ADOPTION OF ASU NO. 2016-02, LEASES ADOPTION OF ASU NO. 2016-02, LEASES

12 Months Ended

Dec. 31, 2019

ADOPTION OF ASU NO. 2016-02, LEASES

ASU No. 2016-02 requires us to recognize a right-of-use (“ROU”) asset and a discounted lease liability on our balance sheet for all leases with a term longer than one year. We adopted ASU No. 2016-02 and related guidance using the modified retrospective method as of January 1, 2019, and this adoption had no effect on the earlier comparative periods presented. At adoption, we recognized operating lease ROU assets and operating lease liabilities totaling $15.4 million each. There was no adjustment to beginning retained earnings.

We lease office space, office equipment and field equipment, including compressors. Many of our leases include both lease and non-lease components which are primarily management services performed by the lessors for the underlying assets. All of our leases of office space and office equipment were classified as operating leases upon adoption. Our leases of field equipment had remaining terms of less than one year at the date of adoption and were not recognized as operating leases on our balance sheet due to our election of the short term lease practical expedient described below. Our leases do not contain any residual value guarantees or restrictive covenants. We do not currently sublease any of our ROU assets.

Operating fixed lease expenses are recognized on a straight-line basis over the lease term. Variable lease payments, which cannot be determined at the lease commencement date, are not included in ROU assets or lease liabilities and are expensed as incurred.

Upon adoption, we selected the following practical expedients:



Practical expedient package		We did not reassess whether any expired or existing contracts are, or contain, leases.
		We did not reassess the lease classification of any expired or existing leases.
		We did not reassess initial direct costs of any expired or existing leases.

Hindsight practical expedient		We did not elect to use the hindsight practical expedient which allows for the use of hindsight when determining lease term, including option periods, and impairment of operating assets.

Easement expedient		We elected to maintain the current accounting treatment of existing contracts and not reassess whether those contracts met the definition of a lease.

Combining lease and non-lease components expedient		We elected to account for lease and non-lease components as a single component.

Short-term lease expedient		We elected the short-term lease recognition exemption for all classes of underlying assets. Expense for short-term leases is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less and that do not include an option to purchase the underlying asset that is reasonably certain to be recognized are not recorded on the balance sheet.

As most leases do not have readily determinable implicit rates, we estimated the incremental borrowing rates for our future lease payments based on prevailing financial market conditions at the later of date of adoption or lease commencement, credit analysis of comparable companies and management judgments to determine the present values of our lease payments. We also apply the portfolio approach to account for leases with similar terms. At December 31, 2019, the weighted-average remaining lease term of our operating leases was approximately 8.0 years and the weighted-average discount rate applied was 14.5%.

Lease Costs



(in thousands)	Year Ended December 31, 2019
Operating lease cost	$	3,122
Variable lease cost	1,250
Short-term lease cost	4,410
Total lease cost	$	8,782

Reported in:
Lease operating expense	$	4,241
General and administrative expense	4,541
Total lease cost	$	8,782

Remaining Operating Lease Liability Payments as of December 31, 2019



Fiscal year	(in thousands)
2020	$	2,256
2021	2,209
2022	2,329
2023	2,321
2024	2,367
Thereafter	8,219
Total lease payments	19,701
Less: imputed interest	(8,336		)
Less: reclassification to liabilities subject to compromise	(11,088		)
Present value of operating lease liabilities	$	277

Current portion of operating lease liabilities	$	88
Operating lease liabilities, net of current portion	189
Present value of operating lease liabilities	$	277