Leases

12 Months Ended

Dec. 31, 2019

LEASES

The Company has entered into operating leases for drilling rigs, real estate, and other field and office equipment, as well as finance leases for vehicles. The Company’s leases have lease terms that include options to extend for up to 14 years, and some of which include options to terminate within one year. The exercise of lease renewal and termination options are at the Company’s sole discretion. For purposes of calculating operating lease liabilities, the Company’s leases are deemed not to include an option to extend the lease term until it is reasonably certain that the Company will exercise that option. Certain of the Company’s finance leases also include an option to purchase the leased asset. The Company determines whether a contract arrangement contains a lease at inception. The lease classification and lease measurement are determined upon lease commencement. The lease commencement date is evaluated based on when the key lease terms are available and when the Company takes possession of the underlying asset. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. The lease payments represent gross payments to vendors which, for certain of the Company’s operating assets, are offset by amounts received from other working interest owners. Because the majority of the Company’s leases do not provide an implicit rate of return, the Company uses its incremental borrowing rate based on the information available at the commencement date of the lease in determining the present value of lease payments. The incremental borrowing rate is not a quoted rate and is derived by applying a spread over U.S. Treasury rates with a similar duration to the Company’s lease payments. The spread utilized is based on the Company’s one-year borrowing cost assuming the midpoint of applicable margins under the Revolving Credit Agreement. The Company has operating lease agreements with lease and non-lease components that are accounted for as a single lease component. For vehicle leases, the Company accounts for the lease and non-lease components separately. The Company subleases certain of its real estate to third parties for office and parking space.

The Company recognizes lease costs on a straight-line basis over the term of the lease. The depreciable life of assets is limited by the non-cancellable term of the lease, unless there is a transfer of title or purchase option reasonably certain of exercise. The components of the Company’s lease costs as of December 31, 2019 were as follows (in thousands):



	Year Ended December 31, 2019
Finance lease costs:
Amortization of right-of-use assets	$	2,779
Interest on lease liabilities	242
Operating lease costs⁽¹⁾	92,709
Short-term lease costs⁽²⁾	20,578
Variable lease costs⁽³⁾	29,024
Sublease income	(463		)
Total lease costs	$	144,869

(1)

For the year ended December 31, 2019, operating lease costs are included in the following line items on the Company’s consolidated financial statements: $69.1 million are capitalized as part of Oil and natural gas properties; $10.1 million, are included in General and administrative expenses; $7.1 million are included in Lease operating expenses; and $6.4 million are included in Other operating expenses.


(2)	Short-term lease costs represent costs related to leases with a contract term of one year or less. For the year ended December 31, 2019, short-term lease costs are included in the following line items on the Company’s consolidated financial statements: $3.1 million are capitalized as part of Oil and natural gas properties; and $17.5 million are included in Lease operating expenses.

(3)

Variable lease costs that are not dependent on an index or rate are not included in the lease liability or ROU assets. For the year ended December 31, 2019, variable lease costs are included in the following line items on the Company’s consolidated financial statements: $19.6 million are capitalized as part of Oil and natural gas properties and $9.4 million are included in General and administrative expenses.

Supplemental cash flow information related to the Company’s leases as of December 31, 2019 was as follows (in thousands):



Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases	$	23,644
Investing cash outflows from operating leases	$	71,487
Operating cash outflows from finance leases	$	242
Financing cash outflows from finance leases	$	2,746

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	109,681
Finance leases	$	2,618

Supplemental balance sheet information related to the Company’s leases as of December 31, 2019 was as follows (in thousands):



Operating leases
Assets
Operating lease assets, net of accumulated depreciation	$	128,529
Liabilities
Current operating lease liabilities	(61,198		)
Operating lease liabilities	(69,195		)
Total operating lease liabilities	$	(130,393	)

Finance leases
Assets
Property and equipment, gross	$	8,418
Accumulated depreciation	(5,063		)
Property and equipment, net	$	3,355
Liabilities
Other current liabilities	$	(2,101	)
Financing lease liabilities	(1,320		)
Total finance liabilities	$	(3,421	)

Weighted average remaining lease term (in years)
Operating leases	3.0
Finance leases	1.8

Weighted average discount rate
Operating leases	4.7		%
Finance leases	5.6		%

Maturities of Lease Liabilities

Maturities of the Company’s lease liabilities as of December 31, 2019 were as follows (in thousands):



	Operating leases			Finance leases
2020	$	65,408		$	2,234
2021	36,386			1,176
2022	16,240			184
2023	8,792			13
2024	7,750			—
Thereafter	5,063			—
Total lease payments	$	139,639		$	3,607
Less imputed interest	(9,246		)	(186		)
Total lease obligations	$	130,393		$	3,421
Less: Current obligations	(61,198		)	(2,101		)
Long-term lease obligations	$	69,195		$	1,320

In addition, the Company has entered into a contract for a 12-year real estate lease that will commence during fiscal year 2021. On commencement of the lease, the Company will record additional operating lease liabilities of approximately $180.5 million.

As of December 31, 2018, minimum future contractual payments for long-term operating leases under the scope of ASC 840 were as follows (in thousands):



	Operating leases⁽¹⁾		Finance leases
2019	$	71,998	$	2,413
2020	39,403		1,288
2021	26,658		436
2022	22,473		51
2023	21,822		14
Thereafter	148,508		—
Total lease payments	$	330,862	$	4,202

(1)

Operating leases included minimum future contractual payments for long-term operating leases that have not commenced.

Leases