Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 11 — Income Taxes

Income Tax Expense (Benefit)

The components of income tax expense (benefit) were as follows (in thousands):

	Year Ended December 31,
	2023			2022		2021
Current income tax expense (benefit):
United States	$	76		$	1,375	$	(5	)
Mexico		31			432		(993	)
Total current income tax expense (benefit)	$	107		$	1,807	$	(998	)
Deferred income tax expense (benefit):
United States	$	(60,704	)	$	659	$	(1,067	)
Mexico		—			71		430
Total deferred income tax expense (benefit)	$	(60,704	)	$	730	$	(637	)
Total income tax expense (benefit)	$	(60,597	)	$	2,537	$	(1,635	)

A reconciliation of income tax expense (benefit) computed at the U.S. federal statutory tax rate to the Company’s income tax expense (benefit) is as follows (in thousands, except percentages):

	Year Ended December 31,
	2023			2022			2021
Income tax expense (benefit) at the federal statutory tax rate	$	26,614		$	80,735		$	(38,763	)
State income taxes		1,748			1,591			(674	)
Impact of foreign operations		13,539			15,657			(11,920	)
Effect of change in state rate		—			—			2,008
Prior year taxes		1,184			(2,920	)		486
Change in valuation allowance		(106,815	)		(96,537	)		45,547
Other permanent differences		3,133			4,011			1,681
Total income tax expense (benefit)	$	(60,597	)	$	2,537		$	(1,635	)
Effective tax rate		(47.81	)%		0.66	%		0.89	%

The Company’s effective tax rate for the year ended December 31, 2023 differed from the federal statutory rate of 21.0% primarily due to a non-cash tax benefit of $106.8 million related to the release of the valuation allowance for its deferred tax assets offset with permanent differences and state income tax expense.

The Company’s effective tax rate for the years ended December 31, 2022 and 2021 differed from the federal statutory rate of 21.0% primarily due to recording a full valuation allowance against its federal, state and foreign deferred tax assets.

Deferred Tax Assets and Liabilities

Net deferred tax assets (liabilities) 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. Significant components of deferred tax assets and liabilities were as follows (in thousands):

	Year Ended December 31,
	2023			2022
Deferred tax assets:
Federal net operating loss	$	147,252		$	159,257
Foreign tax loss carryforward		509			44,462
State net operating loss		24,840			24,787
Tax credits		107			107
Interest expense carryforward		46,414			23,262
Asset retirement obligations		190,248			115,848
Derivatives		—			9,273
Other well equipment		1,317			1,891
Accrued bonus		5,050			5,863
Share-based compensation		5,172			5,296
Operating lease liabilities		4,427			3,669
Finance lease liabilities		31,607			32,559
Other		3,383			7,142
Total deferred tax assets		460,326			433,416
Valuation allowance		(23,697	)		(129,105	)
Total deferred tax assets, net	$	436,629		$	304,311
Deferred tax liabilities:
Oil and gas properties	$	512,918		$	302,602
Operating lease assets		2,421			1,323
Derivatives		9,670			—
Prepaid		3,847			2,530
Total deferred tax liabilities		528,856			306,455
Net deferred tax liability	$	(92,227	)	$	(2,144	)

Net Operating Loss

The table below presents the details of the Company’s net operating loss carryovers as of December 31, 2023 (in thousands):

	Amount		Expiration Year
Federal net operating losses	$	452,393	2035 - 2037
Federal net operating losses	$	248,807	Unlimited
Foreign tax loss carryforward	$	1,696	2025 - 2032
State net operating losses	$	125,958	2025 - 2037
State net operating losses	$	277,930	Unlimited

As of December 31, 2023, the Company had U.S. federal net operating loss carryforwards (“NOLs”) of approximately $701.2 million, all of which are subject to limitation under Section 382 of the IRC. IRC Section 382 provides an annual limitation with respect to the ability of a corporation to utilize its tax attributes, against future U.S. taxable income in the event of a change in ownership. If not utilized, such carryforwards would begin to expire at the end of 2035.

Valuation Allowance

The Company recorded a valuation allowance of $23.7 million and $129.1 million as of December 31, 2023 and 2022, respectively. Deferred income tax assets and liabilities are recorded related to NOLs and temporary differences between the book and tax basis of assets and liabilities expected to produce tax deductions and income in the future. The realization of these assets depends on recognition of sufficient future taxable income in specific tax jurisdictions in which those temporary differences or NOLs relate.

In assessing the need for a valuation allowance, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized using available positive and negative evidence, including future reversals of temporary differences, tax-planning strategies and future taxable income, to estimate whether sufficient future taxable income will be generated to permit use of deferred tax assets. A significant piece of objective negative evidence evaluated is the cumulative loss incurred over recent years. Such objective negative evidence limits the Company’s ability to consider other subjective positive evidence.

At December 31, 2022, the Company maintained a valuation allowance related to federal, state and foreign deferred tax assets, as there was insufficient positive evidence to overcome the substantial negative evidence of being in a cumulative loss position. At December 31, 2023, the Company is no longer in a cumulative loss position and reached the conclusion that it is appropriate to release the valuation allowance against its federal deferred tax assets due to the sustained positive operating performance and the availability of expected future taxable income. The Company’s remaining valuation allowance primarily relates to various state operating loss carryforwards.

Uncertain Tax Positions

The table below sets forth the beginning and ending balance of the total amount of unrecognized tax benefits. None of the unrecognized benefits would impact the effective tax rate if recognized. While amounts could change during the next 12 months, the Company does not anticipate having a material impact on its financial statements.

Balances in the uncertain tax positions are as follows (in thousands):

	Year Ended December 31,
	2023		2022		2021
Total unrecognized tax benefits, beginning balance	$	835	$	696	$	648
Increases in unrecognized tax benefits as a result of:
Tax positions taken during a prior period		154		100		21
Tax positions taken during the current period		—		39		27
Total unrecognized tax benefits, ending balance	$	989	$	835	$	696

The Company recognizes interest and penalties related to uncertain tax positions as “Interest Expense” and “General and administrative expense” on the Consolidated Statements of Operations, respectively.

Years Open to Examination

The 2020 through 2023 tax years remain open to examination by the tax jurisdictions in which the Company is subject to tax. The statute of limitations with respect to the U.S. federal income tax returns of the Company for years ending on or before December 31, 2019 are closed, except to the extent of any NOL carryover balance.

EnVen Acquisition

On February 13, 2023, the Company completed the EnVen Acquisition, which is further discussed in Note 3 —Acquisitions and Divestitures. The Company recognized a net deferred tax liability of $150.3 million in its purchase price allocation as of the acquisition date to reflect differences between tax basis and the fair value of EnVen’s assets acquired and liabilities assumed. The deferred tax balance is based on preliminary calculations and on information available to management at the time such estimates were made.