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INCOME TAXES
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company is subject to corporate income taxes and the Texas margin tax. The Company and its subsidiaries, other than Viper, Viper LLC, Rattler and Rattler LLC, file a federal corporate income tax return on a consolidated basis. As discussed further below, Viper is a taxable entity for federal income tax purposes effective May 10, 2018, and as such files a federal corporate income tax return including the activity of its investment in Viper LLC. Subsequent to Rattler’s election to be treated as a corporation for federal income tax purposes effective May 24, 2019, Rattler is also a taxable entity and as such files a federal corporate income tax return including the activity of its investment in Rattler LLC. Viper’s and Rattler’s provision for income taxes is included in the Company’s consolidated income tax provision and, to the extent applicable, in net income attributable to the non-controlling interest.

The Company’s effective income tax rates were 21.7%, 19.1% and 13.0% for the years ended December 31, 2021, 2020 and 2019, respectively. Total income tax expense for the year ended December 31, 2021 differed from amounts computed by applying the United States federal statutory tax rate to pre-tax income for the period primarily due to state income taxes, net of federal benefit. Total income tax benefit for the year ended December 31, 2020 differed from amounts computed by applying the United States federal statutory tax rate to pre-tax loss for the period primarily due to the impact of recording a valuation allowance on Viper’s deferred tax assets, partially offset by state income taxes net of federal benefit and by tax benefit resulting from the carryback of federal net operating losses. Total income tax expense for the year ended December 31, 2019 differed from amounts computed by applying the United States federal statutory tax rate to pre-tax income for the period primarily due to the impact of deferred taxes recognized as a result of Viper’s change in tax status and state income taxes net of federal benefit.

The Company considered the impact of the American Rescue Plan Act, enacted on March 11, 2021, and concluded its provisions related to U.S. income taxes for corporations did not materially affect the Company’s current or deferred tax balances. Under provisions enacted March 27, 2020 in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the Company realized income tax benefit of $25 million in the period of enactment related to the carryback of approximately $179 million of the Company’s federal net operating losses to tax years in which the corporate income tax rate was 35%. Prior to the enactment of the CARES Act in the first quarter of 2020, there was no tax refund available to the Company with respect to its losses, resulting in deferred tax assets associated with federal net operating loss carryforwards at the statutory 21% corporate income tax rate. As a result of the refund associated with such carryback as well as the accelerated refund available for minimum tax credits, the Company received a refund of federal taxes in the first quarter of 2021 of approximately $100 million. In addition, the Company received in the third quarter of 2021 a federal tax refund of approximately $50 million related to refundable minimum tax credits resulting from carryback of certain federal net operating losses acquired from QEP.
The components of the Company’s consolidated provision for income taxes from continuing operations for the years ended December 31, 2021, 2020 and 2019 are as follows:
Year Ended December 31,
202120202019
(In millions)
Current income tax provision (benefit):
Federal$10 $(62)$— 
State15 — — 
Total current income tax provision (benefit)25 (62)— 
Deferred income tax provision (benefit):
Federal594 (1,010)40 
State12 (32)7 
Total deferred income tax provision (benefit)606 (1,042)47 
Total provision for (benefit from) income taxes$631 $(1,104)$47 

A reconciliation of the statutory federal income tax amount from continuing operations to the recorded expense is as follows:
Year Ended December 31,
202120202019
(In millions)
Income tax expense at the federal statutory rate (21%)$610 $(1,213)$76 
Income tax benefit relating to net operating loss carryback— (25)— 
State income tax expense, net of federal tax effect23 (30)6 
Non-deductible compensation10 6 4 
Change in valuation allowance(12)153 — 
Deferred taxes related to change in Viper LP's tax status— — (42)
Other, net— 5 3 
Provision for (benefit from) income taxes$631 $(1,104)$47 
The components of the Company’s deferred tax assets and liabilities as of December 31, 2021 and 2020 are as follows:
December 31,
20212020
(In millions)
Deferred tax assets:
Net operating loss and other carryforwards$682 $524 
Derivative instruments36 60 
Stock based compensation5 7 
Viper's investment in Viper LLC163 150 
Rattler's investment in Rattler LLC40 58 
Other22 8 
Deferred tax assets948 807 
Valuation allowance(315)(166)
Deferred tax assets, net of valuation allowance633 641 
Deferred tax liabilities:
Oil and natural gas properties and equipment1,702 1,156 
Midstream investments224 192 
Other5 3 
Total deferred tax liabilities1,931 1,351 
Net deferred tax liabilities$1,298 $710 

The Company had net deferred tax liabilities of approximately $1.3 billion and $0.7 billion at December 31, 2021 and 2020, respectively.

At December 31, 2021, the Company had approximately $0.5 billion of federal NOLs expiring in 2037 and $2.0 billion of federal NOLs with an indefinite carryforward life, including NOLs acquired from QEP. The Company principally operates in the state of Texas and is subject to Texas Margin Tax, which currently does not include an NOL carryover provision. The Company’s federal tax attributes, including those acquired from QEP, are subject to an annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended, which relates to tax attribute limitations upon the 50% or greater change of ownership of an entity during any three-year look back period. Other than as described below regarding realization of tax attributes acquired from QEP, the Company believes that the application of Section 382 will not have an adverse effect on future usage of the Company’s NOLs and credits.

On March 17, 2021, the Company completed its acquisition of QEP. For federal income tax purposes, the transaction qualified as a nontaxable merger whereby the Company acquired carryover tax basis in QEP’s assets and liabilities. As of December 31, 2021, QEP’s opening balance sheet net deferred tax asset was approximately $40 million, primarily consisting of deferred tax assets related to tax attributes acquired from QEP, partially offset by a valuation allowance, and deferred tax liabilities resulting from the excess of financial reporting carrying value over tax basis of oil and natural gas properties and other assets acquired from QEP. The acquired income tax attributes, including federal net operating loss and credit carryforwards, are subject to an annual limitation under Section 382. The Company has considered the positive and negative evidence regarding realizability of these federal tax attributes including taxable income in prior carryback years, the annual limitation imposed by Section 382, and the anticipated timing of reversal of its deferred tax liabilities, resulting in a valuation allowance of $23 million on the portion of QEP’s federal tax attributes estimated not more likely than not to be realized prior to expiration. Acquired tax attributes also include state net operating loss carryforwards for which a valuation allowance of $117 million has been provided, since the Company does not believe the state net operating losses are more likely than not to be realized based on its assessment of anticipated future operations in those states.

In addition, as of December 31, 2021, the Company had a valuation allowance of $6 million primarily related to certain state NOL carryforwards which the Company does not believe are realizable as it does not anticipate future operations in those states and a valuation allowance of $169 million related to Viper’s deferred tax assets, as discussed further below. Management’s assessment at each balance sheet date included consideration of all available positive and negative evidence including the anticipated timing of reversal of deferred tax liabilities. Management believes that the balance of the
Company’s NOLs are realizable to the extent of future taxable income primarily related to the excess of book carrying value of properties over their respective tax bases. As of December 31, 2021, management determined that it is more likely than not that the Company will realize its remaining deferred tax assets.

At December 31, 2021, the Company’s net deferred tax liabilities include deferred tax assets of approximately $6 million related to Viper’s NOL carryforwards and approximately $163 million related to Viper’s investment in Viper LLC. Subsequent to Viper’s change in tax status, deferred taxes are provided on the difference between Viper’s basis for financial accounting purposes and basis for federal income tax purposes in its investment in Viper LLC. As of December 31, 2021, Viper had federal NOL carryforwards of approximately $29 million which may be carried forward indefinitely to offset future taxable income.

As of December 31, 2021, Viper had a valuation allowance of approximately $169 million related to deferred tax assets that Viper does not believe are more likely than not to be realized. Management considers the likelihood that Viper’s NOLs and other deferred tax attributes will be utilized prior to their expiration, if applicable. The determination to record a valuation allowance was based on Management’s assessment of all available evidence, both positive and negative, supporting realizability of Viper’s deferred tax assets as required by applicable accounting standards. In light of those criteria for recognizing the tax benefit of deferred tax assets, the assessment resulted in application of a valuation allowance against Viper’s federal deferred tax assets as of March 31, 2020 and subsequent balance sheet dates within the years ended December 31, 2020 and 2021.

As discussed further in Note 6—Rattler Midstream LP, on May 28, 2019, Rattler completed its initial public offering. Even though Rattler is organized as a limited partnership under state law, Rattler is subject to U.S. federal and state income tax at corporate rates, subsequent to the effective date of Rattler’s election to be treated as a corporation for U.S. federal income tax purposes. As such, Rattler’s provision for income taxes is included in the Company’s consolidated financial statements and to the extent applicable, in net income attributable to the non-controlling interest.

At December 31, 2021, the Company’s net deferred tax liabilities include deferred tax assets of approximately $23 million related to Rattlers NOL carryforwards and approximately $40 million related to Rattler’s investment in Rattler LLC. At December 31, 2021, Rattler had federal net operating loss carryforwards of approximately $108 million which may be carried forward indefinitely to offset future taxable income.

Management considers the likelihood that Rattler’s NOLs and other deferred tax attributes will be utilized prior to their expiration, if applicable. At December 31, 2021, Rattler’s assessment included consideration of all available positive and negative evidence, including Rattler’s projected future taxable income and the anticipated timing of reversal of deferred tax assets. As a result of the assessment, management determined that it is more likely than not that Rattler will realize its deferred tax assets as of December 31, 2021.

The following table sets forth changes in the Company’s unrecognized tax benefits:
December 31,
20212020
(In millions)
Balance at beginning of year$7 $7 
Increase resulting from prior period tax positions— — 
Increase resulting from current period tax positions— — 
Balance at end of year7 7 
Less: Effects of temporary items(4)(5)
Total that, if recognized, would impact the effective income tax rate as of the end of the year$3 $2 

The Company recognizes the tax benefit from a tax position only if it is more likely than not that it will be sustained upon examination by the taxing authorities, based upon the technical merits of the position. The Company’s federal and state income tax returns for 2012 through the current tax year remain open and subject to examination by the IRS and major state taxing jurisdictions. Energen is currently under IRS examination of its federal consolidated income tax returns for 2014 and 2016. Accordingly, it is reasonably possible that significant changes to the reserve for uncertain tax positions may occur as a result of various audits and the expiration of the statute of limitations. Although the timing and outcome of tax examinations
is highly uncertain, the Company does not expect the change in unrecognized tax benefit within the next 12 months would have a material impact to the financial statements.The Company is continuing its practice of recognizing interest and penalties related to income tax matters as interest expense and general and administrative expenses, respectively. During the years ended December 31, 2021 and 2020, there was less than $0.2 million of interest and no penalties related to each period associated with uncertain tax positions recognized in the Company’s consolidated financial statements.