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Commitments and Contingencies
9 Months Ended
Sep. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
Contractual Obligations
The Company has various contractual obligations in the normal course of its operations. There have been no material changes to the Company’s contractual obligations described under “Transportation and Gathering Agreements” as disclosed in Note 9 of the Notes to Consolidated Financial Statements in the Form 10-K.
Lease Commitments (Topic 840)
Future minimum rental commitments under non-cancelable leases in effect at December 31, 2018 are as follows:
(In thousands)
 
2019
$
5,571

2020
5,684

2021
4,777

2022
1,659

2023
1,691

Thereafter
2,852

 
$
22,234



The table above was prepared under the guidance of Topic 840. As discussed in Note 1 above, the Company adopted the guidance of Topic 842 effective January 1, 2019.
Leases (Topic 842)
The Company determines if an arrangement is, or contains, a lease at inception based on whether that contract conveys the right to control the use of an identified asset in exchange for consideration for a period of time. Operating leases are included in operating lease right-of-use assets (ROU assets) and operating lease liabilities (current and noncurrent) on the Condensed Consolidated Balance Sheet. The Company does not have any finance leases at September 30, 2019.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of minimum lease payments over the lease term. Most leases do not provide an implicit interest rate; therefore, the Company used its incremental borrowing rate based on the information available at the inception date to determine the present value of the lease payments. Lease terms include options to extend the lease when it is reasonably certain that the Company will exercise that option. Lease cost for lease payments is recognized on a straight-line basis over the lease term. 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.
For all operating leases, lease and non-lease components are accounted for as a single lease component.
The Company has operating leases for office space, drilling rig commitments, surface use agreements, compressor services and other leases. The leases have remaining terms ranging from two months to 26.3 years, including options to extend leases that the Company is reasonably certain to exercise. During the nine months ended September 30, 2019, the Company recognized operating lease cost and variable lease cost of $9.0 million and $3.7 million, respectively.
Short-term leases. The Company leases drilling rigs, fracturing and other equipment under lease terms ranging from 30 days to one year. Lease cost of $224.0 million was recognized on short-term leases during the nine months ended September 30, 2019. Certain lease costs are capitalized and included in Properties and equipment, net in the Condensed Consolidated Balance Sheet because they relate to drilling and completion activities, while other costs are expensed because they relate to production and administrative activities.
As of September 30, 2019, the Company’s future undiscounted minimum cash payment obligations for its operating lease liabilities are as follows:
(In thousands)
 
Year Ending December 31,
2019 (excluding the nine months ended September 30, 2019)
 
$
2,419

2020
 
4,819

2021
 
4,755

2022
 
4,577

2023
 
4,613

Thereafter
 
29,824

Total undiscounted lease payments
 
51,007

Present value adjustment
 
(13,401
)
Net operating lease liabilities
 
$
37,606


Supplemental cash flow information related to leases was as follows:
(In thousands)
 
Three Months Ended 
 September 30, 2019
 
Nine Months Ended 
 September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
 
Operating cash flows from operating leases
 
$
1,149

 
$
3,395

Investing cash flows from operating leases
 
$
1,831

 
$
5,433



Information regarding the weighted-average remaining lease term and the weighted-average discount rate for operating leases is summarized below:
 
 
September 30, 2019
Weighted-average remaining lease term (in years)
 
 
Operating leases
 
11.9

Weighted-average discount rate
 
 
Operating leases
 
5.0
%


Legal Matters
The Company is a defendant in various legal proceedings arising in the normal course of business. All known liabilities are accrued when management determines they are probable based on its best estimate of the potential loss. While the outcome and impact of these legal proceedings on the Company cannot be predicted with certainty, management believes that the resolution of these proceedings will not have a material effect on the Company’s financial position, results of operations or cash flows.
Contingency Reserves. When deemed necessary, the Company establishes reserves for certain legal proceedings. The establishment of a reserve is based on an estimation process that includes the advice of legal counsel and subjective judgment of management. While management believes these reserves to be adequate, it is reasonably possible that the Company could incur additional losses with respect to those matters for which reserves have been established. The Company believes that any
such amount above the amounts accrued would not be material to the Condensed Consolidated Financial Statements. Future changes in facts and circumstances not currently foreseeable could result in the actual liability exceeding the estimated ranges of loss and amounts accrued.