Non-Mineral Leases

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Leases of Lessee Disclosure [Text Block]

Note15—Non-Mineral Leases

The company primarily leases office buildings and drilling equipment, as well as ocean transport vessels, tugboats, corporate aircraft, and other facilities and equipment. Certain leases include escalation clauses for adjusting rental payments to reflect changes in price indices and other leases include payment provisions that vary based on the nature of usage of the leased asset. Additionally, the company has executed certain leases that provide it with the option to extend or renew the term of the lease, terminate the lease prior to the end of the lease term, or purchase the leased asset as of the end of the lease term. In other cases, the company has executed lease agreements that require it to guarantee the residual value of certain leased office buildings. For additional information about guarantees, see Note 11—Guarantees. There are no significant restrictions imposed on us by the lease agreements with regard to dividends, asset dispositions or borrowing ability.

Certain arrangements may contain both lease and non-lease components and we determine if an arrangement is or contains a lease at contract inception. Only the lease components of these contractual arrangements are subject to the provisions of ASC Topic 842, and any non-lease components are subject to other applicable accounting guidance; however, we have elected to adopt the optional practical expedient not to separate lease components apart from non-lease components for accounting purposes. This policy election has been adopted for each of the company’s leased asset classes existing as of the effective date and subject to the transition provisions of ASC Topic 842 and will be applied to all new or modified leases executed on or after January 1, 2019. For contractual arrangements executed in subsequent periods involving a new leased asset class, the company will determine at contract inception whether it will apply the optional practical expedient to the new leased asset class.

Leases are evaluated for classification as operating or finance leases at the commencement date of the lease and right-of-use assets and corresponding liabilities are recognized on our consolidated balance sheet based on the present value of future lease payments relating to the use of the underlying asset during the lease term. Future lease payments include variable lease payments that depend upon an index or rate using the index or rate at the commencement date and probable amounts owed under residual value guarantees. The amount of future lease payments may be increased to include additional payments related to lease extension, termination, and/or purchase options when the company has determined, at or subsequent to lease commencement, generally due to limited asset availability or operating commitments, it is reasonably certain of exercising such options. We use our incremental borrowing rate as the discount rate in determining the present value of future lease payments, unless the interest rate implicit in the lease arrangement is readily determinable. Lease payments that vary subsequent to the commencement date based on future usage levels, the nature of leased asset activities, or certain other contingencies are not included in the measurement of lease right-of-use assets and corresponding liabilities. We have elected not to record assets and liabilities on our consolidated balance sheet for lease arrangements with terms of 12 months or less.

We often enter into leasing arrangements acting in the capacity as operator for and/or on behalf of certain oil and gas joint ventures of undivided interests. If the lease arrangement can be legally enforced only against us as operator and there is no separate arrangement to sublease the underlying leased asset to our coventurers, we recognize at lease commencement a right-of-use asset and corresponding lease liability on our consolidated balance sheet on a gross basis. While we record lease costs on a gross basis in our consolidated income statement and statement of cash flows, such costs are offset by the reimbursement we receive from our coventurers for their share of the lease cost as the underlying leased asset is utilized in joint venture activities. As a result, lease cost is presented in our consolidated income statement and statement of cash flows on a proportional basis. If we are a nonoperating coventurer, we recognize a right-of-use asset and corresponding lease liability only if we were a specified contractual party to the lease arrangement and the arrangement could be legally enforced against us. In this circumstance, we would recognize both the right-of-use asset and corresponding lease liability on our consolidated balance sheet on a proportional basis consistent with our undivided interest ownership in the related joint venture.

The company has historically recorded certain finance leases executed by investee companies accounted for under the proportionate consolidation method of accounting on its consolidated balance sheet on a proportional basis consistent with its ownership interest in the investee company. In addition, the company has historically recorded finance lease assets and liabilities associated with certain oil and gas joint ventures on a proportional basis pursuant to accounting guidance applicable prior to January 1, 2019. As of December 31, 2018, $420 million of finance lease assets (net of accumulated depreciation, depletion and amortization) and $688 million of finance lease liabilities were recorded on our consolidated balance sheet associated with these leases. In accordance with the transition provisions of ASC Topic 842, and since we have elected to adopt the package of optional transition-related practical expedients, the historical accounting treatment for these leases has been carried forward and is subject to reconsideration upon the modification or other required reassessment of the arrangements prior to lease term expiration.

In connection with our adoption of ASC Topic 842, we have recorded on our consolidated balance sheet $57 million of operating leases executed by investee companies accounted for under the proportionate consolidation method of accounting on a proportional basis consistent with our ownership interest in the investee company.

The following tables summarize the finance leases amounts that were reflected on our consolidated balance sheet as of December 31, 2018, the operating leases impact of adopting ASC Topic 842, and the right-of-use asset and lease liability balances reflected for both operating and finance leases on our consolidated balance sheet as of March 31, 2019:

		Millions of Dollars
		Carrying Amount
		Operating Leases		Finance Leases
Amounts recognized in line items in our Consolidated
Balance Sheet upon adoption of ASC Topic 842
Right-of-Use Assets
Properties, plants and equipment
Gross			$	1,044
Accumulated depreciation, depletion and amortization				(550)
Net properties, plants and equipment as of December 31, 2018			$	494
Adoption of ASC Topic 842 as of January 1, 2019	$	998
Lease Liabilities
Short-term debt			$	79
Long-term debt				698
Total finance leases debt as of December 31, 2018			$	777
Adoption of ASC Topic 842 as of January 1, 2019	$	998
Amounts recognized in line items in our Consolidated
Balance Sheet at March 31, 2019
Right-of-Use Assets
Properties, plants and equipment
Gross			$	1,044
Accumulated depreciation, depletion and amortization				(579)
Net properties, plants and equipment*			$	465
Other assets	$	981
*Includes proportionately consolidated finance lease assets (net of accumulated depreciation, depletion and amortization) of $398 million.
Lease Liabilities
Short-term debt*			$	80
Other accruals	$	282
Long-term debt*				679
Other liabilities and deferred credits		685
Total lease liabilities	$	967		759
*Short-term debt and long-term debt include proportionately consolidated finance lease liabilities of $54 million and $622 million, respectively.

The following table summarizes the lease cost for the three-month period ended March 31, 2019:
		Millions of Dollars
Lease Cost*
Operating lease cost	$	75
Finance lease cost
Amortization of right-of-use assets		29
Interest on lease liabilities		10
Short-term lease cost**		14
Total lease cost***	$	128
*The amounts presented in the table above have not been adjusted to reflect amounts recovered or reimbursed from oil and gas coventurers.
**Short-term leases are not recorded on our consolidated balance sheet. Our future short-term lease commitments amount to $71 million, of which $54 million is related to leases whose terms have not yet commenced as of March 31, 2019.
***Variable lease cost and sublease income are immaterial for the three-month period ended March 31, 2019, and not presented in the table above.
The following table summarizes the lease term and discount rate at March 31, 2019:
		March 31, 2019
Lease Term and Discount Rate
Weighted-average term (years)
Operating leases		6.49
Finance leases		9.42
Weighted-average discount rate (percent)
Operating leases		3.50
Finance leases		5.84

The following table summarizes other information for the three-month period ended March 31, 2019:
		Millions of Dollars
Other Information*
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	80
Operating cash flows from finance leases		10
Financing cash flows from finance leases		19
Right-of-use assets obtained in exchange for operating lease liabilities	$	41
Right-of-use assets obtained in exchange for finance lease liabilities		-
*The amounts presented in the table above have not been adjusted to reflect amounts recovered or reimbursed from oil and gas coventurers. In addition, pursuant to other applicable accounting guidance, lease payments made in connection with preparing another asset for its intended use are reported in the "Cash Flows From Investing Activities" section of our consolidated statement of cash flows.

The following table summarizes future lease payments for operating and finance leases at March 31, 2019:
		Millions of Dollars
		Operating Leases	Finance Leases
Maturity of Lease Liabilities
2019	$	244	86
2020		243	115
2021		178	100
2022		115	98
2023		67	84
Remaining years		235	461
Total*		1,082	944
Less: portion representing imputed interest		(115)	(185)
Total lease liabilities	$	967	759
*Future lease payments for operating and finance leases commencing on or after January 1, 2019, also include payments related to non-lease components in accordance with our election to adopt the optional practical expedient not to separate lease components apart from non-lease components for accounting purposes. In addition, future payments related to operating and finance leases proportionately consolidated by the company have been included in the table on a proportionate basis consistent with our respective ownership interest in the underlying investee company or oil and gas venture.

At December 31, 2018, future undiscounted minimum rental payments due under noncancelable operating
leases pursuant to ASC Topic 840 were:
		Millionsof Dollars
2019	$	248
2020		425
2021		136
2022		319
2023		54
Remaining years		212
Total		1,394
Less: income from subleases		(7)
Net minimum operating lease payments	$	1,387

At December 31, 2018, future minimum payments due under finance (capital) leases pursuant to
ASC Topic 840 were:
		Millionsof Dollars
2019	$	118
2020		116
2021		100
2022		98
2023		87
Remaining years		453
Total		972
Less: portion representing imputed interest		(195)
Capital lease obligations	$	777