Leases Leases (Notes)

12 Months Ended

Dec. 31, 2022

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. All of the Company’s leases are 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 Consolidated Balance Sheets. 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. The Company elected for leases with an initial term of 12 months or less are not recorded on the balance sheet, and the Company does not account for lease and non-lease components separately. 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, 2022		Year Ended December 31, 2021
Lease Costs Included in the Asset Additions in the Consolidated Balance Sheets
Property and equipment acquisitions - short-term leases	$	15,219	$	3,472
Property and equipment acquisitions - operating leases	—		—
Total lease costs in property, plant and equipment additions	$	15,219	$	3,472


	Year Ended December 31, 2022		Year Ended December 31, 2021
Lease Costs Included in the Consolidated Statements of Operations
Lease operating costs - short-term leases	$	6,275	$	1,873
Lease operating costs - operating leases	8,304		5,325
General and administrative, net - operating leases	754		844
Total lease cost expensed	$	15,333	$	8,042

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


	As of December 31, 2022		As of December 31, 2021
Weighted-average remaining lease term (in years)	2.5		3.0
Weighted-average discount rate	4.6	%	4.1	%

As of December 31, 2022, the Company's future undiscounted cash payment obligation for its operating lease liabilities are as follows (in thousands):


	As of December 31, 2022
2023	$	8,939
2024	1,913
2025	934
2026	779
2027	51
Thereafter	488
Total undiscounted lease payments	$	13,104
Present value adjustment	(776)
Net operating lease liabilities	$	12,328

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


	Year Ended December 31, 2022		Year Ended December 31, 2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows	$	9,052	$	6,011

Non-cash Investing and Financing Activities
Additions to ROU assets obtained from new operating lease liabilities	$	5,342	$	8,779

Rental and lease expense was $14.6 million and $7.0 million for the years ended December 31, 2022 and 2021, respectively. The rental and lease expense primarily relates to compressor rentals and the lease of our office space in Houston, Texas. During 2021 the Company entered into a five-year lease agreement for office space in Houston, Texas. The operating lease commenced on May 18, 2021. As of December 31, 2022, the minimum contractual obligations were approximately $3.0 million in the aggregate.