Income Taxes

9 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

For the nine months ended September 30, 2023 and 2022, the Company calculated the provision for income taxes for interim periods by applying an estimate of the annual effective tax rate for the full fiscal year to "ordinary" income or loss (pre-tax income or loss excluding unusual or infrequently occurring items) for the period. There were no material changes to the Company's methodology for determining unrecognized tax benefits during the nine months ended September 30, 2023.

For the nine months ended September 30, 2023 and 2022, the Company recorded income tax expense (benefit) at an effective tax rate of 15.0% and (8.5)%, respectively. The Company's effective tax rate for the nine months ended September 30, 2023 was lower compared to the U.S. federal statutory rate due primarily as a result of the release of valuation allowances limiting certain state deferred tax assets and net state deferred tax benefit related to a rate reduction from a Pennsylvania tax law change enacted on July 8, 2022 and the Tug Hill and XcL Midstream Acquisition. The Company's effective tax rate for the nine months ended September 30, 2022 was lower compared to the U.S. federal statutory rate due primarily to a reduction to deferred state taxes from a Pennsylvania tax law change enacted on July 8, 2022, partly offset by nondeductible repurchase premiums on the Convertible Notes (defined in Note 6).

The Company recognizes a valuation allowance when it is more likely than not that all or a portion of a deferred tax asset (DTA) will not be realized. All available evidence, both positive and negative, is considered when determining the need for a valuation allowance. To determine whether a valuation allowance is required, the Company uses judgement to estimate future taxable income and considers the tax consequences in the jurisdiction where such taxable income is generated as well as evidence including the Company's current financial position, actual and forecasted results of operations, the reversal of deferred tax liabilities and tax planning strategies in addition to the current and forecasted business economics of the oil and gas industry. During the three months ended September 30, 2023, the Company concluded that the positive evidence, including the Company's change in its cumulative income position from loss to income and its forecasted income, more likely than not outweighed the negative evidence regarding the realization of the Company's DTA for certain state tax net operating loss (NOL) carryforwards. As a result, the Company recorded a state deferred tax benefit of $101 million related to its valuation allowance for its state NOL carryforwards in the Statement of Condensed Consolidated Operations for the three months ended September 30, 2023.

The Company has retained a valuation allowance related to its NOLs for certain entities and jurisdictions in which it is more likely than not that the benefit from the related DTA will not be realized as well as a valuation allowance against the portion of its federal and state DTAs, such as capital losses, which may expire before being fully utilized due to the limitation to offset only capital gains.