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INCOME TAXES | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Details of income tax provisions and deferred income taxes from continuing operations are provided in the following tables. The components of income tax benefits were as follows (in thousands):
| Successor |  |  | Predecessor
| Year Ended December 31, 2023 |  | Year Ended December 31, 2022 |  | Period from May 18, 2021 through December 31, 2021 |  |  | Period from January 1, 2021 through May 17, 2021
Current: |  |  |  |  |  |  |  |
State | $ | — |  |  | $ | — |  |  | $ | (39) |  |  |  | $ | (7,968) |
Federal | — |  |  | — |  |  | — |  |  |  | — |
Deferred: |  |  |  |  |  |  |  |
State | (26,704) |  |  | — |  |  | — |  |  |  | — |
Federal | (498,452) |  |  | — |  |  | — |  |  |  | — |
Total income tax benefit provision | $ | (525,156) |  |  | $ | — |  |  | $ | (39) |  |  |  | $ | (7,968) |
A reconciliation of the statutory federal income tax amount to the recorded benefit follows (in thousands):
| Successor |  |  | Predecessor
| Year Ended December 31, 2023 |  | Year Ended December 31, 2022 |  | Period from May 18, 2021 through December 31, 2021 |  |  | Period from January 1, 2021 through May 17, 2021
Income (loss) before federal income taxes | $ | 945,760 |  |  | $ | 494,701 |  |  | $ | (112,868) |  |  |  | $ | 243,026 |
Expected income tax at statutory rate | 198,610 |  |  | 103,887 |  |  | (23,702) |  |  |  | 51,036 |
State income taxes | (2,581) |  |  | 2,227 |  |  | (3,177) |  |  |  | (12,484) |
Bankruptcy adjustments | — |  |  | — |  |  | 44,748 |  |  |  | (111,285) |
Remeasurement of state deferred tax asset | — |  |  | 13,869 |  |  | (7,966) |  |  |  | — |
Return to provision | (5,592) |  |  | (17,075) |  |  | — |  |  |  | — |
Other differences | 1,982 |  |  | 1,117 |  |  | 2,841 |  |  |  | 445 |
Change in valuation allowance due to current year activity | (717,575) |  |  | (104,025) |  |  | (12,783) |  |  |  | 64,320 |
Income tax benefit recorded | $ | (525,156) |  |  | $ | — |  |  | $ | (39) |  |  |  | $ | (7,968) |
For the year ended December 31, 2023, the Company's effective tax rate was (56)% and an income tax benefit of $525.2 million. For the year ended December 31, 2022, the Company's effective tax rate was 0%. For the Prior Successor Period, the Company had an effective tax rate of 0.03% and an income tax benefit of $39 thousand. For the Prior Predecessor Period, the Company had an effective tax rate of (3.3)% and an income tax benefit of $8.0 million. The lower effective income tax rate for the year ended December 31, 2023, is driven by the release of the valuation allowance on the Company's deferred tax assets, which is also the driver behind the effective tax rate and the Company's statutory tax rate. The tax effects of temporary differences and net operating loss carryforwards, which give rise to deferred tax assets and liabilities at December 31, 2023 and December 31, 2022 are estimated as follows (in thousands):
| Successor
| Year Ended December 31, 2023 |  | Year Ended December 31, 2022
Deferred tax assets: |  |  |
Net operating loss carryforward and tax credits | $ | 399,017 |  |  | $ | 346,455 |
Oil and gas property basis difference | 143,769 |  |  | 269,206 |
Investment in pass through entities | 68,114 |  |  | 66,502 |
Stock-based compensation expense | 1,262 |  |  | 1,484 |
Change in fair value of derivative instruments | — |  |  | 73,198 |
Other assets | 52,730 |  |  | 52,107 |
Total deferred tax assets | 664,892 |  |  | 808,952 |
Valuation allowance for deferred tax assets | (85,757) |  |  | (803,332) |
Deferred tax assets, net of valuation allowance | 579,135 |  |  | 5,620 |
Deferred tax liabilities: |  |  |
Change in fair value of derivative instruments | 50,448 |  |  | — |
Right of use asset | 3,003 |  |  | 5,615 |
Other | 528 |  |  | 5 |
Total deferred tax liabilities | 53,979 |  |  | 5,620 |
Net deferred tax asset | $ | 525,156 |  |  | $ | — |
As discussed in Note 2, elements of the Plan provided that the Company’s indebtedness related to Predecessor Senior Notes and certain general unsecured claims were exchanged for Common Stock in settlement of those claims. Absent an exception, a debtor recognizes CODI upon discharge of its outstanding indebtedness for an amount of consideration that is less than its adjusted issue price. The IRC provides that a debtor in a Chapter 11 bankruptcy case may exclude CODI from taxable income, but must reduce certain of its tax attributes by the amount of any CODI realized as a result of the consummation of a plan of reorganization. The amount of CODI realized by a taxpayer is determined based on the fair market value of the consideration received by the creditors in settlement of outstanding indebtedness. As a result of the market value of equity upon emergence from Chapter 11 bankruptcy proceedings, the estimated amount of CODI and historical interest expense haircut is approximately $655 million, which will reduce the value of the Company’s net operating losses. The actual reduction in tax attributes does not occur until the first day of the Company’s tax year subsequent to the date of emergence, or January 1, 2022. At each reporting period, the Company weighs all available positive and negative evidence to determine whether its deferred tax assets are more likely than not to be realized. A valuation allowance for deferred tax assets, including net operating losses, is recognized when it is more likely than not that some or all of the benefit from the deferred tax assets will not be realized. To assess the likelihood, the Company uses estimates and judgment regarding future taxable income and considers the tax laws in the jurisdiction where such taxable income is generated, to determine whether a valuation allowance is required. Such evidence can include current financial position, results of operations, both actual and forecasted, the reversal of deferred tax liabilities and tax planning strategies as well as the current and forecasted business economics of the oil and gas industry. Based upon the Company’s analysis, the Company believes it is more-likely-than-not that a portion of the Company's federal and state deferred tax assets will be utilized. The Company recorded a reduction in the related valuation allowance associated with federal and state deferred tax assets of $699.7 million and $23.4 million respectively. The Company will continue to evaluate both the positive and negative evidence on a quarterly basis in determining the need for a valuation allowance with respect to the deferred tax assets. Changes in positive and negative evidence, including differences between estimated and actual results, could result in changes in the valuation of the deferred tax assets that could have a material impact on the consolidated financial statements. Changes in existing tax laws could also affect actual tax results and the realization of deferred tax assets over time. The Company has an available federal tax net operating loss carryforward estimated at approximately $1.8 billion as of December 31, 2023. These federal net operating loss carryforwards of approximately $349 million generated in tax years prior to 2018 will begin to expire in 2036. As a result of the Tax Cuts and Jobs Act, the 2018 through 2023 federal NOL carryforwards of $1.4 billion have no expiration. The Company also has state net operating loss carryovers of approximately $702 million that will begin to expire in 2024. As of December 31, 2023, we had no liability for uncertain tax positions.

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