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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The Company’s income tax benefit from continuing operations consists of the following (in thousands):
SuccessorPredecessor
 Year Ended December 31,Period from November 20, 2020 through
December 31, 2020		Period from January 1, 2020 through
November 19, 2020
 20222021
Current:
Federal$7,127 $— $— $(36)
State883 4 — — 
Total current tax expense (benefit)8,010 4 — (36)
Deferred:
Federal(46,767)(977)(2,918)(221,277)
State(8,127)— (529)(41,649)
Total deferred tax benefit(54,894)(977)(3,447)(262,926)
Total income tax benefit$(46,884)$(973)$(3,447)$(262,962)
The reconciliation of income taxes from continuing operations calculated at the U.S. federal tax statutory rate to the Company’s effective tax rate is set forth below: 
SuccessorPredecessor
 Year Ended December 31,Period from November 20, 2020 through
December 31, 2020		Period from January 1, 2020 through
November 19, 2020
 20222021
 (%)(In thousands)(%)(In thousands)(%)(In thousands)(%)(In thousands)
U.S. federal tax statutory rate21.0 %$291,068 21.0 %$39,477 21.0 %$(14,817)21.0 %$(867,051)
State income taxes, net of federal income tax benefit2.6 %36,156 3.0 %5,679 2.6 %(1,817)2.4 %(98,946)
Non-deductible executive compensation0.7 %9,204 1.3 %2,510 — %— — %1,372 
Transaction costs0.3 %3,855 — %— — %— — %— 
Change in valuation allowance(27.2)%(377,233)(71.7)%(134,713)(18.3)%12,941 (14.7)%606,642 
Equity-based compensation windfall (shortfall)(0.4)%(5,723)— %— — %— (0.2)%8,687 
Discharge of debt and nondeductible professional fees— %— 46.3 %87,070 (0.3)%232 (2.1)%85,149 
Other(0.4)%(4,211)(0.4)%(996)— %14 — %1,185 
Annual effective tax benefit(3.4)%$(46,884)(0.5)%$(973)5.0 %$(3,447)6.4 %$(262,962)
Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2022 and 2021 were as follows:
 December 31,
 20222021
 (In thousands)
Deferred tax assets
Net operating loss carryforward$316,085 $51,942 
Oil and natural gas properties— 237,051 
Derivative instruments72,761 91,213 
Bonus and equity-based compensation9,806 6,718 
Investment in partnerships— 12,924 
Other deferred tax assets7,863 14,843 
Total deferred tax assets406,515 414,691 
Less: Valuation allowance(9,617)(399,770)
Total deferred tax assets, net$396,898 $14,921 
Deferred tax liabilities
Oil and natural gas properties$117,995 $— 
Investment in partnerships69,867 — 
Other deferred tax liabilities8,810 14,928 
Total deferred tax liabilities$196,672 $14,928 
Total deferred tax assets (liabilities), net$200,226 $(7)
The Company’s effective tax rate for the year ended December 31, 2022 (Successor) was (3.4)% of pre-tax income from continuing operations, as compared to an effective tax rate of (0.5)% of pre-tax income from continuing operations for the year ended December 31, 2021 (Successor).
The effective tax rates from continuing operations for the year ended December 31, 2022 (Successor) and 2021 (Successor) were lower than the statutory federal rate of 21% primarily as a result of the Company’s valuation allowance, the substantial majority of which was released as of December 31, 2022. This benefit was partially offset by the impacts of state income taxes.
As a result of the Merger, which qualified as a tax-free reorganization for U.S. federal income tax purposes, the Company recognized a net deferred tax asset of $228.6 million in its purchase price allocation as of the acquisition date to reflect the difference between the tax basis and the fair value of Whiting’s assets acquired and liabilities assumed. The net deferred tax asset includes the tax effected benefit of federal net operating loss (“NOL”) carryforwards of $1.1 billion that were acquired in the Merger and are subject to various limitations under Section 382 of the Internal Revenue Code of 1986 (the “Code”), as discussed further below.
As of December 31, 2022, the Company had gross U.S. federal NOL carryforwards of $1.1 billion, of which approximately $1.0 billion will not expire and $105.3 million will expire from 2023 to 2037, and gross state NOL carryforwards of $2.2 billion. The gross state NOL carryforwards expire between 2023 and 2041. Both the Company and Whiting experienced an “ownership change” as defined by the Code in the past, including as a result of the Merger. Accordingly, under Section 382 of the Code, the Company’s NOL carryforwards and other tax attributes (collectively, “Tax Benefits”) are subject to various limitations going forward. However, the limitations applicable under Section 382 of the Code resulting from the Merger are not expected to have a material impact on the realizability of the Company’s deferred tax assets. The Company may experience ownership changes in the future as a result of subsequent shifts in its stock ownership that it cannot predict or control that could result in further limitations being placed on its ability to utilize its Tax Benefits. Determining the limitations under Section 382 of the Code is technical and highly complex, and upon future analysis the Company may determine that its ability to utilize its Tax Benefits may be limited to a greater extent than currently anticipated.
Tax Benefits are recorded as an asset to the extent that management assesses the utilization of such Tax Benefits to be more likely than not, and when the future utilization of some portion of the Tax Benefits is determined not to be more likely than not, then a valuation allowance is provided to reduce the Tax Benefits from such assets.
The Company initially recorded a valuation allowance against substantially all of its net deferred tax assets as of March 31, 2020. As of each reporting date, the Company assesses the 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 realize its deferred tax assets. A significant piece of objective positive evidence that the Company has evaluated is the cumulative income earned during the periods since the Company and Whiting each emerged from voluntary
restructuring under Chapter 11 of the Bankruptcy Code in 2020. This source of objective positive evidence combined with the indefinite lives for many of the Company’s deferred tax assets and projections of future taxable income led the Company to determine that there is sufficient positive evidence to conclude that it is more likely than not that the Company will realize the majority of its net deferred tax assets and release a substantial majority of the valuation allowance previously recorded for the year. The Company’s estimated valuation allowance as of December 31, 2022 was $9.6 million, which relates to state NOL carryforwards acquired in the Merger. The Company’s estimated valuation allowance as of December 31, 2021 was $399.8 million and was released during the year ended December 31, 2022 (Successor), including $377.2 million that was attributable to continuing operations and $22.6 million that was attributable to discontinued operations.
Accounting for uncertainty in income taxes prescribes a recognition threshold and measurement methodology for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company had no unrecognized tax benefits as of December 31, 2022 and 2021. With respect to income taxes, the Company’s policy is to account for interest charges as interest expense and any penalties as tax expense in its Consolidated Statements of Operations. The Company files a U.S. federal income tax return and income tax returns in the various states where it operates. As the Company has NOL carryforwards from previous tax years, of which the earliest relate to the 2012 tax year, the Internal Revenue Service (“IRS”) may examine the Company’s loss years back to the 2012 tax year.
The Company has filed a non-automatic method change with the IRS to change the method of accounting for losses on undeveloped oil and gas leases that have expired for an entity acquired as part of the Merger. Should this method change be approved by the IRS, additional tax deductions may be available with respect to the Company’s 2022 tax year.