Leases

12 Months Ended

Dec. 31, 2022

Lessee

We lease a wide variety of facilities and equipment including land and building space, office and field equipment, storage facilities and transportation equipment. Our remaining lease terms range from less than one year to 96 years. Most long-term leases include renewal options ranging from less than one year to 49 years and, in certain leases, also include purchase options. The lease term included in the measurement of right of use assets and lease liabilities includes options to extend or terminate our leases that we are reasonably certain to exercise.

Under ASC 842, the components of lease cost are shown below. Lease costs for operating leases are recognized on a straight line basis and are reflected in the income statement based on the leased asset’s use. Lease costs for finance leases are reflected in depreciation and amortization and in net interest and other financial costs.


(Millions of dollars)	2022		2021		2020
Finance lease cost:
Amortization of right of use assets	$	81	$	78	$	72
Interest on lease liabilities	29		31		35
Operating lease cost	490		565		658
Variable lease cost	59		62		60
Short-term lease cost	772		446		649
Total lease cost	$	1,431	$	1,182	$	1,474

Supplemental consolidated balance sheet data related to leases were as follows:


	December 31,
(Millions of dollars)	2022			2021
Operating leases
Assets
Right of use assets	$	1,214		$	1,372
Liabilities
Operating lease liabilities	$	368		$	438
Long-term operating lease liabilities	841			927
Total operating lease liabilities	$	1,209		$	1,365

Weighted average remaining lease term (in years)	5.1			5.0
Weighted average discount rate	3.55		%	3.11		%

Finance leases
Assets
Property, plant and equipment, gross	$	818		$	815
Less accumulated depreciation	412			336
Property, plant and equipment, net	$	406		$	479
Liabilities
Debt due within one year	$	79		$	73
Long-term debt	451			525
Total finance lease liabilities	$	530		$	598

Weighted average remaining lease term (in years)	9.9			10.3
Weighted average discount rate	5.09		%	5.04		%

As of December 31, 2022, maturities of lease liabilities for operating lease obligations and finance lease obligations having initial or remaining non-cancellable lease terms in excess of one year are as follows:


(Millions of dollars)	Operating		Finance
2023	$	403	$	104
2024	308		87
2025	228		78
2026	140		75
2027	72		59
2028 and thereafter	172		268
Gross lease payments	1,323		671
Less: imputed interest	114		141
Total lease liabilities	$	1,209	$	530

Lessor, Operating Leases

Lessor

MPLX is considered to be the lessor under several operating lease agreements in accordance with GAAP related to certain fee-based natural gas transportation and processing agreements in the Marcellus and Southern Appalachia region. The primary term of these agreements expire between 2026 and 2036, however, these contracts either have renewal options or will continue thereafter on a year-to-year basis until terminated by either party.

MPLX did not elect to use the practical expedient to combine lease and non-lease components for lessor arrangements. The tables below represent the portion of the contract allocated to the lease component based on relative standalone selling price. MPLX elected the practical expedient to carry forward historical classification conclusions until a modification of an existing agreement occurs. Once a modification occurs, the amended agreement is required to be assessed under ASC 842 to determine whether a reclassification of the lease is required.

During the third quarter of 2022, the approved expansion of a gathering and compression system triggered the first assessment of a third party agreement under ASC 842. As a result of the assessment during the period, the lease was reclassified from an operating lease to a sales-type lease. Accordingly, the underlying property, plant and equipment of $745 million and associated deferred revenue of $277 million were derecognized. The present value of the future lease payments of $914 million and the unguaranteed residual value of $63 million were recorded as the net investment in the lease within receivables and other noncurrent assets. This resulted in a gain of approximately $509 million, which was recorded as a net gain on disposal of assets in the consolidated statements of income. This transaction was a non-cash transaction.

Lease revenues are included in sales and other operating revenues on the consolidated statements of income. Lease revenues were as follows:


(Millions of dollars)	2022		2021		2020
Operating leases:
Rental income	$	327	$	376	$	398
Sales-type leases:
Interest income (Sales-type rental revenue-fixed minimum)	46		—		—
Interest income (Revenue from variable lease payments)	16		—		—
Sales-type lease revenue	$	62	$	—	$	—

The following is a schedule of minimum future rentals on the non-cancelable operating leases as of December 31, 2022:


(Millions of dollars)
2023	$	97
2024	95
2025	64
2026	37
2027	16
2028 and thereafter	21
Total minimum future rentals	$	330

Annual minimum undiscounted lease payment receipts under our sales-type leases were as follows as of December 31, 2022:


(Millions of dollars)
2023	$	169
2024	156
2025	146
2026	137
2027	128
2028 and thereafter	970
Total minimum future rentals	1,706
Less: present value discount	765
Lease receivables(a)	$	941

Current lease receivables(b)	$	98
Long-term lease receivables(c)	843
Unguaranteed residual assets	66
Total sales-type lease assets	$	1,007

(a) This amount does not include the unguaranteed residual assets.

(b) Presented in receivables, net on the consolidated balance sheets.

Capital expenditures related to assets subject to sales-type lease arrangements were $27 million for the year ended December 31, 2022. These amounts are reflected as additions to property, plant and equipment in the consolidated statements of cash flows.

The following schedule summarizes our investment in assets held under operating lease by major classes as of December 31, 2022 and 2021:


	December 31,
(Millions of dollars)	2022		2021
Gathering and transportation	$	94	$	991
Processing and fractionation	973		867
Terminals	128		128
Land, building and other	10		15
Property, plant and equipment	1,205		2,001
Less accumulated depreciation	330		523
Total property, plant and equipment, net	$	875	$	1,478