The Company leases certain office space, processing plants, drilling rigs and completion services, gas gathering lines, compressor stations, and other office and field equipment. Leases with an initial term of 12 months or less are considered short-term and are not recorded on the balance sheet. Instead, the short-term leases are recognized in expense on a straight-line basis over the lease term.

Most leases include one or more options to renew, with renewal terms that can extend the lease from one to 20 years or more. The exercise of the lease renewal options is at the Company’s sole discretion. The depreciable lives of the leased assets are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Certain of the Company’s lease agreements include minimum payments based on a percentage of produced volumes over contractual levels and others include rental payments adjusted periodically for inflation.

The Company considers all contracts that have assets specified in the contract, either explicitly or implicitly, that the Company has substantially all of the capacity of the asset, and has the right to obtain substantially all of the economic benefits of that asset, without the lessor’s ability to have a substantive right to substitute that asset, as leased assets. For any contract deemed to include a leased asset, that asset is capitalized on the balance sheet as a right-of-use asset and a corresponding lease liability is recorded at the present value of the known future minimum payments of the contract using a discount rate on the date of commencement. The leased asset classification is determined at the date of recording as either operating or financing, depending upon certain criteria of the contract.

The discount rate used for present value calculations is the discount rate implicit in the contract. If an implicit rate is not determinable, a collateralized incremental borrowing rate is used at the date of commencement. As new leases commence or previous leases are modified the discount rate used in the present value calculation is the current period applicable discount rate.

The Company has made an accounting policy election to adopt the practical expedient for combining lease and non-lease components on an asset class basis. This expedient allows the Company to combine non-lease components such as real estate taxes, insurance, maintenance and other operating expenses associated with the leased premises with the lease component of a lease agreement on an asset class basis when the non-lease components of the agreement cannot be easily bifurcated from the lease payment. Currently, the Company is only applying this expedient to certain office space agreements.

The Company’s lease assets and liabilities consisted of the following items (in thousands):


				(Unaudited)
		December 31,		September 30,
Leases	Balance Sheet Classification	2021		2022
Operating Leases
Operating lease right-of-use assets:
Processing plants	Operating lease right-of-use assets	$	1,739,550		1,906,419
Drilling rigs and completion services	Operating lease right-of-use assets		9,860		64,022
Gas gathering lines and compressor stations ⁽¹⁾	Operating lease right-of-use assets		1,634,928		1,523,233
Office space	Operating lease right-of-use assets		33,083		42,760
Vehicles	Operating lease right-of-use assets		2,009		1,074
Other office and field equipment	Operating lease right-of-use assets		482		4,068
Total operating lease right-of-use assets		$	3,419,912		3,541,576

Short-term operating lease obligation	Short-term lease liabilities	$	455,950		535,014
Long-term operating lease obligation	Long-term lease liabilities		2,963,962		3,006,562
Total operating lease obligation		$	3,419,912		3,541,576

Finance Leases
Finance lease right-of-use assets:
Vehicles	Other property and equipment	$	550		1,407
Total finance lease right-of-use assets ⁽²⁾		$	550		1,407

Short-term finance lease obligation	Short-term lease liabilities	$	397		333
Long-term finance lease obligation	Long-term lease liabilities		153		1,074
Total finance lease obligation		$	550		1,407

(1)	Gas gathering lines and compressor station leases includes $1.5 billion related to Antero Midstream as of December 31, 2021 and September 30, 2022. See “—Related party lease disclosure” for additional discussion.

(2)	Financing lease assets are recorded net of accumulated amortization of $2 million and $1 million as of December 31, 2021 and September 30, 2022, respectively.

The processing plants, gathering lines and compressor stations that are classified as lease liabilities are classified as such under ASC 842, Leases, because Antero (i) is the sole customer of the assets and (ii) makes the decisions that most impact the economic performance of the assets.

(b)	Supplemental Information Related to Leases

Costs associated with operating and finance leases were included in the unaudited condensed consolidated statement of operations and comprehensive loss (in thousands):


			Three Months Ended September 30,				Nine Months Ended September 30,
Cost	Classification	Location	2021		2022		2021		2022
Operating lease cost	Statement of operations	Gathering, compression, processing and transportation	$	386,033		378,246		1,147,985		1,109,422
Operating lease cost	Statement of operations	General and administrative		2,833		2,855		8,057		8,509
Operating lease cost	Statement of operations	Contract termination		3,369		12,000		4,213		12,000
Operating lease cost	Statement of operations	Lease operating		43		44		109		133
Operating lease cost	Balance sheet	Proved properties ⁽¹⁾		25,558		34,288		82,749		83,146
Total operating lease cost			$	417,836		427,433		1,243,113		1,213,210

Finance lease cost:
Amortization of right-of-use assets	Statement of operations	Depletion, depreciation and amortization	$	132		94		391		319
Interest on lease liabilities	Statement of operations	Interest expense		286		44		337		78
Total finance lease cost			$	418		138		728		397

Short-term lease payments			$	21,030		38,690		62,328		115,798

(1)	Capitalized costs related to drilling and completion activities.

(c)	Supplemental Cash Flow Information Related to Leases

The following table presents the Company’s supplemental cash flow information related to leases (in thousands):


	Nine Months Ended September 30,
	2021		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,042,684		1,067,786
Investing cash flows from operating leases		66,042		70,654
Financing cash flows from finance leases		692		441

Noncash activities:
Right-of-use assets obtained in exchange for new operating lease obligations		232,771		366,194
Increase to existing right-of-use assets and lease obligations from operating lease modifications, net ⁽¹⁾		345,066		119,290

(1)

During the nine months ended September 30, 2021, the weighted average discount rate for remeasured operating leases decreased from 14.4% as of December 31, 2020 to 5.5% as of September 30, 2021. During the nine months ended September 30, 2022, the weighted average discount rate for remeasured operating leases decreased from 5.6% as of December 31, 2021 to 5.2% as of September 30, 2022.

(d)	Maturities of Lease Liabilities

The table below is a schedule of future minimum payments for operating and financing lease liabilities as of September 30, 2022 (in thousands):


	Operating Leases		Financing Leases		Total
Remainder of 2022	$	178,967		145		179,112
2023		706,880		510		707,390
2024		645,692		501		646,193
2025		585,209		459		585,668
2026		534,508		210		534,718
2027		442,252		—		442,252
Thereafter		1,203,662		—		1,203,662
Total lease payments		4,297,170		1,825		4,298,995
Less: imputed interest		(755,594)		(418)		(756,012)
Total	$	3,541,576		1,407		3,542,983

(e)	Lease Term and Discount Rate

The following table sets forth the Company’s weighted average remaining lease term and discount rate:


					(Unaudited)
	December 31, 2021				September 30, 2022
	Operating Leases		Finance Leases		Operating Leases		Finance Leases
Weighted average remaining lease term	7.6 years		1.9 years		7.4 years		3.5 years
Weighted average discount rate	5.5	%	5.6	%	5.3	%	6.8	%

(f)	Related Party Lease Disclosure

The Company has a gathering and compression agreement with Antero Midstream, whereby Antero Midstream receives a low-pressure gathering fee per Mcf, a high-pressure gathering fee per Mcf and a compression fee per Mcf, in each case subject to annual adjustments based on the consumer price index. If and to the extent the Company requests that Antero Midstream construct new low pressure lines, high pressure lines or compressor stations, the gathering and compression agreement contains options at Antero Midstream’s election for either (i) minimum volume commitments that require Antero Resources to utilize or pay for 75% of the high pressure gathering capacity and 70% of the compression capacity of the requested capacity of such new construction for 10 years or (ii) a cost of service fee that allows the Antero Midstream to earn a 13% rate of return on such new construction over seven years.

In December 2019, the Company and Antero Midstream agreed to extend the initial term of the gathering and compression agreement to 2038 and established a growth incentive fee program whereby low pressure gathering fees will be reduced from 2020 through 2023 to the extent the Company achieves certain volumetric targets at certain points during such time. Upon completion of the initial contract term, the gathering and compression agreement will continue in effect from year to year until such time as the agreement is terminated, effective upon an anniversary of the effective date of the agreement, by either the Company or Antero Midstream on or before the 180^th day prior to the anniversary of such effective date. The Company did not achieve the quarterly volumetric target for either the first, second or third quarter of 2021, and therefore, did not earn any rebates for the three and nine months ended September 30, 2021. For the three and nine months ended September 30, 2022, the Company earned rebates of $12 million and $36 million, respectively, by achieving the quarterly volumetric target during each of the first, second and third quarters of 2022.

Gathering and compression fees paid by Antero related to this agreement were $178 million and $164 million for the three months ended September 30, 2021 and 2022, respectively. For the nine months ended September 30, 2021 and 2022, gathering and compression fees paid by Antero related to this agreement were $539 million and $492 million, respectively. As of December 31, 2021 and September 30, 2022, $54 million and $53 million, respectively, was included within Accounts payable, related parties on the condensed consolidated balance sheet as due to Antero Midstream related to this agreement.