Leases

The Company leases drilling rigs, storage tanks, equipment and office facilities under operating leases and recognizes lease expense on a straight-line basis over the lease term. Operating lease right-of-use assets and liabilities are initially recorded at commencement date based on the present value of lease payments over the lease term. As most of the Company's lease contracts do not provide an implicit discount rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Certain leases contain variable costs above the minimum required payments and are not included in the right-of-use assets or liabilities. Leases may include renewal, purchase or termination options that can extend or shorten the term of the lease. The exercise of those options is at the Company’s sole discretion and is evaluated at inception and throughout the contract to determine if a modification of the lease term is required. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

In June 2017, the Company entered into a 20-year operating lease for the Company's new corporate headquarters that is currently being constructed in Irving, Texas. Annual base rent is expected to be $33 million and lease payments are expected to commence once the building is complete. The Company has a variable equity interest in the entity that is constructing the building. The Company is not the primary beneficiary of the variable interest entity and only has a profit sharing interest after certain economic returns are achieved. The Company has no exposure to the variable interest entity's losses or future liabilities, if any. The contract for the Company's new corporate headquarters will be evaluated under ASC 842 upon lease commencement, which is expected to occur during the second half of 2019.

Lease costs, including amounts recoverable from joint operating partners, are as follows:



	Three Months Ended March 31, 2019
	($ in millions)
Lease costs:
Operating lease cost (a)	$	45
Short-term lease cost (b)	6
Variable lease cost (c)	19
Total lease costs	$	70

Other information:
Cash paid for amounts included in lease costs (d):
Operating cash flows from operating leases	$	21
Investing cash flows from operating leases (e)	$	49
Right-of-use assets obtained in exchange for new operating lease liabilities	$	88
Weighted-average remaining lease term - operating leases	3.4 years
Weighted-average discount rate - operating leases	3.3		%

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(a)	Represents straight-line rent cost associated with the Company's operating lease right-of-use assets.


(b)	Represents costs associated with short-term leases (those with a contractual term of 12 months or less) that are not recorded on the consolidated balance sheet.


(c)	Variable lease costs are primarily comprised of the non-lease service component of drilling rig commitments above the minimum required payments. Both the minimum required payments and the non-lease service component of the drilling rig commitments are capitalized as additions to oil and gas properties.


(d)	Cash paid for amounts included in total lease costs may not agree due to timing of cash payments and costs incurred.


(e)	Lease costs associated with drilling operations are capitalized as additions to oil and gas properties.

The payment schedule for the Company's operating lease obligations as of March 31, 2019 is as follows:



	Operating Leases
	(in millions)
Remainder of 2019	$	122
2020	127
2021	69
2022	36
2023	9
Thereafter	26
Total minimum lease payments	389
Less: Amount associated with discounting	(27		)
Total	$	362