Our leasing activities primarily consist of operating leases for our corporate and shorebase offices, office and information technology equipment, employee housing, onshore storage yards and certain rig equipment and tools. We also lease Well Control Equipment under finance leases. Our leases have original terms ranging from one month to ten years, some of which include options to extend the lease for up to five years and/or to terminate the lease within one year.

We are participants in four sale and leaseback arrangements with a subsidiary of Baker Hughes pursuant to the 2016 sale of Well Control Equipment on our drillships and corresponding agreements to lease back that equipment under ten-year finance leases for approximately $26.0 million per year in the aggregate with renewal options for two successive five-year periods. At inception, these leases were determined to be operating leases. On March 31, 2021, we signed an amendment to the operating lease agreement for the Well Control Equipment. The general terms of the lease were unchanged, including the stipulated cost per day and available renewal options; however, a ceiling was added to a previously unpriced purchase option at the end of the original 10-year lease term. This amendment was considered a lease modification, whereby we were required to reassess lease classification and remeasure the corresponding right-of-use (or ROU) asset and lease liability. Due to the purchase option ceiling provision included in the amendment, we now believe that we are reasonably certain to exercise the purchase option at the end of the original lease term. Therefore, we have changed the lease classification from an operating lease to a finance lease and remeasured the ROU asset and lease liability to include the estimated purchase option price of the Well Control Equipment.

In applying ASU 2016-02, we utilize an exemption for short-term leases whereby we do not record leases with terms of one year or less on the balance sheet. We have also made an accounting policy election not to separate lease components from non-lease components for each of our classes of underlying assets, except for subsea equipment,

which includes the Well Control Equipment discussed above. At inception, the consideration for the overall Well Control Equipment arrangement was allocated between the lease and service components based on an estimation of stand-alone selling price of each component, which maximized observable inputs. The costs associated with the service portion of the agreement are accounted for separately from the cost attributable to the equipment leases based on that allocation and thus, are not included in our ROU asset or lease liability balances. The non-lease components for each of our other classes of assets generally relate to maintenance, monitoring and security services and are not separated from their respective lease components. See Note 11 “Commitments and Contingencies.”

The lease term used for calculating our ROU assets and lease liabilities is determined by considering the noncancelable lease term, as well as any extension options that we are reasonably certain to exercise. The determination to include option periods is generally made by considering the activity in the region or for the rig corresponding to the respective lease, among other contract-based and market-based factors. We have used our incremental borrowing rate to discount future lease payments as the rate implicit in our leases is not readily determinable. The incremental borrowing rate was determined primarily based on secured borrowing rates negotiated in relation to our new debt and existing revolving credit facility.

Amounts recognized in our Consolidated Balance Sheets for both our operating and finance leases are as follows (in thousands):


	December 31,
Operating Leases:	2023			2022
Other assets	$	37,876		$	30,332
Accrued liabilities		(8,436	)		(13,480	)
Other liabilities		(29,438	)		(16,542	)
Finance Leases:
Drilling and other property and equipment, net of accumulated depreciation		128,303			145,510
Current finance lease liabilities		(15,960	)		(16,965	)
Noncurrent finance lease liabilities		(113,201	)		(131,393	)

Components of lease expense are as follows (in thousands):


	Successor						Predecessor
	Year Ended December 31,				Period from		Period from
					April 24, 2021 through		January 1, 2021 through
	2023		2022		December 21, 2021		April 23, 2021
Operating lease cost	$	15,712	$	19,479	$	11,754	$	11,799
Finance lease cost:
Amortization of ROU assets		17,207		17,207		11,854		—
Interest on lease liabilities		9,315		10,415		7,796		—
Short-term lease cost		101		242		199		101
Variable lease cost (1)		107,848		12,804		1,237		598
Total lease cost	$	150,183	$	60,147	$	32,840	$	12,498

(1)

Includes charter expenses incurred post-commencement of drilling operations for the managed rigs.

Supplemental information related to leases is as follows (in thousands, except weighted-average data):


	Successor									Predecessor
	Year Ended December 31,						Period from			Period from
							April 24, 2021 through			January 1, 2021 through
Operating Leases:	2023			2022			December 31. 2021			April 23, 2021
Operating cash flows used	$	15,014		$	19,031		$	12,005		$	10,817
ROU assets obtained in exchange for lease liabilities		21,027			8,662			19,064			1,076
Weighted-average remaining lease term (1)	4.6 years			4.0 years			4.4 years			5.9 years
Weighted-average discount rate (1)		9	%		7	%		7	%		6.89	%
Finance Leases:
Operating cash flows used	$	9,315		$	10,415		$	7,796		$	—
Financing cash flows used		16,965			15,865			9,845			—
ROU assets obtained in exchange for lease liabilities		—			—			174,571			—
Weighted-average remaining lease term (1)	2.5 years			3.5 years			4.5 years			n/a
Weighted-average discount rate (1)		7	%		7	%		7	%	n/a

(1)

Amounts represent the weighted average remaining lease term or discount rate as of the end of the respective period presented.

Maturities of lease liabilities as of December 31, 2023 are as follows (in thousands):


	Operating Leases			Finance Leases			Total
2024	$	11,181		$	26,352		$	37,533
2025		9,658			26,280			35,938
2026		9,386			94,198			103,584
2027		8,566			—			8,566
2028		4,771			—			4,771
Thereafter		2,788			—			2,788
Total lease payments	$	46,350		$	146,830		$	193,180
Less: Interest		(8,476	)		(17,669	)		(26,145	)
Total lease liability	$	37,874		$	129,161		$	167,035