INCOME TAXES

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 15 - INCOME TAXES

The table below presents the components of our provision for income tax (expense) benefit for the periods presented:

	Year Ended December 31,
	2021		2020		2019
	(in thousands)
Current:
Federal	$	—	$	1,592	$	1,366
State	(200)		(220)		(300)
Total current income tax benefit	(200)		1,372		1,066
Deferred:
Federal	(23,790)		5,460		4,507
State	(2,593)		1,070		(2,251)
Total deferred income tax (expense) benefit	(26,383)		6,530		2,256
Income tax (expense) benefit	$	(26,583)	$	7,902	$	3,322

The following table presents a reconciliation of the federal statutory rate to the effective tax rate related to our (expense) benefit for income taxes for the periods presented:

	Year Ended December 31,
	2021		2020		2019
Federal statutory tax rate	21.0	%	21.0	%	21.0	%
State income tax, net	3.2		3.0		3.6
Federal tax credits	—		—		(3.3)
Effect of state income tax rate changes	—		0.2		(6.4)
Change in valuation allowance	(19.8)		(22.1)		(0.6)
Non-deductible compensation	0.3		(0.6)		(5.0)
Non-deductible acquisition costs	—		(0.1)		(2.3)
Non-deductible government relations	0.1		(0.1)		(1.0)
Other non-deductible items	—		—		(0.5)
Other	—		(0.2)		—
Effective tax rate	4.8	%	1.1	%	5.5	%

The effective income tax rates for 2021 and 2020 were 4.8 percent and 1.1 percent on the respective pre-tax income or loss. The effective tax rates of 4.8 percent for 2021 and 1.1 percent for 2020 differ from the amount that would be provided by applying the statutory U.S. federal income tax rate of 21 percent to the pre-tax income or loss due to the valuation allowance in effect at December 31, 2021 and 2020. The effective tax rate of 5.5 percent for 2019 differs from the statutory U.S. federal income tax rate of 21 percent due to state income taxes, non-deductible lobbying expenses, stock-based compensation and nondeductible officers’ compensation.

Tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities as of the dates indicated:

	December 31,
	2021		2020
	(in thousands)
Deferred tax assets:
Deferred compensation	$	9,949	$	10,472
Asset retirement obligations	38,274		39,371
Federal NOL carryforward	97,555		97,880
State NOL and tax credit carryforwards, net	20,266		21,034
Federal tax - credit carryforwards	3,059		3,059
Net change in fair value of unsettled commodity derivatives	88,053		18,351
Prepaid revenue	3,854		4,364
Other	4,454		5,741
Valuation allowance	(56,634)		(165,575)
Total gross deferred tax assets	208,830		34,697
Deferred tax liabilities:
Properties and equipment	235,213		33,183
Convertible debt	—		1,514
Total gross deferred tax liabilities	235,213		34,697
Net deferred tax liability	$	26,383	$	—

We consider whether a portion, or all, of our deferred tax assets (“DTAs”) will be realized based on a more likely than not standard of judgment. The ultimate realization of DTAs is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. At each reporting period, management considers the scheduled reversal of deferred tax liabilities, available taxes in carryback periods, tax planning strategies and projected future taxable income in making this assessment. The oil and gas property impairments and cumulative pre-tax losses were key considerations that led us to continue to provide a valuation allowance against our DTAs as of December 31, 2021 and 2020 since we cannot conclude that it is more likely than not that our DTAs will be fully realized in future periods.

Future events or new evidence which may lead us to conclude that it is more likely than not that our DTAs will be realized include, but are not limited to, cumulative historical pre-tax earnings, sustained or continued improvements in oil prices, and taxable events that could result from one or more transactions. Given recent improvements in oil and gas prices and improvements in our current earnings, we believe there is a reasonable possibility that, if oil and natural gas prices remain similar to December 31, 2021 pricing levels, sufficient positive evidence may become available within the next 12 months to allow us to reach a conclusion that all or a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense in the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change based on the level of profitability that we actually achieve.

As of December 31, 2021, we have estimated net operating loss carryforwards (“NOLs”) for federal income tax purposes of $464.5 million, of which $304 million was generated before January 1, 2018 and is not subject to the 80 percent limitation of taxable income. Such NOLs will expire beginning in 2033. In 2016, we acquired a federal NOL of $60.1 million as a component of our acquisition in the Delaware Basin that will begin to expire in 2033. Also, we acquired a federal NOL of $232.5 million as a component of the SRC Acquisition that will begin to expire in 2037. The federal NOLs acquired as part of the Delaware Basin acquisition and the SRC Acquisition are subject to an annual limitation of $15.1 million and $16.1 million, respectively, as both acquisitions constitute a change of ownership as defined under Internal Revenue Service (“IRS”) Code Section 382.

As of December 31, 2021, we have state NOL carryforwards of $479.4 million that begin to expire in 2029 and state credit carryforwards of $3.9 million that begin to expire in 2022.

Unrecognized tax benefits and related accrued interest and penalties were immaterial for the three-year period ended December 31, 2021. As of December 31, 2021, there is no liability for unrecognized income tax benefits.

We are subject to the following material taxing jurisdictions: U.S., Colorado, West Virginia, and Texas. As of December 31, 2021, we are current with our income tax filings in all applicable state jurisdictions and are not currently under any state income tax examinations. We are open to federal and state tax audits until the applicable statutes of limitations expire, however, the ability for the tax authority to adjust the NOL will continue until three years after the NOL is utilized. The statute of limitations has expired for all federal and state returns filed for periods ending before 2016. The IRS has accepted our 2019 federal income tax return with no tax adjustments. The 2020 federal tax return is currently in the IRS Compliance Assurance Program (the “CAP Program”) post-filing review process. We continue to voluntarily participate in the IRS CAP Program for the review of our 2021 tax year. Participation in the IRS CAP Program has enabled us to have minimal uncertain tax benefits associated with our federal tax return filings. The statutes of limitations for most of our state tax jurisdictions are open for tax years after 2016.