As of December 31, 2020, the Company was the lessee for approximately 388 operating leases with durations greater than a year, approximately 14 subleases, approximately two finance leases, and is the lessor for two owned properties. Most of the operating leases either have renewal options of between one and five years or convert to month-to-month agreements at the end of the specified lease term. In addition to normal lease activity, the Affirm and Canadian divestitures occurring during 2019 included the assignment of leases to the buyers. The assigned leases impacted expenses during 2019, but were not included in the December 31, 2019 consolidated balance sheet.

The Company’s operating leases are primarily for (i) housing personnel for operations, (ii) operational yards for storing and staging equipment, (iii) equipment used in operations, (iv) facilities used for back-office functions and (v) equipment used for back-office functions. The majority of the Company’s long-term lease expenses are at fixed prices.

Primarily due to future uncertainty stemming from the COVID-19 pandemic, certain renewal options were no longer considered reasonably certain of being exercised. This caused a reduction of approximately $5.7 million in right-of-use assets and lease liabilities on the consolidated balance sheets during the second quarter of 2020. Additionally, during the second quarter of 2020, the Company successfully negotiated certain lease payment deferrals as well as lease payment reductions that are being accounted for as modifications, with no impact to straight-line lease expense from lease payment deferrals and a reduction in straight-line rent expense from lease payment reductions.

The majority of the Company’s lease expenses are in connection with short-term agreements, including expenses incurred hourly, daily, monthly and for other durations of time of one year or less. Due to the volatility of the price of a barrel of oil and the short term nature of the vast majority of customer agreements, the Company must have flexibility to continuously scale operations at multiple locations. Consequently, the Company avoids committing to long-term agreements with numerous equipment rentals, vehicle fleet agreements and man-camp agreements, unless a business case supports a longer term agreement. Consequently, the Company’s future lease commitments at December 31, 2020 do not reflect all of the Company’s short-term lease commitments.

Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company has a significant number of short-term leases, including month-to-month agreements that continue in perpetuity until the lessor or the Company terminates the lease agreement. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company estimates the incremental borrowing rate based on what it would pay to borrow on a collateralized basis, over a similar term based on information available at lease commencement.

The Company’s lease arrangements may contain both lease and non-lease components. The Company has elected to combine and account for lease and non-lease components as a single lease component for its leases.

The Company’s variable lease costs are comprised of variable royalties, variable common area maintenance, and variable reimbursement of lessor insurance and property taxes. Variable lease costs were $1.1 million and $1.6 million during the years ended December 31, 2020 and 2019, respectively. $0.8 million of property tax expense is excluded from the lease expense discussed above for both years ended December 31, 2020 and 2019.

The lease disclosures in this Note 6—Leases exclude revenue governed by the new lease standard associated with the Company’s accommodations and rentals business, as all customer agreements are short-term. See Note 5—Revenue for a comprehensive discussion on revenue recognition.

(1)Right-of-use asset impairment of $3.6 million and $0.6 million for the years ended December 31, 2020 and 2019, respectively, is recorded within lease abandonment costs in the accompanying consolidated statements of operations.


		Year ended December 31,
Statements of Operations and Cash Flows	Classification	2020		2019

		(in thousands)
Operating lease cost:
Operating lease cost ― fixed	Cost of revenue and Selling, general and administrative	$	19,968	$	27,856
Lease abandonment costs	Lease abandonment costs		4,350		2,073

Short-term agreements:	Cost of revenue	$	44,062	$	93,949

Finance lease cost:
Amortization of leased assets	Depreciation and amortization	$	314	$	916
Interest on lease liabilities	Interest expense, net		14		32

Lessor income:
Sublease income	Cost of sales and lease abandonment costs	$	1,463	$	1,544
Lessor income	Cost of sales		350		478

Statement of cash flows
Cash paid for operating leases	Operating cash flows	$	22,385	$	30,670
Cash paid for finance leases lease interest	Operating cash flows		14		32
Cash paid for finance leases	Financing cash flows		264		883


Long Term and Discount Rate	As of December 31, 2020		As of December 31, 2019
Weighted-average remaining lease term (years)
Operating leases	6.7		7.9
Finance leases	1.3		1.6
Weighted-average discount rate
Operating leases	4.7	%	5.3	%
Finance leases	3.6	%	5.1	%

The Company has the following operating and finance lease commitments as of December 31, 2020:


Period	Operating Leases⁽¹⁾		Finance Leases		Total

	(in thousands)
2021	$	17,478	$	315	$	17,793
2022		13,956		95		14,051
2023		11,858		—		11,858
2024		11,117		—		11,117
2025		10,376		—		10,376
Thereafter		22,908		—		22,908
Total minimum lease payments	$	87,693	$	410	$	88,103

Less reconciling items to reconcile undiscounted cash flows to lease liabilities:
Short-term leases excluded from balance sheet		562		—		562
Imputed interest		12,128		9		12,137
Total reconciling items		12,690		9		12,699
Total liabilities per balance sheet	$	75,003	$	401	$	75,404

(1)

The table above excludes sublease and lessor income of $1.1 million during 2021, $0.8 million during 2022 and $0.3 million during 2023.