Leases

6 Months Ended

Jun. 30, 2019

LEASES:

On January 1, 2019, the Company adopted Accounting Standard Update (ASU) 2016-02, and all related amendments, using the transition method, which allows for a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. CNX has elected the transition relief package of practical expedients by applying previous accounting conclusions under ASC 840 to all leases that existed prior to the transition date. As a result, CNX did not reassess 1) whether existing or expired contracts contain leases 2) lease classification for any existing or expired leases or 3) whether lease origination costs qualified as initial direct costs. Additionally, the Company elected the short-term practical expedient for all asset classes by establishing an accounting policy to exclude leases with a term of 12 months or less. CNX will not separate lease components from non-lease components for any asset class. Lastly, CNX adopted the easement practical expedient, which allows the Company to apply ASC 842 prospectively to land easements after the adoption date. Easements that existed or expired prior to the adoption date that were not previously assessed under ASC 840 will not be reassessed.

CNX's leasing activities primarily consist of operating and finance leases for electric fracturing equipment, natural gas drilling rigs, CNX's corporate headquarters as well as field offices, a natural gas gathering pipeline and commercial vehicles. Some leases include options to renew ranging from a period of 1 to 10 years, which are not recognized as part of the lease right-of-use (ROU) assets or liabilities as they are not reasonably certain to be exercised.

Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of the lease payments over the lease term. As most of CNX's leases do not provide an implicit rate, an incremental borrowing rate is used to determine the present value of lease payments.

The components of lease cost were as follows:



	For the Three Months Ended		For the Six Months Ended
	June 30, 2019		June 30, 2019
Operating Lease Cost	$	21,441	$	31,356
Finance Lease Cost:
Amortization of Right-of-Use Assets	1,309		2,626
Interest on Lease Liabilities	324		676
Short-term Lease Cost	2,543		4,367
Variable Lease Cost*	7,539		11,539
Total Lease Cost	$	33,156	$	50,564

*Amounts recognized on the balance sheet for natural gas drilling rigs are measured using the rates that would be paid if the rigs were idle, as this represents the minimum payment that could be made under the contract. Variable lease cost represents amounts paid for natural gas drilling rigs above this minimum when the rigs are in use. Amounts recognized on the balance sheet for electric fracturing equipment are measured using minimum pumping hours under the contract; however, pumping hours may exceed the minimum and vary period to period. Any such amounts paid related to pumping hours in excess of the minimum represent variable lease cost.

Amounts recognized in the Consolidated Balance Sheet are as follows:



	June 30,
	2019
Operating Leases:
Operating Lease Right-of-Use Asset	$	224,950

Current Portion of Operating Lease Obligations	66,209
Operating Lease Obligations	137,464
Total Operating Lease Liabilities	$	203,673

Finance Leases:
Property, Plant and Equipment	$	72,932
Less—Accumulated Depreciation, Depletion and Amortization	61,102
Property, Plant and Equipment—Net	$	11,830

Current Portion of Finance Lease Obligations	$	7,133
Finance Lease Obligations	10,569
Total Finance Lease Liabilities	$	17,702

Supplemental cash flow information related to leases was as follows:



	For the Six Months Ended
	June 30, 2019
Cash Paid for Amounts Included in the Measurement of Lease Liabilities:
Operating Cash Flows from Operating Leases	$	21,153
Operating Cash Flows from Finance Leases	$	676
Financing Cash Flows from Finance Leases	$	3,515
Right-of-Use Assets Obtained in Exchange for Lease Obligations:
Operating Leases	$	15,347
Finance Leases	$	994

Maturities of lease liabilities are as follows:



	Operating		Finance
	Leases		Leases
Twelve months ended June 30,
2020	$	74,712	$	8,171
2021	59,536		7,627
2022	51,288		3,258
2023	5,465		243
2024	5,446		128
Thereafter	33,257		—
Total Lease Payments	229,704		19,427
Less: Interest	26,031		1,725
Present Value of Lease Liabilities	$	203,673	$	17,702

Lease terms and discount rates are as follows:



	June 30,
	2019
Weighted Average Remaining Lease Term (years):
Operating Leases	4.54
Finance Leases	2.47

Weighted Average Discount Rate:
Operating Leases	4.94	%
Finance Leases	7.10	%

Leases