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Leases
 12 Months Ended
Dec. 31, 2020
Leases [Abstract]  
Leases Leases
Adoption of ASC 842

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Codification 842, Leases (“ASC 842”), which requires lessees to recognize a ROU asset and a corresponding lease liability for leases with terms longer than twelve months. We adopted the new standard effective January 1, 2019, using a modified retrospective transition method and applied certain optional transitional practical expedients.

We elected an optional transition method that allowed application of the new standard at the adoption date and the recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption with no adjustment to previously reported results. In accordance with this approach, our consolidated financial statements for periods prior to January 1, 2019 were not revised to reflect the new lease accounting guidance. We also elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the carry forward of historical lease classification. We did not elect the practical expedient related to hindsight.

ASC 842 changes the way our operating leases are recorded, presented and disclosed in our consolidated financial statements. Upon adoption of ASC 842 on January 1, 2019, we recognized a ROU asset and a corresponding lease liability based on the present value of then existing operating lease obligations of approximately $11.4 million on our consolidated balance sheet. In addition, there are several key accounting policy elections that we made upon adoption of ASC 842 including:

•We did not recognize ROU assets and lease liabilities for short-term leases and instead record them in a manner similar to operating leases under ASC 840, Leases, lease accounting guidelines. A short term lease is one with a maximum lease term of 12 months or less and does not include a purchase option or renewal option the lessee is reasonably certain to exercise.

•We have also elected the non-lease component practical expedient for any asset class where lease and non-lease components are comingled and the non-lease component is determined to be insignificant when compared to the lease component.
Lease Recognition

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets, current liabilities and long-term operating lease liabilities in the consolidated balance sheets. Finance leases are included in property and equipment, current liabilities and long-term finance lease liabilities in the consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. For determining the present value of lease payments, we use the discount rate implicit in the lease when readily determinable. As most of our leases do not provide an implicit rate, we use an incremental borrowing rate in determining the present value of lease payments that approximates the rate of interest we would have to pay to borrow on a collateralized basis over a similar term. At adoption, the ROU asset also includes any lease payment made and excludes lease incentives and initial direct costs. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

We are a lessee in noncancellable (i) operating leases for office space, equipment and lease and terminal access contracts for tank storage and dock access for our crude oil marketing business, and (ii) finance leases for tractors, trailers, a tank storage and throughput arrangement in our crude oil marketing business and office equipment. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Our lease agreements have remaining lease terms ranging from one year to approximately eight years. Four of our finance lease agreements for tractors and trailers contain residual value guarantee provisions, which would become due at the expiration of the finance lease if the fair value of the lease vehicles is less than the guaranteed residual value. At December 31, 2020, we have recorded a liability of $1.8 million for the estimated end of term loss related to these residual value guarantees as we expect that we will pay the full amount of the guarantees at the end of the leases.

Our lease agreements do not contain any leases with variable lease payments (i.e., payments that depend on a percentage of sales of a lessee or payments that increase based upon an index such as CPI), residual value guarantees probable of being paid other than those noted above or material restrictive covenants. Lease agreements with lease and non-lease components are generally accounted for separately when practical. For leases where the lease and non-lease component are comingled and the non-lease component is determined to be insignificant when compared to the lease component, the lease and the non-lease components are treated as a single lease component for all asset classes.

Some leases include one or more options to renew, with renewal terms that can extend the lease term for generally one year with exercise of lease renewal options being at our sole discretion as lessee.

The following table provides the components of lease expense the periods indicated (in thousands):

Year Ended December 31,
20202019
Finance lease cost:
Amortization of ROU assets$2,547 $1,807 
Interest on lease liabilities300 295 
Operating lease cost2,718 2,933 
Short-term lease cost11,020 9,627 
Total lease expense$16,585 $14,662 
The following table provides supplemental cash flow and other information related to leases for the periods indicated (in thousands):
Year Ended December 31,
20202019
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases (1)
$2,717 $2,934 
Operating cash flows from finance leases291 295 
Financing cash flows from finance leases2,336 1,697 
ROU assets obtained in exchange for new lease liabilities:
Finance leases (2)
11,412 4,148 
Operating leases819 12,006 
______________
(1)Amounts are included in Other operating activities on the consolidated cash flow statements.
(2)2020 amount consists of a finance lease agreements for 58 tractors with five year terms, 40 trailers with a six year term that we entered into in connection with the CTL acquisition (see Note 6 for further information) and other office equipment.

The following table provides the lease terms and discount rates for the periods indicated:

Year Ended December 31,
20202019
Weighted-average remaining lease term (years):
Finance leases4.163.03
Operating leases4.574.78
Weighted-average discount rate:
Finance leases3.0 %4.9 %
Operating leases4.3 %5.0 %

The following table provides supplemental balance sheet information related to leases at the dates indicated (in thousands):
December 31,
20202019
Assets
Finance lease ROU assets (1)
$15,251 $6,384 
Operating lease ROU assets8,051 9,576 
Liabilities
Current
Finance lease liabilities4,112 2,167 
Operating lease liabilities2,050 2,252 
Noncurrent
Finance lease liabilities11,507 4,376 
Operating lease liabilities6,000 7,323 
______________
(1)Amounts are included in Property and equipment, net on the consolidated balance sheets.
The following table provides maturities of undiscounted lease liabilities at December 31, 2020 (in thousands):
Finance Operating
LeaseLease
2021$4,496 $2,343 
20223,562 2,002 
20232,764 1,821 
20241,969 1,700 
20252,992 222 
Thereafter802 675 
Total lease payments16,585 8,763 
Less: Interest(966)(713)
Present value of lease liabilities15,619 8,050 
Less: Current portion of lease obligation(4,112)(2,050)
Total long-term lease obligation$11,507 $6,000 

The following table provides maturities of undiscounted lease liabilities at December 31, 2019 (in thousands):
Finance Operating
LeaseLease
2020$2,426 $2,660 
20212,426 2,256 
20221,492 1,914 
2023642 1,776 
202437 1,668 
Thereafter— 443 
Total lease payments7,023 10,717 
Less: Interest(480)(1,142)
Present value of lease liabilities6,543 9,575 
Less: Current portion of lease obligation(2,167)(2,252)
Total long-term lease obligation$4,376 $7,323 
Leases Leases
Adoption of ASC 842

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Codification 842, Leases (“ASC 842”), which requires lessees to recognize a ROU asset and a corresponding lease liability for leases with terms longer than twelve months. We adopted the new standard effective January 1, 2019, using a modified retrospective transition method and applied certain optional transitional practical expedients.

We elected an optional transition method that allowed application of the new standard at the adoption date and the recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption with no adjustment to previously reported results. In accordance with this approach, our consolidated financial statements for periods prior to January 1, 2019 were not revised to reflect the new lease accounting guidance. We also elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the carry forward of historical lease classification. We did not elect the practical expedient related to hindsight.

ASC 842 changes the way our operating leases are recorded, presented and disclosed in our consolidated financial statements. Upon adoption of ASC 842 on January 1, 2019, we recognized a ROU asset and a corresponding lease liability based on the present value of then existing operating lease obligations of approximately $11.4 million on our consolidated balance sheet. In addition, there are several key accounting policy elections that we made upon adoption of ASC 842 including:

•We did not recognize ROU assets and lease liabilities for short-term leases and instead record them in a manner similar to operating leases under ASC 840, Leases, lease accounting guidelines. A short term lease is one with a maximum lease term of 12 months or less and does not include a purchase option or renewal option the lessee is reasonably certain to exercise.

•We have also elected the non-lease component practical expedient for any asset class where lease and non-lease components are comingled and the non-lease component is determined to be insignificant when compared to the lease component.
Lease Recognition

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets, current liabilities and long-term operating lease liabilities in the consolidated balance sheets. Finance leases are included in property and equipment, current liabilities and long-term finance lease liabilities in the consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. For determining the present value of lease payments, we use the discount rate implicit in the lease when readily determinable. As most of our leases do not provide an implicit rate, we use an incremental borrowing rate in determining the present value of lease payments that approximates the rate of interest we would have to pay to borrow on a collateralized basis over a similar term. At adoption, the ROU asset also includes any lease payment made and excludes lease incentives and initial direct costs. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

We are a lessee in noncancellable (i) operating leases for office space, equipment and lease and terminal access contracts for tank storage and dock access for our crude oil marketing business, and (ii) finance leases for tractors, trailers, a tank storage and throughput arrangement in our crude oil marketing business and office equipment. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Our lease agreements have remaining lease terms ranging from one year to approximately eight years. Four of our finance lease agreements for tractors and trailers contain residual value guarantee provisions, which would become due at the expiration of the finance lease if the fair value of the lease vehicles is less than the guaranteed residual value. At December 31, 2020, we have recorded a liability of $1.8 million for the estimated end of term loss related to these residual value guarantees as we expect that we will pay the full amount of the guarantees at the end of the leases.

Our lease agreements do not contain any leases with variable lease payments (i.e., payments that depend on a percentage of sales of a lessee or payments that increase based upon an index such as CPI), residual value guarantees probable of being paid other than those noted above or material restrictive covenants. Lease agreements with lease and non-lease components are generally accounted for separately when practical. For leases where the lease and non-lease component are comingled and the non-lease component is determined to be insignificant when compared to the lease component, the lease and the non-lease components are treated as a single lease component for all asset classes.

Some leases include one or more options to renew, with renewal terms that can extend the lease term for generally one year with exercise of lease renewal options being at our sole discretion as lessee.

The following table provides the components of lease expense the periods indicated (in thousands):

Year Ended December 31,
20202019
Finance lease cost:
Amortization of ROU assets$2,547 $1,807 
Interest on lease liabilities300 295 
Operating lease cost2,718 2,933 
Short-term lease cost11,020 9,627 
Total lease expense$16,585 $14,662 
The following table provides supplemental cash flow and other information related to leases for the periods indicated (in thousands):
Year Ended December 31,
20202019
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases (1)
$2,717 $2,934 
Operating cash flows from finance leases291 295 
Financing cash flows from finance leases2,336 1,697 
ROU assets obtained in exchange for new lease liabilities:
Finance leases (2)
11,412 4,148 
Operating leases819 12,006 
______________
(1)Amounts are included in Other operating activities on the consolidated cash flow statements.
(2)2020 amount consists of a finance lease agreements for 58 tractors with five year terms, 40 trailers with a six year term that we entered into in connection with the CTL acquisition (see Note 6 for further information) and other office equipment.

The following table provides the lease terms and discount rates for the periods indicated:

Year Ended December 31,
20202019
Weighted-average remaining lease term (years):
Finance leases4.163.03
Operating leases4.574.78
Weighted-average discount rate:
Finance leases3.0 %4.9 %
Operating leases4.3 %5.0 %

The following table provides supplemental balance sheet information related to leases at the dates indicated (in thousands):
December 31,
20202019
Assets
Finance lease ROU assets (1)
$15,251 $6,384 
Operating lease ROU assets8,051 9,576 
Liabilities
Current
Finance lease liabilities4,112 2,167 
Operating lease liabilities2,050 2,252 
Noncurrent
Finance lease liabilities11,507 4,376 
Operating lease liabilities6,000 7,323 
______________
(1)Amounts are included in Property and equipment, net on the consolidated balance sheets.
The following table provides maturities of undiscounted lease liabilities at December 31, 2020 (in thousands):
Finance Operating
LeaseLease
2021$4,496 $2,343 
20223,562 2,002 
20232,764 1,821 
20241,969 1,700 
20252,992 222 
Thereafter802 675 
Total lease payments16,585 8,763 
Less: Interest(966)(713)
Present value of lease liabilities15,619 8,050 
Less: Current portion of lease obligation(4,112)(2,050)
Total long-term lease obligation$11,507 $6,000 

The following table provides maturities of undiscounted lease liabilities at December 31, 2019 (in thousands):
Finance Operating
LeaseLease
2020$2,426 $2,660 
20212,426 2,256 
20221,492 1,914 
2023642 1,776 
202437 1,668 
Thereafter— 443 
Total lease payments7,023 10,717 
Less: Interest(480)(1,142)
Present value of lease liabilities6,543 9,575 
Less: Current portion of lease obligation(2,167)(2,252)
Total long-term lease obligation$4,376 $7,323