| LEASES |
NOTE 3 – LEASES
The Company has operating leases for its offices in The Woodlands, Texas and Midland, Texas. Beginning January 15, 2021, the Company entered into a five-and-a-half-year sub-lease for office space in The Woodlands, Texas. Until September 2022, the Midland office was under a five-year lease which began January 1, 2021. The future payments associated with these operating leases are reflected below.
The Company also has month to month leases for office equipment and compressors used in its operations on which the Company has elected to apply ASU 2016-02 (i.e., not capitalize). The office equipment and compressors are not subject to ASU 2016-02 based on the agreement and nature of use. These leases are for terms that are less than 12 months and the Company does not intend to continue to lease this equipment for more than 12 months. The lease costs associated with these leases is reflected in the short-term lease costs within Lease operating expenses, shown below.
The Company has financing leases for vehicles. These leases have a term of 36 months at the end of which the Company owns the vehicles. These vehicles are generally sold at the end of their term and the proceeds applied to new vehicles.
Future lease payments (undiscounted future cash flows) associated with these operating and financing leases as of September 30, 2022 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2023 |
|
2024 |
|
2025 |
|
2026 |
Operating lease payments(1) |
|
$ |
87,282 |
|
$ |
356,991 |
|
$ |
376,855 |
|
$ |
384,719 |
|
$ |
110,096 |
Financing lease payments(2) |
|
|
109,582 |
|
|
438,328 |
|
|
372,056 |
|
|
99,796 |
|
|
— |
| (1) |
The weighted average discount rate as of September 30, 2022 for operating leases was 4.50%. Based on this rate, the future lease payments above include imputed interest of $103,704. The weighted average remaining term of operating leases was 3.55 years.
|
| (2) |
The weighted average discount rate as of September 30, 2022 for financing leases was 4.00%. Based on this rate, the future lease payments above include imputed interest of $48,667. The weighted average remaining term of financing leases was 2.38 years.
|
The following table represents a reconciliation between the undiscounted future cash flows in the table above and the operating and financing lease liabilities disclosed in the Balance Sheets:
|
|
|
|
|
|
|
|
|
As of |
|
|
September 30, 2022 |
|
December 31, 2021 |
Operating lease liability, current portion |
|
$ |
306,715 |
|
$ |
290,766 |
Operating lease liability, non-current portion |
|
|
905,524 |
|
|
1,138,319 |
Operating lease liability, total |
|
$ |
1,212,239 |
|
$ |
1,429,085 |
Total undiscounted future cash flows |
|
|
1,315,943 |
|
|
1,577,786 |
Imputed interest |
|
|
103,704 |
|
|
148,701 |
Undiscounted future cash flows less imputed interest |
|
$ |
1,212,239 |
|
$ |
1,429,085 |
|
|
|
|
|
|
|
Financing lease liability, current portion |
|
$ |
406,890 |
|
$ |
316,514 |
Financing lease liability, non-current portion |
|
|
564,205 |
|
|
343,727 |
Financing lease liability, total |
|
$ |
971,095 |
|
$ |
660,241 |
Total undiscounted future cash flows |
|
|
1,019,762 |
|
|
692,091 |
Imputed interest |
|
|
48,667 |
|
|
31,850 |
Undiscounted future cash flows less imputed interest |
|
$ |
971,095 |
|
$ |
660,241 |
The following table provides supplemental information regarding cash flows from operations for the three and nine months ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
|
September 30, |
|
September 30, |
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Operating lease costs |
|
$ |
83,590 |
|
$ |
83,589 |
|
$ |
250,770 |
|
$ |
439,896 |
Short term lease costs (1) |
|
|
639,708 |
|
|
964,873 |
|
|
1,937,310 |
|
|
2,903,387 |
Financing lease costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of financing lease assets (2) |
|
|
106,982 |
|
|
85,367 |
|
|
334,447 |
|
|
189,831 |
Interest on lease liabilities (3) |
|
|
10,391 |
|
|
5,160 |
|
|
24,184 |
|
|
14,166 |
| (1) |
Amount included in Lease operating expenses |
| (2) |
Amount included in Depreciation, depletion and amortization
|
| (3) |
Amount included in Interest expense |
|