Leases

6 Months Ended

Jun. 30, 2022

(6) Leases

Lease Overview

We lease certain pipelines, storage tanks, railcars, office space, land, and equipment across our refining, fertilizer, and corporate operations. Most of our leases include one or more renewal options to extend the lease term from one to 20 years or more, which can be exercised 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 June 30, 2022 and December 31, 2021

The following tables summarize the right-of-use (“ROU”) asset and lease liability balances for the Company’s operating and finance leases at June 30, 2022 and December 31, 2021:


	June 30, 2022				December 31, 2021
(in millions)	Operating Leases		Finance Leases		Operating Leases		Finance Leases
ROU assets, net
Pipeline and storage	$	18	$	22	$	17	$	23
Railcars	5		—		6		—
Real estate and other	15		16		14		18
Lease liability
Pipelines and storage	18		34		17		35
Railcars	5		—		6		—
Real estate and other	15		17		14		19

Lease Expense Summary for the Three and Six Months Ended June 30, 2022 and 2021

We recognize lease expense on a straight-line basis over the lease term and short-term lease expense within Direct operating expenses (exclusive of depreciation and amortization). For the three and six months ended June 30, 2022 and 2021, we recognized lease expense comprised of the following components:


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2022		2021		2022		2021
Operating lease expense	$	4	$	4	$	8	$	8
Finance lease expense:
Amortization of ROU asset	1		1		3		3
Interest expense on lease liability	1		2		2		3
Short-term lease expense	2		2		5		4

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 lease liabilities:


	June 30, 2022				December 31, 2021
	Operating Leases		Finance Leases		Operating Leases		Finance Leases
Weighted-average remaining lease term	4.0 years		6.7 years		4.1 years		7.2 years
Weighted-average discount rate	5.1	%	9.0	%	5.4	%	9.0	%

Maturities of Lease Liabilities

The following summarizes the remaining minimum lease payments through maturity of the Company’s lease liabilities at June 30, 2022:


(in millions)	Operating Leases		Finance Leases
Remainder of 2022	$	8	$	6
2023	14		9
2024	9		10
2025	4		10
2026	3		10
Thereafter	4		23
Total lease payments	42		68
Less: imputed interest	(4)		(17)
Total lease liability	$	38	$	51

On February 21, 2022, Coffeyville Resources Nitrogen Fertilizers, LLC (“CRNF”), a wholly owned subsidiary of CVR Partners, entered into the First Amendment to the On-Site Product Supply Agreement with Messer LLC (“Messer”), which amended the July 31, 2020 On-Site Product Supply Agreement (as amended, 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, related equipment and infrastructure (“Oxygen Storage Vessel” or “Vessel”) to be used solely by the Coffeyville Fertilizer Facility. The arrangement for the use of the Oxygen Storage Vessel 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 of approximately $25 million being capitalized upon lease commencement when the Vessel is placed in service.

Leases