Leases

12 Months Ended

Dec. 31, 2019

The Company adopted ASC 842 effective January 1, 2019 using the modified retrospective method and elected the option to not apply ASC 842 to comparative periods. See Note 2 - New Accounting Pronouncements for the impacts of adopting this new standard.

Under ASC 842, a contract is or contains a lease when, (1) the contract contains an explicitly or implicitly identified asset and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract in exchange for consideration. The Company assesses whether an arrangement is or contains a lease at inception of the contract. For all leases, other than those that qualify for the short-term recognition exemption, the Company recognizes as of the lease commencement date on the balance sheet a liability for its obligation related to the lease and a corresponding asset representing the Company's right to use the underlying asset over the period of use. The Company currently has leases for office space and other equipment, all of which are classified as operating leases.

The Company's leases have remaining terms of up to eight years. Certain lease agreements contain options to extend or early terminate the agreement. These options are used to calculate right-of-use asset and lease liability balances when it is reasonably certain that the Company will exercise these options.

The discount rate used to calculate the present value of the future minimum lease payments is the rate implicit in the lease, when readily determinable. As the Company's leases do not provide an implicit rate, the Company utilizes its incremental borrowing rate.

The Company has elected, for all classes of underlying assets, to not apply the balance sheet recognition requirements of ASC 842 to leases with a term of one year or less, and instead, the Company recognizes the lease payments in the income statement on a straight-line basis over the lease term. The Company has also made the election, for certain classes of underlying assets, to combine lease and non-lease components. Therefore, the Company made the election to combine lease and non-lease components for drilling rig and gathering system asset classes. These assets are not reported on the Consolidated Balance

Sheets as the Company's lease contracts for drilling rigs are currently classified as short-term and the Company's lease contract for a gathering system includes variable payments.

For the year ended December 31, 2019, lease cost was as follows:



	Year Ended December 31,
Lease Cost	2019
	(in thousands)
Operating lease cost⁽¹⁾⁽³⁾	$	2,239
Short-term lease cost ⁽²⁾⁽³⁾	15,928
Variable lease cost ⁽⁴⁾	654
Total lease cost	$	18,821


(1)	Operating lease cost was primarily included in general and administrative expense or lease operating expense on the Consolidated Statements of Operations.


(2)	Short-term lease cost primarily includes leases for drilling rigs, which were capitalized to property, plant and equipment on the Consolidated Balance Sheets.


(3)	A portion of the operating lease cost and a majority of the short-term lease cost represent gross amounts that the Company was financially committed to pay. However, the Company recorded in the financial statements its proportionate share based on the Company's working interest, which varies from property to property.


(4)	Variable lease cost is related to a gathering agreement and is included in oil, gas, and NGL production revenue on the Consolidated Statements of Operations.

Supplemental balance sheet information related to leases as of December 31, 2019, was as follows:



	As of December 31,
Operating Leases	2019
	(in thousands)
Right-of-use assets ⁽¹⁾	$	9,287
Accumulated amortization ⁽²⁾	(1,142		)
Total right-of-use assets ⁽³⁾	$	8,145
Current lease liabilities ⁽⁴⁾	(1,287		)
Noncurrent lease liabilities ⁽⁵⁾	(13,195		)
Total lease liabilities ⁽³⁾	$	(14,482	)
Weighted average remaining lease term
Operating leases (in years)	7.8
Weighted average discount rate
Operating leases	5.6		%


(1)	Included in furniture, equipment and other in the Consolidated Balance Sheets.


(2)	Included in accumulated depreciation, depletion, amortization and impairment in the Consolidated Balance Sheets.


(3)	The difference between the right-of-use assets and lease liabilities is primarily related to lease incentives and deferred rent balances, which were required to be netted against the right-of-use assets as of the implementation date of January 1, 2019.


(4)	Included in accounts payable and accrued liabilities in the Consolidated Balance Sheets.


(5)	Included in other noncurrent liabilities in the Consolidated Balance Sheets.

Maturities of lease liabilities as of December 31, 2019 were as follows:



	As of December 31, 2019
	(in thousands)
2020	$	2,056
2021	2,355
2022	2,044
2023	2,024
2024	2,078
Thereafter	7,577
Total	$	18,134
Less: Interest	(3,652		)
Present value of lease liabilities	$	14,482

Minimum future contractual payments for operating leases under the scope of ASC 840 as of December 31, 2018 were as follows:



	As of December 31, 2018
	(in thousands)
2019	$	2,583
2020	3,032
2021	3,331
2022	3,263
2023	3,036
Thereafter	13,112
Total	$	28,357