Leases

9 Months Ended

Sep. 30, 2022

14.

Leases

Lessee arrangements

Finance leases

Certain enforceable vessel charters and pipeline capacity agreements are classified as finance leases, and the right-of-use assets are included in property and equipment. Lease obligations are recognized based on the rate implicit in the lease or the Company’s incremental borrowing rate at lease commencement.

As of September 30, 2022, the Company was a lessee in finance lease arrangements on one pipeline capacity agreement and one tugboat. These arrangements were determined to be finance leases due to their terms representing the majority of the economic lives of the assets.

In connection with the IPO, EELP purchased two vessels previously leased and accounted for as related party finance leases. In 2018, EELP entered into an agreement with a customer to lease the Excellence vessel with the vessel transferring ownership to the customer at the conclusion of the agreement for no additional consideration. EELP, as a lessor, accounts for the Excellence vessel contract with our customer as a sales-type lease in the consolidated balance sheet in accordance with ASC 842. For more information regarding the purchase of the vessels, see Note 8 – Property and equipment.

Finance lease liabilities as of September 30, 2022 and December 31, 2021 consisted of the following (in thousands):


	September 30, 2022			December 31, 2021
External leases:
Finance lease liabilities	$	235,331		$	251,658
Less current portion of finance lease liabilities		(19,999	)		(21,903	)
Finance lease liabilities, long-term	$	215,332		$	229,755

Related party leases:
Finance lease liabilities	$	—		$	226,619
Less current portion of finance lease liabilities		—			(15,627	)
Finance lease liabilities, long-term	$	—		$	210,992

Operating leases

As of September 30, 2022, the Company was a lessee in a bareboat charter contract and a terminal use lease, accounted for as operating leases. Pursuant to a bareboat charter, the vessel owner provides the use of the vessel to the Company in exchange for a fixed charter hire rate. However, the Company is responsible for the operation and maintenance of the vessel with its own crew, fuel costs, and other related expenses. As such, the bareboat charter includes a lease component only for the lessee to control the use of the vessel and does not contain non-lease components.

Additionally, the Company has operating leases for offices in various locations in which operations are performed. Such leases will often include options to extend the lease and the Company will include option periods that, on commencement date, it is reasonably certain the Company will exercise. Variable lease costs relate to certain lease agreements, which include payments that vary for items such as inflation adjustments, or common area charges. Variable lease costs that are not dependent on an index are excluded from the lease payments that comprise the operating lease liability and are expensed in the period in which they are incurred. None of the Company's operating leases contain any residual value guarantees.

A maturity analysis of the Company’s operating and finance lease liabilities (excluding short-term leases) at September 30, 2022 is as follows (in thousands):


Year	Operating			Finance
2022	$	9,045		$	9,269
2023		36,416			33,235
2024		28,902			33,248
2025		18,175			33,235
2026		943			33,235
Thereafter		2,250			174,355
Total lease payments	$	95,731		$	316,577
Less: imputed interest		(7,929	)		(81,246	)
Carrying value of lease liabilities		87,802			235,331
Less: current portion		(32,110	)		(19,999	)
Carrying value of long-term lease liabilities	$	55,692		$	215,332

As of September 30, 2022, the Company’s weighted average remaining lease term for operating and finance leases was 2.8 years and 10.3 years, respectively, with a weighted average discount rate of 5.9% and 6.3%, respectively. As of December 31, 2021, the Company’s weighted average remaining lease term for operating and finance leases was 3.4 years and 12.1 years, respectively, with a weighted average discount rate of 5.8% and 9.8%, respectively.

The Company's total lease costs for the three and nine months ended September 30, 2022 and 2021 recognized in the consolidated statements of income consisted of the following (in thousands):


	For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021
Amortization of finance lease right-of-use assets – related party	$	—	$	1,226	$	1,226	$	3,679
Amortization of finance lease right-of-use assets – external		652		3,336		1,957		10,008
Interest on finance lease liabilities – related party		—		7,220		7,006		21,965
Interest on finance lease liabilities – external		3,751		4,240		11,506		13,131
Operating lease expense		9,310		7,839		28,177		22,095
Short-term lease expense		386		614		992		911
Total lease costs	$	14,099	$	24,475	$	50,864	$	71,789

Other information related to leases for the three and nine months ended September 30, 2022 and 2021 are as follows (in thousands):


	For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021
Operating cash flows for finance leases	$	3,751	$	4,240	$	11,506	$	13,131
Operating cash flows for finance leases – related party		—		7,220		7,006		21,965
Financing cash flow for finance leases		5,521		9,158		16,326		26,993
Financing cash flow for finance leases – related party		—		3,948		2,912		11,611
Operating cash flows for operating leases		8,932		6,825		27,007		20,918
Right-of-use assets obtained in exchange for new operating lease liabilities		935		520		2,091		520