Leases

Effective January 1, 2019, the Company adopted the new lease accounting standard (see Recent Accounting Pronouncements in Note 1. above) using the modified retrospective method of applying the new standard at the adoption date. Adoption of this standard resulted in the recording of net operating lease ROU assets and corresponding operating lease liabilities of $0.3 million. Leases for reporting periods beginning on or after January 1, 2019 are presented under the new guidance, while prior periods amounts are not adjusted and continue to be reported in accordance with previous guidance.

Operating lease ROU assets are presented within Other Property and Equipment on the unaudited condensed consolidated balance sheet as of June 30, 2019. The current portion of operating lease liabilities are presented within Accrued Liabilities, and the non-current portion of operating lease liabilities are presented within Other Non-Current Liabilities on the unaudited condensed consolidated balance sheet.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company's leases do not provide an implicit rate, the Company uses an incremental collateralized borrowing rate based on the information available at commencement date, including lease term, in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Operating lease expense is recognized on a straight-line basis over the lease term.

The Company's operating lease portfolio includes field equipment such as compressors and amine units, office space and office equipment. The Company currently does not have any financing leases.

Our compressor and amine unit arrangements are typically structured with a non-cancelable primary term of one to two-years and continue thereafter on a month-to-month basis subject to termination by either party with thirty days notice. The Company's compressor and amine unit rental agreements represent operating leases with a lease term that equals the primary non-cancelable contract term. Upon completion of the primary term, both parties have substantive rights to terminate the lease. As a result, enforceable rights and obligations do not exist under the rental agreement subsequent to the primary term.

The Company enters into daywork contracts for drilling rigs with third parties to support its drilling activities. The drilling rig arrangements are typically structured with a term that is in effect until drilling operations are completed on a contractually-specified well or well pad. Upon mutual agreement with the contractor, the Company typically has the option to extend the contract term for additional wells or well pads by providing thirty days notice prior to the end of the original contract term. Drilling rig arrangements represent short-term operating leases. The accounting guidance requires the Company to make an assessment at contract commencement if it is reasonably certain that it will exercise the option to extend the term.

Due to the continuously evolving nature of the Company's drilling schedules and the potential volatility in commodity prices in an annual period, the Company's strategy to enter into shorter term drilling rig arrangements allows it the flexibility to respond to changes in our operating and economic environment. The Company exercises its discretion in choosing to extend or not extend contracts on a rig-by-rig basis depending on the conditions present at the time the contract expires. At the time of contract commencement, the Company has determined it cannot conclude with reasonable certainty if it will choose to extend the contract beyond its original term. Pursuant to the successful efforts method of accounting, these costs are capitalized as part of natural gas and oil properties on our balance sheet when paid.

The Company leases part of the corporate building it owns to two third-parties, with lease terms that end in 2019 and 2023. The 2023 lease is non-cancelable through the end of the term. Third-party leasing income is insignificant and is included in Acquisition Costs and Other on the unaudited condensed consolidated statements of operations.

The components of our total lease expense for the three and six months ended June 30, 2019 are as follows:



In thousands	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating Leases	$	68	$	137
Short-term leases⁽¹⁾	633		1,259
Total lease expense	$	701	$	1,396
Short-term lease costs capitalized to oil and gas properties⁽²⁾	$	2,326	$	4,923

(1) Short-term leases represent expenses related to leases with a contract term of one year or less. The majority of these leases relate to field operating equipment and are included in lease operating and gas gathering expense on the unaudited condensed consolidated statement of operations.

(2) Short-term lease costs represent leases with a contract term of one year or less, the majority of which are related to drilling rigs and are capitalized as part of Oil and Gas Properties on the unaudited condensed consolidated balance sheets.

Supplemental balance sheet information related to leases follows:



In thousands, except lease term and discount rate data	June 30, 2019
Operating leases
Assets
Other property and equipment	$	179
Liabilities
Accrued liabilities	179
Weighted-average remaining lease term	0.7
Weighted-average discount rate	5.0		%

Supplemental cash flow information related to leases follows:



In thousands	Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases	$	137
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	137

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the unaudited condensed consolidated balance sheet as of June 30, 2019:



In thousands	Operating Leases
2019	$	137
2020	45
Thereafter	—
Total minimum lease payments	182
Amount of lease payments representing interest	(3		)
Present value of future minimum lease payments	$	179

Under the previous accounting standard, future minimum lease payments for operating leases having initial or remaining noncancelable terms in excess of one year would have been as follows as of June 30, 2019:



In thousands	Amount
2019	$	348
2020	477
2021	368
Total minimum lease payments	$	1,193