Leases

9 Months Ended

Sep. 30, 2019

Leases

We adopted a comprehensive new lease accounting standard effective January 1, 2019. The details of the significant changes to our accounting policies resulting from the adoption of the new standard are set out below. We adopted the standard using the optional modified retrospective transition method; accordingly, the comparative information as of December 31, 2018 and for the three and nine months ending September 30, 2018 has not been adjusted and continues to be reported under the previous lease standard. Under the new lease standard, assets and liabilities that arise from all leases are required to be recognized on the balance sheet for lessees. Previously, only capital leases, which are now referred to as finance leases, were recorded on the balance sheet. The adoption of this standard resulted in the recognition of approximately $1.1 billion of operating lease right-of-use assets and operating lease liabilities on our condensed consolidated balance sheet as of January 1, 2019. The adoption of this standard did not materially impact our condensed consolidated results of operations for the three and nine months ended September 30, 2019. See Note 11 for additional information about the new accounting standard.

Beginning January 1, 2019, for all leases with a term in excess of 12 months, we recognized a lease liability equal to the present value of the lease payments and a right-of-use asset representing our right to use the underlying asset for the lease term. For operating leases, lease expense for lease payments is recognized on a straight-line basis over the lease term, while finance leases include both an operating expense and an interest expense component. For all leases with a term of 12 months or less, we elected the practical expedient to not recognize lease assets and liabilities. We recognize lease expense for these short-term leases on a straight-line basis over the lease term.

We are a lessee for numerous operating leases, primarily related to real estate, transportation and equipment. The vast majority of our operating leases have remaining lease terms of 10 years or less, some of which include options to extend the leases, and some of which include options to terminate the leases. We generally do not include renewal or termination options in our assessment of the leases unless extension or termination for certain assets is deemed to be reasonably certain. The accounting for some of our leases may require judgment, which includes determining whether a contract contains a lease, determining the incremental borrowing rates to utilize in our net present value calculation of lease payments for lease agreements which do not provide an implicit rate, and assessing the likelihood of renewal or termination options. We also have some lease agreements with lease and non-lease components, which are generally accounted for as a single lease component. For certain equipment leases, such as offshore vessels and drilling rigs, we account for the lease and non-lease components separately.

The following tables illustrate the financial impact of our leases as of and for the three and nine months ended September 30, 2019, along with other supplemental information about our existing leases:



Millions of dollars	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Components of lease expense:
Finance lease cost:
Amortization of right-of-use assets	$	5		$	14
Interest on lease liabilities	12			40
Operating lease cost	80			266
Short-term lease cost	8			23
Sublease income	(1		)	(4		)
Total lease cost	$	104		$	339



Millions of dollars	As of September 30, 2019
Components of balance sheet:
Operating leases:
Operating lease right-of-use assets (non-current)	$	985
Current portion of operating lease liabilities	208
Operating lease liabilities (non-current)	762
Finance leases:
Other assets (non-current)	$	136
Other current liabilities	18
Other liabilities (non-current)	128



Millions of dollars except years and percentages	Nine Months Ended September 30, 2019
Other supplemental information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	236
Operating cash flows from finance leases	40
Financing cash flows from finance leases	19
Right-of-use assets obtained in exchange for lease obligations:
Operating leases (a)	$	1,220
Finance leases	69
Weighted-average remaining lease term:
Operating leases	9.4 years
Finance leases	5.7 years
Weighted-average discount rate for operating leases	4.5		%

(a) Primarily consists of operating lease right-of-use assets exchanged for lease obligations upon implementation of the

new lease accounting standard on January 1, 2019.

The following table summarizes the maturity of our operating and finance leases as of September 30, 2019:



Millions of dollars	Operating Leases			Finance Leases
2019	$	75		$	15
2020	218			62
2021	172			63
2022	143			63
2023	107			62
Thereafter	524			137
Total lease payments	1,239			402
Less imputed interest	(269		)	(256		)
Total	$	970		$	146

As of December 31, 2018, future total rentals on our noncancellable operating leases were $975 million in the aggregate, which consisted of the following: $275 million in 2019; $146 million in 2020; $122 million in 2021; $100 million in 2022; $78 million in 2023; and $254 million thereafter.