Leases

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Leases

(5) Leases

Effective with the adoption of ASC 842 in January 2019, we evaluate new contracts at inception to determine if the contract conveys the right to control the use of an identified asset for a period of time in exchange for periodic payments. A lease exists if we obtain substantially all of the economic benefits of an asset, and we have the right to direct the use of that asset. When a lease exists, we record a right-of-use asset that represents our right to use the asset over the lease term and a lease liability that represents our obligation to make payments over the lease term. Lease liabilities are recorded at the sum of future lease payments discounted by the collateralized rate we could obtain to lease a similar asset over a similar period, and right-of-use assets are recorded equal to the corresponding lease liability, plus any prepaid or direct costs incurred to enter the lease, less the cost of any incentives received from the lessor. The majority of our leases are for the following types of assets:

• Office space- Our primary offices are in Dallas, Houston, and Midland, with smaller offices in other locations near our assets. Our office leases are long-term in nature and represent$64.1 millionof our lease liability and$42.8 millionof our right-of-use asset as ofMarch 31, 2019. These office leases typically include variable lease costs related to utility expenses, which are determined based on our pro-rata share of the building expenses each month and expensed as incurred.

• Compression and other field equipment- We pay third parties to provide compressors or other field equipment for our assets. Under these agreements, a third party installs and operates compressor units based on specifications set by us to meet our compression needs at specific locations. While the third party determines which compressors to install and operates and maintains the units, we have the right to control the use of the compressors and are the sole economic beneficiary of the identified assets. These agreements are typically for an initial term of one to three years but will automatically renew from month to month until canceled by us or the lessor. Compression and other field equipment rentals represent$19.2 millionof our lease liability and$23.0 millionof our right-of-use asset as ofMarch 31, 2019. Under certain agreements, we may incur variable lease costs related to incidental services provided by the equipment lessor, which are expensed as incurred.

• Office equipment- We rent office equipment for a monthly fee. These leases are typically for several years and represent$0.8 millionof our lease liability and$0.8 millionof our right-of-use asset as ofMarch 31, 2019.

• Land and land easements- We make periodic payments to lease land or to have access to our assets. Land leases and easements are typically long-term to match the expected useful life of the corresponding asset and represent$14.9 millionof our lease liability and$13.2 millionof our right-of-use asset as ofMarch 31, 2019.

Lease balances are recorded on the consolidated balance sheets as follows (in millions):

	March 31, 2019
Finance leases:
Property and equipment	$	5.2
Accumulated depreciation	(0.7		)
Property and equipment, net of accumulated depreciation	$	4.5
Other current liabilities	$	0.8
Operating leases:
Other assets, net	$	75.3
Other current liabilities	$	17.3
Other long-term liabilities	$	80.9

Certain of our lease agreements have options to extend the lease for a certain period after the expiration of the initial term. We recognize the cost of a lease over the expected total term of the lease, including optional renewal periods that we can reasonably expect to exercise. We do not have material obligations whereby we guarantee a residual value on assets we lease, nor do our lease agreements impose restrictions or covenants that could affect our ability to make distributions.

Lease expense is recognized on the consolidated statements of operations as “Operating expenses” and “General and administrative” depending on the nature of the leased asset. The components of total lease expense are as follows (in millions):

	Three Months Ended March 31,
	2019
Finance lease expense:
Amortization of right-of-use asset	$	0.7
Interest on lease liability	—
Operating lease expense:
Long-term operating lease expense	6.3
Short-term lease expense	6.9
Variable lease expense	1.6
Total lease expense	$	15.5

Other information about our leases are as follows (dollar amounts in millions, lease terms in years):

	Three Months Ended March 31,
	2019
Supplemental cash flow information:
Cash payments for finance leases included in cash flows from financing activities	$	0.4
Cash payments for operating leases included in cash flows from operating activities	$	7.0
Right-of-use assets obtained in exchange for operating lease liabilities	$	80.6
Other lease information
Weighted-average remaining lease term - Finance leases	0.5 years
Weighted-average remaining lease term - Operating leases	11.6 years
Weighted-average discount rate - Finance leases	9.3		%
Weighted-average discount rate - Operating leases	5.2		%

The following table summarizes the maturity of our lease liability as ofMarch 31, 2019(in millions):

	Total			2019 (remaining)			2020			2021			2022			2023			Thereafter
Undiscounted finance lease liability	$	0.8		$	0.8		$	—		$	—		$	—		$	—		$	—
Reduction due to present value	—			—			—			—			—			—			—
Finance lease liability	0.8			0.8			—			—			—			—			—
Undiscounted operating lease liability	139.2			16.5			16.0			12.9			9.1			8.9			75.8
Reduction due to present value	(41.0		)	(3.6		)	(4.2		)	(3.7		)	(3.4		)	(3.0		)	(23.1		)
Operating lease liability	98.2			12.9			11.8			9.2			5.7			5.9			52.7
Total lease liability	$	99.0		$	13.7		$	11.8		$	9.2		$	5.7		$	5.9		$	52.7

Leases

(5) Leases

Effective with the adoption of ASC 842 in January 2019, we evaluate new contracts at inception to determine if the contract conveys the right to control the use of an identified asset for a period of time in exchange for periodic payments. A lease exists if we obtain substantially all of the economic benefits of an asset, and we have the right to direct the use of that asset. When a lease exists, we record a right-of-use asset that represents our right to use the asset over the lease term and a lease liability that represents our obligation to make payments over the lease term. Lease liabilities are recorded at the sum of future lease payments discounted by the collateralized rate we could obtain to lease a similar asset over a similar period, and right-of-use assets are recorded equal to the corresponding lease liability, plus any prepaid or direct costs incurred to enter the lease, less the cost of any incentives received from the lessor. The majority of our leases are for the following types of assets:

• Office space- Our primary offices are in Dallas, Houston, and Midland, with smaller offices in other locations near our assets. Our office leases are long-term in nature and represent$64.1 millionof our lease liability and$42.8 millionof our right-of-use asset as ofMarch 31, 2019. These office leases typically include variable lease costs related to utility expenses, which are determined based on our pro-rata share of the building expenses each month and expensed as incurred.

• Compression and other field equipment- We pay third parties to provide compressors or other field equipment for our assets. Under these agreements, a third party installs and operates compressor units based on specifications set by us to meet our compression needs at specific locations. While the third party determines which compressors to install and operates and maintains the units, we have the right to control the use of the compressors and are the sole economic beneficiary of the identified assets. These agreements are typically for an initial term of one to three years but will automatically renew from month to month until canceled by us or the lessor. Compression and other field equipment rentals represent$19.2 millionof our lease liability and$23.0 millionof our right-of-use asset as ofMarch 31, 2019. Under certain agreements, we may incur variable lease costs related to incidental services provided by the equipment lessor, which are expensed as incurred.

• Office equipment- We rent office equipment for a monthly fee. These leases are typically for several years and represent$0.8 millionof our lease liability and$0.8 millionof our right-of-use asset as ofMarch 31, 2019.

• Land and land easements- We make periodic payments to lease land or to have access to our assets. Land leases and easements are typically long-term to match the expected useful life of the corresponding asset and represent$14.9 millionof our lease liability and$13.2 millionof our right-of-use asset as ofMarch 31, 2019.

Lease balances are recorded on the consolidated balance sheets as follows (in millions):

	March 31, 2019
Finance leases:
Property and equipment	$	5.2
Accumulated depreciation	(0.7		)
Property and equipment, net of accumulated depreciation	$	4.5
Other current liabilities	$	0.8
Operating leases:
Other assets, net	$	75.3
Other current liabilities	$	17.3
Other long-term liabilities	$	80.9

Certain of our lease agreements have options to extend the lease for a certain period after the expiration of the initial term. We recognize the cost of a lease over the expected total term of the lease, including optional renewal periods that we can reasonably expect to exercise. We do not have material obligations whereby we guarantee a residual value on assets we lease, nor do our lease agreements impose restrictions or covenants that could affect our ability to make distributions.

Lease expense is recognized on the consolidated statements of operations as “Operating expenses” and “General and administrative” depending on the nature of the leased asset. The components of total lease expense are as follows (in millions):

	Three Months Ended March 31,
	2019
Finance lease expense:
Amortization of right-of-use asset	$	0.7
Interest on lease liability	—
Operating lease expense:
Long-term operating lease expense	6.3
Short-term lease expense	6.9
Variable lease expense	1.6
Total lease expense	$	15.5

Other information about our leases are as follows (dollar amounts in millions, lease terms in years):

	Three Months Ended March 31,
	2019
Supplemental cash flow information:
Cash payments for finance leases included in cash flows from financing activities	$	0.4
Cash payments for operating leases included in cash flows from operating activities	$	7.0
Right-of-use assets obtained in exchange for operating lease liabilities	$	80.6
Other lease information
Weighted-average remaining lease term - Finance leases	0.5 years
Weighted-average remaining lease term - Operating leases	11.6 years
Weighted-average discount rate - Finance leases	9.3		%
Weighted-average discount rate - Operating leases	5.2		%

The following table summarizes the maturity of our lease liability as ofMarch 31, 2019(in millions):

	Total			2019 (remaining)			2020			2021			2022			2023			Thereafter
Undiscounted finance lease liability	$	0.8		$	0.8		$	—		$	—		$	—		$	—		$	—
Reduction due to present value	—			—			—			—			—			—			—
Finance lease liability	0.8			0.8			—			—			—			—			—
Undiscounted operating lease liability	139.2			16.5			16.0			12.9			9.1			8.9			75.8
Reduction due to present value	(41.0		)	(3.6		)	(4.2		)	(3.7		)	(3.4		)	(3.0		)	(23.1		)
Operating lease liability	98.2			12.9			11.8			9.2			5.7			5.9			52.7
Total lease liability	$	99.0		$	13.7		$	11.8		$	9.2		$	5.7		$	5.9		$	52.7