Leases

3 Months Ended

Mar. 31, 2023

(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, 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 March 31, 2023 and December 31, 2022

The following tables summarize the right-of-use (“ROU”) asset and lease liability balances for the Company’s operating and finance leases at March 31, 2023 and December 31, 2022:


	March 31, 2023				December 31, 2022
(in millions)	Operating Leases		Finance Leases		Operating Leases		Finance Leases
ROU assets, net
Pipeline and storage	$	15	$	19	$	16	$	20
Railcars	10		—		11		—
Real estate and other	16		14		13		15
Lease liability
Pipelines and storage	15		31		16		32
Railcars	10		—		11		—
Real estate and other	16		16		13		16

Lease Expense Summary for the Three Months Ended March 31, 2023 and 2022

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 months ended March 31, 2023 and 2022, we recognized lease expense comprised of the following components:


	Three Months Ended March 31,
(in millions)	2023		2022
Operating lease expense	$	4	$	4
Finance lease expense:
Amortization of ROU asset	1		2
Interest expense on lease liability	1		1
Short-term lease expense	2		2

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:


	March 31, 2023				December 31, 2022
	Operating Leases		Finance Leases		Operating Leases		Finance Leases
Weighted-average remaining lease term	4.0 years		6.0 years		4.1 years		6.3 years
Weighted-average discount rate	5.4	%	9.1	%	5.2	%	9.0	%

Maturities of Lease Liabilities

The following summarizes the remaining minimum lease payments through maturity of the Company’s lease liabilities at March 31, 2023:


(in millions)	Operating Leases		Finance Leases
Remainder of 2023	$	13	$	8
2024	13		10
2025	8		10
2026	6		10
2027	3		10
Thereafter	3		13
Total lease payments	46		61
Less: imputed interest	(5)		(14)
Total lease liability	$	41	$	47

On February 21, 2022, CRNF 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 oxygen and make certain capital improvements during the term of the Messer Agreement, and CRNF is obligated to take as available and pay for oxygen from Messer’s facility. This arrangement for CRNF’s purchase of oxygen 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, which includes oxygen, nitrogen, and compressed air, 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 estimated amount within the range of $20 million to $25 million being capitalized upon lease commencement when the Vessel is placed in service, which is currently expected to happen within the next 12 months.

On July 14, 2022, the Company entered into the Sixth Amendment to the Sugar Land Plaza Office Building Agreement with LCFRE Sugar Land Town Square, LLC (“LCFRE”), which amends the Sugar Land Plaza Office Building Agreement dated 2016 (as amended, the “LCFRE Agreement”). Under the LCFRE Agreement, LCFRE will provide office space to the Company which will continue to serve as the Company’s corporate office in Sugar Land, Texas and will commence on October 1, 2023. Based on the terms outlined in the LCFRE Agreement, the Company expects the lease to be classified as an operating lease under Topic 842, with an estimated amount within the range of $8 million to $12 million being capitalized upon lease commencement.

Leases