Leases

As a drilling and production services provider, we provide the drilling rigs and production services equipment which are necessary to fulfill our performance obligations and which are considered leases under ASU No. 2016-02, Leases, (together with its amendments, herein referred to as “ASC Topic 842”). However, ASU No. 2018-11, Leases: Targeted Improvements, allows lessors to (i) combine the lease and non-lease components of revenues when the revenue recognition pattern is the same and when the lease component, when accounted for separately, would be considered an operating lease, and (ii) account for the combined lease and non-lease components under ASC Topic 606, Revenue from Contracts with Customers, when the non-lease component is the predominant element of the combined component. We elected to apply this expedient and therefore continue to recognize our revenues (both lease and service components) under ASC Topic 606, and continue to present them as one revenue stream in our unaudited condensed consolidated statements of operations.

As a lessee, we lease our corporate office headquarters in San Antonio, Texas, and we conduct our business operations through 27 other regional offices located throughout the United States and internationally in Colombia. These operating locations typically include regional offices, storage and maintenance yards and employee housing sufficient to support our operations in the area. We lease most of these properties under non-cancelable term and month-to-month operating leases, many of which contain renewal options that can extend the lease term from one to five years and some of which contain escalation clauses. We also lease supplemental equipment, typically under cancelable short-term and very short term (less than 30 days) leases. Due to the nature of our business, any option to renew these short-term leases, and the options to extend certain of our long-term real estate leases, are generally not considered reasonably certain to be exercised. Therefore, the periods covered by such optional periods are not included in the determination of the term of the lease, and the lease payments during these periods are similarly excluded from the calculation of operating lease asset and lease liability balances.

In accordance with ASC Topic 842, we recognize an operating lease asset and a corresponding operating lease liability for all our long-term leases, which include real estate and office equipment leases, for which we elected to combine, or not separate, the lease and non-lease components, and therefore, all fixed charges associated with non-lease components are included in the lease payments and the calculation of the operating lease asset and associated lease liability. The operating lease asset and operating lease liability are discounted at the rate which represents our secured incremental borrowing rate, as most of our leases do not provide an implicit rate, and which we estimate based on the rate in effect under our asset-based lending facility.

We recognize rent expense on a straight-line basis, except for certain variable expenses which are recognized when the variability is resolved, typically during the period in which they are paid. Variable lease payments typically include charges for property taxes and insurance, and some leases contain variable payments related to non-lease components, including common area maintenance and usage of office equipment (for example, copiers), which totaled approximately $0.3 million and $0.6 million during the three and six months ended June 30, 2019. The following table summarizes our lease expense recognized for the three and six months ending June 30, 2019, excluding variable lease costs (amounts in thousands):



	Three months ended June 30,		Six months ended June 30,
	2019		2019
Long-term operating lease expense	$	829	$	1,671
Short-term operating lease expense	$	4,333	$	7,736

The following table summarizes the amount and timing of our obligations associated with our long-term operating leases (amounts in thousands):



	June 30, 2019			December 31, 2018
Within 1 year	$	2,659		$	3,318
In the second year	1,964			2,032
In the third year	1,658			1,721
In the fourth year	1,358			1,407
In the fifth year	905			1,110
Thereafter	1,268			1,738
Total undiscounted lease obligations	$	9,812		$	11,326
Impact of discounting	(995		)
Discounted value of operating lease obligations	$	8,817

Current operating lease liabilities	$	2,322
Noncurrent operating lease liabilities	6,495
	$	8,817

The following table summarizes the weighted-average remaining lease term and discount rate associated with our long-term operating leases:



	June 30, 2019
Weighted-average remaining lease term (in years)	4.8
Weighted-average discount rate	4.5	%