Leases

9 Months Ended

Sep. 30, 2020

Leases of Lessee Disclosure [Text Block]

QEP enters into contractual lease arrangements to rent office space, compressors, generators, drilling rigs and other equipment from third-party lessors. QEP records a net operating lease right-of-use (ROU) asset and operating lease liability on the balance sheets for all operating leases with a contract term in excess of 12 months. ROU assets represent QEP’s right to use an underlying asset for the lease term and lease liabilities represent QEP’s obligation to make future lease payments arising from the lease. Operating lease ROU assets and liabilities are recorded at commencement date based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheets. The Company recognizes lease expense for these short-term leases on a straight-line basis over the lease term. With the exception of generators, QEP does not account for lease components separately from the non-lease components. The contractual consideration provided under QEP's leased generators is allocated between lease components, such as equipment, and non-lease components, such as maintenance service fees, based on estimated costs from the vendor. QEP uses its incremental borrowing rate at commencement date of the contract in calculating the present value of future lease payments. The incremental borrowing rate is calculated using a risk-free interest rate adjusted for QEP's risk. The operating lease ROU asset also includes any lease incentives received in the recognition of the present value of future lease payments. Certain of QEP's leases may also include escalation clauses or options to extend or terminate the lease. These options are included in the present value recorded for the leases when it is reasonably certain that QEP will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

QEP determines if an arrangement is a lease at inception of the contract and records the resulting operating lease asset on the balance sheets as “Operating lease right-of-use assets, net” with offsetting liabilities recorded as “Current operating lease

liabilities” and “Operating lease liabilities.” QEP recognizes a lease in the financial statements when the arrangement either explicitly or implicitly involves property, plant, or equipment (PP&E), the contract terms are dependent on the use of the PP&E, and QEP has the ability or right to operate the PP&E or to direct others to operate the PP&E and receive the majority of the economic benefits of the assets. As of September 30, 2020, QEP does not have any financing leases.

Lease costs represent the straight-line lease expense of ROU assets and short-term leases. The components of lease cost are classified as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Lease Cost included in the Condensed Consolidated Balance Sheets	(in millions)
Property, Plant and Equipment acquisitions(1)	$	2.1	$	2.5	$	9.2	$	11.3

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Lease Cost included in the Condensed Consolidated Statement of Operations	(in millions)
Lease operating expense	$	3.4	$	2.9	$	8.8	$	9.0
Gathering and other expense	1.9		2.0		5.7		5.8
General and administrative	1.5		1.3		4.5		4.5

Total lease cost	$	8.9	$	8.7	$	28.2	$	30.6

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(1)Represents short-term lease capital expenditures related to drilling rigs for the three and nine months ended September 30, 2020 and 2019. These costs are capitalized as a part of "Proved properties" on the balance sheets.

Lease term and discount rate related to the Company's leases are as follows:


	September 30, 2020		September 30, 2019
Weighted-average remaining lease term (years)	3.5		3.4
Weighted-average discount rate	7.2	%	7.7	%

As of September 30, 2020 and December 31, 2019, the maturity analysis for long-term operating leases under the scope of ASC 842 is as follows:


	September 30, 2020		December 31, 2019
Year	(in millions)
2020	$	6.8	$	22.3
2021	25.0		20.4
2022	17.0		15.9
2023	11.4		10.6
2024	2.3		1.4
After 2024	2.6		2.4
Less: Interest(1)	(7.1)		(10.2)
Present value of lease liabilities(2)	$	58.0	$	62.8

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(1)Calculated using the estimated interest rate for each lease.

(2)As of September 30, 2020 and December 31, 2019, of the total present value of lease liabilities, $22.6 million and $18.0 million, was recorded in "Current operating lease liabilities", respectively, and $35.4 million and $44.8 million was recorded in "Operating lease liabilities", respectively, on the balance sheets.