|6 Months Ended|
Jun. 30, 2019
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 June 30, 2019 consisted of the following items (in thousands):
The Company’s lease liabilities as of June 30, 2019 consisted of the following items (in thousands):
Supplemental Information Related to Leases
Costs associated with operating leases were included in the statement of operations and comprehensive income (loss) for the three and six months ended June 30, 2019 (in thousands):
Costs associated with finance leases of less than $1 million for each of the three and six months ended June 30, 2019 were included in interest expense.
We capitalized $53 million and $108 million, respectively, of costs related to operating leases and less than $1 million of costs related to finance leases during each of the three and six months ended June 30, 2019, respectively.
Short-term lease costs that are more than one month but less than 12 months are excluded from the above amounts and total $74 million at June 30, 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 June 30, 2019 (in thousands):
Maturities of Lease Liabilities
The table below is a schedule of future minimum payments for operating and financing lease liabilities as of June 30, 2019 (in thousands):
As of December 31, 2018, the following future minimum payments were required for office and equipment leases:
Lease Term and Discount Rate
The table below is the Company’s weighted-average remaining lease term and discount rate as of June 30, 2019:
As of June 30, 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 requested capacity of such new construction for 10 years. For the three and six months ended June 30, 2019, gathering and compression fees paid by Antero related to this agreement were $163 million and $315 million, respectively. As of June 30, 2019, $59 million was included within accounts payable, related parties on the Condensed Balance Sheet as due to Antero Midstream Corporation related to this agreement.