| Operating Leases |
Note 6 - Operating Leases
We adopted the Accounting Standards Update (“ASU”) 2016-02, Leases (“Topic 842”) effective January 1, 2019. As lessee, our leasing activities primarily consist of operating leases for administrative offices, warehouses, oilfield services equipment, office equipment, computers and other items. Our leases have remaining lease terms of 1 year to 15 years, some of which include options to extend the leases for up to 20 years, and some of which include options to terminate the leases within 1 year.
We elected the following package of practical expedients permitted under the transition guidance:
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an election to adopt the modified retrospective transition method applied at the beginning of the period of adoption, which does not require a restatement of the prior period. Accordingly, no cumulative-effect adjustment to retained earnings was made. |
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an election not to apply the recognition requirements in Topic 842 to short-term leases (initial lease term of 12 months or less) and recognize lease payments in the consolidated statement of operations. Short-term leases have not been recorded on the balance sheet. |
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a practical expedient to not reassess whether a contract is or contains a lease and carry forward its historical lease classification. |
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a practical expedient to account for the lease and non-lease components separately (except as discussed below). |
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a practical expedient to account for the lease and non-lease components as a single lease component for certain assets, by class of underlying asset. |
We determine whether a contract is or contains a lease at its inception. Topic 842 requires lessees to recognize operating lease right-of-use assets and operating lease liabilities on the balance sheet. An operating lease right-of-use asset represents our right to use an underlying asset for the lease term and an operating lease liability represents our obligation to make lease payments arising from the lease. An operating lease right-of-use asset and operating lease liability are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The operating lease right-of-use assets also include any lease payments made and exclude lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise those options. The adoption of this standard resulted in the recording of operating lease right-of-use assets and operating lease liabilities of approximately $21.0 million as of January 1, 2019.
Supplemental lease information related to our operating leases as of December 31, 2019 is shown below:
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Successor |
Dollars in thousands |
December 31,
2019 |
Operating lease right-of-use assets (1)
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$ |
28,955 |
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Operating lease liabilities - current (2)
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9,946 |
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Operating lease liabilities - noncurrent (3)
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18,979 |
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Total operating lease liabilities |
$ |
28,925 |
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Weighted average remaining lease term (in years) |
8 |
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Weighted average discount rate |
8.5 |
% |
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(1) |
This amount is included in other non-current assets in our consolidated balance sheet. |
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(2) |
This amount is included in accounts payable and accrued liabilities in our consolidated balance sheet. |
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(3) |
This amount is included in other long-term liabilities in our consolidated balance sheet. |
Supplemental cash flow information related to leases are as follow:
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Successor |
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Predecessor |
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Nine Months Ended December 31, |
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Three Months Ended March 31, |
Dollars in thousands |
2019 |
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2019 |
Cash paid for amounts included in the measurement of operating lease liabilities |
$ |
7,969 |
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$ |
2,967 |
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Operating lease right-of-use assets obtained in exchange for lease obligations |
$ |
14,852 |
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$ |
238 |
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Maturities of operating lease liabilities as of December 31, 2019 were as follows:
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Successor |
Dollars in thousands |
Operating
Leases |
2020 |
$ |
10,375 |
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2021 |
6,704 |
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2022 |
3,823 |
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2023 |
3,045 |
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2024 |
2,017 |
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Beyond 2024 |
15,372 |
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Total undiscounted lease liability |
41,336 |
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Imputed interest |
(12,411 |
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Total operating lease liabilities |
$ |
28,925 |
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Future minimum operating lease payments as of December 31, 2018 were as follows:
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Predecessor |
Dollars in thousands |
Operating
Leases |
2019 |
$ |
10,722 |
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2020 |
7,887 |
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2021 |
4,193 |
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2022 |
1,968 |
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2023 |
1,540 |
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Beyond 2023 |
636 |
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Total lease payments |
$ |
26,946 |
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Lease expense for lease payments is recognized on a straight-line basis over the lease term. Expenses for operating leases are shown below:
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Successor |
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Predecessor |
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Nine Months Ended December 31, |
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Three Months Ended March 31, |
Dollars in thousands |
2019 |
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2019 |
Operating lease expense |
$ |
8,408 |
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$ |
3,074 |
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Short-term lease expense |
1,938 |
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492 |
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Variable lease expense |
5,347 |
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1,778 |
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Total lease expense |
$ |
15,693 |
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$ |
5,344 |
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As of December 31, 2019, we had $1.6 million of additional operating leases that have not yet commenced, primarily for administrative offices and warehouses. These leases will commence in 2020 with lease terms of approximately 2 years.
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