Leases

6 Months Ended

Jun. 30, 2020

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 Company’s incremental borrowing rate.

The Company 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, recognize the lease payments in the income statement on a straight-line basis over the lease term. The Company also elected, for certain classes of underlying assets, to combine lease and non-lease components. Therefore, the Company elected to combine lease and non-lease components for drilling rig and gathering system asset classes. These assets are not reported on the Unaudited 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 three and six months ended June 30, 2020 and 2019, lease cost were as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
Lease Cost	2020		2019		2020		2019
	(in thousands)
Operating lease cost⁽¹⁾⁽³⁾	$	529	$	569	$	1,039	$	1,117
Short-term lease cost ⁽²⁾⁽³⁾	789		4,167		3,052		10,386
Variable lease cost ⁽⁴⁾	373		—		693		—
Total lease cost	$	1,691	$	4,736	$	4,784	$	11,503

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

Supplemental balance sheet information related to leases as of June 30, 2020 and December 31, 2019, were as follows:


Operating Leases	As of June 30, 2020			As of December 31, 2019
	(in thousands)
Right-of-use assets ⁽¹⁾	$	9,906		$	9,287
Accumulated amortization ⁽²⁾	(1,621)			(1,142)
Total right-of-use assets, net ⁽³⁾	$	8,285		$	8,145
Current lease liabilities ⁽⁴⁾	(1,954)			(1,287)
Noncurrent lease liabilities ⁽⁵⁾	(12,834)			(13,195)
Total lease liabilities ⁽³⁾	$	(14,788)		$	(14,482)
Weighted average remaining lease term
Operating leases (in years)	7.3			7.8
Weighted average discount rate
Operating leases	5.6		%	5.6		%

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

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

(3)The difference between the right-of-use assets and total 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 ASC 842 implementation date of January 1, 2019.

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

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

Maturities of lease liabilities as of June 30, 2020 and December 31, 2019 were as follows:


	As of June 30, 2020		As of December 31, 2019
	(in thousands)
2020	$	1,377	$	2,056
2021	2,635		2,355
2022	2,324		2,044
2023	2,101		2,024
2024	2,078		2,078
Thereafter	7,576		7,577
Total	$	18,091	$	18,134
Less: Interest	(3,303)		(3,652)
Present value of lease liabilities	$	14,788	$	14,482