Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes 
The components of the Company’s income tax expense are as follows:
Years Ended December 31,
2022 2021 2020
(In thousands)
Current
Federal $2,977  $—  $— 
State 4,537  180  3,447 
Total current income tax expense 7,514  180  3,447 
Deferred
Federal —  —  126,903 
State 4,279  —  (8,296)
Total deferred income tax expense 4,279  —  118,607 
Total income tax expense $11,793  $180  $122,054 
A reconciliation of the income tax expense calculated at the federal statutory rate of 21% to income tax expense is as follows:
Years Ended December 31,
2022 2021 2020
(In thousands)
Income (loss) before income taxes $1,221,609  $365,331  ($2,411,567)
Income tax expense (benefit) computed at the statutory federal income tax rate 256,538  76,720  (506,429)
State income tax expense (benefit), net of federal benefit 11,393  2,905  (11,827)
Non-deductible expenses related to capital structure transactions (2,896) (11,875) — 
Equity based compensation (1,496) 564  2,746 
Other (1,223) 10,247  (1,621)
Change in valuation allowance (250,523) (78,381) 639,185 
Income tax expense $11,793  $180  $122,054 
The income tax expense of $11.8 million for the year ended December 31, 2022 is lower than as calculated using the federal statutory rate primarily due to the valuation allowance recorded against the Company’s net deferred tax assets. See “— Deferred Tax Asset Valuation Allowance” below for additional details.
As of December 31, 2022 and 2021, the net deferred income tax assets and liabilities are comprised of the following:
As of December 31,
2022 2021
(In thousands)
Deferred tax assets
Oil and natural gas properties $—  $238,203 
Federal net operating loss carryforward 359,784  221,900 
Net interest expense limitation 74,628  36,171 
Derivative instruments 12,758  30,826 
Operating lease right-of-use assets 13,180  8,650 
Asset retirement obligations 13,049  12,244 
Unvested RSU equity awards 5,391  4,939 
Other 11,675  12,892 
Total deferred tax assets $490,465  $565,825 
Deferred income tax valuation allowance (310,281) (560,804)
Net deferred tax assets $180,184  $5,021 
Deferred tax liability
Oil and natural gas properties ($174,578) $— 
Operating lease liabilities (9,885) (5,021)
Total deferred tax liability ($184,463) ($5,021)
Net deferred tax asset (liability) ($4,279) $— 
Deferred Tax Asset Valuation Allowance
Management monitors company-specific, oil and natural gas industry and worldwide economic factors and assesses the likelihood that the Company’s net deferred tax assets will be utilized prior to their expiration. A significant item of objective negative evidence considered was the cumulative historical three-year pre-tax loss and a net deferred tax asset position at December 31, 2022, driven primarily by the impairments of evaluated oil and gas properties recognized beginning in the second quarter of 2020 and continuing through the fourth quarter of 2020. This limits the ability to consider other subjective evidence such as the Company’s potential for future growth. Since the second quarter of 2020, based on the evaluation of the evidence available, the Company concluded that it is more likely than not that the net deferred tax assets will not be realized. As of December 31, 2022, the valuation allowance balance is $310.3 million, reducing the net deferred tax assets to zero.
The Company currently believes it is reasonably possible it could achieve a three-year cumulative level of profitability within the next 12 months, which would enhance its ability to conclude that it is more likely than not that the deferred tax assets would be realized and support a release of substantially all or a portion of the valuation allowance. However, the exact timing and amount of the release is unknown at this time. The Company will continue to evaluate whether the valuation allowance is needed in future reporting periods based on available information each reporting period. As long as the Company continues to conclude that the valuation allowance against its net deferred tax assets is necessary, the Company will have no significant deferred income tax expense or benefit. The valuation allowance does not preclude the Company from utilizing the tax attributes if it recognizes taxable income.
Inflation Reduction Act
On August 16, 2022, the Inflation Reduction Act (the “IRA”) was enacted into law and includes significant changes relating to tax, climate change, energy, and health care. The provisions within the IRA, among other things, include (i) a new 15% corporate alternative minimum tax on corporations with average annual adjusted financial statement income over a three-year period in excess of $1.0 billion, (ii) a new nondeductible 1% excise tax on the value of certain stock that a company repurchases, and (iii) various tax incentives for energy and climate initiatives. Each of these provisions are effective for tax years beginning after December 31, 2022. The Department of the Treasury is expected to publish regulations relevant to many aspects of the IRA. The Company is currently awaiting such guidance and continues to evaluate the effect of the new law to its future cash flows and financial results. The Company does not currently believe this will have a material impact on its cash taxes or income tax expense for the 2023 tax year.
Federal Net Operating Losses (“NOLs”) & Interest Limitation Carryforwards
At December 31, 2022, the Company had approximately $1.7 billion of NOLs and a net interest expense carryforward of $355.4 million under Section 163(j) of the Code. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” for additional details.
Uncertain Tax Positions
The Company had no significant unrecognized tax benefits at December 31, 2022. Accordingly, the Company does not have any interest or penalties related to uncertain tax positions. However, if interest or penalties were to be incurred related to uncertain tax positions, such amounts would be recognized in income tax expense. In the Company’s major tax jurisdictions, the earliest year open to examination is 2018.