Leases

Operating leases are reflected as an operating lease ROU asset included in other assets, in accrued and other liabilities-current and as an operating lease liability on our unaudited condensed consolidated balance sheet. Operating lease ROU assets and liabilities are recognized at the commencement date of an arrangement based on the present value of lease payments over the lease term. In addition to the present value of lease payments, the operating lease ROU asset would also include any lease payments made to the lessor prior to lease commencement less any lease incentives and initial direct costs incurred, if any. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

As an non-operator in recent years and having adequate liquidity, the Company has generally not entered into lease transactions. Presently, our only operating lease is for corporate office space in Houston, Texas, effective May 1, 2019 and which expires November 30, 2022. Presently we have one operating lease for office space, no finance leases and no short-term leases.

Certain assumptions and judgments made by the Company when evaluating a contract that meets the definition of a lease under Topic 842 include:

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Discount Rate - Our lease does not provide an implicit rate. Accordingly, we are required to use our incremental borrowing rate in determining the present value of lease payments based on the information available at commencement date. Our incremental borrowing rate reflects the estimated rate of interest that we would pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment. At adoption, July 1, 2019,we used our prime-rate-based borrowing rate under our senior secured credit facility as our incremental borrowing as the term facility was based on a similar term and is appropriately risk-adjusted.

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Lease Term - At inception the Company evaluates the contract containing a lease arrangement to determine the length of the lease term when recognizing a ROU asset and corresponding lease liability. When determining the lease term, an option available to extend or to early terminate the arrangement is evaluated and included when it is reasonably certain an option will be exercised. Because of the Company’s intent to maintain operational flexibility, there is no available option to extend that the Company is reasonably certain it will exercise. We have no expectation to use the early termination option that we are reasonably certain to exercise.

The components of our total lease expense, included in general and administrative expense, are as follows:



	Three Months Ended December 31, 2019	Six Months Ended December 31, 2019
Operating lease cost	13,015	$	26,030
Variable lease expense (1)	5,594	6,584
Total lease expense	18,609	$	32,614

(1) Variable lease payments that are not dependent on an index or rate are not included in the lease liability or ROU asset.

Supplemental cash flow, balance sheet and other disclosures information related to our operating leases are as follows:



	As of and For the Six Months Ended December 31, 2019
Cash Flow:
Cash paid for amounts included in the measurement of lease liabilities	$	4,903
ROU asset added in exchange for lease obligation at adoption	161,125

Balance Sheet:
Operating lease ROU asset (included in other assets)	139,379
Accrued liabilities - current	51,974
Operating lease liability - long-term	112,870

Other:
Weighted average remaining lease term in years	2.91
Weighted average discount rate	5.15		%

At December 31, 2019, maturities of our operating lease liability are as follows:



Fiscal Year	Operating Lease Liability
Remainder of 2020	$	29,419
2021	59,945
2022	61,843
2023	26,098
Total lease payments	177,305
Less imputed interest	(12,461		)
Total lease liability	$	164,844