|3 Months Ended|
Mar. 31, 2021
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 or more. The exercise of the lease renewal options is 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.the from to 20 years
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 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. 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. As new leases commence or previous leases are modified the discount rate used in the present value calculation is the current period applicable discount rate.
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.
The Company’s lease assets and liabilities as of December 31, 2020 and March 31, 2021 consisted of the following items (in thousands):
The processing plants, gathering lines and compressor stations that are classified as lease liabilities are classified as such under ASC 842, Leases, because Antero is the sole customer of the assets and because Antero makes the decisions that most impact the economic performance of the assets.
Costs associated with operating leases were included in the unaudited condensed consolidated statement of operations and comprehensive loss for the three months ended March 31, 2020 and 2021 (in thousands):
The following is the Company’s supplemental cash flow information related to leases for the three months ended March 31, 2020 and 2021 (in thousands):
The table below is a schedule of future minimum payments for operating and financing lease liabilities as of March 31, 2021 (in thousands):
The following table sets forth the Company’s weighted-average remaining lease term and discount rate as of December 31, 2020 and March 31, 2021:
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 the Company requests 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% of the gathering capacity and 70% of the compression capacity of the requested capacity of such new construction for 10 years. In December 2019, the Company and Antero Midstream Corporation agreed to extend the initial term of the gathering and compression agreement to 2038 and established a growth incentive fee program whereby low pressure gathering fees will be reduced from 2020 through 2023 to the extent the Company achieves certain volumetric targets at certain points during such time. Upon completion of the initial contract term, the gathering and compression agreement will continue in effect from year to year until such time as the agreement is terminated, effective upon an anniversary of the effective date of the agreement, by either the Company or Antero Midstream Corporation on or before the th day prior to the anniversary of such effective date. The Company achieved the volumetric targets during the first quarter of 2020, and Antero Midstream Corporation provided a rebate of $12 million for the three months ended March 31, 2020. The Company did not achieve the volumetric target during the first quarter of 2021.
For the three months ended March 31, 2020 and 2021, gathering and compression fees paid by Antero related to this agreement were $156 million and $177 million, respectively. As of December 31, 2020 and March 31, 2021, $55 million and $63 million were included within Accounts payable, related parties, respectively, on the unaudited condensed consolidated balance sheet as due to Antero Midstream Corporation related to this agreement.