Leases

12 Months Ended

Dec. 31, 2019

11. Leases

The Corporation and its consolidated affiliates generally purchase the property, plant and equipment used in operations, but there are situations where assets are leased, primarily for drilling equipment, tankers, office buildings, railcars, and other moveable equipment. Right of use assets and lease liabilities are established on the balance sheet for leases with an expected term greater than one year, by discounting the amounts fixed in the lease agreement for the duration of the lease which is reasonably certain, considering the probability of exercising any early termination and extension options. The portion of the fixed payment related to service costs for drilling equipment, tankers and finance leases is excluded from the calculation of right of use assets and lease liabilities. Generally assets are leased only for a portion of their useful lives, and are accounted for as operating leases. In limited situations assets are leased for nearly all of their useful lives, and are accounted for as finance leases.

Variable payments under these lease agreements are not significant. Residual value guarantees, restrictions, or covenants related to leases, and transactions with related parties are also not significant. In general, leases are capitalized using the incremental borrowing rate of the leasing affiliate. The Corporation’s activities as a lessor are not significant.

At adoption of the lease accounting change (see Note 2), on January 1, 2019, an operating lease liability of $3.3 billion was recorded and the operating lease right of use asset was $4.3 billion, including $1.0 billion of previously recorded prepaid leases. There was no cumulative earnings effect adjustment.

		Operating Leases
			Drilling Rigs
			and Related			Finance
			Equipment	Other	Total	Leases
			(millions of dollars)

Lease Cost			2019
Operating lease cost			238	1,196	1,434
Short-term and other (net of sublease rental income)			926	1,116	2,042

Amortization of right of use assets						121
Interest on lease liabilities						133
	Total		1,164	2,312	3,476	254

			Operating Leases
				Drilling Rigs
				and Related			Finance
				Equipment	Other	Total	Leases
				(millions of dollars)

Balance Sheet				December 31, 2019
Right of use assets
	Included in Other assets, including intangibles - net			572	6,061	6,633
	Included in Property, plant and equipment - net						1,997
		Total right of use assets		572	6,061	6,633	1,997

Lease liability due within one year
	Included in Accounts payable and accrued liabilities			221	990	1,211	15
	Included in Notes and loans payable						84
Long-term lease liability
	Included in Other long-term obligations			330	4,152	4,482
	Included in Long-term debt						1,670
	Included in Long-term obligations to equity companies						139
		Total lease liability		551	5,142	5,693	1,908

		Operating Leases
			Drilling Rigs
			and Related			Finance
			Equipment	Other	Total	Leases
			(millions of dollars)

Maturity Analysis of Lease Liabilities			December 31, 2019
2020			234	1,127	1,361	271
2021			134	886	1,020	576
2022			73	625	698	174
2023			45	468	513	173
2024			30	425	455	172
2025 and beyond			72	2,681	2,753	2,446
	Total lease payments		588	6,212	6,800	3,812
Discount to present value			(37)	(1,070)	(1,107)	(1,904)
	Total lease liability		551	5,142	5,693	1,908

Weighted average remaining lease term - years			4	11	10	20
Weighted average discount rate - percent			3.1%	3.2%	3.2%	9.7%

In addition to the lease liabilities in the table immediately above, at December 31, 2019, undiscounted commitments for leases not yet commenced totaled $848 million for operating leases and $3,721 million for finance leases. The finance leases relate to floating production storage and offloading vessels, LNG transportation vessels, and a long-term hydrogen purchase agreement. The underlying assets for these finance leases were primarily designed by, and are being constructed by, the lessors.

		Operating Leases
			Drilling Rigs
			and Related			Finance
			Equipment	Other	Total	Leases
			(millions of dollars)

Other Information			2019
Cash paid for amounts included in the measurement of lease liabilities
	Cash flows from operating activities			1,116	1,116	54
	Cash flows from investing activities		258		258
	Cash flows from financing activities					177

Noncash right of use assets recorded for lease liabilities
	For January 1 adoption of Topic 842		445	2,818	3,263
	In exchange for new lease liabilities during the period		350	3,313	3,663	422

Disclosures under the previous lease standard (ASC 840)

Net rental cost incurred under both cancelable and noncancelable operating leases was $2,715 million in 2018 and $2,618 million in 2017. At December 31, 2018, minimum undiscounted lease commitments under noncancelable operating leases and charters for 2019 and beyond were $6,112 million.