Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.20.2
Leases
 9 Months Ended
Sep. 30, 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 September 30, Nine Months Ended September 30,
2020 2019 2020 2019
(In thousands) (In thousands)
Components of Lease Costs
Finance lease costs $252  $—  $1,380  $— 
Amortization of right-of-use assets (1)
233  —  1,253  — 
Interest on lease liabilities (2)
19  —  127  — 
Operating lease costs (3)
9,347  7,964  39,251  27,122 
Impairment of Operating lease ROU assets (4)
—  —  3,575  — 
Short-term lease costs (5)
19  293  1,736  3,640 
Variable lease costs (6)
116  —  190  — 
Total lease costs $9,734  $8,257  $46,132  $30,762 

(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 September 30, 2020 and 2019, approximately $6.1 million and $7.6 million were costs associated with drilling rigs. For the nine months ended September 30, 2020 and 2019, approximately $29.7 million and $21.5 million were costs associated with drilling rigs. and were capitalized to “Evaluated properties” 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 impairments of certain of its Operating lease ROU assets for the three and nine months ended September 30, 2020 of zero and $3.6 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:
September 30, 2020 December 31, 2019
(In thousands)
Leases
Operating leases:
Operating lease ROU assets $29,519  $63,908 
Current operating lease liabilities $19,458  $42,858 
Long-term operating lease liabilities 28,906  37,088 
Total operating lease liabilities $48,364  $79,946 
Financing leases:
Other property and equipment $1,285  $2,197 
Accumulated depreciation (395) (82)
Other property and equipment, net $890  $2,115 
Current financing lease liabilities $321  $1,334 
Long-term financing lease liabilities 543  807 
Total financing lease liabilities $864  $2,141 
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 September 30, 2020
Weighted Average Remaining Lease Term (In years)
Operating leases 5.6
Financing leases 3.1
Weighted Average Discount Rate
Operating leases 5.5  %
Financing leases 6.8  %
The table below presents the maturity of the Company’s lease liabilities as of September 30, 2020:
Operating Leases Financing Leases
(In thousands)
Remainder of 2020 $8,375  $120 
2021 14,777  314 
2022 5,438  250 
2023 5,011  233 
2024 4,935  39 
Thereafter 18,098  — 
   Total lease payments 56,634  956 
Less imputed interest (8,270) (92)
   Total $48,364  $864 
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 September 30, Nine Months Ended September 30,
2020 2019 2020 2019
(In thousands) (In thousands)
Components of Lease Costs
Finance lease costs $252  $—  $1,380  $— 
Amortization of right-of-use assets (1)
233  —  1,253  — 
Interest on lease liabilities (2)
19  —  127  — 
Operating lease costs (3)
9,347  7,964  39,251  27,122 
Impairment of Operating lease ROU assets (4)
—  —  3,575  — 
Short-term lease costs (5)
19  293  1,736  3,640 
Variable lease costs (6)
116  —  190  — 
Total lease costs $9,734  $8,257  $46,132  $30,762 

(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 September 30, 2020 and 2019, approximately $6.1 million and $7.6 million were costs associated with drilling rigs. For the nine months ended September 30, 2020 and 2019, approximately $29.7 million and $21.5 million were costs associated with drilling rigs. and were capitalized to “Evaluated properties” 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 impairments of certain of its Operating lease ROU assets for the three and nine months ended September 30, 2020 of zero and $3.6 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:
September 30, 2020 December 31, 2019
(In thousands)
Leases
Operating leases:
Operating lease ROU assets $29,519  $63,908 
Current operating lease liabilities $19,458  $42,858 
Long-term operating lease liabilities 28,906  37,088 
Total operating lease liabilities $48,364  $79,946 
Financing leases:
Other property and equipment $1,285  $2,197 
Accumulated depreciation (395) (82)
Other property and equipment, net $890  $2,115 
Current financing lease liabilities $321  $1,334 
Long-term financing lease liabilities 543  807 
Total financing lease liabilities $864  $2,141 
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 September 30, 2020
Weighted Average Remaining Lease Term (In years)
Operating leases 5.6
Financing leases 3.1
Weighted Average Discount Rate
Operating leases 5.5  %
Financing leases 6.8  %
The table below presents the maturity of the Company’s lease liabilities as of September 30, 2020:
Operating Leases Financing Leases
(In thousands)
Remainder of 2020 $8,375  $120 
2021 14,777  314 
2022 5,438  250 
2023 5,011  233 
2024 4,935  39 
Thereafter 18,098  — 
   Total lease payments 56,634  956 
Less imputed interest (8,270) (92)
   Total $48,364  $864