Leases

6 Months Ended

Jun. 30, 2020

LEASESWe lease certain office space, land and equipment, including pipeline equipment and office equipment. Our lease payments are generally straight-line and exercising lease renewal options, which vary in term, is at our sole discretion. We

include renewal periods in our lease term if we are reasonably certain to exercise renewal options. Our lease agreements do not include options to purchase the leased property.

Related to our oil and natural gas segment, our short-term lease costs include those that are recognized in profit or loss during the period and those that are capitalized as part of the cost of another asset under GAAP. As the costs related to our drilling and production activities are reflected at our net ownership consistent with the principals of proportional consolidation, and lease commitments are generally considered gross as the operator, the costs may not reasonably reflect the company’s short-term lease commitments. As of June 30, 2020, we had an average working interest of 97% in our operated properties.

The following table shows supplemental cash flow information related to leases for the periods indicated:


	Six Months Ended
	June 30, 2020		June 30, 2019
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	2,827	$	1,616
Financing cash flows for finance leases	2,061		1,980
Lease liabilities recognized in exchange for new operating lease right of use assets	—		5

The following table shows information about our lease assets and liabilities in our Unaudited Condensed Consolidated Balance Sheets:


	Classification on the Consolidated Balance Sheets	June 30, 2020		December 31, 2019
		(In thousands)
Assets
Operating right of use assets	Right of use assets	$	7,828	$	5,673
Finance right of use assets	Property, plant, and equipment, net	16,455		17,396
Total right of use assets		$	24,283	$	23,069

Liabilities
Current liabilities:
Operating lease liabilities	Current operating lease liabilities	$	4,666	$	3,430
Finance lease liabilities	Current portion of other long-term liabilities	5,157		4,164
Non-current liabilities:
Operating lease liabilities	Operating lease liabilities	3,012		2,071
Finance lease liabilities	Other long-term liabilities	162		3,215
Total lease liabilities		$	12,997	$	12,880

The following table shows certain information related to the lease costs for our finance and operating leases for the periods indicated:



	Three Months Ended						Six Months Ended
	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
	(In thousands)
Components of total lease cost:
Amortization of finance leased assets	$	1,036	$	995	$	2,061	$	1,980
Interest on finance lease liabilities	60		100		130		211
Operating lease cost	1,395		1,052		2,639		1,651
Short-term lease cost, included are amounts capitalized related to our oil and natural gas segment of $0.4 million, $9.0 million, $1.4 million, and $14.7 million, respectively	2,751		12,038		6,742		22,012
Variable lease cost	83		84		165		190
Total lease cost	$	5,325	$	14,269	$	11,737	$	26,044

The following table shows certain information related to the weighted average remaining lease terms and the weighted average discount rates for our operating and finance leases:


	Weighted Average Remaining Lease Term	Weighted Average Discount Rate ⁽¹⁾
	(In years)
Operating leases	1.6	4.81%
Finance leases	1.2	4.00%

_______________________

1.Our weighted average discount rates represent the rate implicit in the lease or our incremental borrowing rate for a term equal to the remaining term of the lease.

The following table sets forth the maturity of our operating lease liabilities as of June 30, 2020:


	Amount
	(In thousands)
Ending July 1,
2021	$	4,938
2022	2,786
2023	222
2024	23
2025	12
2025 and beyond	70
Total future payments	8,051
Less: Interest	373
Present value of future minimum operating lease payments	7,678
Less: Current portion	4,666
Total long-term operating lease payments	$	3,012

Finance Leases

In 2014, Superior entered into finance lease agreements for 20 compressors with initial terms of seven years. The underlying assets are included in gas gathering and processing equipment. The $5.2 million current portion of the finance lease obligations is included in current portion of other long-term liabilities and the non-current portion of $0.2 million is included in

other long-term liabilities in the Unaudited Condensed Consolidated Balance Sheets as of June 30, 2020. These finance leases are discounted using annual rates of 4.00%. Total maintenance and interest remaining related to these leases are $1.4 million and $0.1 million, respectively, at June 30, 2020. Annual payments, net of maintenance and interest, average $4.6 million annually through 2021. At the end of the term, Superior has the option to purchase the assets at 10% of their then fair market value.

The following table sets forth the maturity of our finance lease liabilities as of June 30, 2020:


	Amount
Ending July 1,	(In thousands)
2020	$	6,692
2021	179
Total future payments	6,871
Less payments related to:
Maintenance	1,430
Interest	122
Present value of future minimum finance lease payments	5,319
Less: Current portion	5,157
Total long-term finance lease payments	$	162