases		Finance Leases		Operating Leases		Finance Leases
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash out flows related to operating leases	$	234,399		—	$	591,963		—
Investing cash out flows related to operating leases		47,417		—		146,315		—
Financing cash out flows related to financing leases		—		303		—		1,967
		281,816		303		738,278		1,967

Noncash activities:
Right of use assets obtained in exchange for operating lease liabilities		—		—		3,345,549		—
Right of use assets obtained in exchange for financing lease liabilities		—		—		—		—

Maturities of Lease Liabilities

The table below is a schedule of future minimum payments for operating and financing lease liabilities as of September 30, 2019 (in thousands):


(in thousands)	Operating Leases		Financing Leases		Total
Remainder of 2019	$	151,345		21		151,366
2020		578,615		523		579,138
2021		506,402		1,152		507,554
2022		495,694		1,298		496,992
2023		491,513		45		491,558
2024		482,745		—		482,745
Thereafter		1,447,537		—		1,447,537
Total lease payments		4,153,851		3,039		4,156,890
Less: imputed interest		(923,703)		—		(923,703)
Total	$	3,230,148		3,039		3,233,187

As of December 31, 2018, the following future minimum payments were required for office and equipment leases:


(in thousands)	Office Leases		Equipment Leases		Total
2019	$	8,630		6,042		14,672
2020		8,471		4,517		12,988
2021		8,450		2,410		10,860
2022		8,427		274		8,701
2023		7,495		—		7,495
Thereafter		49,367		—		49,367
Total	$	90,840		13,243		104,083

Lease Term and Discount Rate

The table below is the Company’s weighted-average remaining lease term and discount rate as of September 30, 2019:


	September 30, 2019
	Operating Leases			Finance Leases
Weighted-average remaining lease term:		8.4 years			2.1 years
Weighted-average discount rate:		6.1	%		5.7	%

As of September 30, 2019, the Company had requested additional processing capacity which will be accounted for as lease modifications when the processing capacity becomes available in 2019 and 2020.

Related party lease disclosure

The Company has a gathering and compression agreement with Antero Midstream Corporation, whereby Antero Midstream Corporation receives a low-pressure gathering fee per Mcf, a high-pressure gathering fee per Mcf, and a compression fee per Mcf, in each case subject to adjustments based on the consumer price index. If and to the extent we request that Antero Midstream Corporation construct new high pressure lines and compressor stations, the gathering and compression agreement contains minimum volume commitments that require Antero Resources to utilize or pay for 75% and 70%, respectively, of the requested capacity of such new construction for 10 years. For the three and nine months ended September 30, 2019, gathering and compression fees paid by Antero related to this agreement were $171 million and $486 million, respectively. As of September 30, 2019, $60 million was included within accounts payable, related parties on the Condensed Balance Sheet as due to Antero Midstream Corporation related to this agreement.