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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The components of the income tax expense (benefit) for each of the periods presented below are as follows:
|  | Years Ended December 31,
|  | 2020 |  | 2019 |  | 2018
|  | ($ in millions)
Current |  |  |  |  |  |
Federal |  | $ | (3) |  |  | $ | — |  |  | $ | — |
State |  | (6) |  |  | (26) |  |  | — |
Current Income Taxes |  | (9) |  |  | (26) |  |  | — |
Deferred |  |  |  |  |  |
Federal |  | — |  |  | (297) |  |  | 3 |
State |  | (10) |  |  | (8) |  |  | (13) |
Deferred Income Taxes |  | (10) |  |  | (305) |  |  | (10) |
Total |  | $ | (19) |  |  | $ | (331) |  |  | $ | (10) |
The income tax expense (benefit) reported in our consolidated statement of operations is different from the federal income tax expense (benefit) computed using the federal statutory rate for the following reasons:
|  | Years Ended December 31,
|  | 2020 |  | 2019 |  | 2018
|  | ($ in millions)
Income tax expense (benefit) at the federal statutory rate of 21% |  | $ | (2,051) |  |  | $ | (134) |  |  | $ | 45 |
State income taxes (net of federal income tax benefit) |  | (41) |  |  | (21) |  |  | 27 |
Partial release of valuation allowance due to the WildHorse Merger |  | — |  |  | (314) |  |  | — |
Change in valuation allowance excluding impact of WildHorse Merger |  | 2,010 |  |  | 114 |  |  | (97) |
Reorganization items |  | 41 |  |  | — |  |  | — |
Equity-based compensation (non-officer) |  | 10 |  |  | 4 |  |  | 4 |
Officer compensation limited under Section 162(m) |  | 9 |  |  | 3 |  |  | 5 |
Other |  | 3 |  |  | 17 |  |  | 6 |
Total |  | $ | (19) |  |  | $ | (331) |  |  | $ | (10) |
We applied the guidance in Staff Accounting Bulletin 118 when accounting for the enactment-date effect of the tax reform legislation commonly known as the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017 (the “Tax Act”). At December 31, 2017, we had not completed our accounting for all of the enactment-date income tax effects of the Tax Act under ASC 740, Income Taxes, for certain items as we were waiting on additional guidance to be issued. At December 31, 2018, we had completed our accounting for all of the enactment-date income tax effects of the Tax Act. The adjustments made during 2018 were considered immaterial but nevertheless are included as a component of income tax expense (benefit) in our consolidated statement of operations for the year ended December 31, 2018, which is fully offset with an adjustment to the valuation allowance against our net deferred tax asset position. We reassessed the realizability of our deferred tax assets and continue to maintain a full valuation allowance against our net deferred tax asset positions for federal and state purposes. Of the net increase in our valuation allowance, $2.010 billion is reflected as a component of income tax expense in our consolidated statement of operations for the year ended December 31, 2020. Deferred income taxes are provided to reflect temporary differences in the tax basis of assets and liabilities and their reported amounts in the financial statements. The tax-effected temporary differences, net operating loss (NOL) carryforwards and disallowed business interest carryforwards that comprise our deferred income taxes are as follows:
|  | December 31,
|  | 2020 |  | 2019
|  | ($ in millions)
Deferred tax liabilities: |  |  |  |
Property, plant and equipment |  | $ | — |  |  | $ | (546) |
Volumetric production payments |  | — |  |  | (89) |
Derivative instruments |  | — |  |  | (14) |
Other |  | (3) |  |  | (5) |
Deferred tax liabilities |  | (3) |  |  | (654) |
Deferred tax assets: |  |  |  |
Property, plant and equipment |  | 907 |  |  | — |
Net operating loss carryforwards |  | 2,066 |  |  | 1,971 |
Carrying value of debt |  | 48 |  |  | 169 |
Disallowed business interest carryforward |  | 293 |  |  | 25 |
Asset retirement obligations |  | 34 |  |  | 50 |
Investments |  | 71 |  |  | 83 |
Accrued liabilities |  | 288 |  |  | 64 |
Derivative instruments |  | 53 |  |  | — |
Other |  | 51 |  |  | 87 |
Deferred tax assets |  | 3,811 |  |  | 2,449 |
Valuation allowance |  | (3,808) |  |  | (1,805) |
Deferred tax assets after valuation allowance |  | 3 |  |  | 644 |
Net deferred tax liability |  | $ | — |  |  | $ | (10) |
As of December 31, 2020, we had federal NOL carryforwards of approximately $7.803 billion and state NOL carryforwards of approximately $7.784 billion. The associated deferred tax assets related to these federal and state NOL carryforwards were $1.639 billion and $427 million, respectively. The federal NOL carryforwards generated in tax years prior to 2018 expire in 2036 and 2037. As a result of the Tax Act, the 2018 through 2020 federal NOL carryforwards have no expiration. The value of all of these carryforwards depends on our ability to generate future taxable income. As of December 31, 2020, and 2019, we had deferred tax assets of $3.811 billion and $2.449 billion upon which we had a valuation allowance of $3.808 billion and $1.805 billion, respectively. Of the net change in the valuation allowance of $2.003 billion for both federal and state deferred tax assets, $2.010 billion is reflected as a component of income tax benefit in the consolidated statement of operations and the difference is reflected in components of stockholders’ equity. A valuation allowance against deferred tax assets, including NOL carryforwards and disallowed business interest carryforwards, is recognized when it is more likely than not that all or some portion of the benefit from the deferred tax assets will not be realized. To assess that likelihood, we use estimates and judgment regarding our future taxable income, and we consider the tax consequences in the jurisdiction where such taxable income is generated, to determine whether a valuation allowance is required. Such evidence can include our current financial position, our results of operations, both actual and forecasted, the reversal of existing taxable temporary differences, tax planning strategies, as well as the current and forecasted business economics of our industry. Management assesses all available evidence, both positive and negative, to estimate whether sufficient future taxable income will be generated to permit the use of deferred tax assets. A significant piece of objectively verifiable negative evidence is the cumulative loss incurred over the three-year period ended December 31, 2020. Such objective negative evidence limits our ability to consider various forms of subjective positive evidence, such as any projections for future income. Accordingly, management has not changed its judgment for the period ended December 31, 2020 with respect to the need for a full valuation allowance against our net deferred tax asset positions for federal and state purposes. The amount of the deferred tax assets considered realizable could be adjusted if projections of future taxable income are increased and/or if objective negative evidence in the form of cumulative losses is no longer present. Should we achieve a level of sustained profitability, consideration will need to be given to future projections of taxable income to determine whether such projections provide an adequate source of taxable income for the realization of our deferred tax assets, namely federal NOL carryforwards and disallowed business interest carryforwards. If so, then all or a portion of the valuation allowance could possibly be released. On February 1, 2019, we completed the acquisition of WildHorse. For federal income tax purposes, the transaction qualified as a tax-free merger under Section 368 of the Code and, as a result, we acquired carryover tax basis in WildHorse’s assets and liabilities. We recorded a net deferred tax liability of $314 million as part of the business combination accounting for WildHorse. As a consequence of maintaining a full valuation allowance against our net deferred tax asset positions (federal and state), a partial release of the valuation allowance was recorded as a discrete income tax benefit of $314 million through the consolidated statement of operations in the first quarter of 2019. The net deferred tax liability determined through business combination accounting includes deferred tax liabilities on plant, property and equipment and prepaid compensation totaling $401 million, partially offset by deferred tax assets totaling $87 million relating to federal NOL carryforwards, disallowed business interest carryforwards and certain other deferred tax assets. These carryforwards will be subject to an annual limitation under Section 382 of the Code of approximately $61 million. We determined that no separate valuation allowances were required to be established through business combination accounting against any of the individual deferred tax assets acquired. Our ability to utilize NOL carryforwards, disallowed business interest carryforwards, tax credits and possibly other tax attributes to reduce future taxable income and federal income tax is subject to various limitations under Section 382 of the Code. The utilization of such attributes may be subject to an annual limitation under Section 382 of the Code should transactions involving our equity result in a cumulative shift of more than 50% in the beneficial ownership of our stock during any three-year testing period (an “Ownership Change”). For this purpose, “stock” includes certain preferred stock. The annual limitation is generally equal to the product of (a) the fair market value of our equity immediately before the Ownership Change (i.e., the value of the old loss corporation) multiplied by (b) the long-term tax-exempt rate in effect for the month in which an Ownership Change occurs. If we are in a net unrealized built-in gain position at the time of an Ownership Change, then the limitation is increased by each year’s recognized built-in gains occurring within a five-year period following the Ownership Change, but only to the extent of the net unrealized built-in gain which existed at the time of the Ownership Change. However, proposed regulations issued on September 10, 2019, and on January 14, 2020, under Section 382(h) of the Code (the “Proposed Regulations”) would, if finalized in their present form, limit the potential increases to the annual limitation amount for certain built-in gains existing at the time of an Ownership Change, (unless the transition relief provisions of the Proposed Regulations are applicable), thereby possibly reducing the ability to utilize tax attributes significantly. If we are in a net unrealized built-in loss position at the time of an Ownership Change, then the limitation may apply to tax attributes other than just NOL carryforwards, disallowed business interest carryforwards and tax credits, such as tax depreciation, depletion and amortization. Some states impose similar limitations on tax attribute utilization upon experiencing an Ownership Change. As of December 31, 2020, we do not believe that an Ownership Change had occurred that would subject us to an annual limitation on the utilization of our NOL carryforwards, disallowed business interest carryforwards, tax credits and possibly other tax attributes although our cumulative shift continues to be at a level greater than 40%. Therefore, with the exception of the NOL carryforwards and disallowed business interest carryforwards acquired upon the WildHorse Merger, we do not believe we had a limitation on the ability to utilize our carryforwards and other tax attributes under Section 382 of the Code as of December 31, 2020. However, upon emergence from bankruptcy on February 9, 2021, the Company did experience an Ownership Change. If the old loss corporation is under the jurisdiction of the court in a case under Title 11 of the United States Code, then the annual limitation generally is based on the post-emergence fair market value of the equity of the new loss corporation as opposed to the fair market value of the equity of the old loss corporation. As such, an annual limitation will be computed based on the fair market value of the new equity immediately after emergence and will pertain to the post-emergence utilization of NOL carryforwards, disallowed business interest carryforwards and tax credits existing at the time of emergence. Accounting guidance for recognizing and measuring uncertain tax positions requires a more likely than not threshold condition be met on a tax position, based solely on the technical merits of being sustained, before any benefit of the tax position can be recognized in the financial statements. Guidance is also provided regarding de-recognition, classification and disclosure of uncertain tax positions. As of December 31, 2020, and 2019, the amount of unrecognized tax benefits related to NOL carryforwards and tax liabilities associated with uncertain tax positions was $74 million for both years. For both 2020 and 2019, $29 million is related to state tax receivables not expected to be recovered and the remainder is related to NOL carryforwards. If recognized, $29 million of the uncertain tax positions identified would have an effect on the effective tax rate. No material changes to the current uncertain tax positions are expected within the next 12 months. As of December 31, 2020, and 2019, we had no amounts accrued for interest related to these uncertain tax positions. We recognize interest related to uncertain tax positions as a component of interest expense. Penalties, if any, related to uncertain tax positions would be recorded in other expenses. A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows:
|  | 2020 |  | 2019 |  | 2018
|  | ($ in millions)
Unrecognized tax benefits at beginning of period |  | $ | 74 |  |  | $ | 79 |  |  | $ | 106 |
Additions based on tax positions related to the current year |  | — |  |  | — |  |  | — |
Additions to tax positions of prior years |  | — |  |  | 27 |  |  | — |
Settlements |  | — |  |  | (32) |  |  | — |
Expiration of the applicable statute of limitations |  | — |  |  | — |  |  | (23) |
Reductions to tax positions of prior years |  | — |  |  | — |  |  | (4) |
Unrecognized tax benefits at end of period |  | $ | 74 |  |  | $ | 74 |  |  | $ | 79 |
Our federal and state income tax returns are subject to examination by federal and state tax authorities. Notification was received from the IRS during February 2021 that the examination of the WildHorse 2017 federal income tax return has been closed as a no-change audit. Further, the IRS has concluded the fieldwork relating to our 2016 federal income tax return with no changes proposed. Our tax years 2017 through 2019 remain open for all purposes of examination by the IRS as do the WildHorse 2018 federal income tax return and the WildHorse short period return for January 1, 2019, through February 1, 2019. However, certain earlier tax years remain open for adjustment to the extent of their NOL carryforwards available for future utilization. In addition, tax years 2017 through 2019 as well as certain earlier years remain open for examination by state tax authorities. Currently, several state examinations are in progress of various years. We do not anticipate that the outcome of any federal or state audit will have a significant impact on our financial position or results of operations.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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