7. Leases

As a lessee, we lease real estate, apartments, forklifts, vehicles and trucks, and other equipment under non-cancellable agreements. We determine if these contracts are or contain a lease at inception and review the facts and circumstances of the arrangement to classify the leased asset as operating or finance. To assess whether a contract is or contains a lease, we consider whether (i) explicitly or implicitly identified assets have been deployed in the contract and (ii) whether we obtain substantially all the economic benefits from the use of that underlying asset and direct how and for what purpose the asset is used during the term of the contract.

The portion of active leases within our portfolio classified as operating leases are included in operating lease right-of-use assets and current and long-term operating lease liabilities on our consolidated balance sheet. The finance lease right-of-use assets portion of the active lease agreements are included in property and equipment and current and long-term finance lease obligations on our consolidated balance sheets. The ROU assets represent our right to use the underlying asset for the lease term and lease liabilities represent our obligation to make minimum lease payments arising from the lease for the duration of the lease term.

Certain of our leases include one or more options to renew, with renewal terms that can extend the lease term from one to 10 years or greater. The exercise of lease renewal options is typically at our discretion. Additionally, many leases contain early termination clauses, however, in our active lease agreements, early termination typically requires the concurrence of both parties to the lease. The measurement of the lease term includes options to extend or renew the lease when it is reasonably certain that we will exercise that option. We do not have leases that include options to purchase leased property or that provide for the automatic transfer of ownership of leased property to us, residual value guarantees, or the incurrence by us of other restrictions or covenants.

To determine the present value of future minimum lease payments, we use the implicit rate when readily determinable; however, many of our leases do not provide an implicit rate, therefore to determine the present value of minimum lease payments we use our incremental borrowing rate based on the information available at commencement date of the lease. Our finance lease agreements typically include an interest rate that is used to determine the present value of future lease payments.

Minimum lease payments are expensed on a straight-line basis over the term of the lease, including reasonably certain renewal options. In addition, some leases may require additional contingent or variable lease payments based on factors specific to the individual agreement. Variable lease payments for which we are typically responsible include payment of real estate taxes and maintenance expenses. These payments are expensed as incurred and recorded as variable lease costs.

The following are the components of operating and finance lease costs:


		Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Finance lease cost:
Amortization of right-of-use assets	$	1,967	$	5,743
Interest expense		230		658
Operating lease cost		1,923		5,732
Short-term lease cost		228		564
Variable lease cost		138		401
Sublease income		(118)		(336)
Total lease cost	$	4,368	$	12,762

The following is supplemental cash flow information for our operating and finance leases:


		Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	658
Operating cash flows from operating leases		5,074
Financing cash flows from finance leases		5,660
Total	$	11,392

Right-of-use assets obtained in exchange for new lease obligations:
Operating leases	$	6,251
Finance leases		2,921
Total	$	9,172

The following is the aggregate future lease payments for operating and finance leases as of September 30, 2019:


		Operating		Finance
2019 (remaining)	$	2,011	$	2,315
2020		7,301		7,440
2021		5,073		3,430
2022		3,829		737
2023		3,042		-
Thereafter		9,412		-
Total undiscounted lease payments		30,668		13,922
Less: effects of discounting		(3,697)		(1,222)
Present value of lease payments	$	26,971	$	12,700

The following represents the aggregate future lease payments for operating leases under ASC 840 as of December 31, 2018:


		Operating
2019	$	6,638
2020		4,618
2021		3,487
2022		2,195
2023		1,426
Thereafter		3,339
	$	21,703

The following represents the average lease terms and discount rates for our operating and finance lease portfolio as of September 30, 2019:


	September 30, 2019
Weighted average remaining lease term:
Finance leases	1.67	years
Operating leases	6.01	years

Weighted average discount rate
Finance leases	11.87	%
Operating leases	3.70	%

As a lessor, we rent a fleet of frac valves and ancillary equipment for short-term rental periods, typically one to two months. Our lessor portfolio consists mainly of operating leases for equipment utilized during the drilling, completion and production phases of our customers’ wells. At this time, most lessor agreements contain less than three-month terms with no renewal options that are reasonably certain to exercise, or early termination options based on established terms specific to the individual agreement. See Note 6 for disaggregation of revenue.