Leases

9 Months Ended

Sep. 30, 2020

Note 12 - Leases

ASC Topic 842 - Leases (“Topic 842”), requires lessees to recognize operating and finance leases with terms greater than 12 months on the balance sheet. As of September 30, 2020, the Company did not have any agreements in place that were classified as finance leases under Topic 842. Arrangements classified as operating leases are included on the accompanying balance sheets within the other noncurrent assets, other current liabilities, and other noncurrent liabilities line items.

As outlined in Topic 842, a right-of-use (“ROU”) asset represents a lessee’s right to use an underlying asset for the lease term, while the associated lease liability represents the lessee’s obligations to make lease payments. At the commencement date, which is the date on which a lessor makes an underlying asset available for use by a lessee, a lease ROU asset and corresponding lease liability is recognized based on the present value of the future lease payments. Excluded from the initial measurement are certain variable lease payments, which for the Company’s drilling rigs, completion crews, and midstream agreements, may be a significant component of the total lease costs. Subsequent to initial measurement, costs associated with the Company’s operating leases are either expensed on the accompanying statements of operations or capitalized on the accompanying balance sheets depending on the nature and use of the underlying ROU asset and in accordance with GAAP requirements.

Please refer to Note 12 - Leases in the 2019 Form 10-K for more information regarding the Company's policy on leases, and assumptions and judgments made in the initial and subsequent measurement of lease ROU assets and corresponding liabilities.

Currently, the Company has operating leases for asset classes that include office space, office equipment, drilling rigs, midstream agreements, vehicles, and equipment rentals used in field operations. For those operating leases included on the accompanying balance sheets, which only includes leases with terms greater than 12 months at commencement, remaining lease terms range from less than one year to approximately six years. The weighted-average lease term remaining for these leases is approximately three years. Certain leases also contain optional extension periods that allow for terms to be extended for up to an additional 10 years. An early termination option also exists for certain leases, some of which allow for the Company to terminate a lease within one year. Exercising an early termination option may also result in an early termination penalty depending on the terms of the underlying agreement. Based on expectations for those agreements with early termination options, there are no leases in which material early termination options are reasonably certain to be exercised by the Company.

For the three months ended September 30, 2020, and 2019, total costs related to operating leases, including short-term leases, and variable lease payments made for leases with initial lease terms greater than 12 months, were $49.9 million and $107.3 million, respectively. For the nine months ended September 30, 2020, and 2019, total lease costs were $184.9 million and $422.4 million, respectively. These totals do not reflect amounts that may be reimbursed by other third parties in the normal course of business, such as non-operating working interest owners. Components of the Company’s total lease cost, whether capitalized or expensed, for the three and nine months ended September 30, 2020, and 2019, consisted of the following:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Operating lease cost	$	3,364	$	8,344	$	14,651	$	28,802
Short-term lease cost (1)	27,787		72,874		107,989		309,876
Variable lease cost (2)	18,787		26,090		62,257		83,696
Total lease cost	$	49,938	$	107,308	$	184,897	$	422,374

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(1) Costs associated with short-term lease agreements relate primarily to operational activities where underlying lease terms are less than one year. This amount includes drilling and completion activities and field equipment rentals, most of which are contracted for 12 months or less. It is expected that this amount will fluctuate primarily with the number of drilling rigs and completion crews the Company is operating under short-term agreements.

(2) Variable lease payments include additional payments made that were not included in the initial measurement of the ROU asset and corresponding liability for lease agreements with terms longer than 12 months. Variable lease payments relate to the actual volumes transported under certain midstream agreements, actual usage associated with drilling rigs, completion crews, and vehicles, and variable utility costs associated with the Company’s leased office space. Fluctuations in variable lease payments are driven by actual volumes delivered and the number of drilling rigs and completion crews operating under long-term agreements.

Right-of-use assets obtained in exchange for new operating lease liabilities totaled zero and $745,000 for the three and nine months ended September 30, 2020, respectively, and $1.3 million and $24.0 million for the three and nine months ended September 30, 2019, respectively.

Cash paid for amounts included in the measurement of lease liabilities for the nine months ended September 30, 2020, and 2019, was as follows:


	For the Nine Months Ended September 30,
	2020		2019
	(in thousands)
Operating cash flows from operating leases	$	9,074	$	9,029
Investing cash flows from operating leases	$	6,751	$	20,256

Maturities for the Company’s operating lease liabilities included on the accompanying balance sheets as of September 30, 2020, were as follows:


	As of September 30, 2020
	(in thousands)
2020 (remaining after September 30, 2020)	$	3,546
2021	12,855
2022	5,920
2023	3,596
2024	2,081
Thereafter	1,640
Total Lease payments	$	29,638
Less: Imputed interest (1)	(2,856)
Total	$	26,782

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(1) The weighted-average discount rate used to determine the operating lease liability as of September 30, 2020, was 6.9 percent.

Amounts recorded on the accompanying balance sheets for operating leases as of September 30, 2020, and December 31, 2019, were as follows:


	As of September 30, 2020		As of December 31, 2019
	(in thousands)
Other noncurrent assets	$	24,728	$	39,717

Other current liabilities	$	12,311	$	19,189
Other noncurrent liabilities	$	14,471	$	23,137

As of September 30, 2020, and through the filing of this report, the Company has no material lease arrangements which are scheduled to commence in the future.