Leases

12 Months Ended

Dec. 31, 2021

Leases [Abstract]

Leases

Leases

We account for leases under ASC 842, Leases, which requires lessees to recognize a ROU asset and a corresponding lease liability for leases with terms longer than twelve months. 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. Five 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, 2021, we have recorded a liability of $2.2 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 material 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 for the periods indicated (in thousands):

	Year Ended December 31,
	2021		2020		2019
Finance lease cost:
Amortization of ROU assets	$	4,744	$	2,547	$	1,807
Interest on lease liabilities	413		300		295
Operating lease cost	2,560		2,718		2,933
Short-term lease cost	13,880		11,020		9,627
Variable lease cost	7		—		—
Total lease expense	$	21,604	$	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,
	2021		2020		2019
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases (1)	$	2,560	$	2,717	$	2,934
Operating cash flows from finance leases	326		291		295
Financing cash flows from finance leases	4,367		2,336		1,697
ROU assets obtained in exchange for new lease liabilities:
Finance leases (2)	2,083		11,412		4,148
Operating leases	1,385		819		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 lease terms and discount rates for the periods indicated:

	Year Ended December 31,
	2021		2020		2019
Weighted-average remaining lease term (years):
Finance leases	3.60		4.16		3.03
Operating leases	3.85		4.57		4.78
Weighted-average discount rate:
Finance leases	2.6	%	3.0	%	4.9	%
Operating leases	3.8	%	4.3	%	5.0	%

The following table provides supplemental balance sheet information related to leases at the dates indicated (in thousands):

	December 31,
	2021		2020
Assets
Finance lease ROU assets (1)	$	12,590	$	15,251
Operating lease ROU assets	7,113		8,051
Liabilities
Current
Finance lease liabilities	3,663		4,112
Operating lease liabilities	2,178		2,050
Noncurrent
Finance lease liabilities	9,672		11,507
Operating lease liabilities	4,938		6,000

______________

(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, 2021 (in thousands):

	Finance		Operating
	Lease		Lease
2022	$	3,941	$	2,399
2023	3,143		2,080
2024	2,348		1,911
2025	3,771		394
2026	801		333
Thereafter	—		455
Total lease payments	14,004		7,572
Less: Interest	(669)		(456)
Present value of lease liabilities	13,335		7,116
Less: Current portion of lease obligation	(3,663)		(2,178)
Total long-term lease obligation	$	9,672	$	4,938

The following table provides maturities of undiscounted lease liabilities at December 31, 2020 (in thousands):

	Finance		Operating
	Lease		Lease
2021	$	4,496	$	2,343
2022	3,562		2,002
2023	2,764		1,821
2024	1,969		1,700
2025	2,992		222
Thereafter	802		675
Total lease payments	16,585		8,763
Less: Interest	(966)		(713)
Present value of lease liabilities	15,619		8,050
Less: Current portion of lease obligation	(4,112)		(2,050)
Total long-term lease obligation	$	11,507	$	6,000

Leases

Leases

We account for leases under ASC 842, Leases, which requires lessees to recognize a ROU asset and a corresponding lease liability for leases with terms longer than twelve months. 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. Five 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, 2021, we have recorded a liability of $2.2 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 material 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 for the periods indicated (in thousands):

	Year Ended December 31,
	2021		2020		2019
Finance lease cost:
Amortization of ROU assets	$	4,744	$	2,547	$	1,807
Interest on lease liabilities	413		300		295
Operating lease cost	2,560		2,718		2,933
Short-term lease cost	13,880		11,020		9,627
Variable lease cost	7		—		—
Total lease expense	$	21,604	$	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,
	2021		2020		2019
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases (1)	$	2,560	$	2,717	$	2,934
Operating cash flows from finance leases	326		291		295
Financing cash flows from finance leases	4,367		2,336		1,697
ROU assets obtained in exchange for new lease liabilities:
Finance leases (2)	2,083		11,412		4,148
Operating leases	1,385		819		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 lease terms and discount rates for the periods indicated:

	Year Ended December 31,
	2021		2020		2019
Weighted-average remaining lease term (years):
Finance leases	3.60		4.16		3.03
Operating leases	3.85		4.57		4.78
Weighted-average discount rate:
Finance leases	2.6	%	3.0	%	4.9	%
Operating leases	3.8	%	4.3	%	5.0	%

The following table provides supplemental balance sheet information related to leases at the dates indicated (in thousands):

	December 31,
	2021		2020
Assets
Finance lease ROU assets (1)	$	12,590	$	15,251
Operating lease ROU assets	7,113		8,051
Liabilities
Current
Finance lease liabilities	3,663		4,112
Operating lease liabilities	2,178		2,050
Noncurrent
Finance lease liabilities	9,672		11,507
Operating lease liabilities	4,938		6,000

______________

(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, 2021 (in thousands):

	Finance		Operating
	Lease		Lease
2022	$	3,941	$	2,399
2023	3,143		2,080
2024	2,348		1,911
2025	3,771		394
2026	801		333
Thereafter	—		455
Total lease payments	14,004		7,572
Less: Interest	(669)		(456)
Present value of lease liabilities	13,335		7,116
Less: Current portion of lease obligation	(3,663)		(2,178)
Total long-term lease obligation	$	9,672	$	4,938

The following table provides maturities of undiscounted lease liabilities at December 31, 2020 (in thousands):

	Finance		Operating
	Lease		Lease
2021	$	4,496	$	2,343
2022	3,562		2,002
2023	2,764		1,821
2024	1,969		1,700
2025	2,992		222
Thereafter	802		675
Total lease payments	16,585		8,763
Less: Interest	(966)		(713)
Present value of lease liabilities	15,619		8,050
Less: Current portion of lease obligation	(4,112)		(2,050)
Total long-term lease obligation	$	11,507	$	6,000