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INCOME TAXES
 12 Months Ended
Dec. 31, 2022
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,
202220212020
Current tax expense (benefit)
Federal$51,246 $— $(27)
State16,950 — — 
Total current tax expense (benefit)68,196 — (27)
Deferred tax expense (benefit)
Federal289,578 62,212 (53,784)
State47,924 10,646 (6,736)
Total deferred tax expense (benefit)337,502 72,858 (60,520)
Total income tax expense (benefit)$405,698 $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 liability and asset result from the following components (in thousands):
As of December 31,
20222021
Deferred tax liabilities:
Oil and gas properties$868,612 $608,829 
Right-of-use assets5,915 8,292 
Total deferred tax liabilities874,527 617,121 
Deferred tax assets:
Federal and state tax net operating loss carryforward432,096 482,216 
Asset retirement obligations71,092 51,515 
Commodity derivative contracts37,293 86,958 
Inventory13,783 10,108 
Stock-based compensation5,974 7,622 
Lease liability6,067 8,187 
Property taxes— 19,458 
Transaction costs1,461 — 
Other long-term assets12,547 21,474 
Total deferred tax assets580,313 687,538 
Less: Valuation allowance25,404 48,133 
Total deferred tax assets after valuation allowance554,909 639,405 
Total non-current net deferred tax asset (liability)$(319,618)$22,284 
The following table outlines the Federal net operating loss (“NOL”) carryforwards acquired and deferred tax assets and liabilities recorded as a result of the mergers that closed in 2021 (in millions):
HighPoint MergerExtraction MergerCrestone Peak Merger
Federal NOL carryforwards (1)
$219.0 $479.9 $555.7 
Deferred tax asset (liability)$110.5 $49.2 $(125.1)
Valuation allowance(48.1)— — 
Net deferred tax asset (liability)$62.4 $49.2 $(125.1)
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(1)The net operating loss carryforwards acquired in the HighPoint, Extraction, and Crestone Peak mergers will be subject to an annual limitation under Section 382 of the Code of approximately $5.6 million, $7.0 million, and $16.8 million, respectively.
The Company had $1.8 billion and $2.0 billion of net operating loss carryovers for federal income tax purposes as of December 31, 2022 and 2021, respectively. Due to change of ownership provisions of Section 382 of the Code, utilization of net operating loss carryovers and other tax attributes are limited. Federal net operating loss carryforwards incurred prior to January 1, 2018 of $569.2 million will begin to expire in 2035. Federal net operating loss carryforwards incurred after December 31, 2017 of $1.2 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. As a result of the HighPoint Merger, the Company had a valuation allowance of $25.4 million and $48.1 million as of December 31, 2022 and 2021, respectively, 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.
Recorded income tax expense or benefit 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. These differences primarily relate to the effect of state income taxes, excess tax benefits and deficiencies on stock-based compensation awards, tax limitations on compensation of covered individuals, changes in valuation allowances, and other permanent differences, as follows (in thousands):
Year Ended December 31,
202220212020
Federal statutory tax expense$347,293 $52,824 $9,026 
Increase (decrease) in tax resulting from:
State tax expense, net of federal benefit58,658 10,646 1,694 
State tax rate change — — 124 
Return to provision19,975 27 292 
Compensation of covered individuals6,138 1,793 144 
Stock-based compensation(3,343)(1,559)690 
Transaction costs— 9,043 — 
Bargain purchase gain(2,852)— — 
Tax credits(1,405)— — 
Change in valuation allowance(19,302)— (72,553)
Other536 84 36 
Total income tax expense (benefit)$405,698 $72,858 $(60,547)
The Company had no unrecognized tax benefits as of December 31, 2022, 2021, and 2020. The tax returns for 2021, 2020, and 2019 are still subject to audit by the Internal Revenue Service.
On August 16, 2022, the Inflation Reduction Act (“IRA”) was signed into law. Among other provisions, the IRA imposes a 15% corporate alternative minimum tax (“Corporate AMT”) for tax years beginning after December 31, 2022, imposes a 1% excise tax on corporate stock repurchases after December 31, 2022, and provides tax incentives to promote various energy efficient initiatives. The Company is evaluating the potential impact of the Corporate AMT on our current income tax expense and income taxes payable; however, we currently do not believe this will materially affect our income taxes paid for the 2023 tax year.