INCOME TAXES

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Deferred tax assets and liabilities are measured by applying the provisions of enacted tax laws to determine the amount of taxes payable or refundable currently or in future years related to cumulative temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying balance sheets. The tax effect of the net change in the cumulative temporary differences during each period in the deferred tax assets and liabilities determines the periodic provision for deferred taxes.

The following table outlines the Federal net operating loss (“NOL”) carryforwards acquired and deferred tax assets and liabilities recorded as a result of the mergers that closed in 2021 (in millions):

	HighPoint Merger		Extraction Merger		Crestone Peak Merger
Federal NOL carryforwards	$	219.0	$	479.9	$	555.7
Deferred tax asset (liability)	$	110.5	$	49.2	$	(125.1)
Valuation allowance	(48.1)		—		—
Net	$	62.4	$	49.2	$	(125.1)

The Company assesses the recoverability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will be realized. In making such determination, the Company considers all available (both positive and negative) evidence, including future reversals of temporary differences, tax-planning strategies, projected future taxable income, and results of operations. As a result of the HighPoint Merger, the Company recorded a valuation allowance of $48.1 million during 2021 against certain acquired net operating losses and other tax attributes due to the limitation on realizability caused by the change of ownership provisions of Section 382 of the Code. The net deferred tax liability as of September 30, 2022 was $221.9 million, and the net deferred tax asset as of December 31, 2021 was $22.3 million. Additionally, income tax payable under current liabilities as of September 30, 2022 was $18.9 million. The Company will continue to monitor facts and circumstances in the reassessment of the likelihood that the deferred tax assets will be realized.

Federal income tax expense differs from the amount that would be provided by applying the statutory United States federal income tax rate of 21% to income before income taxes primarily due to the effect of state income taxes, equity-based compensation, and other permanent differences including bargain purchase gain. During the three months ended September 30, 2022 and 2021, the Company recorded income tax expense of $136.3 million and $15.6 million, respectively. During the nine months ended September 30, 2022 and 2021, the Company recorded income tax expense of $312.2 million and $5.2 million, respectively.

The Company had no unrecognized tax benefits as of September 30, 2022 and December 31, 2021. The Company’s management does not believe that there are any new items or changes in facts or judgments that would impact the Company’s tax position taken thus far in 2022.

On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law. Among other provisions, the IRA imposes a 15% corporate alternative minimum tax (“Corporate AMT”) for tax years beginning after December 31, 2022, imposes a 1% excise tax on corporate stock repurchases after December 31, 2022, and provides tax incentives to promote various energy efficient initiatives. The Company is evaluating the potential impact of the Corporate AMT on our current income tax expense and income taxes payable; however, we currently do not believe this will materially affect our income taxes paid for the 2023 tax year.