Quarterly report pursuant to Section 13 or 15(d)

Leased Properties and Leases

v3.21.1
Leased Properties and Leases
 3 Months Ended
Mar. 31, 2021
Leases [Abstract]  
LEASED PROPERTIES AND LEASES LEASED PROPERTIES AND LEASES
LESSOR - LEASED PROPERTIES
Prior to 2021, the Company primarily acquired mid-stream 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's leased property was classified as an operating lease and was recorded as leased property in the Consolidated Balance Sheets. Base rent related to the Company's leased property was recognized on a straight-line basis over the term of the lease when collectability was probable. Participating rent was recognized when it was earned, based on the achievement of specified performance criteria. Base and participating rent were recorded as lease revenue in the Consolidated Statements of Operations. The Company regularly evaluated the collectability of any deferred rent receivable on a lease by lease basis. The evaluation primarily included assessing the financial condition and credit quality of the Company's tenants, changes in tenants' payment history and current economic factors. When the collectability of the deferred rent receivable or
future lease payments were no longer probable, the Company recognized a write-off of the deferred rent receivable as a reduction of revenue in the Consolidated Statements of Operations.
The Company divested all of its leased assets including (i) GIGS on February 4, 2021 as described further below and (ii) the Pinedale Liquids Gathering System ("Pinedale LGS") on June 30, 2020 in a sale to its tenant, Ultra Wyoming, LLC ("Ultra Wyoming") pursuant to the terms of the sale agreement approved by the U.S. Bankruptcy Court overseeing the bankruptcy proceedings of Ultra Wyoming and its parent company, Ultra Petroleum Corp ("UPL"). The sale of the Pinedale LGS was previously disclosed in the Company's 2020 SEC filings.
Sale and Impairment of the Grand Isle Gathering System
During 2020, the EGC Tenant's nonpayment of rent along with the significant decline in the global oil market triggered indicators of impairment for the GIGS asset. As a result, the Company recognized a $140.3 million loss on impairment of leased property related to the GIGS asset in the Consolidated Statements of Operations for the three months ended March 31, 2020. The Company also previously recognized a deferred rent receivable for the Grand Isle Gathering Lease, which primarily represented timing differences between the straight-line revenue recognition and contractual lease receipts over the lease term. Given the EGC's Tenant's nonpayment of rent and the Company's expectations surrounding the collectability of the contractual lease payments under the lease, the Company recognized a non-cash write-off of the deferred rent receivable of $30.1 million. The non-cash write-off was recognized as a reduction of revenue in the Consolidated Statements of Operations for the three months ended March 31, 2020.
As discussed in Note 3 ("Acquisition"), 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 percent. 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 first quarter of 2021.
Termination of the Grand Isle Lease Agreement
As described in Note 10 ("Commitments and Contingencies"), in connection with the GIGS disposition, the Company and Grand Isle Corridor entered into a Settlement and Mutual Release Agreement (the "Settlement Agreement") with the EGC Tenant, EGC, and CEXXI, LLC (the "EXXI Entities") related to the previously reported litigation between them and terminated the Grand Isle Lease Agreement. 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 three months ended March 31, 2021.
The following table reflects the depreciation and amortization included in the accompanying Consolidated Statements of Operations associated with the Company's leases and leased properties:
For the Three Months Ended
March 31, 2021 March 31, 2020
Depreciation Expense
GIGS $ 140,860  $ 2,440,588 
Pinedale —  2,217,360 
United Property Systems 10,314  9,831 
Total Depreciation Expense $ 151,174  $ 4,667,779 
Amortization Expense - Deferred Lease Costs
GIGS $ 2,547  $ 7,641 
Pinedale —  15,342 
Total Amortization Expense - Deferred Lease Costs $ 2,547  $ 22,983 
ARO Accretion Expense
GIGS $ 40,546  $ 112,171 
Total ARO Accretion Expense $ 40,546  $ 112,171 
The following table reflects the deferred costs that are included in the accompanying Consolidated Balance Sheets associated with the Company's leased properties:
March 31, 2021 December 31, 2020
Net Deferred Lease Costs
GIGS $ —  $ 168,191 
Total Deferred Lease Costs, net $ —  $ 168,191 
LESSEE - LEASED PROPERTIES
The Company and its subsidiaries currently lease land, corporate office space and single-use office space. During the three months ended March 31, 2021, the Company acquired additional right-of-use assets and lease liabilities in connection with the Crimson Transaction. 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 Sheet. 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 months ended March 31, 2021 and 2020:
For the Three Months Ended
March 31, 2021 March 31, 2020
Lease cost:
Operating lease cost $ 241,182  $ 12,088 
Short term lease cost 102,014  — 
Other Information:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases 586,481  12,088 
Weighted-average remaining lease term - operating leases (in years) 10.5 2.4
Weighted average discount rate - operating leases 7.04  % 7.20  %

The following table reflects the undiscounted cash flows for future minimum lease payments under noncancelable operating leases reconciled to the Company's lease liabilities on our Consolidated Balance Sheet as of March 31, 2021:
Operating
For the Years Ending Leases
2021 $ 741,839 
2022 1,416,102 
2023 830,216 
2024 419,068 
2025 419,068 
Thereafter 4,902,398 
Total 8,728,691 
Less: Present Value Discount 2,927,825 
Operating Lease Liabilities $ 5,800,866 
LEASED PROPERTIES AND LEASES LEASED PROPERTIES AND LEASES
LESSOR - LEASED PROPERTIES
Prior to 2021, the Company primarily acquired mid-stream 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's leased property was classified as an operating lease and was recorded as leased property in the Consolidated Balance Sheets. Base rent related to the Company's leased property was recognized on a straight-line basis over the term of the lease when collectability was probable. Participating rent was recognized when it was earned, based on the achievement of specified performance criteria. Base and participating rent were recorded as lease revenue in the Consolidated Statements of Operations. The Company regularly evaluated the collectability of any deferred rent receivable on a lease by lease basis. The evaluation primarily included assessing the financial condition and credit quality of the Company's tenants, changes in tenants' payment history and current economic factors. When the collectability of the deferred rent receivable or
future lease payments were no longer probable, the Company recognized a write-off of the deferred rent receivable as a reduction of revenue in the Consolidated Statements of Operations.
The Company divested all of its leased assets including (i) GIGS on February 4, 2021 as described further below and (ii) the Pinedale Liquids Gathering System ("Pinedale LGS") on June 30, 2020 in a sale to its tenant, Ultra Wyoming, LLC ("Ultra Wyoming") pursuant to the terms of the sale agreement approved by the U.S. Bankruptcy Court overseeing the bankruptcy proceedings of Ultra Wyoming and its parent company, Ultra Petroleum Corp ("UPL"). The sale of the Pinedale LGS was previously disclosed in the Company's 2020 SEC filings.
Sale and Impairment of the Grand Isle Gathering System
During 2020, the EGC Tenant's nonpayment of rent along with the significant decline in the global oil market triggered indicators of impairment for the GIGS asset. As a result, the Company recognized a $140.3 million loss on impairment of leased property related to the GIGS asset in the Consolidated Statements of Operations for the three months ended March 31, 2020. The Company also previously recognized a deferred rent receivable for the Grand Isle Gathering Lease, which primarily represented timing differences between the straight-line revenue recognition and contractual lease receipts over the lease term. Given the EGC's Tenant's nonpayment of rent and the Company's expectations surrounding the collectability of the contractual lease payments under the lease, the Company recognized a non-cash write-off of the deferred rent receivable of $30.1 million. The non-cash write-off was recognized as a reduction of revenue in the Consolidated Statements of Operations for the three months ended March 31, 2020.
As discussed in Note 3 ("Acquisition"), 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 percent. 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 first quarter of 2021.
Termination of the Grand Isle Lease Agreement
As described in Note 10 ("Commitments and Contingencies"), in connection with the GIGS disposition, the Company and Grand Isle Corridor entered into a Settlement and Mutual Release Agreement (the "Settlement Agreement") with the EGC Tenant, EGC, and CEXXI, LLC (the "EXXI Entities") related to the previously reported litigation between them and terminated the Grand Isle Lease Agreement. 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 three months ended March 31, 2021.
The following table reflects the depreciation and amortization included in the accompanying Consolidated Statements of Operations associated with the Company's leases and leased properties:
For the Three Months Ended
March 31, 2021 March 31, 2020
Depreciation Expense
GIGS $ 140,860  $ 2,440,588 
Pinedale —  2,217,360 
United Property Systems 10,314  9,831 
Total Depreciation Expense $ 151,174  $ 4,667,779 
Amortization Expense - Deferred Lease Costs
GIGS $ 2,547  $ 7,641 
Pinedale —  15,342 
Total Amortization Expense - Deferred Lease Costs $ 2,547  $ 22,983 
ARO Accretion Expense
GIGS $ 40,546  $ 112,171 
Total ARO Accretion Expense $ 40,546  $ 112,171 
The following table reflects the deferred costs that are included in the accompanying Consolidated Balance Sheets associated with the Company's leased properties:
March 31, 2021 December 31, 2020
Net Deferred Lease Costs
GIGS $ —  $ 168,191 
Total Deferred Lease Costs, net $ —  $ 168,191 
LESSEE - LEASED PROPERTIES
The Company and its subsidiaries currently lease land, corporate office space and single-use office space. During the three months ended March 31, 2021, the Company acquired additional right-of-use assets and lease liabilities in connection with the Crimson Transaction. 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 Sheet. 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 months ended March 31, 2021 and 2020:
For the Three Months Ended
March 31, 2021 March 31, 2020
Lease cost:
Operating lease cost $ 241,182  $ 12,088 
Short term lease cost 102,014  — 
Other Information:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases 586,481  12,088 
Weighted-average remaining lease term - operating leases (in years) 10.5 2.4
Weighted average discount rate - operating leases 7.04  % 7.20  %

The following table reflects the undiscounted cash flows for future minimum lease payments under noncancelable operating leases reconciled to the Company's lease liabilities on our Consolidated Balance Sheet as of March 31, 2021:
Operating
For the Years Ending Leases
2021 $ 741,839 
2022 1,416,102 
2023 830,216 
2024 419,068 
2025 419,068 
Thereafter 4,902,398 
Total 8,728,691 
Less: Present Value Discount 2,927,825 
Operating Lease Liabilities $ 5,800,866