Permian Resources Corp - 10-Q filing on 2021-05-05

Leases

3 Months Ended

Mar. 31, 2021

Note 12—Leases

At contract inception, the Company determines whether or not an arrangement contains a lease. However, in connection with the implementation of ASC Topic 842, Leases (“ASC 842”), this assessment was made as of the adoption date of ASC 842. Upon determination of a lease, a lease right-of-use (“ROU”) asset and related liability are recorded based on the present value of the future lease payments over the lease term. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make future lease payments arising from the lease.

The Company has operating leases for drilling rig contracts, office rental agreements, and other wellhead equipment. As of March 31, 2021, these leases have remaining lease terms ranging from one month to 1 year, some of which include options to extend the lease term for up to five years, and some of which include options to early terminate. These options are considered in determining the lease term and are included in the present value of future payments that are recorded for leases when the Company is reasonably certain to exercise the option. Leases with an initial term of one year or less are not recorded in the consolidated balance sheets. Additionally, none of the Company’s lease agreements contain any material residual value guarantees or material restrictive covenants.

The present value of future lease payments is determined at the lease commencement date based upon the Company’s incremental borrowing rate. The incremental borrowing rate is calculated using a risk-free interest rate adjusted for the Company’s specific risk and the specific lease term. The table below summarizes the Company’s weighted-average discount rate and weighted-average remaining lease term as of the period presented.


	As of March 31, 2021
Weighted-average discount rate	5.13	%
Weighted-average remaining lease term (months)	10

The Company’s drilling rig contracts, office rental agreements, and wellhead equipment agreements contain both lease and non-lease components, which are combined and accounted for as a single lease component.

Variable lease payments are recognized in the period in which they are incurred and include operating expenses related to the office rental agreements and expenses incurred on the drilling rig contracts in excess of the contractual rate. Expenses related to short-term leases are recognized on a straight-line basis over the lease term as either expenses to the consolidated statements of operations or capitalized to the consolidated balance sheets. The following table presents the components of the Company’s lease expenses for the periods presented.


	Three Months Ended March 31,
(in thousands)	2021		2020
Lease costs
Operating lease cost	$	873	$	4,305
Variable lease cost	9		1,207
Short-term lease cost	7,194		17,825
Total lease cost	$	8,076	$	23,337

The following table presents supplemental cash flow information related to the Company’s leases for the periods presented.


	Three Months Ended March 31,
(in thousands)	2021		2020
Operating lease liability payments:
Cash used in operating activities	$	873	$	2,503
Cash used in investing activities	$	—	$	1,802

Right-of-use assets recognized (derecognized) with offsetting operating lease liabilities	$	(32)	$	(829)

Maturities of the Company’s long-term operating lease liabilities by fiscal year as of March 31, 2021 are as follows:


(in thousands)	Total(2)
2021(1)	$	2,338
2022	425
Total lease payments	2,763
Less: imputed interest	(66)
Present value of lease liabilities (3)	$	2,697

(1) Excludes payments made during the three months ended March 31, 2021.

(2) Total lease payments exclude variable lease payments which can be charged under the terms of the lease agreements.

(3) This amount is included in current liabilities in the line item Operating lease liabilities in the consolidated balance sheets as of March 31, 2021.