Note P – Leases

Significant Accounting Policy

At inception, contracts are assessed for the presence of a lease according to criteria laid out by ASC 842. If a lease is present, further criteria is assessed to determine if the lease should be classified as an operating or finance lease. Operating leases are presented on the Consolidated Balance Sheet as Operating lease assets with the corresponding lease liabilities presented in Operating lease liabilities and Non-current operating lease liabilities. Finance lease assets are presented on the Consolidated Balance Sheet within Property, plant and equipment, net with the corresponding liabilities presented in Current maturities of long-term debt and Long-term debt.

Generally, lease liabilities are recognized at commencement and based on the present value of the future minimum lease payments to be made over the lease term. Lease assets are then recognized based on the value of the lease liabilities. Where implicit lease rates are not determinable, the minimum lease payments are discounted using the Company’s collateralized incremental borrowing rates.

Operating leases are expensed according to their nature and recognized in Lease operating expenses, Selling and general expenses or capitalized in the Consolidated Financial Statement. Finance leases are depreciated with expenses recognized in Depreciation, depletion, and amortization and Interest expense, net on the Consolidated Statement of Operations.

Nature of Leases

The Company has entered into various operating leases such as a gas processing plant, floating production storage and off-take vessels, buildings, marine vessels, vehicles, drilling rigs, pipelines, and other oil and gas field equipment. Remaining lease terms range from 1 year to 17 years, some of which may include options to extend leases for multi-year periods and others which include options to terminate the leases within 1 month. Options to extend lease terms are at the Company’s discretion. Early lease terminations are a combination of both at Company discretion and mutual agreement between the Company and lessor. Purchase options also exist for certain leases.

Note P – Leases (Contd.)

Expenses related to finance and operating leases included in the Consolidated Financial Statements are as follows:

Related Expenses


			Three Months Ended
(Thousands of dollars)	Financial Statement Category		March 31, 2019
Operating lease 1,2	Lease operating expenses	$	58,523
Operating lease 2	Selling and general expense		3,109
Operating lease 2	Property, plant and equipment		23,447
Operating lease 2	Asset retirement obligations		3,024
Finance lease
Amortization of asset	Depreciation, depletion and amortization		210
Interest on lease liabilities	Interest expense, net		101
Sublease income	Other income		(217)
Net lease expense		$	88,197

1 Includes variable lease expenses of $7.2 million primarily related to additional volumes processed at a gas processing plant.

2 Includes $12.0 million for Lease operating expense, $1.1 million for Selling and general expense, $20.1 million for Property, plant and equipment, net and $3.0 million for Asset retirement obligations relating to short-term leases. Expenses primarily relate to drilling rigs and other oil and gas field equipment.

Maturity of Lease Liabilities


(Thousands of dollars)		Operating Leases 1	Finance Leases	Total
2019	$	164,979	801	165,780
2020		109,790	1,069	110,859
2021		58,415	1,069	59,484
2022		53,639	1,069	54,708
2023		53,140	1,069	54,209
Remaining		465,611	5,610	471,221
Total future minimum lease payments		905,574	10,687	916,261
Less imputed interest		(281,613)	(2,234)	(283,847)
Present value of lease liabilities 2	$	623,961	8,453	632,414

1 Excludes $272.2 million of minimum lease payments for leases entered but not yet commenced. These payments relate to an expansion of an existing gas processing plant and payments are anticipated to commence at the end of 2019 for 20 years.

2 Includes both the current and long-term portion of the lease liabilities.

Lease Term and Discount Rate


		March 31, 2019
Weighted average remaining lease term:
Operating leases		11 years
Finance leases		10 years
Weighted average discount rate:
Operating leases		5.07%
Finance leases		4.80%

Other Information


		Three Months Ended
(Thousands of dollars)		March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	44,730
Operating cash flows from finance leases		102
Financing cash flows from finance leases		160
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	311