Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.20.2
Leases
 6 Months Ended
Jun. 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 June 30, Six Months Ended June 30,
2020 2019 2020 2019
(In thousands) (In thousands)
Components of Lease Costs
Finance lease costs $552    $—    $1,128    $—   
Amortization of right-of-use assets (1)
510    —    1,020    —   
Interest on lease liabilities (2)
42    —    108    —   
Operating lease costs (3)
16,387    9,565    33,664    19,156   
Impairment of Operating lease ROU assets (4)
1,982    —    3,575    —   
Short-term lease costs (5)
38    1,849    1,726    3,347   
Variable lease costs (6)
70    —    74    —   
Total lease costs $19,029    $11,414    $40,167    $22,503   

(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 June 30, 2020 and 2019, approximately $15.2 million and $7.0 million were costs associated with drilling rigs. For the six months ended June 30, 2020 and 2019, approximately $23.7 million and $13.9 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 six months ended June 30, 2020 of $2.0 million 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:
June 30, 2020 December 31, 2019
(In thousands)
Leases
Operating leases:
Operating lease ROU assets $35,926    $63,908   
Current operating lease liabilities $24,355    $42,858   
Long-term operating lease liabilities 30,729    37,088   
Total operating lease liabilities $55,084    $79,946   
Financing leases:
Other property and equipment $2,313    $2,197   
Accumulated depreciation (1,257)   (82)  
Other property and equipment, net $1,056    $2,115   
Current financing lease liabilities $463    $1,334   
Long-term financing lease liabilities 572    807   
Total financing lease liabilities $1,035    $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 June 30, 2020
Weighted Average Remaining Lease Term (In years)
Operating leases 5.4
Financing leases 2.8
Weighted Average Discount Rate
Operating leases 5.4  %
Financing leases 7.1  %
The table below presents the maturity of the Company’s lease liabilities as of June 30, 2020:
Operating Leases Financing Leases
(In thousands)
Remainder of 2020 $16,362    $363   
2021 14,116    275   
2022 5,453    234   
2023 5,013    233   
2024 4,937    38   
Thereafter 18,097    —   
   Total lease payments 63,978    1,143   
Less imputed interest (8,894)   (108)  
   Total $55,084    $1,035   
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 June 30, Six Months Ended June 30,
2020 2019 2020 2019
(In thousands) (In thousands)
Components of Lease Costs
Finance lease costs $552    $—    $1,128    $—   
Amortization of right-of-use assets (1)
510    —    1,020    —   
Interest on lease liabilities (2)
42    —    108    —   
Operating lease costs (3)
16,387    9,565    33,664    19,156   
Impairment of Operating lease ROU assets (4)
1,982    —    3,575    —   
Short-term lease costs (5)
38    1,849    1,726    3,347   
Variable lease costs (6)
70    —    74    —   
Total lease costs $19,029    $11,414    $40,167    $22,503   

(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 June 30, 2020 and 2019, approximately $15.2 million and $7.0 million were costs associated with drilling rigs. For the six months ended June 30, 2020 and 2019, approximately $23.7 million and $13.9 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 six months ended June 30, 2020 of $2.0 million 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:
June 30, 2020 December 31, 2019
(In thousands)
Leases
Operating leases:
Operating lease ROU assets $35,926    $63,908   
Current operating lease liabilities $24,355    $42,858   
Long-term operating lease liabilities 30,729    37,088   
Total operating lease liabilities $55,084    $79,946   
Financing leases:
Other property and equipment $2,313    $2,197   
Accumulated depreciation (1,257)   (82)  
Other property and equipment, net $1,056    $2,115   
Current financing lease liabilities $463    $1,334   
Long-term financing lease liabilities 572    807   
Total financing lease liabilities $1,035    $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 June 30, 2020
Weighted Average Remaining Lease Term (In years)
Operating leases 5.4
Financing leases 2.8
Weighted Average Discount Rate
Operating leases 5.4  %
Financing leases 7.1  %
The table below presents the maturity of the Company’s lease liabilities as of June 30, 2020:
Operating Leases Financing Leases
(In thousands)
Remainder of 2020 $16,362    $363   
2021 14,116    275   
2022 5,453    234   
2023 5,013    233   
2024 4,937    38   
Thereafter 18,097    —   
   Total lease payments 63,978    1,143   
Less imputed interest (8,894)   (108)  
   Total $55,084    $1,035