Quarterly report pursuant to Section 13 or 15(d)

Leases (Notes)

v3.19.1
Leases (Notes)
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Leases
Leases
          On January 1, 2019, we implemented ASC 842, using the modified transition approach and elected not to restate prior years ("Comparatives Under ASC 840 Option"). Accordingly, the effects of adopting ASC 842 were adjusted in the beginning of 2019 while prior periods are accounted for under the legacy GAAP, ASC 840. There was no cumulative effect adjustment on beginning retained earnings. We also elected other practical expedients provided by the new leases standard, the short-term lease recognition practical expedient in which leases with a term of twelve months or less will not be recognized on the balance sheet and the practical expedient to not separate lease and non-lease components for real estate class of assets. Our discount rate was based on our estimated incremental borrowing rate on a collateralized basis with similar terms and economic considerations as our lease payments at the lease commencement. Below is a description of our operating and finance leases.
Operating Leases
 Description of Lease
          In March 2013, we entered into a ten year real estate lease contract (the "Real Estate Lease") with a commencement date of April 1, 2013, as part of the expansion of our equipment yard. The assets and liabilities under this contract are equally allocated between our cementing and coiled tubing segments. In addition to the contractual lease period, the contract includes an optional renewal of up to ten years, 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 Lease does not contain variability in payments resulting from either an index change or rate change. Effective January 1, 2019, the remaining lease term in our present value estimate of the minimum future lease payments was four years.
          In January 2019, we entered into a four year real estate lease contract with Pioneer Natural Resources USA, Inc. (the "Crew Camp Lease") with a commencement date of January 1, 2019 for purposes of providing housing to company personnel. The contract does not include a residual value guarantee, covenants or financial restrictions. Further, the Crew Camp Lease does not contain variability in payments resulting from either an index change or rate change. The lease term used in our estimate of the present value of the minimum future lease payments for the purpose of determining our right-of-use asset and lease obligation was four years. The right-of-use asset and lease liability outstanding under the Crew Camp Lease as of March 31, 2019 is $0.5 million and $0.5 million, respectively. The total operating lease cost recorded during three months ended March 31, 2019, in connection with the Crew Camp lease was $0.04 million.
Significant assumptions
          Consistent with the requirements of the new lease standard, ASC 842, we have determined the Real Estate Lease and Crew Camp Lease to be operating leases. 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 lease because we concluded that the accounting effect will be insignificant. As of March 31, 2019, the weighted average discount rate and remaining lease term was 6.1% and 3.9 years, respectively.
          As of March 31, 2019, our total operating lease right-of-use asset cost was $1.8 million, and accumulated amortization was $0.1 million. For the three months ended March 31, 2019, we recorded operating lease cost of $0.1 million in our statement of operations. During the three months ended March 31, 2018, our operating lease expense, under legacy GAAP, ASC 840, was $0.4 million.
Finance Leases
Description of Ground Lease
          As part of our expansion of maintenance facilities for our pressure pumping equipment, we entered into a ten year land lease contract (the "Ground Lease") with an exclusive option to purchase the land exercisable beginning one year from the commencement date of October 1, 2018 through the end of the contractual lease term. The Ground Lease does not include any residual value guarantee, covenants or financial restrictions. Further, the Ground Lease does not contain variability in payments resulting from either an index change or rate change. The remaining lease term used in our estimate of the present value of the minimum future lease payments for the purpose of determining our right-of-use asset and lease obligation was 0.6 years, assuming we will exercise our option to purchase the land immediately after the option becomes exercisable.
Significant Assumptions
          Consistent with the requirements of the new lease standard, ASC 842, we have determined the Ground Lease to be a finance lease. Our assumptions resulted from the existence of the right to control the use of the land for a period of time and the option to purchase the land, which we are reasonable certain of exercising after one year from the commencement date. As of March 31, 2019, the weighted average discount rate and remaining lease term was 4.3% and 0.6 years, respectively .
          As of March 31, 2019, our net finance lease right-of-use asset included as part of property and equipment in our consolidated balance sheet consists of a cost of $3.1 million and accumulated amortization of $0. For the three months ended March 31, 2019, no amortization was recorded on the land under the finance lease and the interest on our finance lease for the three months ended March 31, 2019 was $0.03 million. No amortization was recorded in the period for our finance lease right-of-use asset because it is comprised of land only.
          The maturity analysis of liabilities and reconciliation to undiscounted and discounted remaining future lease payments for finance and operating leases as of March 31, 2019 are as follows:
 
 
Leases
($ in thousands)
 
Operating
 
Finance
2019
 
$
389

 
$
3,117

2020
 
526

 

2021
 
537

 

2022
 
549

 

2023
 
98

 

Total Undiscounted future lease payments
 
2,099

 
3,117

Less: amount representing interest
 
(242
)
 
(75
)
Present value of future lease payments (lease obligation)
 
$
1,857

 
$
3,042


The total cash paid for amounts included in the measurement of our operating and finance lease liabilities during the three months ended March 31, 2019 was $0.1 million and $0.1 million, respectively. The non-cash lease obligation we recorded effective January 1, 2019, upon adopting the new lease standard, was $2.0 million and $3.1 million for operating and finance leases, respectively. There were no non-cash changes to our lease liabilities during the three months ended March 31, 2019.
Short-Term Leases
          We elected the practical expedient, consistent with ASC 842, to exclude leases with an initial term of twelve months or less ("short-term leases") from our balance sheet and continue to record short-term leases as a period expense. For the three months ended March 31, 2019, our short-term lease expense was $0.3 million. At March 31, 2019, the total remaining lease commitments for all of our short-term lease was $0.03 million.
Leases
Leases
          On January 1, 2019, we implemented ASC 842, using the modified transition approach and elected not to restate prior years ("Comparatives Under ASC 840 Option"). Accordingly, the effects of adopting ASC 842 were adjusted in the beginning of 2019 while prior periods are accounted for under the legacy GAAP, ASC 840. There was no cumulative effect adjustment on beginning retained earnings. We also elected other practical expedients provided by the new leases standard, the short-term lease recognition practical expedient in which leases with a term of twelve months or less will not be recognized on the balance sheet and the practical expedient to not separate lease and non-lease components for real estate class of assets. Our discount rate was based on our estimated incremental borrowing rate on a collateralized basis with similar terms and economic considerations as our lease payments at the lease commencement. Below is a description of our operating and finance leases.
Operating Leases
 Description of Lease
          In March 2013, we entered into a ten year real estate lease contract (the "Real Estate Lease") with a commencement date of April 1, 2013, as part of the expansion of our equipment yard. The assets and liabilities under this contract are equally allocated between our cementing and coiled tubing segments. In addition to the contractual lease period, the contract includes an optional renewal of up to ten years, 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 Lease does not contain variability in payments resulting from either an index change or rate change. Effective January 1, 2019, the remaining lease term in our present value estimate of the minimum future lease payments was four years.
          In January 2019, we entered into a four year real estate lease contract with Pioneer Natural Resources USA, Inc. (the "Crew Camp Lease") with a commencement date of January 1, 2019 for purposes of providing housing to company personnel. The contract does not include a residual value guarantee, covenants or financial restrictions. Further, the Crew Camp Lease does not contain variability in payments resulting from either an index change or rate change. The lease term used in our estimate of the present value of the minimum future lease payments for the purpose of determining our right-of-use asset and lease obligation was four years. The right-of-use asset and lease liability outstanding under the Crew Camp Lease as of March 31, 2019 is $0.5 million and $0.5 million, respectively. The total operating lease cost recorded during three months ended March 31, 2019, in connection with the Crew Camp lease was $0.04 million.
Significant assumptions
          Consistent with the requirements of the new lease standard, ASC 842, we have determined the Real Estate Lease and Crew Camp Lease to be operating leases. 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 lease because we concluded that the accounting effect will be insignificant. As of March 31, 2019, the weighted average discount rate and remaining lease term was 6.1% and 3.9 years, respectively.
          As of March 31, 2019, our total operating lease right-of-use asset cost was $1.8 million, and accumulated amortization was $0.1 million. For the three months ended March 31, 2019, we recorded operating lease cost of $0.1 million in our statement of operations. During the three months ended March 31, 2018, our operating lease expense, under legacy GAAP, ASC 840, was $0.4 million.
Finance Leases
Description of Ground Lease
          As part of our expansion of maintenance facilities for our pressure pumping equipment, we entered into a ten year land lease contract (the "Ground Lease") with an exclusive option to purchase the land exercisable beginning one year from the commencement date of October 1, 2018 through the end of the contractual lease term. The Ground Lease does not include any residual value guarantee, covenants or financial restrictions. Further, the Ground Lease does not contain variability in payments resulting from either an index change or rate change. The remaining lease term used in our estimate of the present value of the minimum future lease payments for the purpose of determining our right-of-use asset and lease obligation was 0.6 years, assuming we will exercise our option to purchase the land immediately after the option becomes exercisable.
Significant Assumptions
          Consistent with the requirements of the new lease standard, ASC 842, we have determined the Ground Lease to be a finance lease. Our assumptions resulted from the existence of the right to control the use of the land for a period of time and the option to purchase the land, which we are reasonable certain of exercising after one year from the commencement date. As of March 31, 2019, the weighted average discount rate and remaining lease term was 4.3% and 0.6 years, respectively .
          As of March 31, 2019, our net finance lease right-of-use asset included as part of property and equipment in our consolidated balance sheet consists of a cost of $3.1 million and accumulated amortization of $0. For the three months ended March 31, 2019, no amortization was recorded on the land under the finance lease and the interest on our finance lease for the three months ended March 31, 2019 was $0.03 million. No amortization was recorded in the period for our finance lease right-of-use asset because it is comprised of land only.
          The maturity analysis of liabilities and reconciliation to undiscounted and discounted remaining future lease payments for finance and operating leases as of March 31, 2019 are as follows:
 
 
Leases
($ in thousands)
 
Operating
 
Finance
2019
 
$
389

 
$
3,117

2020
 
526

 

2021
 
537

 

2022
 
549

 

2023
 
98

 

Total Undiscounted future lease payments
 
2,099

 
3,117

Less: amount representing interest
 
(242
)
 
(75
)
Present value of future lease payments (lease obligation)
 
$
1,857

 
$
3,042


The total cash paid for amounts included in the measurement of our operating and finance lease liabilities during the three months ended March 31, 2019 was $0.1 million and $0.1 million, respectively. The non-cash lease obligation we recorded effective January 1, 2019, upon adopting the new lease standard, was $2.0 million and $3.1 million for operating and finance leases, respectively. There were no non-cash changes to our lease liabilities during the three months ended March 31, 2019.
Short-Term Leases
          We elected the practical expedient, consistent with ASC 842, to exclude leases with an initial term of twelve months or less ("short-term leases") from our balance sheet and continue to record short-term leases as a period expense. For the three months ended March 31, 2019, our short-term lease expense was $0.3 million. At March 31, 2019, the total remaining lease commitments for all of our short-term lease was $0.03 million.