v3.22.2.2
Leases
 9 Months Ended
Sep. 30, 2022
Leases [Abstract]  
Leases Leases
See Note 1 for further discussion of lease accounting.

Lessee Accounting
As a lessee, we lease land, buildings, pipelines, transportation and other equipment to support our operations. These leases can be categorized into operating and finance leases.

Our leases have remaining terms of less than 1 year to 22 years, some of which include options to extend the leases for up to 10 years.

Finance Lease Obligations
We have finance lease obligations related to vehicle leases with initial terms of 33 to 48 months. The total cost of assets under finance leases was $7.3 million and $6.0 million as of September 30, 2022 and December 31, 2021, respectively, with accumulated depreciation of $4.2 million and $3.6 million as of September 30, 2022 and December 31, 2021, respectively. We include depreciation of finance leases in depreciation and amortization in our consolidated statements of income.

In addition, we have a finance lease obligation related to a pipeline lease with an initial term of 10 years with one remaining subsequent renewal option for an additional 10 years.
Supplemental balance sheet information related to leases was as follows (in thousands, except for lease term and discount rate):
September 30,
2022		December 31, 2021
Operating leases:
   Operating lease right-of-use assets, net$2,457 $2,275 
   Current operating lease liabilities 966 620 
   Noncurrent operating lease liabilities1,949 2,030 
      Total operating lease liabilities$2,915 $2,650 
Finance leases:
   Properties and equipment$7,312 $6,031 
   Accumulated amortization(4,189)(3,632)
      Properties and equipment, net$3,123 $2,399 
   Current finance lease liabilities $4,177 $3,786 
   Noncurrent finance lease liabilities62,790 64,649 
      Total finance lease liabilities$66,967 $68,435 
Weighted average remaining lease term (in years):
   Operating leases4.75.8
   Finance leases14.215.0
Weighted average discount rate:
   Operating leases4.6%4.8%
   Finance leases5.6%5.6%


Supplemental cash flow and other information related to leases were as follows:
Nine Months Ended
September 30,
20222021
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases$766 $855 
Operating cash flows on finance leases$3,094 $3,110 
Financing cash flows on finance leases$2,700 $2,666 
Maturities of lease liabilities were as follows:
September 30, 2022
OperatingFinance
(In thousands)
2022$280 $1,925 
2023976 7,691 
2024565 7,247 
2025485 6,787 
2026330 6,823 
2027 and thereafter525 67,463 
   Total lease payments3,161 97,936 
Less: Imputed interest(246)(30,969)
   Total lease obligations2,915 66,967 
Less: Current lease liabilities(966)(4,177)
   Noncurrent lease liabilities$1,949 $62,790 

The components of lease expense were as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
(In thousands)
Operating lease costs$248 $260 $752 $807 
Finance lease costs
   Amortization of assets213 195 594 607 
   Interest on lease liabilities938 983 2,843 2,983 
Variable lease cost206 43 265 175 
Total net lease cost$1,605 $1,481 $4,454 $4,572 

Lessor Accounting
As discussed in Note 1, the majority of our contracts with customers meet the definition of a lease.

Substantially all of the assets supporting contracts meeting the definition of a lease have long useful lives, and we believe these assets will continue to have value when the current agreements expire due to our risk management strategy for protecting the residual fair value of the underlying assets by performing ongoing maintenance during the lease term. HF Sinclair generally has the option to purchase assets located within HF Sinclair refinery boundaries, including refinery tankage, truck racks and refinery processing units, at fair market value when the related agreements expire.

During the nine months ended September 30, 2022, we entered into new agreements, and amended other agreements, with HFC related to our newly acquired Sinclair Transportation assets. Certain of these agreements met the criteria of sales-type leases. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at contract inception, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease. Because we recorded these assets at fair values under purchase price accounting, there was no gain or loss on these sales-type leases during the nine months ended September 30, 2022. The balance sheet impacts were composed of the following:
Nine Months Ended September 30, 2022
(In thousands)
Net investment in leases$233,456 
Properties and equipment, net(233,456)
Gain on sales-type leases$— 
During the nine months ended September 30, 2021, we entered into new agreements and modified other agreements with HF Sinclair related to our Cheyenne assets, Tulsa West lube racks, various crude tanks and new Navajo tanks. These agreements met the criteria of sales-type leases since the underlying assets are not expected to have an alternative use at the end of the lease terms to anyone other than HF Sinclair. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at contract inception, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease. Therefore, we recognized a gain on sales-type leases during the nine months ended September 30, 2021 composed of the following:

Nine Months Ended September 30, 2021
(In thousands)
Net investment in leases$143,720 
Properties and equipment, net(125,602)
Deferred revenue6,559 
Gain on sales-type leases$24,677 

These sales-type lease transactions, including the related gain, were non-cash transactions.

Lease income recognized was as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
(In thousands)
Operating lease revenues$84,684 $80,907 $230,279 $251,605 
Direct financing lease interest income538 521 1,578 1,568 
Gain on sales-type leases— — — 24,677 
Sales-type lease interest income23,695 6,313 59,633 18,429 
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable 8,013 3,167 16,859 7,272 
For our sales-type leases, we included customer obligations related to minimum volume requirements in guaranteed minimum lease payments. Portions of our minimum guaranteed pipeline tariffs for assets subject to sales-type lease accounting are recorded as interest income with the remaining amounts recorded as a reduction in net investment in leases. We recognized any billings for throughput volumes in excess of minimum volume requirements as variable lease payments, and these variable lease payments were recorded in lease revenues.
Annual minimum undiscounted lease payments under our leases were as follows as of September 30, 2022:
OperatingFinanceSales-type
Years Ending December 31,(In thousands)
Remainder of 2022$75,674 $542 $25,072 
2023272,169 2,175 96,383 
2024242,476 2,192 93,154 
2025166,290 2,209 89,727 
2026151,745 2,227 89,727 
2027 and thereafter473,243 36,610 841,406 
Total lease receipt payments$1,381,597 $45,955 $1,235,469 
Less: Imputed interest(29,661)(1,108,517)
16,294 126,952 
Unguaranteed residual assets at end of leases— 402,092 
Net investment in leases$16,294 $529,044 

Net investments in leases recorded on our balance sheet were composed of the following:
September 30, 2022December 31, 2021
Sales-type LeasesDirect Financing LeasesSales-type LeasesDirect Financing Leases
(In thousands)(In thousands)
Lease receivables (1)
$420,407 $16,294 $207,768 $16,371 
Unguaranteed residual assets108,637 — 90,097 — 
Net investment in leases$529,044 $16,294 $297,865 $16,371 

(1)    Current portion of lease receivables included in prepaid and other current assets on the balance sheet.
Leases Leases
See Note 1 for further discussion of lease accounting.

Lessee Accounting
As a lessee, we lease land, buildings, pipelines, transportation and other equipment to support our operations. These leases can be categorized into operating and finance leases.

Our leases have remaining terms of less than 1 year to 22 years, some of which include options to extend the leases for up to 10 years.

Finance Lease Obligations
We have finance lease obligations related to vehicle leases with initial terms of 33 to 48 months. The total cost of assets under finance leases was $7.3 million and $6.0 million as of September 30, 2022 and December 31, 2021, respectively, with accumulated depreciation of $4.2 million and $3.6 million as of September 30, 2022 and December 31, 2021, respectively. We include depreciation of finance leases in depreciation and amortization in our consolidated statements of income.

In addition, we have a finance lease obligation related to a pipeline lease with an initial term of 10 years with one remaining subsequent renewal option for an additional 10 years.
Supplemental balance sheet information related to leases was as follows (in thousands, except for lease term and discount rate):
September 30,
2022		December 31, 2021
Operating leases:
   Operating lease right-of-use assets, net$2,457 $2,275 
   Current operating lease liabilities 966 620 
   Noncurrent operating lease liabilities1,949 2,030 
      Total operating lease liabilities$2,915 $2,650 
Finance leases:
   Properties and equipment$7,312 $6,031 
   Accumulated amortization(4,189)(3,632)
      Properties and equipment, net$3,123 $2,399 
   Current finance lease liabilities $4,177 $3,786 
   Noncurrent finance lease liabilities62,790 64,649 
      Total finance lease liabilities$66,967 $68,435 
Weighted average remaining lease term (in years):
   Operating leases4.75.8
   Finance leases14.215.0
Weighted average discount rate:
   Operating leases4.6%4.8%
   Finance leases5.6%5.6%


Supplemental cash flow and other information related to leases were as follows:
Nine Months Ended
September 30,
20222021
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows on operating leases$766 $855 
Operating cash flows on finance leases$3,094 $3,110 
Financing cash flows on finance leases$2,700 $2,666 
Maturities of lease liabilities were as follows:
September 30, 2022
OperatingFinance
(In thousands)
2022$280 $1,925 
2023976 7,691 
2024565 7,247 
2025485 6,787 
2026330 6,823 
2027 and thereafter525 67,463 
   Total lease payments3,161 97,936 
Less: Imputed interest(246)(30,969)
   Total lease obligations2,915 66,967 
Less: Current lease liabilities(966)(4,177)
   Noncurrent lease liabilities$1,949 $62,790 

The components of lease expense were as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
(In thousands)
Operating lease costs$248 $260 $752 $807 
Finance lease costs
   Amortization of assets213 195 594 607 
   Interest on lease liabilities938 983 2,843 2,983 
Variable lease cost206 43 265 175 
Total net lease cost$1,605 $1,481 $4,454 $4,572 

Lessor Accounting
As discussed in Note 1, the majority of our contracts with customers meet the definition of a lease.

Substantially all of the assets supporting contracts meeting the definition of a lease have long useful lives, and we believe these assets will continue to have value when the current agreements expire due to our risk management strategy for protecting the residual fair value of the underlying assets by performing ongoing maintenance during the lease term. HF Sinclair generally has the option to purchase assets located within HF Sinclair refinery boundaries, including refinery tankage, truck racks and refinery processing units, at fair market value when the related agreements expire.

During the nine months ended September 30, 2022, we entered into new agreements, and amended other agreements, with HFC related to our newly acquired Sinclair Transportation assets. Certain of these agreements met the criteria of sales-type leases. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at contract inception, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease. Because we recorded these assets at fair values under purchase price accounting, there was no gain or loss on these sales-type leases during the nine months ended September 30, 2022. The balance sheet impacts were composed of the following:
Nine Months Ended September 30, 2022
(In thousands)
Net investment in leases$233,456 
Properties and equipment, net(233,456)
Gain on sales-type leases$— 
During the nine months ended September 30, 2021, we entered into new agreements and modified other agreements with HF Sinclair related to our Cheyenne assets, Tulsa West lube racks, various crude tanks and new Navajo tanks. These agreements met the criteria of sales-type leases since the underlying assets are not expected to have an alternative use at the end of the lease terms to anyone other than HF Sinclair. Under sales-type lease accounting, at the commencement date, the lessor recognizes a net investment in the lease, based on the estimated fair value of the underlying leased assets at contract inception, and derecognizes the underlying assets with the difference recorded as selling profit or loss arising from the lease. Therefore, we recognized a gain on sales-type leases during the nine months ended September 30, 2021 composed of the following:

Nine Months Ended September 30, 2021
(In thousands)
Net investment in leases$143,720 
Properties and equipment, net(125,602)
Deferred revenue6,559 
Gain on sales-type leases$24,677 

These sales-type lease transactions, including the related gain, were non-cash transactions.

Lease income recognized was as follows:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2022202120222021
(In thousands)
Operating lease revenues$84,684 $80,907 $230,279 $251,605 
Direct financing lease interest income538 521 1,578 1,568 
Gain on sales-type leases— — — 24,677 
Sales-type lease interest income23,695 6,313 59,633 18,429 
Lease revenues relating to variable lease payments not included in measurement of the sales-type lease receivable 8,013 3,167 16,859 7,272 
For our sales-type leases, we included customer obligations related to minimum volume requirements in guaranteed minimum lease payments. Portions of our minimum guaranteed pipeline tariffs for assets subject to sales-type lease accounting are recorded as interest income with the remaining amounts recorded as a reduction in net investment in leases. We recognized any billings for throughput volumes in excess of minimum volume requirements as variable lease payments, and these variable lease payments were recorded in lease revenues.
Annual minimum undiscounted lease payments under our leases were as follows as of September 30, 2022:
OperatingFinanceSales-type
Years Ending December 31,(In thousands)
Remainder of 2022$75,674 $542 $25,072 
2023272,169 2,175 96,383 
2024242,476 2,192 93,154 
2025166,290 2,209 89,727 
2026151,745 2,227 89,727 
2027 and thereafter473,243 36,610 841,406 
Total lease receipt payments$1,381,597 $45,955 $1,235,469 
Less: Imputed interest(29,661)(1,108,517)
16,294 126,952 
Unguaranteed residual assets at end of leases— 402,092 
Net investment in leases$16,294 $529,044 

Net investments in leases recorded on our balance sheet were composed of the following:
September 30, 2022December 31, 2021
Sales-type LeasesDirect Financing LeasesSales-type LeasesDirect Financing Leases
(In thousands)(In thousands)
Lease receivables (1)
$420,407 $16,294 $207,768 $16,371 
Unguaranteed residual assets108,637 — 90,097 — 
Net investment in leases$529,044 $16,294 $297,865 $16,371 

(1)    Current portion of lease receivables included in prepaid and other current assets on the balance sheet.