Income Taxes

12 Months Ended

Dec. 31, 2021

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, 2021 and 2020 is as follows (in thousands).

	December 31,
	2021		2020
Deferred tax assets
Net operating loss carryforwards	$	129,651	$	122,952
Unrealized loss on derivatives	3,729		8,997
Percentage depletion carryover	1,770		1,462
Compensation	9,838		10,405
Lease liabilities	4,866		9,380
Other	9,410		8,334
Total deferred tax assets	159,264		161,530
Valuation allowance on deferred tax assets	(10,599)		(110,681)
Total deferred tax assets, net of valuation allowance	148,665		50,849
Deferred tax liabilities
Property and equipment	(179,153)		(11,879)
Less than wholly-owned subsidiaries	(39,900)		(26,564)
Lease right of use assets	(4,866)		(9,380)
Other	(2,684)		(2,684)
Total deferred tax liabilities	(226,603)		(50,507)
Net deferred tax (liabilities) assets	$	(77,938)	$	342

At December 31, 2021, the Company had net operating loss carryforwards of $555.2 million for federal income tax purposes and $223.3 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.

At December 31, 2020, the Company’s deferred tax assets exceeded its deferred tax liabilities due to the deferred tax assets generated by impairment charges recorded in 2020. As a result, the Company established a valuation allowance against most of the deferred tax assets beginning in the third quarter of 2020. 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. Due to a variety of factors, including the Company’s significant net income in 2021, the Company’s federal valuation allowance was reversed as of September 30, 2021 as the deferred tax assets were determined to be more likely than not to be utilized. As a portion of the Company’s state net operating loss carryforwards are not expected to be utilized before expiration, a valuation allowance will continue to be recognized until the state deferred tax assets are more likely than not to be utilized.

The current income tax provision and the deferred income tax provision for the years ended December 31, 2021, 2020 and 2019 were comprised of the following (in thousands). 

	Year Ended December 31,
	2021		2020		2019
Deferred income tax provision (benefit)
Federal income tax	$	44,883	$	(25,675)	$	29,171
State income tax	29,827		(19,924)		6,361
Net deferred income tax provision (benefit)	$	74,710	$	(45,599)	$	35,532

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, 2021, 2020 and 2019 is as follows (in thousands). 

	Year Ended December 31,
	2021		2020		2019
Federal tax expense (benefit) at statutory rate(1)	$	150,223	$	(125,823)	$	33,441
State income tax	26,646		(20,607)		6,141
Permanent differences	(2,078)		(3,114)		(4,267)
Change in federal valuation allowance	(103,262)		103,262		—
Change in state valuation allowance	3,181		683		217
Net deferred income tax provision (benefit)	74,710		(45,599)		35,532
Total income tax provision (benefit)	$	74,710	$	(45,599)	$	35,532

__________________    

(1)The statutory federal tax rate was 21% for the years ended December 31, 2021, 2020 and 2019.

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 2018. The earliest tax year open for examination for the State of Texas tax return is 2017.

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, 2021, the Company had not established any reserves for, nor recorded any unrecognized benefits related to, uncertain tax positions.