Leases |
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Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Leases | Leases Operating Leases
Description of Lease
In March 2013, we entered into a ten-year real estate lease contract (the "Real Estate One Lease") with a commencement date of April 1, 2013, as part of the expansion of our equipment yard. During the three months ended March 31, 2023 and 2022, the Company made lease payments of approximately $0.1 million and $0.1 million, respectively. The assets and liabilities under this contract are included in our Completion Services reportable segment. In addition to the contractual lease period, the contract included an optional renewal of up to ten years, and the Real Estate One Lease was not renewed at the end of the term, March 1, 2023. The Real Estate One Lease did not include a residual value guarantee, covenants or financial restrictions nor did it provide for variability in payments resulting from either an index change or rate change.
We accounted for our Real Estate One Lease as an operating lease. This conclusion resulted from the existence of the right to control the use of the assets throughout the lease term. We did not account for the land separately from the building of the Real Estate One Lease because we concluded that the accounting effect was insignificant.
As part of our expansion of our hydraulic fracturing equipment maintenance program, we entered into a two year maintenance facility real estate lease contract (the "Maintenance Facility Lease") with a commencement date of March 14, 2022. During the three months ended March 31, 2023 and 2022, the Company made lease payments of approximately $0.1 million and $0.03 million, respectively. In addition to the contractual lease period, the contract includes an optional renewal for three additional periods of one year each, and in management's judgment the exercise of the renewal option is not reasonably assured. The contract does not include a residual value guarantee, covenants or financial restrictions. Further, the Maintenance Facility Lease does not contain variability in payments resulting from either an index change or rate change.
We accounted for our Maintenance Facility Lease as an operating lease. Our assumptions resulted from the existence of the right to control the use of the assets throughout the lease term. We did not account for the land separately from the building of the Maintenance Facility Lease because we concluded that the accounting effect was insignificant. As of March 31, 2023, the weighted average discount rate and remaining lease term was approximately 3.4% and 0.9 years, respectively.
In August 2022 and December 2022, we entered into three year equipment leases (the "Electric Fleet Lease") for a total of four fleets with 60,000 hydraulic horsepower ("HHP") per fleet. The Electric Fleet Lease contains an option to purchase the equipment at any time during the period of the lease. The leases have not yet commenced. We currently do not control the assets under the Electric Fleet Lease because they are currently being manufactured by the vendor and we have not taken possession of the assets. The manufacturing and delivery of the electric fleets is estimated to take up to ten months from the lease execution date. Given that the Company has not yet taken possession of the assets under the Electric Fleet Lease, the Company has not accounted for the right of use and lease obligation on its balance sheet as of March 31, 2023.
In October 2022, we entered into a real estate lease contract for five years, four months (the "Real Estate Two Lease"), with a commencement date of March 1, 2023. During the three months ended March 31, 2023, the Company made lease payments of approximately $0.03 million. The assets and liabilities under this contract are included in our Completion Services reportable segment. In addition to the contractual lease period, the contract includes two optional renewals of one year each, and in management's judgment the exercise of the renewal option is not reasonably assured. The contract does not include a residual value guarantee, covenants or financial restrictions. Further, the Real Estate Two Lease does not contain variability in payments resulting from either an index change or rate change.
We accounted for our Real Estate Two Lease as an operating lease. Our assumptions resulted from the existence of the right to control the use of the assets throughout the lease term. We did not account for the land separately from the building of the Real Estate Two Lease because we concluded that the accounting effect was insignificant. As of March 31, 2023, the weighted average discount rate and remaining lease term was approximately 6.3% and 5.1 years, respectively.
As part of the Silvertip Acquisition, we assumed two real estate leases (the "Silvertip One Lease" and "Silvertip Two Lease," and collectively the "Silvertip Leases") with remaining terms of four years, nine months and six years, one month, respectively, from the Silvertip Acquisition Date. During the three months ended March 31, 2023, we extended the Silvertip One Lease for
an additional sixteen months. During the three months ended March 31, 2023, the Company made lease payments of approximately $0.05 million and $0.1 million on the Silvertip One Lease and Silvertip Two Lease, respectively. The assets and liabilities under these contracts are recorded in our wireline operating segment. The Silvertip Leases do not have any renewal options, residual value guarantees, covenants or financial restrictions. Further, the Silvertip Leases do not contain variability in payments resulting from either an index change or rate change.
We accounted for our Silvertip Leases as operating leases. This conclusion resulted from the existence of the right to control the use of the assets throughout the lease term. We did not account for the land separately from the building of the Silvertip Leases because we concluded that the accounting effect was insignificant. As of March 31, 2023, the weighted average discount rate and remaining lease term was approximately 3.6% and 5.7 years, respectively.
In January 2023, we entered into a three year equipment lease (the "Power Equipment Lease") for certain power generation equipment. The Power Equipment Lease has not yet commenced. We currently do not control the assets under the lease and have not taken possession of the assets. Therefore, the Company has not accounted for the right of use and lease obligation in its balance sheet as of March 31, 2023.
In March 2023, we entered into a real estate lease contract for five years, eight months (the "Silvertip Three Lease"), with a commencement date in April 2023. Since the lease had not commenced because the Company has not taken possession of the asset as of March 31, 2023, the Company has not accounted for the right of use and lease obligation on its balance sheet as of March 31, 2023. The contract does not include a residual value guarantee, covenants or financial restrictions. Further, the Silvertip Three Lease does not contain variability in payments resulting from either an index change or rate change.
As of March 31, 2023, the total operating lease right-of-use asset cost was approximately $6.4 million, and accumulated amortization was approximately $1.8 million. As of December 31, 2022, our total operating lease right-of-use asset cost was approximately $4.6 million, and accumulated amortization was approximately $1.5 million. For the three months ended March 31, 2023 and 2022, we recorded operating lease cost of approximately $0.3 million and $0.1 million, respectively, in our statements of operations.
Maturity Analysis of Lease Liabilities
The maturity analysis of liabilities and reconciliation to undiscounted and discounted remaining future lease payments for our operating lease as of March 31, 2023 are as follows:
The total cash paid for amounts included in the measurement of our operating lease liability during the three months ended March 31, 2023 was approximately $0.3 million. During the three months ended March 31, 2023, we recorded a non-cash lease obligation totaling approximately $1.8 million as a result of our execution of the Real Estate Two Lease and our extension of the Silvertip Two Lease. During the three months ended March 31, 2022, total cash paid for amounts included in the measurement of our operating lease liability was approximately $0.1 million. During the three months ended March 31, 2022, we recorded a non-cash lease obligation of approximately $0.6 million as a result of our execution of the Maintenance Facility Lease.
Short-Term LeasesWe elected the practical expedient, consistent with ASC 842, to exclude leases with an initial term of twelve months or less ("short-term lease") from our balance sheet and continue to record short-term leases as a period expense. For the three months ended March 31, 2023 and 2022 our short-term lease expense was approximately $0.3 million and $0.2 million, respectively.
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