Leases

12 Months Ended

Dec. 31, 2021

Leases [Abstract]

Leases

Leases

Lessee

Operating Leases

We enter into various lease agreements to support our operations including drilling rigs, well fracturing equipment, compressors, buildings, aircraft, vessels, vehicles and miscellaneous field equipment. We primarily act as a lessee in these transactions and the majority of our existing leases are classified as either short-term or long-term operating leases.

The majority of the drilling rig agreements and all of fracturing equipment agreements are classified as short-term leases based on the noncancellable period for which we have the right to use the equipment and assessment of options present in each agreement. We also incur variable lease costs under these agreements primarily related to chemicals and sand used in fracturing operations or various additional on-demand equipment and labor. The lease costs associated with the drilling rigs and fracturing equipment are primarily capitalized as part of the well costs.

Our existing long-term leases are comprised of compressors, drilling rigs, vessels, vehicles and miscellaneous field equipment. Our lease agreements may require both fixed and variable payments; none of the variable payments are rate or index-based, therefore only fixed payments were considered for recognizing lease liabilities and right-of-use (‘ROU’) assets related to long-term leases. Also, based on our election not to separate the lease and nonlease components, fixed payments related to equipment, crew and other nonlease components are included in the initial measurement of lease liabilities and ROU assets for all asset classes, except for vessels. For vessels, the contractual consideration was allocated between lease and nonlease components based on estimates provided by service providers.

Our leased assets may be used in joint oil and gas operations with other working interest owners. We recognize lease liabilities and ROU assets only when we are the signatory to a contract as an operator of joint properties. Such lease liabilities and ROU assets are determined based on gross contractual obligations. As we use the leased assets for joint operations, we have the contractual right to recover the other working interest owners’ share of lease costs. As a result, our lease costs are presented on a net basis, reduced for any costs recoverable from other working interest owners.

Finance Leases

In 2018, we signed an agreement with an owner/lessor to construct and lease a new build-to-suit office building in Houston, Texas. As of December 31, 2021, project costs totaled approximately $302 million, including land acquisition and construction costs. The initial lease term is five years and commenced in late September 2021 after the new Houston office was ready for occupancy. In the third quarter of 2021, we recorded a $32 million ROU asset and corresponding lease liability associated with the building, which was classified as a finance lease. At the end of the initial lease term, we can negotiate to extend the lease term for an additional five years, subject to the approval of the participants; purchase the property subject to certain terms and conditions; or remarket the property to an unrelated third party. The lease contains a residual value guarantee of 100% of the total acquisition and construction costs.

Balance Sheet Information

Balance sheet information related to ROU assets and lease liabilities was as follows:

		December 31,
(In millions)		2021		2020
ROU assets:	Balance Sheet Location:
Operating leases	Other noncurrent assets	$	59	$	133
Finance leases	Other noncurrent assets	28		—
Total ROU assets		$	87	$	133
Lease liabilities:
Current liabilities
Operating leases	Other current liabilities	$	40	$	70
Finance leases	Other current liabilities	6		—
Noncurrent liabilities
Operating leases	Deferred credits and other liabilities	23		67
Finance leases	Deferred credits and other liabilities	24		—
Total lease liabilities		$	93	$	137

Statements of Income Information

The table below presents our net lease costs for the years ended December 31, 2021 and 2020.

(In millions)	Year Ended December 31, 2021		Year Ended December 31, 2020
Operating lease costs:
Short-term lease costs(a)	$	121	$	170
Long-term lease costs(b)	64		75
Variable lease costs(c)	33		23
Finance lease costs:
Amortization of ROU assets	3		—
Total lease costs	$	221	$	268
Other information:
Cash paid for amounts included in the measurement of operating lease liabilities	$	73	$	100
ROU assets obtained in exchange for new operating lease liabilities(d)	15		46
ROU assets obtained in exchange for new finance lease liabilities(e)	28		—
Reductions to ROU assets resulting from modifications or cancellations of operating leases	$	(13)	$	(68)

(a)Represents our net share of lease costs arising from leases of less than one year but longer than one month that were not included in the lease liability.

(b)Represents our net share of the ROU asset amortization and the interest expense.

(c)Represents our net share of variable lease payments that were not included in the lease liability.

(d)Represents the cumulative value of operating lease ROU assets recognized at lease inception. This amount is then amortized as we utilize the ROU asset, the net effect of which is the ending ROU asset (first table above).

(e)Represents the cumulative value of finance lease ROU assets recognized at lease inception during the year of 2021. This amount is then amortized as we utilize the ROU asset, the net effect of which is the ending ROU asset of $28 million (first table above).

Annual Lease Maturities

The remaining annual undiscounted cash flows associated with long-term leases and the reconciliation of these cash flows to the lease liabilities recognized on the consolidated balance sheet is summarized below.

(In millions)	Operating Lease Obligations		Finance Lease Obligations		Total Lease Obligations
2022	$	45	$	7	$	52
2023	8		7		15
2024	5		7		12
2025	4		7		11
2026	2		4		6
Thereafter	—		—		—
Total undiscounted lease payments	$	64	$	32	$	96
Less: amount representing interest	1		2		3
Total lease liabilities	$	63	$	30	$	93
Less: current portion of lease liability as of December 31, 2021	40		6		46
Long-term lease liability as of December 31, 2021	$	23	$	24	$	47

Other Information

We use our periodic incremental borrowing rate to discount future contractual payments to their present values. For our operating leases, the weighted average lease term is two years and the discount rate is 3% as of December 31, 2021. For our finance leases, the weighted-average remaining lease term is five years and the discount rate is 2% as of December 31, 2021.

Lessor

Our wholly owned subsidiary, Marathon E.G. Production Limited, is a lessor for residential housing in Equatorial Guinea, which is occupied by EGHoldings, a related party equity method investee – see Note 24. The lease was classified as an operating lease and expires in 2024, with a lessee option to extend through 2034. Lease payments are fixed for the entire duration of the agreement at approximately $6 million per year. Our lease income is reported in other income in our consolidated statements of income for all periods presented. The undiscounted cash flows to be received under this lease agreement are summarized below.

(In millions)	Operating Lease Future Cash Receipts
2022	$	6
2023	6
2024	6
2025	6
2026	6
Thereafter	49
Total undiscounted cash flows	$	79

Leases

Leases

Lessee

Operating Leases

We enter into various lease agreements to support our operations including drilling rigs, well fracturing equipment, compressors, buildings, aircraft, vessels, vehicles and miscellaneous field equipment. We primarily act as a lessee in these transactions and the majority of our existing leases are classified as either short-term or long-term operating leases.

The majority of the drilling rig agreements and all of fracturing equipment agreements are classified as short-term leases based on the noncancellable period for which we have the right to use the equipment and assessment of options present in each agreement. We also incur variable lease costs under these agreements primarily related to chemicals and sand used in fracturing operations or various additional on-demand equipment and labor. The lease costs associated with the drilling rigs and fracturing equipment are primarily capitalized as part of the well costs.

Our existing long-term leases are comprised of compressors, drilling rigs, vessels, vehicles and miscellaneous field equipment. Our lease agreements may require both fixed and variable payments; none of the variable payments are rate or index-based, therefore only fixed payments were considered for recognizing lease liabilities and right-of-use (‘ROU’) assets related to long-term leases. Also, based on our election not to separate the lease and nonlease components, fixed payments related to equipment, crew and other nonlease components are included in the initial measurement of lease liabilities and ROU assets for all asset classes, except for vessels. For vessels, the contractual consideration was allocated between lease and nonlease components based on estimates provided by service providers.

Our leased assets may be used in joint oil and gas operations with other working interest owners. We recognize lease liabilities and ROU assets only when we are the signatory to a contract as an operator of joint properties. Such lease liabilities and ROU assets are determined based on gross contractual obligations. As we use the leased assets for joint operations, we have the contractual right to recover the other working interest owners’ share of lease costs. As a result, our lease costs are presented on a net basis, reduced for any costs recoverable from other working interest owners.

Finance Leases

In 2018, we signed an agreement with an owner/lessor to construct and lease a new build-to-suit office building in Houston, Texas. As of December 31, 2021, project costs totaled approximately $302 million, including land acquisition and construction costs. The initial lease term is five years and commenced in late September 2021 after the new Houston office was ready for occupancy. In the third quarter of 2021, we recorded a $32 million ROU asset and corresponding lease liability associated with the building, which was classified as a finance lease. At the end of the initial lease term, we can negotiate to extend the lease term for an additional five years, subject to the approval of the participants; purchase the property subject to certain terms and conditions; or remarket the property to an unrelated third party. The lease contains a residual value guarantee of 100% of the total acquisition and construction costs.

Balance Sheet Information

Balance sheet information related to ROU assets and lease liabilities was as follows:

		December 31,
(In millions)		2021		2020
ROU assets:	Balance Sheet Location:
Operating leases	Other noncurrent assets	$	59	$	133
Finance leases	Other noncurrent assets	28		—
Total ROU assets		$	87	$	133
Lease liabilities:
Current liabilities
Operating leases	Other current liabilities	$	40	$	70
Finance leases	Other current liabilities	6		—
Noncurrent liabilities
Operating leases	Deferred credits and other liabilities	23		67
Finance leases	Deferred credits and other liabilities	24		—
Total lease liabilities		$	93	$	137

Statements of Income Information

The table below presents our net lease costs for the years ended December 31, 2021 and 2020.

(In millions)	Year Ended December 31, 2021		Year Ended December 31, 2020
Operating lease costs:
Short-term lease costs(a)	$	121	$	170
Long-term lease costs(b)	64		75
Variable lease costs(c)	33		23
Finance lease costs:
Amortization of ROU assets	3		—
Total lease costs	$	221	$	268
Other information:
Cash paid for amounts included in the measurement of operating lease liabilities	$	73	$	100
ROU assets obtained in exchange for new operating lease liabilities(d)	15		46
ROU assets obtained in exchange for new finance lease liabilities(e)	28		—
Reductions to ROU assets resulting from modifications or cancellations of operating leases	$	(13)	$	(68)

(a)Represents our net share of lease costs arising from leases of less than one year but longer than one month that were not included in the lease liability.

(b)Represents our net share of the ROU asset amortization and the interest expense.

(c)Represents our net share of variable lease payments that were not included in the lease liability.

(d)Represents the cumulative value of operating lease ROU assets recognized at lease inception. This amount is then amortized as we utilize the ROU asset, the net effect of which is the ending ROU asset (first table above).

(e)Represents the cumulative value of finance lease ROU assets recognized at lease inception during the year of 2021. This amount is then amortized as we utilize the ROU asset, the net effect of which is the ending ROU asset of $28 million (first table above).

Annual Lease Maturities

The remaining annual undiscounted cash flows associated with long-term leases and the reconciliation of these cash flows to the lease liabilities recognized on the consolidated balance sheet is summarized below.

(In millions)	Operating Lease Obligations		Finance Lease Obligations		Total Lease Obligations
2022	$	45	$	7	$	52
2023	8		7		15
2024	5		7		12
2025	4		7		11
2026	2		4		6
Thereafter	—		—		—
Total undiscounted lease payments	$	64	$	32	$	96
Less: amount representing interest	1		2		3
Total lease liabilities	$	63	$	30	$	93
Less: current portion of lease liability as of December 31, 2021	40		6		46
Long-term lease liability as of December 31, 2021	$	23	$	24	$	47

Other Information

We use our periodic incremental borrowing rate to discount future contractual payments to their present values. For our operating leases, the weighted average lease term is two years and the discount rate is 3% as of December 31, 2021. For our finance leases, the weighted-average remaining lease term is five years and the discount rate is 2% as of December 31, 2021.

Lessor

Our wholly owned subsidiary, Marathon E.G. Production Limited, is a lessor for residential housing in Equatorial Guinea, which is occupied by EGHoldings, a related party equity method investee – see Note 24. The lease was classified as an operating lease and expires in 2024, with a lessee option to extend through 2034. Lease payments are fixed for the entire duration of the agreement at approximately $6 million per year. Our lease income is reported in other income in our consolidated statements of income for all periods presented. The undiscounted cash flows to be received under this lease agreement are summarized below.

(In millions)	Operating Lease Future Cash Receipts
2022	$	6
2023	6
2024	6
2025	6
2026	6
Thereafter	49
Total undiscounted cash flows	$	79