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 is 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 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. 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. As new leases commence or previous leases are modified the discount rate used in the present value calculation is the current period applicable discount rate.

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 and liabilities consisted of the following items (in thousands):


				(Unaudited)
		December 31,		June 30,
Leases	Balance Sheet Classification	2021		2022
Operating Leases
Operating lease right-of-use assets:
Processing plants	Operating lease right-of-use assets	$	1,739,550		1,644,040
Drilling rigs and completion services	Operating lease right-of-use assets		9,860		79,350
Gas gathering lines and compressor stations ⁽¹⁾	Operating lease right-of-use assets		1,634,928		1,583,204
Office space	Operating lease right-of-use assets		33,083		42,987
Vehicles	Operating lease right-of-use assets		2,009		1,389
Other office and field equipment	Operating lease right-of-use assets		482		4,652
Total operating lease right-of-use assets		$	3,419,912		3,355,622

Short-term operating lease obligation	Short-term lease liabilities	$	455,950		506,459
Long-term operating lease obligation	Long-term lease liabilities		2,963,962		2,849,163
Total operating lease obligation		$	3,419,912		3,355,622

Finance Leases
Finance lease right-of-use assets:
Vehicles	Other property and equipment	$	550		700
Total finance lease right-of-use assets ⁽²⁾		$	550		700

Short-term finance lease obligation	Short-term lease liabilities	$	397		265
Long-term finance lease obligation	Long-term lease liabilities		153		435
Total finance lease obligation		$	550		700

(1)	Gas gathering lines and compressor stations leases includes $1.5 billion related to Antero Midstream as of December 31, 2021 and June 30, 2022. See “—Related party lease disclosure” for additional discussion.

(2)	Financing lease assets are recorded net of accumulated amortization of $2 million and $1 million as of December 31, 2021 and June 30, 2022, respectively.

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

(b)	Supplemental Information Related to Leases

Costs associated with operating and finance leases were included in the unaudited condensed consolidated statement of operations and comprehensive loss (in thousands):


			Three Months Ended June 30,				Six Months Ended June 30,
Cost	Classification	Location	2021		2022		2021		2022
Operating lease cost	Statement of operations	Gathering, compression, processing and transportation	$	385,022		365,343		761,952		731,177
Operating lease cost	Statement of operations	General and administrative		2,736		2,787		5,224		5,654
Operating lease cost	Statement of operations	Contract termination		844		—		844		—
Operating lease cost	Statement of operations	Lease operating		44		44		66		89
Operating lease cost	Balance sheet	Proved properties ⁽¹⁾		28,432		41,100		57,191		48,859
Total operating lease cost			$	417,078		409,274		825,277		785,779

Finance lease cost:
Amortization of right-of-use assets	Statement of operations	Depletion, depreciation and amortization	$	132		107		259		225
Interest on lease liabilities	Statement of operations	Interest expense		23		51		51		65
Total finance lease cost			$	155		158		310		290

Short-term lease payments			$	24,456		28,348		41,298		77,108

(1)	Capitalized costs related to drilling and completion activities.

(c)	Supplemental Cash Flow Information Related to Leases

The following table presents the Company’s supplemental cash flow information related to leases (in thousands):


	Six Months Ended June 30,
	2021		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	716,582		675,563
Investing cash flows from operating leases		44,747		39,781
Financing cash flows from finance leases		509		277

Noncash activities:
Right-of-use assets obtained in exchange for new operating lease obligations	$	6,849		215,157
Increase (decrease) to existing right-of-use assets and lease obligations from operating lease modifications, net ⁽¹⁾	$	(2,612)		(47,728)

(1)

During the six months ended June 30, 2021, the weighted average discount rate for remeasured operating leases decreased from 5.9% as of December 31, 2020 to 4.1% as of June 30, 2021. During the six months ended June 30, 2022, the weighted average discount rate for remeasured operating leases increased from 4.5% as of December 31, 2021 to 5.1% as of June 30, 2022.

(d)	Maturities of Lease Liabilities

The table below is a schedule of future minimum payments for operating and financing lease liabilities as of June 30, 2022 (in thousands):


	Operating Leases		Financing Leases		Total
Remainder of 2022	$	347,588		221		347,809
2023		680,572		215		680,787
2024		619,383		207		619,590
2025		558,900		165		559,065
2026		508,199		36		508,235
2027		415,958		—		415,958
Thereafter		1,069,257		—		1,069,257
Total lease payments		4,199,857		844		4,200,701
Less: imputed interest		(844,235)		(144)		(844,379)
Total	$	3,355,622		700		3,356,322

(e)	Lease Term and Discount Rate

The following table sets forth the Company’s weighted average remaining lease term and discount rate:


					(Unaudited)
	December 31, 2021				June 30, 2022
	Operating Leases		Finance Leases		Operating Leases		Finance Leases
Weighted average remaining lease term	7.6 years		1.9 years		7.3 years		3.1 years
Weighted average discount rate	5.5	%	5.6	%	5.8	%	6.0	%

(f)	Related Party Lease Disclosure

The Company has a gathering and compression agreement with Antero Midstream, whereby Antero Midstream 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 annual adjustments based on the consumer price index. If and to the extent the Company requests that Antero Midstream construct new low pressure lines, high pressure lines or compressor stations, the gathering and compression agreement contains options at Antero Midstream’s election for either (i) minimum volume commitments that require Antero Resources to utilize or pay for 75% of the high pressure gathering capacity and 70% of the compression capacity of the requested capacity of such new construction for 10 years or (ii) a cost of service fee that allows the Antero Midstream to earn a 13% rate of return on such new construction over seven years.

In December 2019, the Company and Antero Midstream agreed to extend the initial term of the gathering and compression agreement to 2038 and established a growth incentive fee program whereby low pressure gathering fees will be reduced from 2020 through 2023 to the extent the Company achieves certain volumetric targets at certain points during such time. Upon completion of the initial contract term, the gathering and compression agreement will continue in effect from year to year until such time as the agreement is terminated, effective upon an anniversary of the effective date of the agreement, by either the Company or Antero Midstream on or before the 180^th day prior to the anniversary of such effective date. The Company did not achieve the quarterly volumetric target for either the first or second quarter of 2021, and therefore, did not earn a rebate for the three and six months ended June 30, 2021. For the three and six months ended June 30, 2022, the Company earned rebates of $12 million and $24 million, respectively, by achieving the quarterly volumetric target during the first and second quarters of 2022.

Gathering and compression fees paid by Antero related to this agreement were $184 million and $164 million for the three months ended June 30, 2021 and 2022, respectively. For the six months ended June 30, 2021 and 2022, gathering and compression fees paid by Antero related to this agreement were $361 million and $327 million, respectively. As of December 31, 2021 and June 30, 2022, $54 million and $51 million, respectively, was included within Accounts payable, related parties on the condensed consolidated balance sheet as due to Antero Midstream related to this agreement.