Leases

6 Months Ended

Jun. 30, 2020

(7) Leases

Lease Overview

We lease railcars and certain facilities to support the Partnership’s 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. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. 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, 2020 and December 31, 2019

The following tables summarize the ROU asset and lease liability balances for the Partnership’s operating and finance leases at June 30, 2020 and December 31, 2019:


(in thousands)	June 30, 2020		December 31, 2019
Operating Leases:
ROU asset, net

Railcars	$	8,994	$	10,826
Real estate and other	2,769		2,581
Lease liability

Railcars	$	9,327	$	11,088
Real estate and other	504		288

Finance Leases:
ROU asset, net
Real estate and other	$	151	$	201
Lease liability
Real estate and other	$	155	$	205

Lease Expense Summary for the Three and Six Months Ended June 30, 2020 and 2019

We recognize lease expense on a straight-line basis over the lease term. For the three and six months ended June 30, 2020 and 2019, we recognized lease expense comprised of the following components:


	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2020		2019		2020		2019
Operating lease expense	$	1,033	$	1,023	$	2,144	$	2,046
Finance lease expense:
Amortization of ROU asset	$	23	$	167	$	50	$	272
Interest expense on lease liability	2		9		4		15

Short-term lease expense, recognized within Direct operating expenses (exclusive of depreciation and amortization), was $0.1 million and $0.2 million for the three and six months ended June 30, 2020, respectively, and $0.1 million and $0.1 million for the three and six months ended June 30, 2019, respectively.

Lease Terms and Discount Rates

The following outlines the remaining lease terms and discount rates used in the measurement of the Partnership’s ROU assets and liabilities at June 30, 2020 and December 31, 2019:


	June 30, 2020		December 31, 2019
Weighted-average remaining lease term (years)
Operating Leases	3.1		3.4
Finance Leases	1.8		2.3
Weighted-average discount rate
Operating Leases	5.1	%	5.1	%
Finance Leases	3.9	%	3.9	%

Maturities of Lease Liabilities

The following summarizes the remaining minimum lease payments through maturity of the Partnership’s ROU assets and liabilities at June 30, 2020:


(in thousands)	Operating Leases		Financing Leases
Remainder of 2020	$	1,938	$	53
2021	3,567		107
2022	3,131		—
2023	1,262		—
2024	579		—
Thereafter	193		—
Total lease payments	10,670		160
Less: imputed interest	(839)		(5)
Total lease liability	$	9,831	$	155

On July 31, 2020, the Partnership and Messer LLC (“Messer”) entered into an On-Site Product Supply Agreement (the “Agreement”). Under the Agreement, among other obligations, Messer is obligated to supply and make certain capital improvements during the term of the Agreement, and the Partnership is obligated to take as available and pay for, oxygen, nitrogen, and compressed dry air from Messer’s facility. This arrangement for the Partnership’s purchase of oxygen, nitrogen, and dry air from Messer does not meet the definition of a lease under ASC 842, as the Partnership 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 Agreement. The Agreement also obligates Messer to install a new oxygen storage vessel and related equipment to be used solely by the Coffeyville Facility. The arrangement for the use of the oxygen storage vessel and related equipment meets the definition of a lease under ASC 842, as the Partnership will receive all output associated with the vessel. Based on terms outlined in the Agreement, the Partnership 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