Leases (Notes)

9 Months Ended

Sep. 30, 2019

We have cancelable and non-cancelable finance and operating lease obligations for the lease of land, vehicles, office space, retail facilities, and other facilities used in the storage and transportation of crude oil and refined products. Most of our leases include one or more options to renew, with renewal terms that can extend the lease term from one to 30 years or more. There are no material lease arrangements where we are the lessor.

We determine whether a contract is or contains a lease when we have the right to control the use of the identified asset in exchange for consideration. Lease liabilities and ROU assets are recognized at the commencement date based on the present value of lease payments over the lease term. We use our incremental borrowing rate in the calculation of present value unless the implicit rate can be readily determined. Certain leases include provisions for variable payments based upon percentage of sales and/or other operating metrics; escalation provisions to adjust rental payments to reflect changes in price indices and fair market rents; and provisions for the renewal, termination, and/or purchase of the leased asset. We only consider fixed payments and those options that are reasonably certain to be exercised in the determination of the lease term and the initial measurement of lease liabilities and ROU assets. Expense for operating lease payments is recognized as lease expense on a straight-line basis over the lease term. Expense for finance leases is recognized as amortization expense on a straight-line basis and interest expense on an effective rate basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

We do not separate lease and nonlease components of a contract. There are no material residual value guarantees associated with any of our leases.

The following table provides information on the amounts (in thousands, except lease term and discount rates) of our leased assets and liabilities as of September 30, 2019 and their placement within our condensed consolidated balance sheets:



Lease type	Balance Sheet Location	September 30, 2019
Assets
Finance	Property, plant, and equipment	$	10,787
Finance	Accumulated amortization	(3,959		)
Finance	Property and equipment, net	$	6,828
Operating	Operating lease assets	373,269
Total leased assets		$	380,097

Liabilities
Current
Finance	Other accrued liabilities	$	1,632
Operating	Operating lease liabilities	54,476
Long-term
Finance	Finance lease liabilities	5,976
Operating	Operating lease liabilities	320,553
Total lease liabilities		$	382,637

Weighted-average remaining lease term (in years)
Finance		5.90
Operating		11.53
Weighted-average discount rate
Finance		6.68		%
Operating		7.71		%

The following table summarizes the lease costs recognized on our condensed consolidated statements of operations (in thousands):



Lease cost type	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Finance lease cost
Amortization of finance lease assets	$	479	$	1,380
Interest on lease liabilities	128		392
Operating lease cost	24,259		72,237
Variable lease cost	2,799		8,689
Short-term lease cost	1,067		1,483
Net lease cost	$	28,732	$	84,181

The following table summarizes the supplemental cash flow information related to leases as follows (in thousands):



Lease type	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of liabilities
Financing cash flows from finance leases	$	1,571
Operating cash flows from finance leases	559
Operating cash flows from operating leases	71,181
Non-cash supplemental amounts
ROU assets obtained in exchange for new finance lease liabilities	198
ROU assets obtained in exchange for new operating lease liabilities	15,532

The table below includes the estimated future undiscounted cash flows for finance and operating leases as of September 30, 2019 (in thousands):



For the year ending December 31,	Finance leases			Operating leases			Total
2019 (1)	$	540		$	22,109		$	22,649
2020	1,978			79,668			81,646
2021	1,407			51,891			53,298
2022	1,190			49,712			50,902
2023	1,159			48,670			49,829
2024	934			42,962			43,896
Thereafter	2,005			243,517			245,522
Total lease payments	9,213			538,529			547,742
Less amount representing interest	(1,605		)	(163,500		)	(165,105		)
Present value of lease liabilities	$	7,608		$	375,029		$	382,637

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(1)	Represents period from October 1, 2019 to December 31, 2019.

Additionally, the Company has $54.0 million and $1.2 million in future undiscounted cash flows for four operating leases and one finance lease that have not yet commenced, respectively. These leases are expected to commence when the lessor has made the equipment or location available to the Company to operate or begin construction, respectively.

At December 31, 2018, the estimated minimum lease payments for capital and operating leases with initial or remaining non-cancelable lease terms in excess of one year were as follows (in thousands):



	Capital leases			Operating leases
2019	$	2,723		$	62,589
2020	2,264			62,132
2021	1,757			39,821
2022	1,512			38,402
2023	1,148			38,827
Thereafter	2,600			191,717
Total minimum rental payments	$	12,004		$	433,488
Less amount representing interest	(1,865		)
Present value of minimum rental payments	$	10,139

Leases