Note 12 - Leases

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Operating and Finance Leases [Text Block]

12. LEASES

Under the leasing standard that became effective January 1, 2019, there are two types of leases: finance and operating. Regardless of the type of lease, the initial measurement of the lease results in recording a ROU asset and a lease liability at the present value of the future lease payments.

Practical Expedients

The Company elected to use all the practical expedients, effectively carrying over its previous identification and classification of leases that existed as of January 1, 2019. Additionally, a lessee may elect not to recognize ROU assets and liabilities arising from short-term leases provided there is no purchase option the entity is likely to exercise. The Company has elected this short-term lease exemption.

Operating leases

The Company is currently a party to several operating lease agreements for the corporate office, rental of marine vessels and equipment and a drilling rig used in the Company’s Egyptian operations.. The duration for these agreements ranges from 3 to 24 months. In some cases, the lease contracts require the Company to make payments both for the use of the asset itself and for operations and maintenance services. Only the payments for the use of the asset related to the lease component are included in the calculation of ROU assets and lease liabilities. Payments for the operations and maintenance services are considered non-lease components and are not included in calculating the ROU assets and lease liabilities. For leases on ROU assets used in joint operations, generally the operator reflects the full amount of the lease component, including the amount that will be funded by the non-operators. As operator for the Etame Marin block, the ROU asset recorded for marine vessels, and certain equipment used in the joint operations includes the gross amount of the lease components.

The marine vessels and certain equipment leases include provisions for variable lease payments, under which the Company is required to make additional payments based on the level of production or the number of days or hours the asset is deployed, or the number of persons onboard the vessel. Because the Company does not know the extent that the Company will be required to make such payments, they are excluded from the calculation of ROU assets and lease liabilities.

Financing leases

The Company is currently a party to several financing lease agreements for the FSO and generators used in the operations of the Etame Marin block and for equipment, offices and vehicles used in the operations of Canada and Egypt. The duration for these agreements ranges from 7 to 114 months. In some cases, the lease contracts require the Company to make payments both for the use of the asset itself and for operations and maintenance services. Only the payments for the use of the asset related to the lease component are included in the calculation of ROU assets and lease liabilities. Payments for the operations and maintenance services are considered non-lease components and are not included in calculating the ROU assets and lease liabilities..

All leases

For all leases that contain an option to extend the initial lease term, the Company has evaluated whether it will extend the lease beyond the initial lease term. When the Company believes it will utilize these leased assets beyond the initial lease term, those payments have been included in the calculation of the ROU assets and liabilities. The discount rate used to calculate ROU assets and lease liabilities represents the Company’s incremental borrowing rate. The Company determined this by considering the term and economic environment of each lease, and estimating the resulting interest rate the Company would incur to borrow the lease payments.

For the three months ended March 31, 2023 and 2022, the components of the lease costs and the supplemental information were as follows:

	Three Months Ended March 31,
	2023		2022
Lease cost:	(in thousands)
Finance lease cost (1)	$	4,365	$	66
Operating lease cost		583		4,196
Short-term lease cost (2)		1,360		1,014
Variable lease cost (3)		—		1,338
Total lease expense		6,308		6,614
Lease costs capitalized		48		772
Total lease costs	$	6,356	$	7,386

	Three Months Ended March 31,
	2023			2022
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Financing cash flows attributable to finance leases (in thousands)	$	1,701		$	—
Weighted-average remaining lease term (in years)		9.33			5.42
Weighted-average discount rate		8.13	%		3.54	%
Operating cash flows attributable to operating leases (in thousands)	$	226		$	6,551
Weighted-average remaining lease term (in years)		1.14			0.73
Weighted-average discount rate		10.29	%		5.83	%

(1) Represents depreciation and interest associated with financing leases.

(2) Represents short term leases under contracts that are 1 year or less where a ROU asset and lease liability are not required to be recorded.

(3) Variable costs represent differences between minimum lease costs and actual lease costs incurred under lease contracts.

The table below describes the presentation of the total lease cost on the Company’s unaudited condensed consolidated statements of operations and comprehensive income. As discussed above, the Company’s joint venture owners are required to reimburse the Company for their share of certain expenses, including certain lease costs.

	Three Months Ended March 31,
	2023		2022
	(in thousands)
Finance lease cost	$	2,625	$	39
Production expense		1,286		3,838
General and administrative expense		46		16
Lease costs billed to the joint venture owners		2,368		3,002
Total lease expense		6,325		6,895
Lease costs capitalized		31		491
Total lease costs	$	6,356	$	7,386

The following table describes the future maturities of the Company’s lease liabilities at March 31, 2023:

	Operating Leases		Finance Leases
Year	(in thousands)
2023	$	1,829	$	10,377
2024		672		13,759
2025		33		15,559
2026		—		16,156
2027		—		15,023
Thereafter		—		51,561
		2,534		122,435
Less: imputed interest		127		35,058
Total lease liabilities	$	2,407	$	87,377

Under the joint operating agreements, other joint venture owners are obligated to fund $51.5 million of the $125.0 million in future lease liabilities.