LEASES

9 Months Ended

Sep. 30, 2019

9. LEASES

Lessee

We have entered into certain agreements to use property, plant and equipment, including office space, equipment and land, which qualify as leases. ROU lease assets and liabilities associated with leases with an initial term of twelve months or less are not recorded on the balance sheet. Operating leases are included in Other non-current assets and Other non-current liabilities on our unaudited condensed consolidated balance sheet as of September 30, 2019, with the current portion of such liabilities being included in Accrued and other current liabilities. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the expected term of the lease at the commencement date including, as applicable, renewal periods when we have the option to extend and it is reasonably certain we will do so. As most of our leases do not provide an explicit interest rate, we use an applicable implicit incremental borrowing rate, based on the information available at the commencement date, in determining the present value of future payments. We give consideration to our borrowing rates based on our credit rating as well as secured and unsecured debt instruments with similar characteristics when calculating our incremental borrowing rates. We do not currently have any material financing leases. The operating lease ROU asset also includes lease payments made as of the commencement date and excludes lease incentives and initial direct costs. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. At this time, our lease population does not have either variable lease payments or residual value guarantees that would materially impact the ROU asset and liability valuation. Additionally, we do not have any sublease arrangements or lease transactions with related parties.

We have lessee agreements with lease and non-lease components, which are generally accounted for separately. For certain leases, we account for the lease and non-lease components as a single lease component based on the election of the practical expedient to not separate lease components from non-lease components related to the following classes of assets: (i) buildings and leasehold improvements; (ii) jetties, subsea pipeline and docks; (iii) pipelines and terminals; and (iv) vehicle, equipment and office furnishings. ASC 842 permits the lessee to account for its leases at a portfolio level provided that the resulting accounting would not differ materially from accounting at the individual lease level. We have applied the portfolio approach to certain equipment-type and vehicle leases in accounting for the operating lease ROU assets and liabilities. We also elected the package of practical expedients available upon adoption, including: (i) not to reassess whether any expired or existing contracts contain leases and lease classification for such leases, as well as initial direct costs for any existing leases; (ii) not to apply the provisions of ASU 2016-02 to land easements that existed or expired before adoption and that were not previously accounted for as leases under the previous lease standard in ASC Topic 840, Leases; (iii) to use hindsight in determining the lease term and in assessing impairment of our ROU lease assets; and (iv) not to apply provisions of ASU 2016-02 to short-term leases.

The operating lease costs for the three months ended September 30, 2019 and 2018 were $7.8 million and $7.9 million, respectively, including $1.0 million and $1.7 million of short-term operating lease costs for the respective periods. The operating lease costs for the nine months ended September 30, 2019 and 2018 were $24.2 million and $24.1 million, respectively, including $4.5 million and $6.9 million of short-term operating lease costs for the respective periods.

Supplemental balance sheet information related to leases is as follows (in thousands, except lease term and discount rate):



Lease Activity	Balance Sheet Location	September 30, 2019
Operating lease right-of-use assets	Other non-current assets	$	143,608

Current portion of operating lease liabilities	Accrued and other current liabilities	30,364
Operating lease liabilities	Other non-current liabilities	119,323
Total operating lease liabilities		$	149,687

Weighted average remaining lease term		16.2 years

Weighted average discount rate		5.36		%

The following table presents minimum lease payment obligations under noncancelable leases for our operating leases with terms in excess of one year as of September 30, 2019 (in thousands):



	Total
Remainder of 2019	$	12,520
2020	23,764
2021	20,049
2022	19,264
2023	19,231
Thereafter	140,836
Total	235,664
Less: Effect of discounting to net present value	(85,977		)
Total operating lease liabilities	$	149,687

Disclosures Related to Periods Prior to Adoption of ASC 842

The following table presents minimum lease payment obligations under our operating leases with terms in excess of one year for the years ending December 31st (in thousands):



	Total
2019	$	29,050
2020	26,255
2021	22,215
2022	21,378
2023	21,126
Thereafter	138,466
Total	$	258,490

See Note 18 - Supplemental Cash Flow for discussion related to supplemental cash flow information related to leases.