Leases

3 Months Ended

Mar. 31, 2019

LeasesIn February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” and subsequently issued other associated ASU's related to Topic 842 which supersede ASC 840 and require lessees to recognize right of use ("ROU") lease assets and liabilities on the balance sheet for long-term leases formerly classified as operating leases under ASC 840, and to disclose key information about leasing arrangements. Leases to explore for or produce oil and natural gas were not impacted by this guidance. This ASU became effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted this ASU on January 1, 2019 using a modified retrospective approach for all ROU leases that existed at the period of adoption and did not restate its comparative periods.

Topic 842 provides a number of practical expedients to assist with the transition to the new standard. The Company elected the 'package of practical expedients,' and therefore did not have to reassess prior conclusions about lease identification, lease classification and initial indirect costs. The Company also utilized the land easement practical expedient and short-term lease recognition exemption, under which leases with initial terms less than 12 months are not required to be presented on the balance sheet. Certain leases contain both lease and non-lease components. The Company elected the practical expedient to combine lease and non-lease components for asset classes including drilling rigs, compressors and various office equipment.

The Company determines if an arrangement is or contains a lease at inception. A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. Lease liabilities are recognized based on the present value of the lease payments not yet paid over the lease term at January 1, 2019 for existing leases and at the commencement date for any new leases entered into subsequent to January 1, 2019. As most of the Company's leases do not provide an implicit rate, the Company's incremental borrowing rate was used as the discount rate when determining the present value of future payments. The ROU assets are recognized based on the lease liability plus any prepaid lease payments and excluding lease incentives and initial direct costs incurred for the same periods. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that option will be exercised. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Adoption of this standard resulted in additional ROU lease assets and lease liabilities of approximately $2.3 million and $2.4 million, respectively, as of January 1, 2019, which did not materially impact the Company's consolidated financial statements. The difference between the net lease assets and liabilities was recognized as a cumulative-effect adjustment to the opening balance of retained earnings. Operating leases are included in other assets and other long-term obligations, and finance leases are included in other property, plant and equipment, and other long-term obligations on the accompanying condensed consolidated balance sheet as of March 31, 2019. The Company had no significant capital or operating leases with terms longer than 12 months at December 31, 2018.

The Company has operating and financing leases for vehicles, drilling rigs and equipment, which are not significant to the consolidated financial statements as of and for the three-month period ended March 31, 2019.

The components of lease costs recognized for the Company's ROU leases are shown below:


	Three Months Ended March 31, 2019
Short-term lease cost (1)	$	4,909
Financing lease cost	297
Operating lease cost	58
Total lease cost	$	5,264

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1.$3.1 million of short-term lease cost was capitalized as part of oil and natural gas properties, and portions of these costs were reimbursed to the Company by other working interest owners.

Leases

The components of lease costs recognized for the Company's ROU leases are shown below:


	Three Months Ended March 31, 2019
Short-term lease cost (1)	$	4,909
Financing lease cost	297
Operating lease cost	58
Total lease cost	$	5,264

____________________

1.$3.1 million of short-term lease cost was capitalized as part of oil and natural gas properties, and portions of these costs were reimbursed to the Company by other working interest owners.