(3) Leases

SilverBow Resources has contractual agreements for its corporate office lease, vehicle fleet, drilling rigs, compressors, treating equipment, and for surface use rights. For leases with a primary term of more than 12 months, a Right of Use (“ROU”) asset and the corresponding lease liability is recorded. The Company determines at inception if an arrangement is an operating or financing lease. As of March 31, 2019 all of the Company’s leases were operating leases.

The initial asset and liability balances are recorded at the present value of the payment obligations over the lease term. If lease terms include options to extend the lease and it is reasonably certain that the Company will exercise that option, the lease term used for capitalization includes the expected renewal periods. Most leases do not provide an implicit interest rate. Unless the lease contract contains an implicit interest rate, the Company uses its incremental borrowing rate at the time of lease inception to compute the fair value of the lease payments. The ROU asset balance and current and non-current lease liabilities are reported separately on the Condensed Consolidated Balance Sheet. Certain leases have payment terms that vary based on the usage of the underlying assets. Variable lease payments are not included in ROU assets and lease liabilities. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense on a straight-line basis over the lease term.

Lease costs represent the straight-line lease expense of ROU assets and short-term leases. The components of lease cost are classified as follows (in thousands):



	March 31, 2019
Lease Costs included in the Condensed Consolidated Balance Sheets
Property, plant and equipment acquisitions - short-term leases	$	3,983
Property, plant and equipment acquisitions - operating leases	8
Total lease costs in property, plant and equipment additions	$	3,991



	Three Months Ended March 31, 2019
Lease Costs included in the Condensed Consolidated Statement of Operations
Lease operating costs - short-term leases	$	1,335
Lease operating costs - operating leases	54
General and administrative, net - operating leases	156
Total lease cost expensed	$	1,545

Lease term and the discount rate related to the Company's leases are as follows:



	Three Months Ended March 31, 2019
Weighted-average remaining lease term (in years)	4.2
Weighted-average discount rate	5.1	%

As of March 31, 2019, the Company's future undiscounted cash payment obligation for its operating lease liabilities are as follows (in thousands):



	March 31, 2019
2019 (remaining after March 31, 2019)	$	648
2020	841
2021	358
2022	36
2023	38
Thereafter	363
Total undiscounted lease payments	$	2,284
Present value adjustment	(253		)
Net operating lease liabilities	$	2,031

Supplement cash flow information related to leases was as follows (in thousands):



	Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	203
Investing cash flows from operating leases	$	8