Leases

12 Months Ended

Dec. 31, 2019

We determine if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded in our consolidated balance sheet unless it is reasonably certain we will renew the lease. All leases with an initial term greater than 12 months, whether classified as operating or finance, are recorded to our consolidated balance sheet based on the present value of lease payments over the lease term, determined at lease commencement. Determination of the present value of lease payments requires a discount rate. We use the implicit rate in the lease agreement when available. Most of our leases do not provide an implicit interest rate: therefore, we use a weighted average borrowing rate based on the information available at the commencement date. Certain of our leases contain non-lease components which are not separated from the lease components when calculating the right-of-use asset and lease liability per our use of the practical expedient to combine both components of an arrangement for all classes of leased assets.

Our lease portfolio primarily consists of operating leases for certain facilities and office spaces, and financing leases for equipment. Our leases have remaining terms of 1 year to 5 years and may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. The operating lease asset also includes any upfront lease payments made and excludes lease incentives and initial direct cost incurred. Lease expense for operating leases is recognized on a straight-line basis over the lease term.

The following table summarizes the supplemental balance sheet information related to lease assets and lease liability obligations as of December 31, 2019 (in thousands):



	Classification	December 31, 2019
Assets
Operating lease assets	Operating lease right-of-use assets	$	965
Finance lease assets	Property and equipment, net of accumulated depreciation	9,302
Total lease assets		10,267
Liabilities
Current
Operating	Current portion of operating lease obligations	364
Finance	Current portion of finance lease obligation	3,440
Noncurrent
Operating	Operating lease liabilities	650
Finance	Finance lease obligations,—related parties, net of current portion	648
Total lease liabilities		$	5,102

The following table summarizes the components of lease expense for the year ended December 31, 2019 (in thousands):



Lease Cost	Classification	December 31,
Lease Cost	Classification	2019		2018
Operating lease cost	Cost of sales	$	155	$	—
Operating lease cost	Selling, general and administrative expenses	240		—
Finance lease cost
Amortization of leased assets	Depreciation expense	1,171		1,035
Interest on lease liabilities	Interest expense	644		730
Net lease cost		$	2,210	$	1,765

In 2014, the Company entered into a five year non-cancelable operating lease for an office in Denver, Colorado. In January 2019, the Company amended its operating lease for the Denver, Colorado office relocating to a smaller office suite and reducing the lease expense for the remainder of the term. The total rent expense incurred under the lease for the years ended December 31, 2019 and 2018 totaled $92 thousand and $229 thousand, respectively. In February of 2018, the Company began to sublease a portion of the office space to a subsidiary of TMG for $5 thousand a month through December 2018 and $2 thousand a month beginning January 2019 (see Note 12—Related Party Transactions for further discussion).

In December 2018, the Company entered into a one year lease for equipment used at our liquefaction plant in George West, Texas. The lease called for monthly payments of $13 thousand through December 31, 2019.

In January 2019, the Company extended its lease for one year for yard space from an unrelated party in Fort Lupton, Colorado. The lease called for monthly payments of $2 thousand through December 31, 2019. The Company subleased the yard space to a subsidiary of TMG during 2018 (see Note 12—Related Party Transactions for further discussion).

The Company leases certain buildings and facilities, including office space in Bellevue, Washington; Houston, Texas; and certain equipment under non-cancellable operating leases expiring at various dates through 2022. M&I Brazil leases offices and facilities in three cities in Brazil that are under operating lease agreements. The leases expire at various dates through January 2022. The assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments based on Brazil’s General Market Price Index rate. Brazil also has multiple short-term equipment leases which are less than twelve months and have no cancellation penalties, therefore they are not recorded in the balance sheet.

Rent expense totaled approximately $298 thousand and $872 thousand for the years ended December 31, 2019 and 2018, respectively.

The following schedule presents the future minimum lease payments for our operating and finance lease obligations at December 31, 2019 (in thousands):



	Operating Leases			Finance Leases			Total
2020	$	421		$	3,811		$	4,232
2021	252			647			899
2022	175			—			175
2023	145			—			145
2024	149			—			149
Thereafter	26			—			26
Total lease payments	1,168			4,458			5,626
Less: Interest	(154		)	(370		)	(524		)
Present value of lease liabilities	$	1,014		$	4,088		$	5,102

Lease term and discount rates for our operating and finance lease obligations are as follows:



Lease Term and Discount Rate	December 31, 2019
Weighted-average remaining lease term (years)
Operating leases	3.7
Finance leases	1
Weighted-average discount rate
Operating leases	7.3	%
Finance leases	9.1	%

The following table summarizes the supplemental cash flow information related to leases as of December 31, 2019:



Other information	December 31, 2019
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	298
Financing cash flows from finance leases	3,491
Interest paid	644
Noncash activities from right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	1,208

Leases