We lease office space or yards in Edmond and Oklahoma City, Oklahoma; Houston, Texas; Englewood, Colorado; and Pinedale, Wyoming under the terms of operating leases expiring through December 2021. We own our corporate headquarters in Tulsa, Oklahoma. We also have several compressor rentals, equipment leases, and lease space on short-term commitments to stack excess drilling rig equipment and production inventory. As of December 31, 2018, future minimum rental payments under the terms of the leases under ASC 840 were approximately $4.6 million, $1.7 million, and $0.4 million in 2019 through 2021, respectively.

Adoption of Accounting Standards Codification (“ASC”) Topic 842, “Leases." We adopted Topic 842 on January 1, 2019, using the modified retrospective method and the optional transition method to record the adoption impact through a cumulative adjustment to equity. Results for reporting periods beginning after January 1, 2019, are presented under Topic 842, while prior periods are not adjusted and continue to be reported under the accounting standards in effect for those periods.

We determine whether a contract is or contains a lease at inception of the contract based on whether an identified asset exists and whether we have the right to obtain substantially all of the benefit of the assets and to control its use over the full term of the agreement. When available, we use the rate implicit in the lease to discount lease payments to present value; however, most of our leases do not provide a readily determinable implicit rate. Therefore, we must estimate our incremental borrowing rate considering both the revolving credit rates and a credit notching approach to discount the lease payments based on information available at lease commencement. There are no material residual value guarantees and no restrictions or covenants included in the our lease agreements. Certain of our leases include provisions for variable payments. These variable payments are typically determined based on a measure of throughput or actual days or another measure of usage and are not included in the calculation of lease liabilities and right-of-use assets.

Related to our oil and natural gas segment, our short-term lease costs include those that are recognized in profit or loss during the period and those that are capitalized as part of the cost of another asset in accordance with other U.S. GAAP. As the costs related to our drilling and production activities are reflected at our net ownership consistent with the principals of proportional consolidation, and lease commitments are generally considered gross as the operator, the costs may not reasonably reflect the Company’s short-term lease commitments. As of March 31, 2019, we had an average working interest of 87% in our operated properties.

Practical Expedients and Policies Elected. We elected the hindsight expedient, which allows us to use hindsight in assessing lease term; the package of practical expedients permitted under the guidance, which among other things, allows us to carry forward the historical lease classification; and the land easement expedient, which allows us to apply the guidance prospectively at adoption for land easements on existing agreements.We applied the short-term policy election, which allows us to exclude from recognition on the balance sheet leases with an initial term of 12 months or less. We considered quantitative

and qualitative factors when determining the application of the practical expedient that allowed us not to separate lease and non-lease components and are accounting for the agreements as a single lease component.

We routinely enter into related party agreements between our three segments. These agreements have been evaluated under the guidance of ASC 842. Routinely, our oil and natural gas segment contracts for the use of drilling equipment from our drilling segment.

We have determined that our drilling segment lessor drilling rig contracts will be accounted for under ASC 606 as the service has been deemed the predominate component of the contract per the lessor practical expedient.

Adoption. Adoption of Topic 842 resulted in new operating lease assets and lease liabilities on our Unaudited Condensed Consolidated Balance Sheet of $3.7 million and $3.5 million, respectively, as of January 1, 2019, which represents noncash operating activity. The immaterial difference between the lease assets and lease liabilities was recorded as an adjustment to the beginning balance of retained earnings, which represents the cumulative impact of adopting the standard. Our accounting for finance leases remained substantially unchanged. Adoption of Topic 842 will not materially impact our Company's results of operations or cash flows.

Leases. We lease certain office space, land and equipment, including pipeline equipment and office equipment. Our lease payments are generally straight-line and the exercise of lease renewal options, which vary in term, is at our sole discretion. We include renewal periods in our lease term if we are reasonably certain to exercise available renewal options. Our lease agreements do not include options to purchase the leased property.


	Amount
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	577
Financing cash flows for finance leases	985
Lease liabilities recognized in exchange for new operating lease right of use assets	5

Classification on the Consolidated Balance Sheet

March 31,
2019

(In thousands)

Assets

Operating right of use assets

Right of use assets

4,551

Finance right of use assets

Property, plant, and equipment, net

18,886

Total right of use assets

23,437

Liabilities

Current liabilities:

Operating lease liabilities

Current operating lease liabilities

2,369

Finance lease liabilities

Current portion of other long-term liabilities

4,041

Non-current liabilities:

Operating lease liabilities

1,952

Finance lease liabilities

Other long-term liabilities

6,354

Total lease liabilities

14,716


	Amount
	(In thousands)
Components of total lease cost:
Amortization of finance leased assets	$	985
Interest on finance lease liabilities	111
Operating lease cost	598
Short-term lease cost ⁽¹⁾	9,974
Variable lease cost	106
Total lease cost	$	11,774


	Amount
	(In thousands)
Ending April 1,
2020	$	2,582
2021	1,409
2022	550
2023	12
2024	12
2025 and beyond	84
Total future payments	4,649
Less: Interest	328
Present value of future minimum operating lease payments	4,321
Less: Current portion	2,369
Total long-term operating lease payments	$	1,952

In 2014, Superior entered into finance lease agreements for 20 compressors with initial terms of seven years. The underlying assets are included in gas gathering and processing equipment. The $4.0 million current portion of the finance lease obligations is included in current portion of other long-term liabilities and the non-current portion of $6.4 million is included in

other long-term liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheets as of March 31, 2019. These finance leases are discounted using annual rates of 4.00%. Total maintenance and interest remaining related to these leases are $3.7 million and $0.5 million, respectively, at March 31, 2019. Annual payments, net of maintenance and interest, average $4.3 million annually through 2021. At the end of the term, Superior has the option to purchase the assets at 10% of their then fair market value.


	Amount
Ending April 1,	(In thousands)
2020	$	6,195
2021	7,841
2022	579
Total future payments	14,615
Less payments related to:
Maintenance	3,695
Interest	525
Present value of future minimum finance lease payments	10,395
Less: Current portion	4,041
Total long-term finance lease payments	$	6,354