Leases

12 Months Ended

Dec. 31, 2019

The Company adopted a comprehensive new lease accounting standard, ASC 842, effective January 1, 2019. The details of the significant changes to the Company's accounting policies resulting from the adoption of the new standard are set out below. The Company adopted the standard on a prospective basis using the optional modified retrospective transition method; accordingly, the comparative information as of and for the year ended December 31, 2018 has not been adjusted and continues to be reported under the previous lease standard. Under the new lease standard, assets and liabilities that arise from all leases are required to be recognized on the balance sheet for lessees. Previously, only capital leases, which are now referred to as finance leases, were recorded on the balance sheet.

Beginning January 1, 2019, for all leases with a term in excess of 12 months, the Company recognized a lease liability equal to the present value of the lease payments and a right-of-use asset representing our right to use the underlying asset for the lease term. For operating leases, lease expense for lease payments is recognized on a straight-line basis over the lease term, while finance leases include both an operating expense and an interest expense component. For all leases with a term of 12 months or less, the Company elected the practical expedient to not recognize lease assets and liabilities. The Company recognizes lease expense for these short-term leases on a straight-line basis over the lease term. The Company has a significant number of short-term leases including month-to-month agreements that continue in perpetuity until the lessor or the Company terminates the lease agreement.

The Company is a lessee for operating leases, primarily related to real estate, salt water disposal wells and equipment. The vast majority of the Company's operating leases have remaining lease terms of 10 years or less, some of which include options to extend the leases, and some of which include options to terminate the leases. The Company generally does not include renewal or termination options in the assessment of leases unless extension or termination is deemed to be reasonably certain. The accounting for some leases may require significant judgment, which includes determining whether a contract contains a lease, determining the incremental borrowing rates to utilize in the net present value calculation of lease payments for lease agreements which do not provide an implicit rate, and assessing the likelihood of renewal or termination options. Incremental borrowing rate is determined by utilizing a fully collateralized rate for a fully amortizing loan with the same term as the operating lease. Salt water disposal well locations have fixed or both fixed and variable lease amounts where the variable lease payments are based on the volume of fluids injected into to the well and/or sales of products by the Company. The Company also has some lease agreements with lease and non-lease components, which are generally accounted for as a single lease component.

The Company is a lessee for finance leases related to autos and trucks and well servicing equipment. The vast majority of the Company's finance leases have remaining lease terms of three years or less, all of which include options to terminate the leases after one year and do not include options to extend the lease. For all finance leases, the Company is subject to a residual value guarantee established by the lessor and based upon the calculated net book value of the vehicle as of the date of early termination of the lease. The loans are collateralized by equipment purchased with the proceeds of such loans. For finance leases, the Company uses discount rates similar to incremental borrowing rates available for comparable equipment financing in the net present value calculation of lease payments. The Company's vehicle finance lease agreements contain lease and non-lease components, which are accounted for separately.

The following tables illustrate the financial impact of the Company's leases as of and for the year ended December 31, 2019, along with other supplemental information about the Company's leases (in thousands, except years and percentages):



	Year Ended December 31, 2019
Components of lease expense:
Finance lease cost:
Amortization of right-of-use assets	$	4,495
Interest on lease liabilities	529
Operating lease cost:
Lease expense ⁽¹⁾	1,838
Short-term lease cost	1,787
Total lease cost	$	8,649

⁽¹⁾ Includes variable lease costs of $284 thousand for the year ended December 31, 2019.



	December 31, 2019
Components of balance sheet:
Operating leases:
Operating lease right-of-use assets (non-current)	$	6,235
Current portion of operating lease liabilities	$	1,476
Long-term operating lease liabilities, net of current portion	$	4,759
Finance leases:
Property and equipment, net	$	14,467
Current portion of long-term debt	$	4,915
Long-term debt, net of current portion and debt discount	$	5,130



	Year Ended December 31, 2019
Other supplemental information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	3,625
Operating cash flows for finance leases - interest	$	529
Financing cash flows for finance leases	$	5,038
Noncash activities from right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	7,390
Finance leases	$	2,754
Weighted-average remaining lease term:
Operating leases	7.6 years
Finance leases	3.1 years
Weighted-average discount rate:
Operating leases	7.1		%
Finance leases	5.1		%

The following table summarizes the maturity of the Company's debt, operating and finance leases as of December 31, 2019 (in thousands):



	Debt			Operating Leases - Related Party			Operating Leases - Other			Finance Leases
2020	$	61,198		$	27		$	2,037		$	5,226
2021	59,800			—			1,042			3,886
2022	—			—			879			1,292
2023	—			—			749			162
2024	—			—			677			—
Thereafter	—			—			2,749			—
Total minimum payments	120,998			27			8,133			10,566
Less imputed interest	—			(1		)	(1,924		)	(521		)
Less debt discount	(2,348		)	—			—			—
Debt premium	6,000			—			—			—
Total debt and lease liabilities per balance sheet	$	124,650		$	26		$	6,209		$	10,045

The Company adopted ASC 842 on January 1, 2019 as noted above, and as required, the following disclosure is provided for periods prior to adoption. Future annual minimum lease payments and capital lease commitments as of December 31, 2018 were as follows (in thousands):



	Operating Leases - Related Party		Operating Leases - Other		Capital Leases
2020	$	30	$	986	$	4,334
2021	8		946		3,375
2022	—		781		1,051
2023	—		386		—
Thereafter	—		1,350		—
Total	$	38	$	4,449	$	8,760

Leases



	Year Ended December 31, 2019
Components of lease expense:
Finance lease cost:
Amortization of right-of-use assets	$	4,495
Interest on lease liabilities	529
Operating lease cost:
Lease expense ⁽¹⁾	1,838
Short-term lease cost	1,787
Total lease cost	$	8,649

⁽¹⁾ Includes variable lease costs of $284 thousand for the year ended December 31, 2019.



	December 31, 2019
Components of balance sheet:
Operating leases:
Operating lease right-of-use assets (non-current)	$	6,235
Current portion of operating lease liabilities	$	1,476
Long-term operating lease liabilities, net of current portion	$	4,759
Finance leases:
Property and equipment, net	$	14,467
Current portion of long-term debt	$	4,915
Long-term debt, net of current portion and debt discount	$	5,130



	Year Ended December 31, 2019
Other supplemental information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	3,625
Operating cash flows for finance leases - interest	$	529
Financing cash flows for finance leases	$	5,038
Noncash activities from right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	7,390
Finance leases	$	2,754
Weighted-average remaining lease term:
Operating leases	7.6 years
Finance leases	3.1 years
Weighted-average discount rate:
Operating leases	7.1		%
Finance leases	5.1		%

The following table summarizes the maturity of the Company's debt, operating and finance leases as of December 31, 2019 (in thousands):



	Debt			Operating Leases - Related Party			Operating Leases - Other			Finance Leases
2020	$	61,198		$	27		$	2,037		$	5,226
2021	59,800			—			1,042			3,886
2022	—			—			879			1,292
2023	—			—			749			162
2024	—			—			677			—
Thereafter	—			—			2,749			—
Total minimum payments	120,998			27			8,133			10,566
Less imputed interest	—			(1		)	(1,924		)	(521		)
Less debt discount	(2,348		)	—			—			—
Debt premium	6,000			—			—			—
Total debt and lease liabilities per balance sheet	$	124,650		$	26		$	6,209		$	10,045



	Operating Leases - Related Party		Operating Leases - Other		Capital Leases
2020	$	30	$	986	$	4,334
2021	8		946		3,375
2022	—		781		1,051
2023	—		386		—
Thereafter	—		1,350		—
Total	$	38	$	4,449	$	8,760