Leases

SilverBow Resources has contractual agreements for its corporate office lease, vehicle fleet, drilling rigs, compressors, treating equipment, and for surface use rights. For leases with a primary term of more than 12 months, a right-of-use (“ROU”) asset and the corresponding lease liability is recorded. The Company determines at inception if an arrangement is an operating or financing lease. As of January 1, 2019 all of the Company’s leases were operating leases.

The initial asset and liability balances are recorded at the present value of the payment obligations over the lease term. If lease terms include options to extend the lease and it is reasonably certain that the Company will exercise that option, the lease term used for capitalization includes the expected renewal periods. Most leases do not provide an implicit interest rate. Unless the lease contract contains an implicit interest rate, the Company uses its incremental borrowing rate at the time of lease inception to compute the fair value of the lease payments. The ROU asset balance and current and non-current lease liabilities are reported separately on the accompanying 2019 Consolidated Balance Sheet. Certain leases have payment terms that vary based on the usage of the underlying assets. Variable lease payments are not included in ROU assets and lease liabilities. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense on a straight-line basis over the lease term.

Lease costs represent the straight-line lease expense of ROU assets and short-term leases. The components of lease cost are classified as follows (in thousands):



	Year Ended December 31, 2019
Lease Costs Included in the Asset Additions in the Condensed Consolidated Balance Sheets
Property, plant and equipment acquisitions - short-term leases	$	10,573
Property, plant and equipment acquisitions - operating leases	41
Total lease costs in property, plant and equipment additions	$	10,614



	Year Ended December 31, 2019
Lease Costs Included in the Condensed Consolidated Statements of Operations
Lease operating costs - short-term leases	$	2,071
Lease operating costs - operating leases	3,945
General and administrative, net - operating leases	681
Total lease cost expensed	$	6,697

The lease term and the discount rate related to the Company's leases are as follows:



	As of December 31, 2019
Weighted-average remaining lease term (in years)	1.8
Weighted-average discount rate	5.0	%

As of December 31, 2019, the Company's future undiscounted cash payment obligation for its operating lease liabilities are as follows (in thousands):



	December 31, 2019
2020	$	7,032
2021	2,436
2022	118
2023	60
2024	38
Thereafter	325
Total undiscounted lease payments	$	10,009
Present value adjustment	(489		)
Net operating lease liabilities	$	9,520

Supplemental cash flow information related to leases was as follows (in thousands):



	Year Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	4,609
Investing cash flows from operating leases	$	41

Rental and lease expense was $5.4 million and $4.4 million for the years ended December 31, 2019 and 2018, respectively. The rental and lease expense primarily relates to compressor rentals and the lease of our office space in Houston, Texas. During 2016 the Company entered into a four-year sub-lease agreement for office space in Houston, Texas. The operating lease commenced on January 1, 2017. Additionally, on August 31, 2017 we amended the sub-lease agreement for additional office space. As of December 31, 2019, the minimum contractual obligations were approximately $0.9 million in the aggregate.

Future minimum rental commitments under non-cancelable leases under the previous lease accounting standard Topic 840, are presented below (in thousands):



	December 31, 2018
2019	$	4,470
2020	838
2021	332
Thereafter	—
Total undiscounted lease payments	$	5,640