Quarterly report pursuant to Section 13 or 15(d)

LEASED PROPERTIES AND LEASES

v3.22.2.2
LEASED PROPERTIES AND LEASES
 9 Months Ended
Sep. 30, 2022
Leases [Abstract]  
LEASED PROPERTIES AND LEASES LEASED PROPERTIES AND LEASES
LESSOR - LEASED PROPERTIES
Prior to 2021, the Company primarily acquired midstream and downstream assets in the U.S. energy sector such as pipelines, storage terminals, and gas and electric distribution systems and, historically, leased many of these assets to operators under triple-net leases. The Company divested its last material leased asset, GIGS, on February 4, 2021 as described further below.
Sale and Impairment of the Grand Isle Gathering System
As discussed in Note 3 ("Acquisitions"), on February 4, 2021, the Company contributed the GIGS asset as partial consideration for the acquisition of its interest in Crimson resulting in its disposal, along with the asset retirement obligation (collectively, the "GIGS Disposal Group"), which was assumed by the sellers. Upon meeting the held for sale criteria in mid-January 2021, the Company ceased recording depreciation on the GIGS asset. The GIGS asset had a carrying value of $63.5 million and the asset retirement obligation had a carrying value of $8.8 million, or a net carrying value of $54.7 million for the GIGS Disposal Group. The GIGS asset had a fair value of approximately $48.9 million at the time of disposal, which was determined by a discounted cash flow model and utilized the forecast of a market participant and their expected operation of the asset. The fair value measurement is also based on significant inputs not observable in the market and thus represent Level 3 measurements. The significant unobservable inputs include a discount rate of 11.75%. The contribution of the GIGS Disposal Group resulted in a loss on impairment and disposal of leased property of $5.8 million in the Consolidated Statements of Operations in the nine months ended September 30, 2021.
Termination of the Grand Isle Lease Agreement
In connection with the GIGS disposition, the Company and its subsidiary, Grand Isle Corridor, LP, entered into a Settlement and Mutual Release Agreement (the "Settlement Agreement") with Energy XXI GIGS Services, LLC, Energy XXI Gulf Coast, Inc. and CEXXI, LLC (collectively, the "EXXI Entities") related to the previously reported litigation between them and terminated the Grand Isle Lease Agreement under which the GIGS asset was leased to Energy XXI GIGS Services, LLC. The
termination of the Grand Isle Lease Agreement resulted in the write-off of deferred lease costs of $166 thousand, which is recorded as a loss on termination of lease in the Consolidated Statements of Operations for the nine months ended September 30, 2021.
LESSEE - LEASED PROPERTIES
The Company and its subsidiaries currently lease land, corporate office space and single-use office space. During 2021, the Company acquired additional right-of-use assets and operating lease liabilities in connection with the Crimson Transaction and the Internalization. Additionally, the Company signed a new lease for the Denver corporate office. The Company's leases are classified as operating leases and presented as operating right-of-use asset and operating lease liability on the Consolidated Balance Sheets. The Company recognizes lease expense in the Consolidated Statements of Operations on a straight-line basis over the remaining lease term. The Company noted the following information regarding its operating leases for the three and nine months ended September 30, 2022 and 2021:
For the Three Months Ended For the Nine Months Ended
September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021
Lease cost:
   Operating lease cost $ 446,601  $ 416,887  $ 1,339,803  $ 1,015,530 
Short term lease cost —  25,382  —  229,166 
Total Lease Cost $ 446,601  $ 442,269  $ 1,339,803  $ 1,244,696 
Other Information:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases $ 341,186  $ 293,195  $ 1,441,220  $ 1,126,483 
Variable lease costs were immaterial for the three and nine months ended September 30, 2022 and 2021.
The following table reflects the weighted average lease term and discount rate for leases in which the Company is a lessee:
September 30, 2022 December 31, 2021
Weighted-average remaining lease term - operating leases (in years) 10.6 10.0
Weighted-average discount rate - operating leases 7.32  % 7.04  %
LEASED PROPERTIES AND LEASES LEASED PROPERTIES AND LEASES
LESSOR - LEASED PROPERTIES
Prior to 2021, the Company primarily acquired midstream and downstream assets in the U.S. energy sector such as pipelines, storage terminals, and gas and electric distribution systems and, historically, leased many of these assets to operators under triple-net leases. The Company divested its last material leased asset, GIGS, on February 4, 2021 as described further below.
Sale and Impairment of the Grand Isle Gathering System
As discussed in Note 3 ("Acquisitions"), on February 4, 2021, the Company contributed the GIGS asset as partial consideration for the acquisition of its interest in Crimson resulting in its disposal, along with the asset retirement obligation (collectively, the "GIGS Disposal Group"), which was assumed by the sellers. Upon meeting the held for sale criteria in mid-January 2021, the Company ceased recording depreciation on the GIGS asset. The GIGS asset had a carrying value of $63.5 million and the asset retirement obligation had a carrying value of $8.8 million, or a net carrying value of $54.7 million for the GIGS Disposal Group. The GIGS asset had a fair value of approximately $48.9 million at the time of disposal, which was determined by a discounted cash flow model and utilized the forecast of a market participant and their expected operation of the asset. The fair value measurement is also based on significant inputs not observable in the market and thus represent Level 3 measurements. The significant unobservable inputs include a discount rate of 11.75%. The contribution of the GIGS Disposal Group resulted in a loss on impairment and disposal of leased property of $5.8 million in the Consolidated Statements of Operations in the nine months ended September 30, 2021.
Termination of the Grand Isle Lease Agreement
In connection with the GIGS disposition, the Company and its subsidiary, Grand Isle Corridor, LP, entered into a Settlement and Mutual Release Agreement (the "Settlement Agreement") with Energy XXI GIGS Services, LLC, Energy XXI Gulf Coast, Inc. and CEXXI, LLC (collectively, the "EXXI Entities") related to the previously reported litigation between them and terminated the Grand Isle Lease Agreement under which the GIGS asset was leased to Energy XXI GIGS Services, LLC. The
termination of the Grand Isle Lease Agreement resulted in the write-off of deferred lease costs of $166 thousand, which is recorded as a loss on termination of lease in the Consolidated Statements of Operations for the nine months ended September 30, 2021.
LESSEE - LEASED PROPERTIES
The Company and its subsidiaries currently lease land, corporate office space and single-use office space. During 2021, the Company acquired additional right-of-use assets and operating lease liabilities in connection with the Crimson Transaction and the Internalization. Additionally, the Company signed a new lease for the Denver corporate office. The Company's leases are classified as operating leases and presented as operating right-of-use asset and operating lease liability on the Consolidated Balance Sheets. The Company recognizes lease expense in the Consolidated Statements of Operations on a straight-line basis over the remaining lease term. The Company noted the following information regarding its operating leases for the three and nine months ended September 30, 2022 and 2021:
For the Three Months Ended For the Nine Months Ended
September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021
Lease cost:
   Operating lease cost $ 446,601  $ 416,887  $ 1,339,803  $ 1,015,530 
Short term lease cost —  25,382  —  229,166 
Total Lease Cost $ 446,601  $ 442,269  $ 1,339,803  $ 1,244,696 
Other Information:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases $ 341,186  $ 293,195  $ 1,441,220  $ 1,126,483 
Variable lease costs were immaterial for the three and nine months ended September 30, 2022 and 2021.
The following table reflects the weighted average lease term and discount rate for leases in which the Company is a lessee:
September 30, 2022 December 31, 2021
Weighted-average remaining lease term - operating leases (in years) 10.6 10.0
Weighted-average discount rate - operating leases 7.32  % 7.04  %