Leases

12 Months Ended

Dec. 31, 2020

(4) Leases

Lease Overview

We lease certain pipelines, storage tanks, railcars, office space, land, and equipment across our refining, fertilizer, and corporate operations. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. Certain of our lease agreements include rental payments which are adjusted periodically for factors such as inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Additionally, we do not have any material lessor or sub-leasing arrangements.

Balance Sheet Summary as of December 31, 2020 and 2019

The following tables summarize the right of use asset and lease liability balances for the Company’s operating and finance leases at December 31, 2020 and 2019:


	December 31,
(in millions)	2020		2019
Operating Leases:
ROU asset, net
Pipeline and storage	$	15	$	20
Railcars	8		12
Real estate and other	14		16
Lease liability
Pipelines and storage	$	16	$	22
Railcars	8		12
Real estate and other	14		14


	December 31,
(in millions)	2020		2019
Finance Leases:
ROU asset, net
Pipeline and storage	$	26	$	29
Real estate and other	21		24
Lease liability
Pipelines and storage	$	38	$	40
Real estate and other	22		25

Lease Expense Summary for the Year Ended December 31, 2020 and 2019

We recognize lease expense on a straight-line basis over the lease term. For the year ended December 31, 2020 and 2019, we recognized lease expense comprised of the following components:


	Year Ended December 31,
(in millions)	2020		2019
Operating lease expense	$	17	$	12
Finance lease expense:
Amortization of ROU asset	$	6	$	7
Interest expense on lease liability	6		6

Short-term lease expense, recognized within Direct operating expenses (exclusive of depreciation and amortization), was $8 million and $8 million for the year ended December 31, 2020 and 2019, respectively.

Lease Terms and Discount Rates

The following outlines the remaining lease terms and discount rates used in the measurement of the Company’s ROU assets and liabilities:


	December 31,
	2020		2019
Weighted-average remaining lease term (years)
Operating Leases	3.1		3.7
Finance Leases	8.1		9.0
Weighted-average discount rate
Operating Leases	5.5	%	5.6	%
Finance Leases	9.0	%	8.9	%

Maturities of Lease Liabilities

The following summarizes the remaining minimum lease payments through maturity of the Company’s right-of-use assets and liabilities at December 31, 2020:


(in millions)	Operating Leases		Finance Leases
2021	$	16	$	11
2022	12		11
2023	8		10
2024	5		10
2025	—		10
Thereafter	—		33
Total lease payments	41		85
Less: imputed interest	(3)		(25)
Total lease liability	$	38	$	60

On July 31, 2020, Coffeyville Resources Nitrogen Fertilizers, LLC (“CRNF”), a subsidiary of CVR Partners, and Messer LLC (“Messer”) entered into an On-Site Product Supply Agreement (the “Messer Agreement”). Under the Messer Agreement, among other obligations, Messer is obligated to supply and make certain capital improvements during the term of the Messer Agreement, and CRNF is obligated to take as available and pay for, oxygen, nitrogen, and compressed dry air from Messer’s facility. This arrangement for CRNF’s purchase of oxygen, nitrogen, and dry air from Messer does not meet the definition of a lease under FASB ASC Topic 842, Leases, (“Topic 842”), as CRNF does not expect to receive substantially all of the output of Messer’s on-site production from its air separation unit over the life of the Messer Agreement. The Messer Agreement also obligates Messer to install a new oxygen storage vessel and related equipment to be used solely by the Coffeyville Facility. This arrangement for the use of the oxygen storage vessel and related equipment meets the definition of a lease under Topic 842, as CRNF will receive all output associated with the vessel. Based on terms outlined in the Messer Agreement, the Company expects the lease of the oxygen storage vessel to be classified as a financing lease with an amount between $20 and $25 million being capitalized upon lease commencement when the oxygen storage vessel is placed in service.

Leases