Non-Mineral Leases

12 Months Ended

Dec. 31, 2022

Note 15—Non-Mineral Leases

The company primarily leases office buildings and drilling equipment, as well as ocean transport vessels, tugboats, corporate aircraft, and other facilities and equipment. Certain leases include escalation clauses for adjusting rental payments to reflect changes in price indices and other leases include payment provisions that vary based on the nature of usage of the leased asset. Additionally, the company has executed certain leases that provide it with the option to extend or renew the term of the lease, terminate the lease prior to the end of the lease term, or purchase the leased asset as of the end of the lease term. In other cases, the company has executed lease agreements that require it to guarantee the residual value of certain leased office buildings. For additional information about guarantees, see Note 10. There are no significant restrictions imposed on us by the lease agreements with regard to dividends, asset dispositions or borrowing ability.

We determine if an arrangement is or contains a lease at contract inception. Certain contractual arrangements may contain both lease and non-lease components. Only the lease components of these contractual arrangements are subject to the provisions of ASC Topic 842, and any non-lease components are subject to other applicable accounting guidance; however, we have elected to adopt the optional practical expedient not to separate lease components apart from non-lease components for existing asset classes (as of the adoption date of ASC 842) for accounting purposes. For contractual arrangements involving a new leased asset class, we determine at contract inception whether it will apply the optional practical expedient to the new leased asset class.

Leases are evaluated for classification as operating or finance leases at the commencement date of the lease and right-of-use assets and corresponding liabilities are recognized on our consolidated balance sheet based on the present value of future lease payments relating to the use of the underlying asset during the lease term. Future lease payments include variable lease payments that depend upon an index or rate using the index or rate at the commencement date and probable amounts owed under residual value guarantees. The amount of future lease payments may be increased to include additional payments related to lease extension, termination, and/or purchase options when the company has determined, at or subsequent to lease commencement, generally due to limited asset availability or operating commitments, it is reasonably certain of exercising such options. We use our incremental borrowing rate as the discount rate in determining the present value of future lease payments, unless the interest rate implicit in the lease arrangement is readily determinable. Lease payments that vary subsequent to the commencement date based on future usage levels, the nature of leased asset activities, or certain other contingencies are not included in the measurement of lease right-of-use assets and corresponding liabilities. We have elected not to record assets and liabilities on our consolidated balance sheet for lease arrangements with terms of 12 months or less.

We often enter into leasing arrangements acting in the capacity as operator for and/or on behalf of certain oil and gas joint ventures of undivided interests. If the lease arrangement can be legally enforced only against us as operator and there is no separate arrangement to sublease the underlying leased asset to our coventurers, we recognize at lease commencement a right-of-use asset and corresponding lease liability on our consolidated balance sheet on a gross basis. While we record lease costs on a gross basis in our consolidated income statement and statement of cash flows, such costs are offset by the reimbursement we receive from our coventurers for their share of the lease cost as the underlying leased asset is utilized in joint venture activities. As a result, lease cost is presented in our consolidated income statement and statement of cash flows on a proportional basis. If we are a nonoperating coventurer, we recognize a right-of-use asset and corresponding lease liability only if we were a specified contractual party to the lease arrangement and the arrangement could be legally enforced against us. In this circumstance, we would recognize both the right-of-use asset and corresponding lease liability on our consolidated balance sheet on a proportional basis consistent with our undivided interest ownership in the related joint venture.

The company has historically recorded certain finance leases executed by investee companies accounted for under the proportionate consolidation method of accounting on its consolidated balance sheet on a proportional basis consistent with its ownership interest in the investee company. In addition, the company has historically recorded finance lease assets and liabilities associated with certain oil and gas joint ventures on a proportional basis pursuant to accounting guidance applicable prior to the adoption date of ASC 842 on January 1, 2019. In accordance with the transition provisions of ASC Topic 842, and since we have elected to adopt the package of optional transition-related practical expedients, the historical accounting treatment for these leases has been carried forward and is subject to reconsideration upon the modification or other required reassessment of the arrangements prior to lease term expiration.

The following table summarizes the right-of-use assets and lease liabilities for both the operating and finance leases on our consolidated balance sheet as of December 31:


	Millions of Dollars
	2022			2021
	Operating Leases		Finance Leases	Operating Leases	Finance Leases
Right-of-Use Assets
Properties, plants and equipment
Gross			2,043		1,812
Accumulated DD&A			(1,022)		(857)
Net PP&E*			1,021		955
Prepaid expenses and other current assets				16	2
Other assets	536			649

Lease Liabilities
Short-term debt**			284		280
Other accruals	155			188
Long-term debt***			1,036		981
Other liabilities and deferred credits	390			479
Total lease liabilities	$	545	1,320	667	1,261

* Includes proportionately consolidated finance lease assets of $171 million at December 31, 2022 and $208 million at December 31, 2021.

** Includes proportionately consolidated finance lease liabilities of $169 million at December 31, 2022 and $154 million at December 31, 2021.

*** Includes proportionately consolidated finance lease liabilities of $399 million at December 31, 2022 and $462 million at December 31, 2021.

The following table summarizes our lease costs:


	Millions of Dollars
	2022		2021	2020
Lease Cost*
Operating lease cost	$	212	278	321
Finance lease cost
Amortization of right-of-use assets	189		148	163
Interest on lease liabilities	32		27	34
Short-term lease cost**	94		21	42
Total lease cost***	$	527	474	560

* The amounts presented in the table above have not been adjusted to reflect amounts recovered or reimbursed from oil and gas coventurers.

** Short-term leases are not recorded on our consolidated balance sheet.

*** Variable lease cost and sublease income are immaterial for the periods presented and therefore are not included in the table above.

The following table summarizes the lease terms and discount rates as of December 31:


	2022	2021
Lease Term and Discount Rate
Weighted-average term (years)
Operating leases	5.64	5.97
Finance leases	6.60	7.49

Weighted-average discount rate (percent)
Operating leases	2.99	2.66
Finance leases	3.40	3.24

The following table summarizes other lease information:


	Millions of Dollars
	2022		2021	2020
Other Information*
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	148	204	232
Operating cash flows from finance leases	30		6	11
Financing cash flows from finance leases	166		73	255

Right-of-use assets obtained in exchange for operating lease liabilities	$	114	174	250
Right-of-use assets obtained in exchange for finance lease liabilities	256		447	426

*The amounts presented in the table above have not been adjusted to reflect amounts recovered or reimbursed from oil and gas coventurers. In addition, pursuant to other applicable accounting guidance, lease payments made in connection with preparing another asset for its intended use are reported in the "Cash Flows From Investing Activities" section of our consolidated statement of cash flows.

The following table summarizes future lease payments for operating and finance leases at December 31, 2022:


	Millions of Dollars
	Operating Leases		Finance Leases
Maturity of Lease Liabilities
2023	$	169	356
2024	126		215
2025	81		210
2026	59		207
2027	46		164
Remaining years	118		352
Total*	599		1,504
Less: portion representing imputed interest	(54)		(184)
Total lease liabilities	$	545	$	1,320

*Future lease payments for operating and finance leases commencing on or after January 1, 2019, also include payments related to non-lease components in accordance with our election to adopt the optional practical expedient not to separate lease components apart from non-lease components for accounting purposes. In addition, future payments related to operating and finance leases proportionately consolidated by the company have been included in the table on a proportionate basis consistent with our respective ownership interest in the underlying investee company or oil and gas venture.