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INCOME TAXES | 12 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Deferred tax assets and liabilities are measured by applying the provisions of enacted tax laws to determine the amount of taxes payable or refundable currently or in future years related to cumulative temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying balance sheets. The tax effect of the net change in the cumulative temporary differences during each period in the deferred tax assets and liabilities determines the periodic provision for deferred taxes. The provision for income taxes consists of the following (in thousands):
| Year Ended December 31,
| 2021 |  | 2020 |  | 2019
Current tax expense (benefit) |  |  |  |  |
Federal | $ | — |  |  | $ | (27) |  |  | $ | — |
State | — |  |  | — |  |  | — |
Total current tax expense (benefit) | — |  |  | (27) |  |  | — |
Deferred tax expense (benefit) |  |  |  |  |
Federal | 62,212 |  |  | (53,784) |  |  | — |
State | 10,646 |  |  | (6,736) |  |  | — |
Total deferred tax expense (benefit) | 72,858 |  |  | (60,520) |  |  | — |
Total income tax expense (benefit) | $ | 72,858 |  |  | $ | (60,547) |  |  | $ | — |
Temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities that give rise to the net deferred tax asset result from the following components (in thousands):
|  | As of December 31,
|  | 2021 |  | 2020
Deferred tax liabilities: |  |  |  |
Oil and gas properties |  | $ | 608,829 |  |  | $ | 89,867 |
Right-of-use assets |  | 8,292 |  |  | 7,306 |
Total deferred tax liabilities |  | 617,121 |  |  | 97,173 |
Deferred tax assets: |  |  |  |
Federal and state tax net operating loss carryforward |  | 482,216 |  |  | 138,372 |
Derivative instruments |  | 86,958 |  |  | 61 |
Reclamation costs |  | 51,515 |  |  | 7,058 |
Stock compensation |  | 7,622 |  |  | 1,653 |
Inventory |  | 10,108 |  |  | 1,598 |
Lease liability |  | 8,187 |  |  | 7,384 |
Property taxes |  | 19,458 |  |  | — |
Pending acquisition costs |  | — |  |  | 1,478 |
Other long-term assets |  | 21,474 |  |  | 89 |
Total deferred tax assets |  | 687,538 |  |  | 157,693 |
Less: Valuation allowance |  | 48,133 |  |  | — |
Total deferred tax assets after valuation allowance |  | 639,405 |  |  | 157,693 |
Total non-current net deferred tax asset |  | $ | 22,284 |  |  | $ | 60,520 |
On April 1, 2021, the Company completed the HighPoint Merger. For federal income tax purposes we acquired carryover tax basis in HighPoint’s assets and liabilities, including $219.0 million of federal net operating loss carryforwards. We recorded a net deferred tax asset of $110.5 million as part of the business combination accounting for HighPoint. The net operating loss carryforwards and other tax attributes will be subject to an annual limitation under Section 382 of the Code of approximately $5.6 million. We determined that a separate valuation allowance of $48.1 million was required to be established through business combination accounting against the deferred tax assets acquired. On November 1, 2021, the Company completed the Extraction Merger. For federal income tax purposes we acquired carryover tax basis in Extraction’s assets and liabilities, including $479.9 million of federal net operating loss carryforwards. We recorded a net deferred tax asset of $49.2 million as part of the business combination accounting for Extraction. The net operating loss carryforwards will be subject to an annual limitation under Section 382 of the Code of approximately $7.0 million. We determined that no separate valuation allowance was required to be established through business combination accounting against the deferred tax assets acquired. On November 1, 2021, the Company completed the Crestone Peak Merger. For federal income tax purposes we acquired carryover tax basis in Crestone Peak’s assets and liabilities, including $555.7 million of federal net operating loss carryforwards. We recorded a net deferred tax liability of $125.1 million as part of the business combination accounting for Crestone Peak. The net operating loss carryforwards will be subject to an annual limitation under Section 382 of the Code of approximately $16.8 million. We determined that no separate valuation allowance was required to be established through business combination accounting against the deferre d tax assets acquired. The Company has $2.0 billion and $579.4 million of net operating loss carryovers for federal income tax purposes as of December 31, 2021 and 2020, respectively. The significant increase in net operating loss carryovers resulted from the HighPoint, Extraction, and Crestone Peak mergers as discussed above. Due to change of ownership provisions of Section 382 of the Code, utilization of these acquired net operating loss carryovers and other tax attributes may be limited. Federal net operating loss carryforwards incurred prior to January 1, 2018 of $696.3 million will begin to expire in 2034. Federal net operating loss carryforwards incurred after December 31, 2017 of $1.3 billion have no expiration and can only be used to offset 80% of taxable income when utilized. The Company assesses the recoverability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will be realized. In making such determination, the Company considers all available (both positive and negative) evidence, including future reversals of temporary differences, tax-planning strategies, projected future taxable income, and results of operations. On the basis of this evaluation, the Company recorded a valuation allowance of $72.6 million on its net deferred tax assets as of December 31, 2019, which was removed in 2020. During 2021, as a result of the HighPoint Merger, the Company recorded a valuation allowance of $48.1 million against certain acquired net operating losses and other tax attributes due to the limitation on realizability caused by the change of ownership provisions of Section 382 of the Code. The Company will continue to monitor facts and circumstances in the reassessment of the likelihood that the deferred tax assets will be realized. Federal income tax expense differs from the amount that would be provided by applying the statutory United States federal income tax rate of 21% to income before income taxes primarily due to the effect of state income taxes, changes in valuation allowances, rate changes, and other permanent differences, as follows (in thousands):
| Year Ended December 31,
| 2021 |  | 2020 |  | 2019
Federal statutory tax expense | $ | 52,824 |  |  | $ | 9,026 |  |  | $ | 14,084 |
Increase (decrease) in tax resulting from: |  |  |  |  |
State tax expense net of federal benefit | 10,646 |  |  | 1,694 |  |  | 2,537 |
Prior year true-up | 27 |  |  | 292 |  |  | (579) |
Stock compensation | (1,559) |  |  | 690 |  |  | 197 |
Permanent differences | 84 |  |  | 36 |  |  | 128 |
State rate change | — |  |  | 124 |  |  | — |
Transaction costs | 9,043 |  |  | — |  |  | — |
Section 162(m) limitation | 1,793 |  |  | 144 |  |  | 156 |
Valuation allowance | — |  |  | (72,553) |  |  | (16,523) |
Total income tax expense (benefit) | $ | 72,858 |  |  | $ | (60,547) |  |  | $ | — |
During the year ended December 31, 2021, the increase in tax rate was primarily due to non-deductible transaction costs incurred in connection with the HighPoint, Extraction, and Crestone Peak mergers, along with net income increasing between the comparable periods. There was $72.9 million of deferred income tax expense in the accompanying statements of operations. During the year ended December 31, 2020, the decrease in tax rate was primarily due to fully removing the valuation allowance against net deferred tax assets and net income decreasing between the comparable periods. There was $60.5 million of deferred income tax benefit in the accompanying statements of operations. The valuation allowance decreased by $72.6 million to zero in 2020 when compared to the same period in 2019 due to both current and forecasted book income. During the year ended December 31, 2019, there were no deferred income tax benefits or expense in the accompanying statements of operations. The valuation allowance decreased by $16.5 million to $72.6 million in 2019 when compared to the same period in 2018. The Company's net income decreased between the comparable periods causing the federal tax benefit to decrease. The Company had no unrecognized tax benefits as of December 31, 2021, 2020, and 2019. The tax returns for 2020, 2019, and 2018 are still subject to audit by the Internal Revenue Service.

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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=121826272&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=122134291&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=121826272&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=122134291&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=121826272&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 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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