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Income Taxes | 12 Months Ended
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Dec. 31, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The following table summarizes the Company's income tax expense.
| Years Ended December 31,
| 2024 |  | 2023 |  | 2022
| (Thousands)
Current: |  |  |  |  |
Federal | $ | 1,222 |  |  | $ | (10,894) |  |  | $ | 651 |
State | 6,125 |  |  | (4,818) |  |  | 18,457 |
Subtotal | 7,347 |  |  | (15,712) |  |  | 19,108 |
Deferred: |  |  |  |  |
Federal | (21,463) |  |  | 450,091 |  |  | 527,539 |
State | 36,195 |  |  | (65,425) |  |  | 7,073 |
Subtotal | 14,732 |  |  | 384,666 |  |  | 534,612 |
Total income tax expense | $ | 22,079 |  |  | $ | 368,954 |  |  | $ | 553,720 |
For the year ended December 31, 2024, current income tax expense is composed of state and federal income tax liabilities. For the year ended December 31, 2023, current income tax benefit related primarily to 2014 through 2017 audit settlement interest and reduction in prior year state income tax liabilities. For the year ended December 31, 2022, current income tax expense related primarily to state income tax liabilities. On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (IRA). The IRA establishes a 15% corporate alternative minimum tax for certain corporations and a 1% excise tax on stock repurchases made by publicly traded U.S. corporations. The IRA also includes new and renewed options for energy credits. These changes are effective for tax years beginning after December 31, 2022. The impact of these changes did not have a material impact on the Company's financial statements and disclosures. The table below summarizes the reasons for income tax expense differences from amounts computed at the federal statutory rate of 21% on pre-tax income.
| Years Ended December 31,
| 2024 |  | 2023 |  | 2022
| Amount |  | Rate |  | Amount |  | Rate |  | Amount |  | Rate
| (Thousands) |  |  |  | (Thousands) |  |  |  | (Thousands) |  |
Income before income taxes | $ | 264,194 |  |  |  |  | $ | 2,103,498 |  |  |  |  | $ | 2,334,662 |  |  |
Tax at statutory rate | $ | 55,481 |  |  | 21.0% |  | $ | 441,735 |  |  | 21.0% |  | $ | 490,279 |  |  | 21.0%
State income taxes | 5,440 |  |  | 2.1% |  | 50,263 |  |  | 2.4% |  | 48,970 |  |  | 2.1%
Valuation allowance | (9,601) |  |  | (3.6)% |  | (81,483) |  |  | (3.9)% |  | 12,685 |  |  | 0.5%
Convertible Notes repurchase premium | — |  |  | —% |  | — |  |  | —% |  | 35,957 |  |  | 1.5%
Uncertain tax positions | (16,977) |  |  | (6.4)% |  | (7,015) |  |  | (0.3)% |  | 11,135 |  |  | 0.5%
State law change | (11,315) |  |  | (4.3)% |  | (21,670) |  |  | (1.0)% |  | (49,511) |  |  | (2.1)%
Federal and state tax credits | (6,537) |  |  | (2.5)% |  | (4,715) |  |  | (0.2)% |  | (4,319) |  |  | (0.2)%
Transaction costs | 6,041 |  |  | 2.3% |  | — |  |  | —% |  | — |  |  | —%
Other | (453) |  |  | (0.2)% |  | (8,161) |  |  | (0.4)% |  | 8,524 |  |  | 0.4%
Income tax expense | $ | 22,079 |  |  | 8.4% |  | $ | 368,954 |  |  | 17.5% |  | $ | 553,720 |  |  | 23.7%
The Company's effective tax rate for the year ended December 31, 2024 was lower compared to the U.S. federal statutory rate due primarily to the release of valuation allowances related to capital loss carryforward utilization, expiration of a statute of limitations related to uncertain tax positions, inclusive of interest, and net state deferred tax benefit related to a rate reduction from a Pennsylvania tax law change enacted on July 8, 2022 (the Pennsylvania Tax Legislation). The Pennsylvania Tax Legislation lowered the corporate net income tax rate from 8.99% to 8.49% in 2024 and continues to lower the corporate net income tax rate by 0.5% annually thereafter until the corporate net income tax rate reaches 4.99% in 2031. The rate reductions were partly offset by valuation allowances limiting certain state income tax benefits and non-deductible transaction costs incurred with the Equitrans Midstream Merger. The Company's effective tax rate for the year ended December 31, 2023 was lower compared to the U.S. federal statutory rate due primarily to the release of valuation allowances limiting certain state deferred tax assets and net state deferred tax benefit related to a rate reduction from the Pennsylvania Tax Legislation and the Tug Hill and XcL Midstream Acquisition. The Pennsylvania Tax Legislation lowered the corporate net income tax rate from 9.99% to 8.99% in 2023. The Company's effective tax rate for the year ended December 31, 2022 was higher compared to the U.S. federal statutory rate due primarily to state income taxes, including valuation allowances limiting certain state income tax benefits and nondeductible repurchase premiums on the Convertible Notes (defined in Note 10), partly offset by state income tax benefits related to the Pennsylvania Tax Legislation. Included in the state law change was a decrease in state net operating loss (NOL) carryforwards of $214.1 million and a decrease in state valuation allowance on NOL carryforwards of $198.5 million. The following table summarizes the source and tax effects of temporary differences between financial reporting and tax bases of assets and liabilities.
| December 31,
| 2024 |  | 2023
| (Thousands)
Deferred tax assets: |  |  |
NOL carryforwards | $ | 708,518 |  |  | $ | 740,802 |
Interest disallowance limitation | 106,622 |  |  | 59,668 |
Federal tax credits | 89,644 |  |  | 92,730 |
Net unrealized losses | 80,723 |  |  | — |
State capital loss carryforward | 44,496 |  |  | 99,632 |
Incentive compensation and deferred compensation plans | 18,032 |  |  | 16,854 |
Other | 2,433 |  |  | 1,156 |
Deferred tax assets | 1,050,468 |  |  | 1,010,842 |
Valuation allowance | (257,218) |  |  | (290,812) |
Net deferred tax asset | 793,250 |  |  | 720,030 |
Deferred tax liabilities: |  |  |
Property, plant and equipment | (2,516,074) |  |  | (2,457,946) |
Investment in partnerships | (1,128,279) |  |  | — |
Net unrealized gains | — |  |  | (166,905) |
Deferred tax liability | (3,644,353) |  |  | (2,624,851) |
Net deferred tax liability | $ | (2,851,103) |  |  | $ | (1,904,821) |
During 2024, the net deferred tax liability increased by $946.3 million compared to 2023 due primarily to the additional deferred tax liability related to the Company's investment in EQM (treated as a partnership for tax purposes) and the additional deferred tax liabilities that arose from the fair value accounting of net assets acquired in the Equitrans Midstream Merger, partly offset by an increase in net unrealized losses. The following table presents the expiration periods of the NOL carryforward deferred tax assets and associated valuation allowance by jurisdiction.
| December 31,
| 2024 |  | 2023
| (Thousands)
NOL carryforwards: |  |  |
Federal (expires between 2032 and 2037) | $ | 14,644 |  |  | $ | 67,958 |
Federal (indefinite expiration) | 322,258 |  |  | 323,598 |
State (expires between 2025 and 2037) | 347,279 |  |  | 332,153 |
State (indefinite expiration) | 24,337 |  |  | 17,093 |
Total NOL carryforwards | $ | 708,518 |  |  | $ | 740,802 |
Valuation allowance on NOL carryforwards: |  |  |
Federal | $ | (14,263) |  |  | $ | (24,927) |
State | (187,321) |  |  | (156,700) |
Total valuation allowance on NOL carryforwards | $ | (201,584) |  |  | $ | (181,627) |
The Company recognizes a valuation allowance when it is more likely than not that all or a portion of a deferred tax asset will not be realized. All available evidence, both positive and negative, is considered when determining the need for a valuation allowance. To determine whether a valuation allowance is required, the Company uses judgement to estimate future taxable income and considers the tax consequences in the jurisdiction where such taxable income is generated as well as evidence including the Company's current financial position, actual and forecasted results of operations, the reversal of deferred tax liabilities and tax planning strategies in addition to the current and forecasted business economics of the oil and gas industry. For 2024 and 2023, positive evidence considered included the reversals of financial-to-tax temporary differences, the implementation of and/or ability to employ various tax planning strategies and the Company's estimation of future taxable income. Negative evidence considered included historical pre-tax book losses of the Company and the uncertainty of future commodity prices and inability to generate capital gains. A review of positive and negative evidence regarding these tax benefits resulted in the conclusion that valuation allowances for certain NOLs and state capital loss carryforwards were warranted as it was more likely than not that the Company would not use them prior to expiration. The remaining valuation allowance (which is not included in the NOL table above) is related primarily to the state capital loss carryforward realized with the sales of the Company's equity investment in Equitrans Midstream occurring between February 2020 and April 2022, which was a capital asset for tax purposes. Any capital losses from the sale of the investment can only be utilized to offset capital gains and are limited to being carried back 3 years and forward 5 years for potential utilization. In April 2022, the Company sold the remaining portion of its equity investment in Equitrans Midstream, which generated a capital loss that can only be carried forward for potential future utilization. During 2024, the Company recognized capital gains from the NEPA Non-operated Asset Divestitures that allowed the Company to recognize in the Statement of Consolidated Operations a federal and state income tax benefit of $52.8 million and $2.3 million, respectively, related to its valuation allowances for its capital loss carryforwards. As of December 31, 2024, the Company had a valuation allowance related to the capital loss carryforward of $44.5 million for state income tax purposes due to the limitations on future potential utilization. As of December 31, 2023, the Company had a valuation allowance related to the capital loss carryforward of $52.8 million for federal income tax purposes and $46.8 million for state income tax purposes due to the limitations on future potential utilization. The following table reconciles the beginning and ending amount of reserve for uncertain tax positions, excluding interest and penalties.
| 2024 |  | 2023 |  | 2022
| (Thousands)
Balance at January 1 | $ | 89,197 |  |  | $ | 204,035 |  |  | $ | 182,032 |
Additions for tax positions taken in current year | 11,720 |  |  | 11,986 |  |  | 9,612 |
Additions (reductions) for tax positions taken in prior years | 15,177 |  |  | (883) |  |  | 12,391 |
Reductions for tax positions settled with tax authorities | (29,645) |  |  | (125,941) |  |  | — |
Reductions for lapse in statute of limitations | (13,706) |  |  | — |  |  | — |
Balance at December 31 | $ | 72,743 |  |  | $ | 89,197 |  |  | $ | 204,035 |
The following table presents specific line items that were included in the reserve for uncertain tax positions.
| December 31,
| 2024 |  | 2023 |  | 2022
| (Thousands)
If recognized, effect to the effective tax rate | $ | 67,105 |  |  | $ | 83,669 |  |  | $ | 117,341 |
Reduction of related deferred tax asset for general business credit carryforwards and NOLs | $ | 60,415 |  |  | $ | 77,013 |  |  | $ | 110,744 |
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company recorded interest and penalties expense (income) of approximately $0.6 million, $(19.8) million and $6.7 million for the years ended December 31, 2024, 2023 and 2022, respectively. Interest and penalties of $2.9 million, $2.3 million, and $22.2 million were included in the Consolidated Balance Sheets as of December 31, 2024, 2023 and 2022, respectively. As of December 31, 2024, the Company believed that, as a result of potential settlements with relevant taxing authorities, it is reasonably possible that a decrease of $14.6 million in unrecognized tax benefits related to state income tax positions may be necessary within twelve months. In September 2024, the Company settled its consolidated U.S. federal income tax liability with the IRS through 2019 for amounts included in the reserve for uncertain tax positions with minimal impact to the effective tax rate. The settlement resulted in forgone research and development tax credits of $29.6 million, which are reflected in the table above. The refundable alternative minimum tax credits realized with the settlement of the previous IRS audit are included in the income tax receivable in the Consolidated Balance Sheet as of December 31, 2024. As of December 31, 2024, the Company is no longer subject to state examinations by income tax authorities for years prior to 2016 and has considered ongoing state income tax matters in its reserve for uncertain tax positions. There were no material changes to the Company's methodology for accounting for unrecognized tax benefits during 2024.

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