Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.24.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes 
The components of the Company’s income tax expense are as follows:
Years Ended December 31,
2023
2022*
2021*
(In thousands)
Current
Federal ($2,271) $2,977  $— 
State (266) 4,537  180 
Total current income tax expense (benefit)
 (2,537) 7,514  180 
Deferred
Federal (188,911) —  — 
State 1,640  6,308  — 
Total deferred income tax expense (benefit)
 (187,271) 6,308  — 
Total income tax expense (benefit)
 ($189,808) $13,822  $180 
*Financial information for the prior period has been recast to reflect retrospective application of the successful efforts method of accounting. See “Note 2 - Summary of Significant Accounting Policies” for additional information.
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,
2023
2022*
2021*
(In thousands)
Income before income taxes
 $211,393  $1,033,265  $133,741 
Income tax expense computed at the statutory federal income tax rate
 44,393  216,986  28,086 
State income tax expense (benefit), net of federal benefit 1,430  11,393  2,905 
Non-deductible expenses related to capital structure transactions —  (2,896) (11,875)
Equity based compensation 385  (1,496) 564 
Other 2,364  (1,223) 10,247 
Change in valuation allowance (238,380) (208,942) (29,747)
Income tax expense (benefit)
 ($189,808) $13,822  $180 
*Financial information for the prior period has been recast to reflect retrospective application of the successful efforts method of accounting. See “Note 2 - Summary of Significant Accounting Policies” for additional information.
The income tax benefit of $189.8 million for the year ended December 31, 2023 differs from income tax expense as calculated using the federal statutory rate primarily as a result of releasing the valuation allowance that was recorded against the Company’s net deferred tax assets. See “— Deferred Tax Asset Valuation Allowance” below for additional details.
As of December 31, 2023 and 2022, the net deferred income tax assets and liabilities are comprised of the following:
As of December 31,
2023
2022*
(In thousands)
Deferred tax assets
Federal net operating loss carryforward and credits
 $412,401  $359,784 
Net interest expense limitation 84,202  74,628 
Derivative instruments 6,507  12,758 
Operating lease right-of-use assets 15,724  13,180 
Asset retirement obligations 10,165  13,049 
Unvested RSU equity awards 6,214  5,391 
Other 4,260  11,675 
Total deferred tax assets $539,473  $490,465 
Deferred income tax valuation allowance —  (238,380)
Net deferred tax assets $539,473  $252,085 
Deferred tax liability
Oil and natural gas properties ($346,050) ($248,508)
Operating lease liabilities (12,460) (9,885)
Total deferred tax liability ($358,510) ($258,393)
Net deferred tax asset (liability) $180,963  ($6,308)
*Financial information for the prior period has been recast to reflect retrospective application of the successful efforts method of accounting. See “Note 2 - Summary of Significant Accounting Policies” for additional information.
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. Beginning in the second quarter of 2020 and through the fourth quarter of 2022, the Company maintained a valuation allowance against its net deferred tax assets. Considering all available evidence (both positive and negative), the Company concluded that it was more likely than not that the deferred tax assets would be realized and released the valuation allowance in the first quarter of 2023. This release resulted in deferred income tax benefit of $187.3 million for the year ended December 31, 2023.
Federal Net Operating Losses (“NOLs”) & Interest Limitation Carryforwards
Due to the issuance of common stock pursuant to the acquisition of Carrizo, the Company incurred a cumulative ownership change, and as such, the Company’s NOLs prior to the acquisition are subject to a combined annual limitation under the IRC Section 382 in the amount of $32.2 million, which is comprised of $15.7 million of Carrizo’s NOLs and $16.5 million of Callon’s NOLs. At December 31, 2023, the Company had approximately $2.0 billion of NOLs of which $399.3 million expire between 2034 and 2037 and $1.5 billion have an indefinite carryforward life. The Company also has a net interest expense carryforward of $401.0 million under Section 163(j) of the Code, subject to indefinite carryforward.
Uncertain Tax Positions
During 2023, the Company recorded a $4.1 million reserve for unrecognized tax benefits related to estimated current year research and development tax credits. If recognized, the net tax benefit of $4.1 million would not have a material effect on the Company's effective tax rate. The Company recognized an immaterial amount of interest associated with the uncertain tax position in income tax expense.
In the Company’s major tax jurisdictions, the earliest year open to examination is 2019.