Leases

6 Months Ended

Jun. 30, 2019

The Company leases certain drilling rigs, facilities and other equipment.

As discussed in Note 1, the Company adopted ASU 2016-02, ASU 2018-11 and ASU 2019-01 on January 1, 2019 using the optional transition method of adoption. The Company elected a package of practical expedients that together allows an entity to not reassess (i) whether a contract is or contains a lease; (ii) lease classification; and (iii) initial direct costs. In addition, the Company elected the following practical expedients: (i) to not reassess certain land easements; (ii) to not apply the recognition requirements under the standard to short-term leases; and (iii) to combine and account for lease and nonlease contract components as a lease, which requires the capitalization of fixed nonlease payments on January 1, 2019 or lease effective date and the recognition of variable nonlease payments as variable lease expense.

On January 1, 2019, the Company recorded a total of $89.0 million in right-of-use assets and corresponding new lease liabilities on its Condensed Consolidated Balance Sheet representing the present value of its future operating lease payments. Adoption of the standards did not require an adjustment to the opening balance of retained earnings. The discount rate used to determine present value was based on the rate of interest that the Company estimated it would have to pay to borrow (on a collateralized-basis over a similar term) an amount equal to the lease payments in a similar economic environment as of January 1, 2019. The Company is required to reassess the discount rate for any new and modified lease contracts as of the lease effective date.

The right-of-use assets and lease liabilities recognized upon adoption of ASU 2016-02 were based on the lease classifications, lease commitment amounts and terms recognized under the prior lease accounting guidance. Leases with an initial term of twelve months or less are considered short-term leases and are not recorded on the balance sheet. As of June 30, 2019, the Company had no finance leases and was not a lessor.

The following table summarizes operating lease costs for the three and six months ended June 30, 2019.



	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
	(Thousands)
Operating lease costs	$	18,413	$	37,697
Variable lease costs	7,014		10,269
Total lease costs (a)	$	25,427	$	47,966

(a)

For the three and six months ended June 30, 2019, total lease costs included $20.8 million and $39.4 million, respectively, capitalized to property, plant and equipment on the Condensed Consolidated Balance Sheet primarily for drilling rigs, of which $16.0 million and $32.7 million, respectively, related to operating lease costs. Variable lease costs also included short-term lease costs, which were immaterial.

For the six months ended June 30, 2019, cash paid for operating lease liabilities, and reported in cash flows provided by operating activities on the Company's Statement of Condensed Consolidated Cash Flows, was $5.6 million. During the six months ended June 30, 2019, the Company did not record any right-of-use assets in exchange for new lease liabilities.

The operating lease right-of-use assets were reported in other assets and the current and noncurrent portions of the operating lease liabilities were reported in other current liabilities and other liabilities, respectively, on the Condensed Consolidated Balance Sheet. As of June 30, 2019, the operating right-of-use assets were $51.6 million and operating lease liabilities were $60.2 million, of which $27.4 million was classified as current. As of June 30, 2019, the weighted average remaining lease term was 3.6 years and the weighted average discount rate was 3.6%.

Schedule of Operating Lease Liability Maturities. The following table summarizes undiscounted cash flows owed by the Company to lessors pursuant to contractual agreements in effect as of June 30, 2019.



	As of June 30, 2019
	(Thousands)
2019 (July - December)	$	24,660
2020	8,418
2021	8,456
2022	8,437
2023	8,417
2024+	6,014
Total lease payments	64,402
Less: Interest	4,167
Present value of lease liabilities	$	60,235