Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.19.1
Leases
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Leases
Leases
Adoption of ASC Topic 842
Effective January 1, 2019, we adopted ASC Topic 842 and have applied the guidance therein to all of our contracts and agreements explicitly identified as leases as well as other contractual arrangements that we have determined to include or otherwise have the characteristics of a lease as defined in ASC Topic 842. As illustrated in the disclosures below, the adoption of ASC Topic 842 resulted in the recognition of certain assets and liabilities on our Condensed Consolidated Balance Sheet and changes in the amounts and timing of lease cost recognition in our Condensed Consolidated Statements of Operations as compared to prior GAAP. We have adopted ASC Topic 842 using the optional transition approach with an adjustment to the beginning balance of retained earnings as of January 1, 2019. Accordingly, our 2019 financial statements are not comparable with respect to leases in effect during all periods prior to January 1, 2019. On January 1, 2019, we recognized operating lease right-of-use (“ROU”) assets of $2.5 million and operating lease obligations of $2.8 million on our Condensed Consolidated Balance Sheet for operating leases in effect on that date. We recorded an immaterial adjustment to the beginning balance of retained earnings as of January 1, 2019 representing the difference between the operating lease ROU assets and operating lease obligations recognized upon adoption net of amounts already included in our liabilities as of December 31, 2018 that were attributable to straight-line lease expense in excess of amounts paid for certain operating leases. We did not identify any finance leases, as defined in ASC Topic 842, upon the date of initial adoption.
Accounting Policies for Leases
We determine if an arrangement is a lease at the inception of the underlying contractual arrangement. Operating leases are included in the captions “Other assets,” “Accounts payable and accrued liabilities” and “Other liabilities” on our Condensed Consolidated Balance Sheets and are identified as ROU assets - operating, Current operating lease obligations and Noncurrent operating lease obligations, respectively, below and in Note 10.
ROU assets represent our right to use an underlying asset for the lease term and lease obligations represent our obligation to make lease payments arising from the underlying contractual arrangement. Operating lease ROU assets and obligations are recognized at the commencement date based on the present value of lease payments over the lease term. The operating lease ROU assets include any lease payments made in advance and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.
Most of our leasing arrangements do not identify or otherwise provide for an implicit interest rate. Accordingly, we utilize a secured incremental borrowing rate based on information available at the commencement date in the determination of the present value of the lease payments. As most of our lease arrangements have terms ranging from two to five years, our secured incremental borrowing rate is primarily based on the rates applicable to our Credit Facility.
We have lease arrangements that include lease and certain non-lease components, including amounts for related taxes, insurance, common area maintenance and similar terms. We have elected to apply a practical expedient provided in ASC Topic 842 to not separate the lease and non-lease components. Accordingly, the ROU assets and lease obligations for such leases will include the present value of the estimated payments for the non-lease components over the lease term.
Certain of our lease arrangements with contractual terms of 12 months or less are classified as short-term leases. Accordingly, we have elected to not include the underlying ROU assets and lease obligations on our Condensed Consolidated Balance Sheets. The associated costs are aggregated with all of our other lease arrangements and are disclosed in the tables that follow.
Certain of our lease arrangements result in variable lease payments which, in accordance with ASC Topic 842, do not give rise to lease obligations. Rather, the basis and terms and conditions upon which such variable lease payments are determined are disclosed in the summary below.
Lease Arrangements and Supplemental Disclosures
We have lease arrangements for office facilities and certain office equipment, certain field equipment including compressors, drilling rigs, land easements and similar arrangements for rights-of-way, and certain gas gathering and gas lift assets. Our short-term leases are primarily comprised of our contractual arrangements with certain vendors for operated drilling rigs and our field compressors. Our primary variable lease includes our field gas gathering and gas lift agreement with a midstream service provider and the lease payments are charged on a volumetric basis at a contractual fixed rate.
The following table summarizes the components of our total lease cost for the three months ended March 31, 2019:
Operating lease cost
 
$
163

Short-term lease cost
 
11,571

Variable lease cost
 
5,095

Less: Amounts charged as drilling costs 1
 
(10,851
)
Total lease cost recognized in the Condensed Consolidated Statement of Operations2
 
$
5,978

___________________
1 
Represents the combined gross amounts paid and (i) capitalized as drilling costs for our working interest share and (ii) billed to joint interest partners for their working interest share for short-term leases of operated drilling rigs.
2 
Includes $2.1 million recognized in Gathering, processing and transportation, $3.7 million recognized in Lease operating and $0.2 million recognized in G&A.
The following table summarizes supplemental cash flow information related to leases for the three months ended March 31, 2019:
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows from operating leases
 
$
39

ROU assets obtained in exchange for lease obligations:
 
 
Operating leases
 
$
2,572


The following table summarizes supplemental balance sheet information related to leases as of March 31, 2019:
ROU assets - operating leases
 
$
2,451

 
 
 
Current operating lease obligations
 
$
689

Noncurrent operating lease obligations
 
2,109

Total operating lease obligations
 
$
2,798

 
 
 
Weighted-average remaining lease term
 
 
Operating leases
 
4.8 Years

 
 
 
Weighted-average discount rate
 
 
Operating leases
 
5.96
%
 
 
 
Maturities of operating lease obligations for the years ending December 31,
 
 
2019
 
$
516

2020
 
667

2021
 
647

2022
 
647

2023
 
644

2024 and thereafter
 
108

Total undiscounted lease payments
 
3,229

Less: imputed interest
 
(431
)
Total operating lease obligations
 
$
2,798