XML 35 R18.htm IDEA: XBRL DOCUMENT v3.22.2.2
Income Taxes
 3 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
REP LLC was organized as a limited liability company and treated as a flow-through entity for federal income tax purposes. As such, taxable income and any related tax credits were passed through to its members and included in their tax returns, even though such taxable income or tax credits may not have been distributed. In connection with the closing of the Merger, the Company's tax status changed from a limited liability company to a C-corporation. As a result, the Company is responsible for federal and state income taxes and must record deferred tax assets and liabilities for the tax effects of any temporary differences that exist on the date of the change. When push down accounting does not apply as part of a business combination, U.S. GAAP requires the effect of the change in tax status to be recognized in the financial statements and the effect is included in income (loss) from continuing operations. Upon consummation of the Merger, the Company established a $13.6 million provision for deferred income taxes with the conversion to a C-corporation. Accordingly, a provision for federal and state corporate income taxes has been made for the operations of REP LLC only from February 27, 2021 through December 31, 2021 in the accompanying consolidated financial statements.
The components of the Company's provision for income taxes from continuing operations are as follows:
Three Months Ended December 31,
20212020
(In thousands)
Current income tax expense:
Federal$— $— 
State113 — 
Total current income tax expense$113 $— 
Deferred income tax expense (benefit):
Federal$5,669 $— 
State87 (515)
Total deferred income tax expense (benefit)$5,756 $(515)
Total income tax expense (benefit)$5,869 $(515)
Deferred tax assets and liabilities are the result of temporary differences between the financial statement carrying values and the tax bases of assets and liabilities. The Company's net deferred tax position is as follows:
December 31, 2021September 30, 2021
(In thousands)
Deferred tax assets
Non-cash gain on derivatives$10,286 $11,006 
Intangibles215 222 
Inventory 23 23 
Share-based compensation 690 480 
Accruals and other 558 578 
Net operating loss3,172 5,422 
Total deferred tax assets14,944 17,731 
Oil and natural gas assets(32,154)(29,161)
Other fixed assets(174)(198)
Total deferred tax liabilities(32,328)(29,359)
Net deferred tax liabilities$(17,384)$(11,628)

A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is as follows:
Three Months Ended December 31,
20212020
Tax at statutory rate21.0 %21.0 %
Nondeductible compensation0.1 %— %
Share-based compensation(0.3)%— %
State income taxes, net of federal benefit0.7 %2.0 %
Income subject to taxation by REP LLC's unitholders— %(21.0)%
Effective income tax rate21.5 %2.0 %

The Company's federal income tax returns for the years subsequent to December 31, 2018 remain subject to examination. The Company's income tax returns in major state income tax jurisdictions remain subject to examination for various periods subsequent to December 31, 2017. The Company currently believes that all other significant filing positions are highly certain and that all of its other significant income tax positions and deductions would be sustained under audit or the final resolution would not have a material effect on the consolidated financial statements. Therefore, the Company has not established any significant reserves for uncertain tax positions.

Section 382 of the Internal Revenue Code limits the utilization of U.S. net operating loss ("NOL") carryforwards following a change in control. The Merger caused a stock ownership change for purposes of Section 382 which is subject to an approximate annual limit. The Company has federal net operating losses subject to the annual Section 382 limit of $13.4 million of which $4.6 million will expire beginning in 2022 with the remaining $8.8 million of the NOL's not expiring. Additionally, the Company has approximately $1.7 million of federal net operating losses generated after the Merger that are not limited by Section 382 and are not subject to expiration. We believe it is more likely than not the tax benefit of these net operating losses will be fully realized, as such no valuation allowance has been recorded. The deferred tax assets for the net operating losses are presented net with deferred tax liabilities, which primarily consist of book and tax depreciation differences.