INCOME TAXES

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 14 - INCOME TAXES

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

	Year Ended December 31,
	2022		2021		2020
	(in thousands)
Current:
Federal	$	(400)	$	—	$	1,592
State	(900)		(200)		(220)
Total current income tax benefit	(1,300)		(200)		1,372
Deferred:
Federal	(385,300)		(23,790)		5,460
State	(67,600)		(2,593)		1,070
Total deferred income tax (expense) benefit	(452,900)		(26,383)		6,530
Income tax (expense) benefit	$	(454,200)	$	(26,583)	$	7,902

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,
	2022		2021		2020
Federal statutory tax rate	21.0	%	21.0	%	21.0	%
State income tax, net	2.4		3.2		3.0
Change in valuation allowance	(2.0)		(19.8)		(22.1)
Other	(1.1)		0.4		(0.8)
Effective tax rate	20.3	%	4.8	%	1.1	%

The effective income tax rates for 2022, 2021 and 2020 were 20.3 percent, 4.8 percent and 1.1 percent on the respective pre-tax income or loss. The effective tax rates 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 state income taxes and changes in the valuation allowance against our deferred income tax asset.

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,
	2022		2021
	(in thousands)
Deferred tax assets:
Fair value of unsettled commodity derivatives	$	64,622	$	88,053
Asset retirement obligations	47,919		38,274
Federal NOL carryforward	84,323		97,555
State NOL and tax credit carryforwards, net	16,190		20,266
Federal tax - credit carryforwards	3,555		3,059
Deferred compensation	7,985		9,949
Other	8,407		8,308
Valuation allowance	—		(56,634)
Total gross deferred tax assets	233,001		208,830
Deferred tax liabilities:
Properties and equipment	740,684		235,213
Net deferred tax liability	$	507,683	$	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 available taxes in carryback periods, the future reversals of existing taxable temporary differences, 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 provide a valuation allowance against our DTAs beginning January 1, 2020 since we previously could not conclude that it is more likely than not that our DTAs will be fully realized in future periods.

As we previously disclosed, we maintained a valuation allowance on our federal deferred tax assets and continued to do so until sufficient positive evidence existed to support a reversal of the allowance. In 2022, continued higher commodity prices increased our income, resulting in the reversal of objective negative evidence of cumulative loss in recent years, and we determined that we had sufficient positive evidence to release the valuation allowance. As a result, we released in full the valuation allowance against our deferred income tax assets of $56.6 million and recognized a corresponding decrease to income tax expense.

As of December 31, 2022, we have estimated net operating loss carryforwards (“NOLs”) for federal income tax purposes of $401.5 million, of which $201.3 million was generated before January 1, 2018 and will begin to expire in 2037. In

2020, we acquired a federal NOL of $232.5 million as a component of the SRC Acquisition. This NOL is subject to an annual limitation of $16.1 million, as the acquisition constituted a change of ownership for SRC as defined under Internal Revenue Service (“IRS”) Code Section 382.

As of December 31, 2022, we have state NOL carryforwards of $331.2 million that begin to expire in 2029 and state credit carryforwards of $4.5 million that begin to expire in 2023.

Unrecognized tax benefits and related accrued interest and penalties were immaterial for the three-year period ended December 31, 2022. As of December 31, 2022, there is no liability for unrecognized income tax benefits.

We are subject to the following material taxing jurisdictions: U.S., Colorado and Texas. As of December 31, 2022, 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 2017. The IRS has accepted our 2020 and 2021 federal income tax returns with no tax adjustments. We continue to voluntarily participate in the IRS CAP Program. For 2022, we are in the Bridge Phase of the CAP, which means that the IRS will not be examining the 2022 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 2017.

In August 2022, the Inflation Reduction Act (“IRA”) was signed into law. The IRA includes implementation of a new alternative minimum tax, an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives, among other provisions. The alternative minimum tax and excise tax on stock buyback provisions are effective for tax years beginning after December 31, 2022. We continue to monitor updates to the IRA and the impact to our financial position, results of operations and liquidity. We do not believe it will have a material impact on our stock buyback program or our financial position in 2023, however, we are still assessing the impact for subsequent years.