Phoenix Energy One, LLC Leases Disclosure
Note 14. Leases
The Company leases its office facilities primarily under noncancelable multi-year operating lease agreements. The Company determines whether a contract contains a lease at inception by determining if the contract conveys the right to control the use of identified office space for a period of time in exchange for consideration. The Company’s lease agreements contain lease and non-lease components, which are generally accounted for separately with amounts allocated to the lease and non-lease components based on relative stand-alone prices.
Right of use (“ROU”) assets and lease liabilities are recognized at the commencement date based on the present value of the future minimum lease payments over the lease term. Renewal and termination clauses that are factored into the determination of the lease term if it is reasonably certain that these options would be exercised by the Company. Lease assets are amortized over the lease term unless there is a transfer of title or purchase option reasonably certain of exercise, in which case the asset life is used. The Company’s lease agreements include variable payments. Variable lease payments not dependent on an index or rate primarily consist of common area maintenance charges and are not included in the calculation of the ROU asset and lease liability and are expensed as incurred. In order to determine the present value of lease payments, the Company uses the implicit rate when it is readily determinable or the Company’s incremental borrowing rate based on the Company’s existing line of credit facilities.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. As of December 31, 2025, the Company does not have leases where it is involved with the construction or design of an underlying asset, has no material obligation for leases signed but not yet commenced and does not have any material sublease activities.
The following table summarizes the Company’s future minimum lease payments as of December 31, 2025:
(in thousands) |
|
|
|
|
Year Ending December 31, |
|
Amount |
|
|
2026 |
|
$ |
2,362 |
|
2027 |
|
|
2,431 |
|
2028 |
|
|
2,391 |
|
2029 |
|
|
2,282 |
|
2030 |
|
|
1,927 |
|
Thereafter |
|
|
4,203 |
|
Total lease payments |
|
|
15,596 |
|
Less: interest |
|
|
(4,715 |
) |
Present value of lease liabilities |
|
$ |
10,881 |
|
The following table shows the line item classification of the Company’s right-of-use assets and lease liabilities on the Company’s consolidated balance sheets:
|
|
|
|
December 31, |
|
|||||
(in thousands) |
|
Line item |
|
2025 |
|
|
2024 |
|
||
Right-of-use assets – operating |
|
Right-of-use assets, net |
|
$ |
9,507 |
|
|
$ |
6,010 |
|
Total right-of-use assets |
|
|
|
$ |
9,507 |
|
|
$ |
6,010 |
|
|
|
|
|
|
|
|
|
|
||
Current operating lease liabilities |
|
Current operating lease liabilities |
|
$ |
1,256 |
|
|
$ |
656 |
|
Noncurrent operating lease liabilities |
|
Operating lease liabilities |
|
|
9,625 |
|
|
|
5,860 |
|
Total lease liabilities |
|
|
|
$ |
10,881 |
|
|
$ |
6,516 |
|
|
|
|
|
|
|
|
|
|
||
Weighted average remaining lease term (in years) |
|
|
|
|
6.63 |
|
|
|
7.16 |
|
Weighted average discount rate |
|
|
|
|
10.98 |
% |
|
|
10.29 |
% |
The following table shows the components of the Company’s lease expense for the years ended December 31, 2025, 2024, and 2023:
|
|
Year Ended December 31, |
|
|||||||||
(in thousands) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Operating leases(a) |
|
$ |
2,906 |
|
|
$ |
1,393 |
|
|
$ |
1,168 |
|
Short-term leases(a) |
|
|
19 |
|
|
|
— |
|
|
|
138 |
|
Variable lease payments(a) |
|
|
82 |
|
|
|
83 |
|
|
|
20 |
|
Net operating lease cost |
|
$ |
3,007 |
|
|
$ |
1,476 |
|
|
$ |
1,326 |
|
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About Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.