Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.20.2
Leases
3 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Leases
Leases

Effective January 1, 2020, the Company adopted Topic 842, which requires lessees to recognize operating and finance leases with terms greater than 12 months on the balance sheet. The Company adopted this standard using the modified retrospective method and elected to use the optional transition methodology whereby reporting periods prior to adoption continue to be presented in accordance with legacy accounting guidance. As of March 31, 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 Condensed Consolidated Balance Sheets within the “Other assets, net”, “Accrued liabilities and other” and “Other liabilities” line items. For any agreement that contains both lease and non-lease components, such as a service arrangement that also includes an identifiable right-of-use (“ROU”) asset, the Company’s policy for all asset classes is to combine lease and non-lease components together and account for the arrangement as a single lease. Aside from the recognition of ROU assets and corresponding lease liabilities on the accompanying balance sheets, Topic 842 does not have a material impact on the timing or classification of costs incurred for those agreements considered to be leases.

As outlined in Topic 842, a 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. The initial measurement of lease payments may also be adjusted for certain items, including options that are reasonably certain to be exercised, such as options to purchase the asset at the end of the lease term, or options to extend or early terminate the lease. Excluded from the initial measurement are certain variable lease payments, which for the Company’s office rental agreements, may be a significant component of the total lease costs.

The Company evaluates a contractual arrangement at its inception to determine if it is a lease or contains an identifiable lease component as defined by Topic 842. When evaluating a contract to determine appropriate classification and recognition under Topic 842, significant judgment may be necessary to determine, among other criteria, if an embedded leasing arrangement exists, the length of the term, classification as either an operating or financing lease, which options are reasonably likely to be exercised, fair value of the underlying ROU asset or assets, upfront costs, and future lease payments that are included or excluded in the initial measurement of the ROU asset.

Currently, the Company has operating leases for office lease agreements, apartment lease agreement and certain wellhead equipment. For those operating leases included on the accompanying balance sheets, which only include leases with terms greater than 12 months at commencement, the present value of future lease payments was determined based upon the Company’s incremental borrowing rate. The table below summarizes our discount rate and remaining lease term as of March 31, 2020.
 
As of March 31, 2020
Weighted-average discount rate
4.5
%
Weighted-average remaining lease term (years)
1.94



Subsequent to initial measurement, costs associated with the Company’s operating leases are either expensed or capitalized depending on how the underlying ROU asset is utilized and in accordance with U.S. GAAP requirements. Variable lease payments are recognized in the period in which they are incurred. Expenses related to short-term leases are recognized on a straight-line basis over the lease term. The following table presents the components of the Company’s lease expenses for the three months ended March 31, 2020.
 
Three Months Ended March 31, 2020
 
(in thousands)
Lease costs
 
  Operating lease cost
$
291

  Variable lease cost (1)
179

  Short-term lease cost (2)
688

    Total Lease Cost
$
1,158

(1)
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 primarily relate to variable utility costs associated with the Company’s leased office space.
(2)
Costs associated with short-term lease agreements primarily relate to certain field equipment rentals.

Other information related to the Company’s leases for three months ended March 31, 2020, was as follows:
 
Three Months Ended March 31, 2020
 
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
 
   Operating cash flows from operating leases (fixed payments)
$
332

   Operating cash flows from operating leases (liability reduction)
$
305

Right-of-use assets obtained in exchange for new operating lease liabilities
$
2,163



Maturities of the Company’s operating lease liabilities included on the accompanying Condensed Consolidated Balance Sheet as of March 31, 2020 were as follows:
 
As of March 31, 2020
 
(in thousands)
2020
$
1,000

2021
1,051

2022
346

Total lease payments
$
2,397

  Less: imputed interest
(100
)
Present value of lease liabilities
$
2,297



As of December 31, 2019, future total obligations on our noncancelable lease obligations were $4.5 million in the aggregate, which consisted of the following: $2.5 million in 2020, $1.5 million in 2021 and $0.5 million in 2022.

Amounts recorded in the accompanying Condensed Consolidated Balance Sheet for operating leases as of March 31, 2020, were as follows:
 
 
As of March 31, 2020
 
Classification on our Balance Sheets
(in thousands)
Operating lease ROU assets
Other assets, net
$
1,898

 
 
 
Current operating lease liability
Accrued liabilities and other
$
1,233

Non-current operating lease liability
Other liabilities
$
1,064