Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.19.1
Leases
3 Months Ended
Mar. 31, 2019
Leases  
Leases

(12)  Leases

 

On February 25, 2016, the FASB issued Accounting Standard Update (“ASU”) No. 2016-02, Leases, which requires lessees to record lease liabilities and right-of-use assets as of the date of adoption and was incorporated into GAAP as Accounting Standards Codification (“ASC”) Topic 842.  The new lease standard does not substantially change accounting by lessors.  The Company adopted the new standard effective January 1, 2019.  The Company is a lessee to both operating and finance lease arrangements.  The standard resulted in an increased in assets and liabilities related to our operating leases.

 

The Company leases certain office space, processing plants, drilling rigs and completion services, gas gathering lines, compressor stations, and other office and field equipment.  Leases with an initial term of 12 months or less are considered short-term and are not recorded on the balance sheet.  Instead, the short-term leases are recognized in expense on a straight-line basis over the lease term.

 

Most leases include one or more options to renew, with renewal terms that can extend the lease from one to 20 years or more.  The exercise of the lease renewal options are at the Company’s sole discretion.  The depreciable lives of the leased assets are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

 

Certain of the Company’s lease agreements include minimum payments based on a percentage of produced volumes over contractual levels and others include rental payments adjusted periodically for inflation.

 

The Company has elected the effective date method for adoption of the new leasing standard under Topic 842.  This method allows the Company to not make retrospective adjustments for leases that were in effect prior to the adoption date of January 1, 2019 when disclosing comparable prior periods, but instead, account for the prior period leases under Topic 840, which was the guidance in place at the time of the original reporting.

 

The Company considers all contracts that have assets specified in the contract, either explicitly or implicitly, that the Company has substantially all of the capacity of the asset, and has the right to obtain substantially all of the economic benefits of that asset, without the lessor’s ability to have a substantive right to substitute that asset, as leased assets under Topic 842.  For any contract deemed to include a leased asset, that asset is capitalized on the balance sheet as a right-of-use asset and a corresponding lease liability is recorded at the present value of the known future minimum payments of the contract using a discount rate on the date of commencement.  The leased asset classification is determined at the date of recording as either operating or financing, depending upon certain criteria of the contract.

 

The discount rate used for present value calculations is the discount rate implicit in the contract.  If an implicit rate is not determinable, a collateralized incremental borrowing rate is used at the date of commencement.  The Company used the collateralized incremental borrowing rate, adjusted for length of lease term, for all of its present value calculations at the initial adoption of Topic 842.

 

The Company has made an accounting policy election to adopt the practical expedient for combining lease and non-lease components on an asset class basis.  This expedient allows the Company to combine non-lease components such as real estate taxes, insurance, maintenance, and other operating expenses associated with the leased premises with the lease component of a lease agreement on an asset class basis when the non-lease components of the agreement cannot be easily bifurcated from the lease payment.  Currently, the Company is only applying this expedient to certain office space agreements.

 

Supplemental Balance Sheet Information Related to Leases

 

The Company’s lease assets as of March 31, 2019 consisted of the following items (in thousands):

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

 

Operating Leases

 

Finance Leases

 

Right-of-use Assets:

 

 

 

 

 

 

 

Processing plants

 

$

1,619,608

 

 

 —

 

Drilling rigs and completion services

 

 

139,492

 

 

 —

 

Gas gathering lines and compressor stations (1)

 

 

1,624,500

 

 

 —

 

Office space

 

 

43,083

 

 

 —

 

Vehicles

 

 

6,273

 

 

3,089

 

Other office and field equipment

 

 

559

 

 

1,081

 

Total right-of-use assets

 

$

3,433,515

 

 

4,170

(2)


(1)

Gas gathering lines and compressor stations leases includes $1.4 billion related to Antero Midstream Corporation.

(2)

Financing lease assets are recorded net of accumulated amortization of $9 million as of March 31, 2019.

 

The Company’s lease liabilities as of March 31, 2019 consisted of the following items (in thousands):

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

 

Operating Leases

 

Finance Leases

 

Location on the balance sheet:

 

 

 

 

 

 

 

Short-term lease liabilities

 

$

411,310

 

 

1,793

 

Long-term lease liabilities

 

 

3,022,205

 

 

2,377

 

Total lease liabilities

 

$

3,433,515

 

 

4,170

 

 

Supplemental Information Related to Leases

 

Costs associated with operating leases were included in the statement of operations and comprehensive income for the three months ended March 31, 2019 (in thousands):

 

 

 

 

 

 

 

 

 

 

Statement of Operations Location

 

 

Three months ended March 31, 2019

 

Gathering, compression, processing, and transportation

 

$

187,847

 

General and administrative

 

 

2,726

 

Contract termination and rig stacking

 

 

8,019

 

Total Lease Expense

 

$

198,592

 

 

Costs associated with finance leases for the three months ended March 31, 2019 of less than $1 million were included in interest expense.

 

We capitalized $55 million and less than $1 million of costs related to operating and finance leases, respectively, during the three months ended March 31, 2019.

 

Short-term lease costs that are more than one month but less than 12 months are excluded from the above amounts and total $35 million at March 31, 2019.

 

Supplemental Cash Flow Information Related to Leases

The following is the Company’s supplemental cash flow information related to leases for the three months ended March 31, 2019 (in thousands):

 

 

 

 

 

 

 

 

 

 

Three months ended March 31, 2019

 

 

 

Operating Leases

 

Finance Leases

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

150,320

 

   

                     —

 

Investing cash flows from operating leases

 

 

52,366

 

   

                     —

 

Financing cash flows from financing leases

 

 

                     —

 

 

791

 

 

 

 

202,686

 

 

791

 

 

 

 

 

 

 

 

 

Noncash activities:

 

 

 

 

 

 

 

Right of use assets obtained in exchange for operating lease liabilities

 

 

3,345,549

 

 

 —

 

Right of use assets obtained in exchange for financing lease liabilities

 

 

 —

 

 

 —

 

 

Maturities of Lease Liabilities 

 

The table below is a schedule of future minimum payments for operating and financing lease liabilities as of March 31, 2019 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Operating Leases

 

Financing Leases

 

Total

 

Remainder of 2019

 

$

309,040

 

 

191

 

 

309,231

 

2020

 

 

396,473

 

 

1,073

 

 

397,546

 

2021

 

 

349,212

 

 

1,430

 

 

350,642

 

2022

 

 

359,759

 

 

1,476

 

 

361,235

 

2023

 

 

377,790

 

 

 —

 

 

377,790

 

2024

 

 

392,323

 

 

 —

 

 

392,323

 

Thereafter

 

 

1,248,918

 

 

 —

 

 

1,248,918

 

Total lease payments

 

 

3,433,515

 

 

4,170

 

 

3,437,685

 

Less: imputed interest

 

 

 —

 

 

 —

 

 

 —

 

Total

 

 

3,433,515

 

 

4,170

 

 

3,437,685

 

 

Lease Term and Discount Rate

 

The table below is the Company’s weighted-average remaining lease term and discount rate as of March 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

 

Operating Leases

 

Finance Leases

 

Weighted-average remaining lease term:

 

 

8.7 years

 

 

1.6 years

 

Weighted-average discount rate:

 

 

6.0

%

 

5.4

%

 

As of March 31, 2019, the Company had requested additional processing capacity which will be accounted for as lease modifications when the processing capacity becomes available in 2019 and 2020.

 

Related party lease disclosure

 

The Company has a gathering and compression agreement with Antero Midstream Corporation, whereby Antero Midstream Corporation receives a low-pressure gathering fee per Mcf, a high-pressure gathering fee per Mcf, and a compression fee per Mcf, in each case subject to adjustments based on the consumer price index.  If and to the extent we request that Antero Midstream Corporation construct new high pressure lines and compressor stations, the gathering and compression agreement contains minimum volume commitments that require Antero Resources to utilize or pay for 75% and 70%, respectively, of the capacity of such new construction for 10 years.  For the three months ended March 31, 2019, gathering and compression fees paid by Antero related to this agreement were $152 million.  As of March 31, 2019, $53 million was included within accounts payable, related parties on the Condensed Balance Sheet as due to Antero Midstream Corporation related to this agreement.