Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

Deferred tax assets and liabilities are the result of temporary differences between the financial statement carrying values and the tax bases of assets and liabilities. The Company’s net deferred tax position as of December 31, 2020 and 2019 is as follows (in thousands).

	December 31,
	2020		2019
Deferred tax assets
Net operating loss carryforwards	$	122,952	$	119,900
Unrealized loss on derivatives	8,997		960
Percentage depletion carryover	1,462		1,467
Compensation	10,405		13,690
Lease liabilities	9,380		17,107
Other	8,334		8,139
Total deferred tax assets	161,530		161,263
Valuation allowance on deferred tax assets	(110,681)		(6,736)
Total deferred tax assets, net of valuation allowance	50,849		154,527
Deferred tax liabilities
Property and equipment	(11,879)		(151,504)
Less than wholly-owned subsidiaries	(26,564)		(20,604)
Lease right of use assets	(9,380)		(17,107)
Other	(2,684)		(2,641)
Total deferred tax liabilities	(50,507)		(191,856)
Net deferred tax assets (liabilities)	$	342	$	(37,329)

At December 31, 2020, the Company had net operating loss carryforwards of $541.9 million for federal income tax purposes and $161.0 million for state income tax purposes available to offset future taxable income, as limited by the applicable provisions, and which expire at various dates beginning in 2027 for the federal net operating loss carryforwards. The state net operating loss carryforwards begin expiring at various dates beginning in 2024; however, the significant portion of the Company’s state net operating loss carryforwards expire beginning in 2027.

As a result of the net capitalized costs of the Company’s oil and natural gas properties less related deferred income taxes exceeding the full-cost ceiling during the year ended December 31, 2020, the Company recorded an impairment charge of $684.7 million, exclusive of tax effect, to the net capitalized costs of its oil and natural gas properties. Due to these impairment charges, at December 31, 2020, the Company’s deferred tax assets exceeded its deferred tax liabilities. As a result, the Company established a valuation allowance against most of the deferred tax assets. The remaining net deferred tax asset at December 31, 2020 relates to state taxes, for which the deferred taxes were determined to be more likely than not to be utilized.

 The current income tax provision and the deferred income tax provision for the years ended December 31, 2020, 2019 and 2018 were comprised of the following (in thousands). 

	Year Ended December 31,
	2020		2019		2018
Current income tax (benefit) provision
Federal income tax	$	—	$	—	$	(455)
State income tax	—		—		—
Net current income tax benefit	$	—	$	—	$	(455)
Deferred income tax (benefit) provision
Federal income tax	$	(25,675)	$	29,171	$	(20,457)
State income tax	(19,924)		6,361		13,221
Net deferred income tax (benefit) provision	$	(45,599)	$	35,532	$	(7,236)

Reconciliations of the tax expense (benefit) computed at the statutory federal rate to the Company’s total income tax provision (benefit) for the years ended December 31, 2020, 2019 and 2018 is as follows (in thousands). 

	Year Ended December 31,
	2020		2019		2018
Federal tax (benefit) expense at statutory rate(1)	$	(125,823)	$	33,441	$	61,543
State income tax	(20,607)		6,141		16,181
Permanent differences	(3,114)		(4,267)		(2,488)
AMT credit refundable	—		—		455
Change in federal valuation allowance	103,262		—		(80,003)
Change in state valuation allowance	683		217		(2,924)
Net deferred income tax (benefit) provision	(45,599)		35,532		(7,236)
Net current income tax benefit	—		—		(455)
Total income tax (benefit) provision	$	(45,599)	$	35,532	$	(7,691)

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(1)The statutory federal tax rate was 21% for the years ended December 31, 2020, 2019 and 2018.

The Company files a United States federal income tax return and several state tax returns, a number of which remain open for examination. The earliest tax year open for examination for the federal, the State of New Mexico and the State of Louisiana tax returns is 2017. The earliest tax year open for examination for the State of Texas tax return is 2016.

The Company has evaluated all tax positions for which the statute of limitations remains open and believes that the material positions taken would more likely than not be sustained by examination. Therefore, at December 31, 2020, the Company had not established any reserves for, nor recorded any unrecognized benefits related to, uncertain tax positions.