Income Taxes

9 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income TaxesThe Company’s corporate structure requires the filing of two separate U.S. Federal income tax returns and one Canadian income tax return which include Lynden US, Earthstone, and Lynden Corp, respectively. As such, taxable income of Earthstone cannot be offset by tax attributes, including net operating losses, of Lynden US, nor can taxable income of Lynden US be offset by tax attributes of Earthstone. Earthstone and Lynden US record a tax provision, respectively, for their share of the book income or loss of EEH, net of the non-controlling interest. As EEH is treated as a partnership for U.S. Federal income tax purposes, it is not subject to income tax at the federal level and only recognizes the Texas Margin Tax.

On February 15, 2022, the Company completed the Chisholm Acquisition which included the issuance of 19,311,582 shares of Class A Common Stock, which resulted in an ownership change within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). As a result of the ownership change, the Company’s ability to utilize net operating losses (“NOLs”) and credits generated prior to the ownership change date may be limited to offset taxable income incurred after the ownership change date (the “382 Limitation”).

As of September 30, 2023 and December 31, 2022, current liabilities of $1.0 million and $1.8 million, respectively, are included in Other current liabilities in the Condensed Consolidated Balance Sheets related solely to current Texas Margin Tax payable.

During the nine months ended September 30, 2023, the Company recorded income tax expense of approximately $55.6 million comprised of (1) deferred federal income tax expense for Earthstone of $47.3 million resulting from its share of the distributable income from EEH, (2) a deferred federal income tax expense for Lynden US of $2.8 million as a result of its share of the distributable income from EEH and (3) income tax expense of $5.5 million related to both current and deferred state income taxes. Lynden Corp incurred no material income or loss, or related income tax expense or benefit, for the nine months ended September 30, 2023.

During the nine months ended September 30, 2022, the Company recorded income tax expense of approximately $81.7 million comprised of (1) income tax expense for Earthstone of $70.0 million which included a deferred income tax expense of $74.5 million and a current income tax expense of $2.0 million, resulting from its share of the distributable income from EEH, offset by a $6.5 million release of valuation allowance, (2) a deferred income tax expense for Lynden US of $5.5 million as a result of its share of the distributable loss from EEH and (3) income tax expense of $6.2 million related to state taxes, which included a deferred income tax expense of $4.1 million and a current income tax expense of $2.1 million. Lynden Corp incurred no material income or loss, or related income tax expense or benefit, for the nine months ended September 30, 2022.