Commitments and Contingencies

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Transportation and Gathering Agreements

The Company has entered into certain transportation and gathering agreements with various pipeline carriers. Under certain of these agreements, the Company is obligated to ship minimum daily quantities, or pay for any deficiencies at a specified rate. The Company's forecasted production to be shipped on these pipelines is expected to exceed minimum daily quantities provided in the agreements. The Company is also obligated under certain of these arrangements to pay a demand charge for firm capacity rights on pipeline systems regardless of the amount of pipeline capacity utilized by the Company. If the Company does not utilize the capacity, it can release it to others, thus reducing its potential liability.

As of December 31, 2019, the Company's future minimum obligations under transportation and gathering agreements are as follows:



(In thousands)
2020	$	100,165
2021	155,573
2022	158,947
2023	143,875
2024	136,378
Thereafter	823,210
	$	1,518,148

Lease Commitments

The Company determines if an arrangement is, or contains, a lease at inception based on whether that contract conveys the right to control the use of an identified asset in exchange for consideration for a period of time. Operating leases are included in operating lease right-of-use assets (ROU assets) and operating lease liabilities (current and non-current) in the Consolidated Balance Sheet. The Company does not have any finance leases at December 31, 2019.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of minimum lease payments over the lease term. Most leases do not provide an implicit interest rate; therefore, the Company used its incremental borrowing rate based on the information available at the inception date to determine the present value of the lease payments. Lease terms include options to extend the lease when it is reasonably certain that the Company will exercise that option. Lease cost for lease payments is recognized on a straight-line basis over the lease term. 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.

For all operating leases, lease and non-lease components are accounted for as a single lease component.

The Company has operating leases for office space, drilling rig commitments, surface use agreements, compressor services and other leases. The leases have remaining terms ranging from three months to 26 years, including options to extend leases that the Company is reasonably certain to exercise. During the year ended December 31, 2019, the Company recognized operating lease cost and variable lease cost of $11.5 million and $6.6 million, respectively.

Short-term leases. The Company leases drilling rigs, fracturing and other equipment under lease terms ranging from 30 days to one year. Lease cost of $267.9 million was recognized on short-term leases during the year ended December 31, 2019. Certain lease costs are capitalized and included in Properties and equipment, net in the Consolidated Balance Sheet because they relate to drilling and completion activities, while other costs are expensed because they relate to production and administrative activities.

As of December 31, 2019, the Company’s future undiscounted minimum cash payment obligations for its operating lease liabilities are as follows:



(In thousands)	Year Ending December 31,
2020	$	4,831
2021	4,767
2022	4,589
2023	4,625
2024	4,665
Thereafter	25,422
Total undiscounted future lease payments	48,899
Present value adjustment	(13,098		)
Net operating lease liabilities	$	35,801

Supplemental cash flow information related to leases was as follows:



(In thousands)	Year Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	4,614
Investing cash flows from operating leases	$	6,647

Information regarding the weighted-average remaining lease term and the weighted-average discount rate for operating leases is summarized below:



	December 31, 2019
Weighted-average remaining lease term (in years)
Operating leases	12.1
Weighted-average discount rate
Operating leases	5.0	%

Lease Commitments (Topic 840)

Future minimum rental commitments under non-cancelable leases in effect at December 31, 2018 are as follows:



(In thousands)
2019	$	5,571
2020	5,684
2021	4,777
2022	1,659
2023	1,691
Thereafter	2,852
	$	22,234

The table above was prepared under the guidance of Topic 840. As discussed in Note 1 above, the Company adopted the guidance of Topic 842 effective January 1, 2019.

Rent expense under cancelable and non-cancelable leases totaled $9.3 million and $9.7 million for the years ended December 31, 2018 and 2017, respectively.

Legal Matters

The Company is a defendant in various legal proceedings arising in the normal course of business. All known liabilities are accrued when management determines they are probable based on its best estimate of the potential loss. While the outcome and impact of these legal proceedings on the Company cannot be predicted with certainty, management believes that the resolution of these proceedings will not have a material effect on the Company's financial position, results of operations or cash flows.

Contingency Reserves. When deemed necessary, the Company establishes reserves for certain legal proceedings. The establishment of a reserve is based on an estimation process that includes the advice of legal counsel and subjective judgment of management. While management believes these reserves to be adequate, it is reasonably possible that the Company could incur additional losses with respect to those matters for which reserves have been established. The Company believes that any such amount above the amounts accrued would not be material to the Consolidated Financial Statements. Future changes in facts and circumstances not currently foreseeable could result in the actual liability exceeding the estimated ranges of loss and amounts accrued.