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Note 13 - Income Taxes | 9 Months Ended
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Sep. 30, 2022
Notes to Financial Statements |
Income Tax Disclosure [Text Block] | NOTE 13. Income Taxes Enactment of the Inflation Reduction Act of 2022. On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (“IRA 2022”). The IRA 2022, among other tax provisions, imposes a 15 percent corporate alternative minimum tax based on financial statement income, effective for tax years beginning after December 31, 2022. The IRA 2022 also establishes a one percent excise tax on stock repurchases made by publicly traded U.S. corporations, effective for stock repurchases after December 31, 2022. The IRA 2022 did not impact the Company’s current year tax provision or the Company’s consolidated financial statements. The Company is evaluating the accounting and disclosure implications of the IRA 2022 on its future filings. The Company’s income tax expense attributable to income from operations consisted of the following (in thousands):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Current income tax expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
State |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total current income tax expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Deferred income tax expense: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 30,599 |  |  |  | 2,145 |  |  |  | 53,726 |  |  |  | 4,680 |
State |  |  | 998 |  |  |  | — |  |  |  | 1,631 |  |  |  | — |
Deferred income tax expense |  |  | 31,597 |  |  |  | 2,145 |  |  |  | 55,357 |  |  |  | 4,680 |
Total income tax expense |  | $ | 31,597 |  |  | $ | 2,145 |  |  | $ | 55,357 |  |  | $ | 4,680 |
The reconciliation between the income tax expense computed by multiplying pre-tax income by the U.S. federal statutory rate and the reported amounts of income tax expense is as follows (in thousands, except rate):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Income tax expense at U.S. federal statutory rate |  | $ | 29,295 |  |  | $ | 2,140 |  |  | $ | 47,106 |  |  | $ | 4,875 |
Limited tax benefit due to stock-based compensation |  |  | 592 |  |  |  | 20 |  |  |  | 6,128 |  |  |  | (61 | )
State deferred income taxes |  |  | 999 |  |  |  | — |  |  |  | 1,723 |  |  |  | — |
Other, net |  |  | 711 |  |  |  | (15 | ) |  |  | 400 |  |  |  | (134 | )
Income tax expense |  | $ | 31,597 |  |  | $ | 2,145 |  |  | $ | 55,357 |  |  | $ | 4,680 |
Effective income tax rate |  |  | 22.7 | % |  |  | 21.0 | % |  |  | 24.7 | % |  |  | 20.2 | %
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities were as follows as of September 30, 2022 and December 31, 2021 (in thousands):
|  | September 30, 2022 |  |  | December 31, 2021 |
Deferred tax assets: |  |  |  |  |  |  |  |
Interest expense limitations |  | $ | 6,120 |  |  | $ | — |
Net operating loss carryforwards |  |  | 4,602 |  |  |  | 2,870 |
Stock-based compensation |  |  | 3,612 |  |  |  | 4,373 |
Unrecognized derivative losses |  |  | — |  |  |  | 3,248 |
Other |  |  | 266 |  |  |  | 31 |
Deferred tax assets |  |  | 14,600 |  |  |  | 10,522 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Crude oil and natural gas properties, principally due to differences in basis and depreciation and the deduction of intangible drilling costs for tax purposes |  |  | (124,423 | ) |  |  | (66,324 | )
Unrecognized derivative gains |  |  | (1,336 | ) |  |  | — |
Deferred tax liabilities |  |  | (125,759 | ) |  |  | (66,324 | )
Net deferred tax liabilities |  | $ | (111,159 | ) |  | $ | (55,802 | )
The effective income tax rate differs from the U.S. statutory rate of 21 percent primarily due to reversing a portion of its deferred tax asset related to stock-based compensation, deferred state income taxes and other permanent differences between GAAP income and taxable income. As required by ASC Topic 740, “Income Taxes,” (“ASC 740”) the Company uses reasonable judgments and makes estimates and assumptions related to evaluating the probability of uncertain tax positions. The Company bases its estimates and assumptions on the potential liability related to an assessment of whether the income tax position will “more likely than not” be sustained in an income tax audit. Based on that analysis, the Company believes the Company has not taken any material uncertain tax positions, and therefore has not recorded an income tax liability related to uncertain tax positions. However, if actual results materially differ, the Company’s effective income tax rate and cash flows could be affected in the period of discovery or resolution. The Company also reviews the estimates and assumptions used in evaluating the probability of realizing the future benefits of the Company’s deferred tax assets and records a valuation allowance when the Company believes that a portion or all the deferred tax assets may not be realized. If the Company is unable to realize the expected future benefits of its deferred tax assets, the Company is required to provide a valuation allowance. The Company uses its history and experience, overall profitability, future management plans, tax planning strategies, and current economic information to evaluate the amount of valuation allowance to record. As of September 30, 2022 and December 31, 2021, the Company had not recorded a valuation allowance for deferred tax assets arising from its operations because the Company believed they met the “more likely than not” criteria as defined by the recognition and measurement provisions of ASC 740. The Company reversed a portion of its deferred tax asset related to stock-based compensation based on the assumption that the tax deduction will be subject to IRC Section 162(m) limits when the stock options are exercised and the restricted stock vests. IRC Section 162(m) limits compensation deductions to $1.0 million per year for certain Company executives. This resulted in a $3.4 million reduction in the deferred tax asset and reduced the amount of income tax benefit realized during the nine months ended September 30, 2022. The Company is also subject to Texas Margin Tax. The Company realized no current Texas Margin Tax in the accompanying consolidated financial statements as we do not anticipate owing any Texas Margin Tax for 2022 or 2021. However, the Company has recognized a deferred Texas Margin Tax liability of $3.4 million and $1.8 million as of September 30, 2022 and December 31, 2021, respectively, in the accompanying consolidated financial statements.

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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 https://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 https://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 https://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 https://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 https://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 https://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 https://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 https://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 https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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