4. LEASES

The Company’s right-of-use assets and lease liabilities are recognized at their discounted present value under the following captions in the Consolidated Balance Sheets as of December 31, 2025 and 2024:

The Company recognizes lease expense on a straight-line basis excluding short-term and variable lease payments, which are recognized as incurred. Following are the amounts recognized as components of rental expense for the years ended December 31, 2025 and 2024:

The Houston office operating lease commenced in May 2022 and is for a term of 67 months. The base rent under the lease escalates $0.50 per square foot each twelve-month period during the term of the lease. In addition, the Company is responsible for its share of operating expenses and tax expenses as defined in the lease.

Short-term lease cost is associated with short-term lease agreements primarily related to compressors and field equipment rentals contracted for 12 months or less.

The Company’s office operating lease agreements did not contain implicit interest rates that could be readily determined; therefore, the Company used the incremental borrowing rates in effect at the time the Company entered into the leases.

Maturity of operating lease liabilities with terms of one year or more as of December 31, 2025 are presented in the following table: