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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
The provision (benefit) for income taxes included the following components:
(in millions)202220212020
Current:   
Federal$47 $— $(2)
State4 — — 
51 — (2)
Deferred:
Federal— — 371 
State— — 38 
— — 409 
Provision for income taxes$51 $— $407 
The provision for income taxes was an effective rate of 3% in 2022, 0% in 2021 and (15)% in 2020. The Company’s effective tax rate increased in 2022, as compared with 2021, primarily due to the effects of the valuation allowance against the Company’s deferred tax assets and limitations on net operating loss utilization resulting under IRC Section 382. The following reconciles the
provision for income taxes included in the consolidated statements of operations with the provision which would result from application of the statutory federal tax rate to pre-tax financial income:
(in millions)202220212020
Expected provision (benefit) at federal statutory rate$400 $(5)$(568)
Increase (decrease) resulting from:
State income taxes, net of federal income tax effect39 — (55)
Change in valuation allowance(392)2 1,034 
Other4 3 (4)
Provision for income taxes$51 $— $407 
The components of the Company’s deferred tax balances as of December 31, 2022 and 2021 were as follows:
(in millions)20222021
Deferred tax liabilities:
Differences between book and tax basis of property$379 $— 
Right of use lease asset$41 $45 
Accrued pension costs1 — 
Other3 3 
424 48 
Deferred tax assets:
Accrued compensation50 44 
Accrued pension costs— 6 
Asset retirement obligations24 25 
Net operating loss carryforward469 585 
Future lease payments41 46 
Derivative activity340 362 
Capital loss carryover27 28 
Interest carryover41 11 
Other21 20 
1,013 1,127 
Valuation allowance(589)(1,079)
Net deferred tax asset$— $— 
In 2022, the Company made federal and state income tax payments of $35.7 million and $5.3 million, respectively. In 2021, there were no material tax payments or refunds. In 2020, the Company received refunds related to federal income tax of $32 million.
Due to the issuance of common stock associated with the Indigo Merger, as discussed in Note 2 to the consolidated financial statements to this Annual Report, the Company incurred a cumulative ownership change and as such, the Company’s net operating losses (“NOLs”) prior to the acquisition are subject to an annual limitation under Internal Revenue Code Section 382 of approximately $48 million. The ownership changes and resulting annual limitation will result in the expiration of NOLs or other tax attributes otherwise available, with a corresponding decrease in the Company’s valuation allowance. At December 31, 2022, the Company had approximately $4 billion of federal NOL carryovers, of which approximately $3 billion have an expiration date between 2035 and 2037 and $1 billion have an indefinite carryforward life. The Company currently estimates that approximately $2 billion of these federal NOLs will expire before they are able to be used. The non-expiring NOLs remain subject to a full valuation allowance. If a subsequent ownership change were to occur as a result of future transactions in the Company’s common stock, the Company’s use of remaining U.S. tax attributes may be further limited. Included in the Company’s net operating loss carryforward are the net operating loss carryforwards acquired in the Montage acquisition of $858 million. A portion of the Montage-related net operating loss carryovers is subject to an annual section 382 limitation of $1.7 million, and the Company has appropriately accounted for this limitation in purchase accounting in 2020. Additionally, the Company has an income tax net operating loss carryforward related to its Canadian operations of $29 million, with expiration dates of 2030 through 2040. The Company also had a statutory depletion carryforward of $13 million and $177 million related to interest deduction carryforward as of December 31, 2022.
A valuation allowance for deferred tax assets, including net operating losses, is recognized when it is more likely than not that some or all of the benefit from the deferred tax assets will not be realized. To assess that likelihood, the Company uses
estimates and judgment regarding future taxable income, and considers the tax consequences in the jurisdiction where such taxable income is generated, to determine whether a valuation allowance is required. Such evidence can include current financial position, results of operations, both actual and forecasted, the reversal of deferred tax liabilities, and tax planning strategies as well as current and forecasted business economics of the oil and gas industry.
In 2020, due to significant pricing declines and the material write-down of the carrying value of the Company’s natural gas and oil properties in addition to other negative evidence, the Company concluded that it was more likely than not that its deferred tax assets would not be realized and recorded a valuation allowance. As of December 31, 2022, the Company still maintains a full valuation allowance. The Company also retained a valuation allowance of $29 million related to net operating losses in jurisdictions in which it no longer operates. Management will continue to assess available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of deferred tax assets. The Company intends to continue a full valuation allowance on its deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of the allowance. However, if current commodity prices are sustained and absent any additional objective negative evidence, the Company anticipates adjusting the current valuation allowance position in 2023.
A reconciliation of the changes to the valuation allowance is as follows:
(in millions)20222021
Valuation allowance at beginning of year$1,079 $1,539 
Establishment of valuation allowance on opening deferred balance— — 
Return to accrual adjustments(36)(16)
State rate and apportionment changes(66)(15)
Current period deferred activity(388)(1)
Reduction due to 382 limitations on NOLs— (428)
Purchase accounting— — 
Valuation allowance at end of year$589 $1,079 
A tax position must meet certain thresholds for any of the benefit of the uncertain tax position to be recognized in the financial statements. As of December 31, 2022, there were no unrecognized tax positions identified that would have a material effect on the effective tax rate. 
The Internal Revenue Service closed the 2016 and 2017 audits of the Company’s federal returns in 2021 with no change. The 2018 income tax year expired and the income tax years 2019 to 2021 remain open to examination by the major taxing jurisdictions to which the Company is subject.