Leases

12 Months Ended

Dec. 31, 2019

Adoption of ASC Topic 842

Effective January 1, 2019, we adopted ASC Topic 842 and have applied the guidance therein to all of our contracts and agreements explicitly identified as leases as well as other contractual arrangements that we have determined to include or otherwise have the characteristics of a lease as defined in ASC Topic 842. As illustrated in the disclosures below, the adoption of ASC Topic 842 resulted in the recognition of certain assets and liabilities on our Consolidated Balance Sheet and changes in the amounts and timing of lease cost recognition in our Consolidated Statements of Operations as compared to prior GAAP. We have adopted ASC Topic 842 using the optional transition approach with an adjustment to the beginning balance of retained earnings as of January 1, 2019. Accordingly, our 2019 financial statements are not comparable with respect to leases in effect during all periods prior to January 1, 2019. On January 1, 2019, we recognized operating lease right-of-use (“ROU”) assets of $2.5 million and operating lease obligations of $2.8 million on our Consolidated Balance Sheet for operating leases in effect on that date. We recorded an immaterial adjustment to the beginning balance of retained earnings as of January 1, 2019 representing the difference between the operating lease ROU assets and operating lease obligations recognized upon adoption net of amounts already included in our liabilities as of December 31, 2018 that were attributable to straight-line lease expense in excess of amounts paid for certain operating leases. We did not identify any finance leases, as defined in ASC Topic 842, upon the date of initial adoption.

Lease Arrangements and Supplemental Disclosures

We have lease arrangements for office facilities and certain office equipment, certain field equipment including compressors, drilling rigs, land easements and similar arrangements for rights-of-way, and certain gas gathering and gas lift assets. Our short-term leases are primarily comprised of our contractual arrangements with certain vendors for operated drilling rigs and our field compressors. Our primary variable lease includes our field gas gathering and gas lift agreement with a midstream service provider and the lease payments are charged on a volumetric basis at a contractual fixed rate.

The following table summarizes the components of our total lease cost, as determined in accordance with ASC Topic 842, for the twelve months ended December 31, 2019:



Operating lease cost	$	773
Short-term lease cost	36,202
Variable lease cost	23,762
Less: Amounts charged as drilling costs ¹	(33,354		)
Total lease cost recognized in the Condensed Consolidated Statement of Operations ²	$	27,383

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¹	Represents the combined gross amounts paid and (i) capitalized as drilling costs for our working interest share and (ii) billed to joint interest partners for their working interest share for short-term leases of operated drilling rigs.


²	Includes $12.1 million recognized in Gathering, processing and transportation, $14.5 million recognized in Lease operating and $0.8 million recognized in G&A for the twelve months ended December 31, 2019.

Operating lease rental expense, as determined in accordance with prior GAAP was $2.7 million and $1.0 million, for the years ended December 31, 2018 and 2017, related primarily to field equipment, office equipment and office leases. The substantial difference between operating lease rental expense disclosed in accordance with prior GAAP and that provided in the table above for 2019 in accordance with ASC Topic 842 is attributable to the aforementioned field gas gathering and gas lift agreement which has been determined to be a variable lease under ASC Topic 842.

The following table summarizes supplemental cash flow information, as determined in accordance with ASC Topic 842, related to leases for the twelve months ended December 31, 2019:



Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	659
ROU assets obtained in exchange for lease obligations:
Operating leases ¹	$	3,325

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¹Includes $2.5 million recognized upon adoption of ASC Topic 842 and $0.8 million obtained during the twelve months ended December 31, 2019.

The following table summarizes supplemental balance sheet information related to leases as of December 31, 2019:



ROU assets - operating leases	$	2,740
Current operating lease obligations	$	847
Noncurrent operating lease obligations	2,232
Total operating lease obligations	$	3,079
Weighted-average remaining lease term
Operating leases	4.1 Years
Weighted-average discount rate
Operating leases	5.97		%
Maturities of operating lease obligations for the years ending December 31,
2020	$	847
2021	830
2022	834
2023	833
2024	139
Total undiscounted lease payments	3,483
Less: imputed interest	(404		)
Total operating lease obligations	$	3,079