Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.20.1
Leases
 3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Leases Leases
The Company determines if an arrangement is a lease at inception of the contract. If the contract is determined to be a lease the Company classifies the lease as an operating or financing lease. The Company recognizes an operating or financing lease on its consolidated balance sheets as a lease liability, which represents the present value of the Company’s obligation to make lease payments arising from the lease. The Company also records a corresponding right-of-use (“ROU”) asset, which represents the Company’s right to use the underlying asset for the lease term. The Company’s operating leases typically do not provide an implicit interest rate, therefore, the Company utilizes its incremental borrowing rate to calculate the present value of the lease payments based on information available at inception of the contract.
Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense for financing leases is comprised of interest expense on the financing lease liability and the amortization of the associated ROU asset, which is also recognized on a straight-line basis over the lease term. Variable lease expense that is not dependent on an index or rate is not included in the operating or financing lease liability or ROU asset and is recognized in the period in which the obligation for those payments is incurred.
The majority of the lease liability on the Company’s consolidated balance sheets is comprised of its drilling rig and office lease contracts.
The tables below, which present the components of lease costs and supplemental balance sheet information are presented on a gross basis. Other joint owners in the properties operated by the Company generally pay for their working interest share of costs associated with drilling rigs and well equipment.
The table below presents the components of the Company’s lease costs for the periods indicated:
Three Months Ended March 31,
2020 2019
(In thousands)
Components of Lease Costs
Finance lease costs $576    $—   
Amortization of right-of-use assets (1)
510    —   
Interest on lease liabilities (2)
66    —   
Operating lease costs (3)
17,277    9,565   
Impairment of Operating lease ROU assets (4)
1,593    —   
Short-term lease costs (5)
1,688    1,498   
Variable lease costs (6)
4    —   
Total lease costs $21,138    $11,063   

(1) Included as a component of “Depreciation, depletion and amortization” in the consolidated statements of operations.
(2) Included as a component of “Interest expense, net of capitalized amounts” in the consolidated statements of operations.
(3) For the three months ended March 31, 2020 and 2019, approximately $14.2 million and $8.7 million were costs associated with drilling rigs and were capitalized to “Evaluated properties, net” in the consolidated balance sheets and the other remaining operating lease costs were components of “General and administrative” and “Lease operating” in the consolidated statements of operations.
(4) As a result of the downturn in economic conditions in conjunction with our ongoing effort to consolidate various office locations due to the Carrizo Acquisition, the Company evaluated certain of its office leases for impairment. Upon evaluation, the Company recorded an impairment of certain of its Operating lease ROU assets of $1.6 million which is a component of “Merger and integration expenses” in the consolidated statements of operations.
(5) Short-term lease costs exclude expenses related to leases with a contract term of one month or less.
(6) Variable lease costs include additional payments that were not included in the initial measurement of the lease liability and related ROU asset for lease agreements with terms greater than 12 months. Variable lease costs primarily consist of incremental usage associated with drilling rigs.
The table below presents supplemental balance sheet information for the Company’s leases as of the periods indicated:
As of March 31,
2020 2019
(In thousands)
Leases
Operating leases:
Operating lease ROU assets $56,050    $40,977   
Current operating lease liabilities $37,686    $29,134   
Long-term operating lease liabilities 35,746    11,751   
Total operating lease liabilities $73,432    $40,885   
Financing leases:
Other property and equipment $2,313    $—   
Accumulated depreciation (658)   —   
Other property and equipment, net $1,655    $—   
Current financing lease liabilities $927    $—   
Long-term financing lease liabilities 724    —   
Total financing lease liabilities $1,651    $—   
The table below presents the weighted average remaining lease terms and weighted average discounts rates for the Company’s leases for the period indicated:
As of March 31, 2020
Weighted Average Remaining Lease Term (In years)
Operating leases 4.5
Financing leases 2.3
Weighted Average Discount Rate
Operating leases 5.5  %
Financing leases 8.1  %
The table below presents the maturity of the Company’s lease liabilities as of March 31, 2020:
Operating Leases Financing Leases
(In thousands)
Remainder of 2020 $37,161    $1,021   
2021 13,122    275   
2022 5,363    234   
2023 5,012    233   
2024 4,765    38   
Thereafter 17,903    —   
   Total lease payments 83,326    1,801   
Less imputed interest 9,894    150   
   Total $73,432    $1,651   
Leases Leases
The Company determines if an arrangement is a lease at inception of the contract. If the contract is determined to be a lease the Company classifies the lease as an operating or financing lease. The Company recognizes an operating or financing lease on its consolidated balance sheets as a lease liability, which represents the present value of the Company’s obligation to make lease payments arising from the lease. The Company also records a corresponding right-of-use (“ROU”) asset, which represents the Company’s right to use the underlying asset for the lease term. The Company’s operating leases typically do not provide an implicit interest rate, therefore, the Company utilizes its incremental borrowing rate to calculate the present value of the lease payments based on information available at inception of the contract.
Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense for financing leases is comprised of interest expense on the financing lease liability and the amortization of the associated ROU asset, which is also recognized on a straight-line basis over the lease term. Variable lease expense that is not dependent on an index or rate is not included in the operating or financing lease liability or ROU asset and is recognized in the period in which the obligation for those payments is incurred.
The majority of the lease liability on the Company’s consolidated balance sheets is comprised of its drilling rig and office lease contracts.
The tables below, which present the components of lease costs and supplemental balance sheet information are presented on a gross basis. Other joint owners in the properties operated by the Company generally pay for their working interest share of costs associated with drilling rigs and well equipment.
The table below presents the components of the Company’s lease costs for the periods indicated:
Three Months Ended March 31,
2020 2019
(In thousands)
Components of Lease Costs
Finance lease costs $576    $—   
Amortization of right-of-use assets (1)
510    —   
Interest on lease liabilities (2)
66    —   
Operating lease costs (3)
17,277    9,565   
Impairment of Operating lease ROU assets (4)
1,593    —   
Short-term lease costs (5)
1,688    1,498   
Variable lease costs (6)
4    —   
Total lease costs $21,138    $11,063   

(1) Included as a component of “Depreciation, depletion and amortization” in the consolidated statements of operations.
(2) Included as a component of “Interest expense, net of capitalized amounts” in the consolidated statements of operations.
(3) For the three months ended March 31, 2020 and 2019, approximately $14.2 million and $8.7 million were costs associated with drilling rigs and were capitalized to “Evaluated properties, net” in the consolidated balance sheets and the other remaining operating lease costs were components of “General and administrative” and “Lease operating” in the consolidated statements of operations.
(4) As a result of the downturn in economic conditions in conjunction with our ongoing effort to consolidate various office locations due to the Carrizo Acquisition, the Company evaluated certain of its office leases for impairment. Upon evaluation, the Company recorded an impairment of certain of its Operating lease ROU assets of $1.6 million which is a component of “Merger and integration expenses” in the consolidated statements of operations.
(5) Short-term lease costs exclude expenses related to leases with a contract term of one month or less.
(6) Variable lease costs include additional payments that were not included in the initial measurement of the lease liability and related ROU asset for lease agreements with terms greater than 12 months. Variable lease costs primarily consist of incremental usage associated with drilling rigs.
The table below presents supplemental balance sheet information for the Company’s leases as of the periods indicated:
As of March 31,
2020 2019
(In thousands)
Leases
Operating leases:
Operating lease ROU assets $56,050    $40,977   
Current operating lease liabilities $37,686    $29,134   
Long-term operating lease liabilities 35,746    11,751   
Total operating lease liabilities $73,432    $40,885   
Financing leases:
Other property and equipment $2,313    $—   
Accumulated depreciation (658)   —   
Other property and equipment, net $1,655    $—   
Current financing lease liabilities $927    $—   
Long-term financing lease liabilities 724    —   
Total financing lease liabilities $1,651    $—   
The table below presents the weighted average remaining lease terms and weighted average discounts rates for the Company’s leases for the period indicated:
As of March 31, 2020
Weighted Average Remaining Lease Term (In years)
Operating leases 4.5
Financing leases 2.3
Weighted Average Discount Rate
Operating leases 5.5  %
Financing leases 8.1  %
The table below presents the maturity of the Company’s lease liabilities as of March 31, 2020:
Operating Leases Financing Leases
(In thousands)
Remainder of 2020 $37,161    $1,021   
2021 13,122    275   
2022 5,363    234   
2023 5,012    233   
2024 4,765    38   
Thereafter 17,903    —   
   Total lease payments 83,326    1,801   
Less imputed interest 9,894    150   
   Total $73,432    $1,651