Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes

Income Taxes

(13) Income Taxes

The Company’s income tax expense (benefit) consisted of the following (in thousands):

	Year Ended December 31,
	2020		2021		2022
Current income tax expense (benefit)	$	(209)		216		847
Deferred income tax expense (benefit)		(397,273)		(74,293)		447,845
Total income tax expense (benefit)	$	(397,482)		(74,077)		448,692

Income tax expense (benefit) differs from the amount that would be computed by applying the U.S. statutory federal income tax rate of 21% to income or loss before taxes as a result of the following (in thousands):

	Year Ended December 31,
	2020		2021		2022
Federal income tax expense (benefit)	$	(348,158)		(47,919)		519,679
State income tax expense (benefit), net of federal effect		(50,584)		(6,576)		12,461
Change in state tax rate, net of federal effect		2,291		(30,910)		(52,747)
Equity-based compensation		4,490		1,117		(9,717)
Dividends received deduction		(4,013)		(3,832)		(1,749)
Noncontrolling interests		(1,801)		(7,862)		(27,347)
Change in valuation allowance		789		4,606		7,070
Nondeductible loss on 2026 Convertible Notes equitizations and inducement		—		12,174		36
Other		(496)		5,125		1,006
Total income tax expense (benefit)	$	(397,482)		(74,077)		448,692

Deferred income taxes reflect the impact of temporary differences between assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. The tax effect of the temporary differences giving rise to net deferred tax assets and liabilities is as follows (in thousands):

	December 31,
	2021		2022
Deferred tax assets:
NOL carryforwards	$	569,523		282,829
Equity-based compensation		2,462		3,362
Investment in Antero Midstream		297,893		254,164
Unrealized losses on derivative instruments		158,779		83,269
Asset retirement obligations and other		15,051		15,859
Total deferred tax assets		1,043,708		639,483
Valuation allowance		(50,304)		(57,375)
Net deferred tax assets		993,404		582,108
Deferred tax liabilities:
Oil and gas properties		1,254,182		1,295,847
Investment in Martica		51,166		45,507
2026 Convertible Notes and other		6,182		615
Total deferred tax liabilities		1,311,530		1,341,969
Net deferred tax liabilities	$	(318,126)		(759,861)

In assessing the realizability of deferred tax assets, management considers whether some portion or all of the deferred tax assets will be realized based on a more-likely-than-not standard of judgment. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the Company’s temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the projections of future taxable income over the periods in which the deferred tax assets are deductible, management believes that the Company will not realize the benefits of certain of these deductible differences and has recorded a valuation allowance of approximately $50 million and $57 million as of December 31, 2021 and 2022, respectively. The valuation allowance as of December 31, 2021 and 2022, relates to Colorado, Oklahoma and West Virginia state NOL carryforwards and is primarily the result of expected future reduced income tax apportionment in those states. The amount of the deferred tax asset considered realizable could be further reduced in the near term if estimates of future taxable income during the carryforward period are revised.

The calculation of the Company’s tax liabilities involves uncertainties in the application of complex tax laws and regulations. The Company gives financial statement recognition to those tax positions that it believes are more-likely-than-not to be sustained upon examination by the Internal Revenue Service or state revenue authorities. The Company monitors potential uncertain tax positions but does not anticipate any changes in 2023. The Company has no unrecognized tax benefit balances through December 31, 2022.

As of December 31, 2022, the Company has U.S. federal and state NOL carryforwards of $1.0 billion and $1.9 billion, respectively, exclusive of the valuation allowances discussed above. The U.S. federal and West Virginia NOL carryforwards generated in tax years prior to 2018 expire between 2036 and 2037. The Colorado NOL carryforwards generated in tax years prior to 2018 expire between 2024 and 2041. For tax years 2018 and thereafter, NOL carryforwards generated in these jurisdictions have no expiration date. The Pennsylvania NOL carryforwards expire between 2038 and 2041.

Tax years 2019 through 2022 remain open to examination by the U.S. Internal Revenue Service. The Company and its subsidiaries file tax returns with various state taxing authorities and those returns remain open to examination for tax years 2018 through 2022.