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Leases

6 Months Ended

Jun. 30, 2020

Note 4 — Leases

The Company enters into service contracts and other contractual arrangements for the use of office space, drilling, completion and abandonment equipment (e.g., drilling rigs), production related equipment (e.g., compressors) and other equipment from third-party lessors to support its operations. The Company’s leasing activities as a lessor are negligible. At inception, contracts are reviewed to determine whether the agreement contains a lease. To the extent an arrangement is determined to include a lease, it is classified as either an operating or a finance lease, which dictates the pattern of expense recognition in the income statement.

The amounts disclosed herein primarily represent costs associated with properties operated by the Company that are presented on a gross basis and do not reflect the Company’s net proportionate share of such amounts. A portion of these costs have been or will 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 depending on how the leased asset is utilized. The components of lease costs were as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Finance lease cost - interest on lease liabilities⁽¹⁾	$	4,040	$	4,867	$	8,305	$	9,861
Operating lease cost, excluding short-term leases⁽²⁾		866		763		1,732		1,526
Short-term lease cost⁽³⁾		15,748		27,630		19,283		64,239
Variable lease cost⁽⁴⁾		3		3		6		5
Total lease cost	$	20,657	$	33,263	$	29,326	$	75,631

⁽¹⁾

The Helix Producer I (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 reserved using the unit-of-production method, computed quarterly.

⁽²⁾	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.

⁽³⁾	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 balance sheet.

⁽⁴⁾	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, are as follows (in thousands):

	June 30, 2020		December 31, 2019
Operating leases:
Operating lease assets	$	7,351	$	7,779

Current portion of operating lease liabilities	$	1,695	$	1,594
Operating lease liabilities		19,228		17,239
Total operating lease liabilities	$	20,923	$	18,833

Finance leases:
Proved property ⁽¹⁾	$	124,299	$	124,299

Other current liabilities	$	19,547	$	17,509
Other long-term liabilities		51,665		62,026
Total finance lease liabilities	$	71,212	$	79,535

⁽¹⁾

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.

The table below presents the lease maturity by year as of June 30, 2020 (in thousands). Such commitments are reflected at undiscounted values and are reconciled to the discounted present value recognized on the condensed consolidated balance sheet.

	Operating Leases			Finance Leases
2020 (excluding the six months ended June 30, 2020)	$	1,833		$	16,629
2021		4,079			33,257
2022		4,302			33,257
2023		4,239			13,857
2024		3,315			—
Thereafter		15,790			—
Total lease payments	$	33,558		$	97,000
Imputed interest		(12,635	)		(25,788	)
Total	$	20,923		$	71,212

The table below presents the weighted average remaining lease term and discount rate related to leases for the six months ended June 30, 2020 and 2019:

	Six Months Ended June 30,
	2020			2019
Weighted average remaining lease term:
Operating leases	8.14 years			9.0 years
Finance leases	2.92 years			4.0 years
Weighted average discount rate:
Operating leases		10.3	%		12.3	%
Finance leases		21.9	%		21.9	%

The table below presents the supplemental cash flow information related to leases for the six months ended June 30, 2020 and 2019 (in thousands):

	Six Months Ended June 30,
	2020		2019
Operating cash outflow from finance leases	$	8,306	$	9,861
Financing cash outflow from finance leases	$	8,323	$	6,759
Operating cash outflow from operating leases	$	911	$	906

Right-of-use assets obtained in exchange for new finance lease liabilities	$	—	$	—
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—	$	613