Leases

6 Months Ended

Jun. 30, 2022

Note 3 — Leases

The Company has operating leases principally for office space, drilling rigs, compressors and other equipment necessary to support the Company’s operations. Additionally, the Company has a finance lease related to the use of the Helix Producer I (the “HP-I”), a dynamically positioned floating production facility that interconnects with the Phoenix Field through a production buoy. The HP-I is utilized in the Company’s oil and natural gas development activities and the right-of-use asset was capitalized and included in proved property and depleted as part of the full cost pool. Once items are included in the full cost pool, they are indistinguishable from other proved properties. The capitalized costs within the full cost pool are amortized over the life of the total proved reserves using the unit-of-production method, computed quarterly. Costs associated with the Company’s leases are either expensed or capitalized depending on how the underlying asset is utilized.

The lease costs described below are presented on a gross basis and do not represent the Company’s net proportionate share of such amounts. A portion of these costs have been or may be billed to other working interest owners. The Company’s share of these costs is included in property and equipment, lease operating expense or general and administrative expense, as applicable. The components of lease costs were as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Finance lease cost - interest on lease liabilities	$	1,734	$	3,012	$	3,793	$	6,268
Operating lease cost, excluding short-term leases(1)		567		720		1,135		1,436
Short-term lease cost(2)		6,094		12,092		11,856		17,852
Variable lease cost(3)		362		322		725		644
Total lease cost	$	8,757	$	16,146	$	17,509	$	26,200

(1)

Operating lease cost reflect a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis.

(2)

Short-term lease costs are reported at gross amounts and primarily represent costs incurred for drilling rigs, most of which are short-term contracts not recognized as a right-of-use asset and lease liability on the Condensed Consolidated Balance Sheets.

(3)

Variable lease costs primarily represent differences between minimum payment obligations and actual operating charges incurred by the Company related to its long-term leases.

The present value of the fixed lease payments recorded as the Company’s right-of-use asset and liability, adjusted for initial direct costs and incentives were as follows (in thousands):


	June 30, 2022		December 31, 2021
Operating leases:
Operating lease assets	$	5,587	$	5,714

Current portion of operating lease liabilities	$	1,846	$	1,715
Operating lease liabilities		15,367		16,330
Total operating lease liabilities	$	17,213	$	18,045

Finance leases:
Proved property	$	124,299	$	124,299

Other current liabilities	$	27,386	$	27,083
Other long-term liabilities		—		13,138
Total finance lease liabilities	$	27,386	$	40,221

The table below presents the supplemental cash flow information related to leases (in thousands):


	Six Months Ended June 30,
	2022		2021
Operating cash outflow from finance leases	$	3,793	$	6,268
Operating cash outflow from operating leases	$	1,845	$	1,974

Right-of-use assets obtained in exchange for new operating lease liabilities	$	—	$	1,020