Leases

12 Months Ended

Mar. 31, 2024

Leases

Lessee Accounting

Our leasing activity primarily consists of product storage, office space, real estate, railcars, and equipment. We determine if an agreement contains a lease at the inception of the arrangement. If an arrangement is determined to contain a lease, we classify the lease as an operating lease or a finance lease depending on the terms of the arrangement. Our leases are classified as operating and finance leases. Operating lease right-of-use assets represent our right to use an underlying asset for the lease term when we control the use of the asset by obtaining substantially all of the economic benefits of the asset and directing the use of the asset. Operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and operating lease liabilities with an initial term of greater than one year are recognized at the commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Our incremental borrowing rate represents the interest rate which we would pay to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term in a similar economic environment. We do not have any leases that provide for guarantees of residual value.

Our lease agreements may include options to extend or terminate the lease which are included in the measurement of our operating lease liability when it is reasonably certain that we will exercise the option. Lease renewal terms vary from one year to 30 years. Operating lease expense is recognized on a straight-line basis over the lease term. We have variable lease payments, including adjustments to lease payments based on an index or rate, such as a consumer price index, fair value adjustments to lease payments, and common area maintenance, real estate taxes, and insurance payments in certain real estate leases. We also have certain land leases within our Water Solutions segment that require us to pay a royalty, which could be based on a flat rate per barrel disposed or a percentage of revenue generated. Variable lease payments are excluded from operating lease right-of-use assets and operating lease liabilities and are expensed as incurred. Operating lease right-of-use assets also include any lease prepayments and exclude lease incentives. For leases acquired as a result of an acquisition, the right-of-use asset also includes adjustments for any favorable or unfavorable market terms present in the lease.

Short-term leases with an initial term of 12 months or less that do not include a purchase option, with the exception of railcar leases, are not recorded on the consolidated balance sheet. Operating lease expense for short-term leases is recognized on a straight-line basis over the lease term and is disclosed below.

We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain leases of buildings and land, we account for the lease and non-lease components as a single lease component based on the election of the practical expedient to not separate lease components from non-lease components.

At March 31, 2024, we had operating lease right-of-use assets of $97.2 million and current and noncurrent operating lease obligations of $31.1 million and $70.6 million, respectively, on our consolidated balance sheet. During the year ended March 31, 2024, we recorded an impairment of $2.4 million for certain leases in our Water Solutions segment due to

underutilization of certain freshwater wells. At March 31, 2023, we had operating lease right-of-use assets of $90.2 million and current and noncurrent operating lease obligations of $34.2 million and $58.5 million, respectively, on our consolidated balance sheet. During the year ended March 31, 2023, an impairment of the operating lease right-of-use asset of $1.5 million was recorded for underperforming terminals in our Crude Oil Logistics segment and an impairment of $0.1 million was recorded for underperforming terminals in our Liquids Logistics segment. Also, during the year ended March 31, 2023, we recorded an impairment of the operating lease right-of-use asset of $0.1 million related to an office lease in our Crude Oil Logistics segment and a $0.3 million loss related to the termination of leases in our Crude Oil Logistics segment.

At March 31, 2024, the weighted-average remaining lease term and weighted-average discount rate for our operating leases was 5.70 years and 9.39%, respectively. At March 31, 2023, the weighted-average remaining lease term and weighted-average discount rate for our operating leases was 5.71 years and 9.61%, respectively.

The following table summarizes the components of our lease cost for the periods indicated:


	Year Ended March 31,
	2024		2023		2022
	(in thousands)
Operating lease cost (1)	$	47,594	$	51,525	$	58,535
Variable lease cost (1)	31,118		29,742		22,130
Short-term lease cost (1)	931		341		351
Finance lease cost
Amortization of right-of-use asset (2)	5		3		—
Interest on lease obligation (3)	12		9		—
Total lease cost	$	79,660	$	81,620	$	81,016

(1) Included in operating expenses in our consolidated statements of operations.

(2) Included in depreciation and amortization expense in our consolidated statements of operations.

(3) Included in interest expense in our consolidated statement of operations.

The following table summarizes maturities of our lease obligations at March 31, 2024 (in thousands):


	Operating		Finance
Year Ending March 31,	Leases		Lease (1)
2025	$	38,364	$	28
2026	25,566		28
2027	19,393		28
2028	16,461		9
2029	7,992		—
Thereafter	23,392		—
Total lease payments	131,168		93
Less imputed interest	(29,505)		(18)
Total lease obligations	$	101,663	$	75

(1) At March 31, 2024, the short-term finance lease obligation of less than $0.1 million is included in accrued expenses and other payables and the long-term finance lease obligation of $0.1 million is included in other noncurrent liabilities in our consolidated balance sheet.

The following table summarizes supplemental cash flow information related to our leases for the periods indicated:


	Year Ended March 31,
	2024		2023		2022
	(in thousands)
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease obligations
Operating cash outflows from operating leases	$	47,687	$	51,147	$	57,449
Operating cash outflows from finance lease	$	12	$	9	$	—
Financing cash outflows from finance lease	$	16	$	10	$	—

Right-of-use assets obtained in exchange for lease obligations
Operating leases	$	53,338	$	32,984	$	14,950
Finance lease	$	—	$	102	$	—

Lessor Accounting and Subleases

Our lessor arrangements include storage and railcar contracts, of which certain agreements contain renewal options for periods of between one year and five years. We determine if an agreement contains a lease at the inception of the arrangement. If an arrangement is determined to contain a lease, we classify the lease as operating, sales-type or direct financing. Lessor accounting under ASC 842 is substantially unchanged and all of our leases will continue to be classified as operating leases. We also, from time to time, sublease certain of our storage capacity and railcars to third-parties. Fixed rental revenue is recognized on a straight-line basis over the lease term. During the years ended March 31, 2024, 2023 and 2022, fixed rental revenue was $17.8 million, $13.9 million and $14.4 million, which includes $6.2 million, $3.8 million and $1.4 million of sublease revenue, respectively.

The following table summarizes future minimum lease payments to be received under various noncancelable operating lease agreements at March 31, 2024 (in thousands):


Year Ending March 31,
2025	$	10,922
2026	11,047
2027	9,741
2028	6,669
2029	1,827
Thereafter	2,935
Total	$	43,141