Quarterly report pursuant to Section 13 or 15(d)

LEASES

v3.23.3
LEASES
 9 Months Ended
Sep. 30, 2023
Leases [Abstract]  
LEASES
NOTE 3 — LEASES
The Company has operating leases for its offices in Midland, Texas and The Woodlands, Texas. The Midland office is under a five-year lease which began January 1, 2021. The Midland office lease was amended effective October 1, 2022, with the revised five-year lease ending September 30, 2027. Beginning January 15, 2021, the Company entered into a five-and-a-half-year sub-lease for office space in The Woodlands, Texas; however, effective as of May 31, 2023, The Woodlands office sub-lease was terminated. On May 9, 2023, the Company entered into a 71-month (five years and 11-month) new lease for a larger amount of office space in The Woodlands, Texas. At the time of the new lease commencement, the additional office space that was added was under construction and until completed, the rental obligation for this space had not yet commenced, because the Company did not have control of the additional office space in accordance with ASC 842-40-55-5. On September 27, 2023, the Company provided a certificate of acceptance of premises to the lessor of the additional office space, and accordingly, as of September 30, 2023, the future payments for this space are included along with the other operating leases, reflected in the future lease payments schedule below.
The Company 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. to 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 a new vehicle.
Future lease payments associated with these operating and financing leases as of September 30, 2023 are as follows:
2023 2024 2025 2026 2027 Other Future Years
Operating lease payments (1)
$ 118,616  $ 675,210  $ 727,460  $ 636,649  $ 460,497  400,234 
Financing lease payments (2)
223,492  832,238  493,290  49,763  —  — 

(1)The weighted average annual discount rate as of September 30, 2023 for operating leases was 4.50%. Based on this rate, the future lease payments above include imputed interest of $307,998. The weighted average remaining term of operating leases was 4.51 years.

(2)The weighted average annual discount rate as of September 30, 2023 for financing leases was 6.25%. Based on this rate, the future lease payments above include imputed interest of $101,334. The weighted average remaining term of financing leases was 2.00 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 Condensed Balance Sheets:
As of
September 30, 2023 December 31, 2022
Operating lease liability, current portion $ 503,420  $ 398,362 
Operating lease liability, non-current portion 2,207,248  1,473,897 
Operating lease liability, total $ 2,710,668  $ 1,872,259 
Total undiscounted future cash flows (sum of future operating lease payments) 3,018,666  2,065,580 
Imputed interest 307,998  193,321 
Undiscounted future cash flows less imputed interest $ 2,710,668  $ 1,872,259 
Financing lease liability, current portion $ 806,993  $ 709,653 
Financing lease liability, non-current portion 690,456  1,052,479 
Financing lease liability, total $ 1,497,449  $ 1,762,132 
Total undiscounted future cash flows (sum of future financing lease payments) 1,598,783  1,900,595 
Imputed interest 101,334  138,463 
Undiscounted future cash flows less imputed interest $ 1,497,449  $ 1,762,132 
The following table provides supplemental information regarding lease costs in the Condensed Statements of Operations:
For the Three Months Ended
For the Nine Months Ended
September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022
Operating lease costs $ 138,220  $ 83,590  $ 366,711  $ 250,770 
Short-term lease costs (1)
1,012,525  639,708  4,042,160  1,937,310 
Financing lease costs:
Amortization of financing lease assets (2)
197,221  106,982  572,744  334,447 
Interest on financing lease liabilities (3)
23,416  10,391  73,115  24,184 

(1)Amount included in Lease operating expenses
(2)Amount included in Depreciation, depletion and amortization
(3)Amount included in Interest (expense)