Leases

12 Months Ended

Dec. 31, 2019

The Company leases 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 whether a contract is or contains a lease, lease classification and initial direct lease 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, where fixed nonlease payments are capitalized to the Consolidated Balance Sheet and variable nonlease payments are recognized as variable lease expense in the Statement of Consolidated Operations. Nonlease payments include payments for property taxes and other operating and maintenance expenses incurred by the lessor but paid by the Company pursuant to the lease contract.

On January 1, 2019, the Company recorded in its Consolidated Balance Sheet a total of $89.0 million in right-of-use assets and corresponding lease liabilities, representing the present value of its future lease payments. Adoption of the lease 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 reassess the discount rate for new and modified lease contracts as of the lease effective date.

The right-of-use assets and lease liabilities recognized upon adoption of lease standards were based on lease classifications, commitment amounts and terms determined 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 in the Consolidated Balance Sheet. Certain of the Company's lease contracts have multiple renewal periods at the Company's option; if a renewal period option is reasonably assured to be

exercised, the associated operating lease payments are included in the present value of future operating lease payments. As of December 31, 2019, the Company had no finance leases and was not a lessor.

The following table summarizes the Company's lease costs.



	Year Ended December 31, 2019
	(Thousands)
Operating lease costs	$	57,517
Variable lease costs (a)	17,143
Total lease costs (b)	$	74,660


(a)	Includes short-term lease costs.


(b)	Includes drilling rig lease costs capitalized to property, plant and equipment of $58.5 million, of which $48.1 million are operating lease costs.

For the year ended December 31, 2019, cash paid for operating lease liabilities, and reported in cash flows provided by operating activities on the Statement of Consolidated Cash Flows, was $10.8 million. During the year ended December 31, 2019, the Company recorded $24.3 million of right-of-use assets in exchange for new lease liabilities.

The operating lease right-of-use assets were recorded in other assets and the current and noncurrent portions of the operating lease liabilities were recorded in other current liabilities and other liabilities and credits, respectively, on the Consolidated Balance Sheet. As of December 31, 2019, the operating right-of-use assets were $52.2 million and operating lease liabilities were $59.0 million, of which $29.0 million was classified as current. As of December 31, 2019, the weighted average remaining lease term was 3.3 years and the weighted average discount rate was 3.3%.

The following table summarizes undiscounted future cash flows owed by the Company to lessors pursuant to lease contracts in effect as of December 31, 2019.



	December 31, 2019
	(Thousands)
2020	$	30,488
2021	9,186
2022	8,499
2023	8,417
2024	5,985
Thereafter	28
Total lease payments	62,603
Less: Interest	(3,618		)
Present value of lease liabilities	$	58,985