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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
The provision (benefit) for income taxes included the following components:
(in millions)202320222021
Current:   
Federal$(4)$47 $— 
State(1)4 — 
(5)51 — 
Deferred:
Federal(192)— — 
State(60)— — 
(252)— — 
Provision (benefit) for income taxes$(257)$51 $— 
The provision for income taxes was an effective rate of (20)% in 2023, 3% in 2022 and 0% in 2021. The Company’s effective tax rate decreased in 2023, as compared with 2022, primarily due to the release of the valuation allowance. 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)202320222021
Expected provision (benefit) at federal statutory rate$273 $400 $(5)
Increase (decrease) resulting from:
State income taxes, net of federal income tax effect18 39 — 
Change in valuation allowance(526)(392)2 
Return to accrual(16)— — 
Federal research and development credit(13)— — 
Other7 4 3 
Provision (benefit) for income taxes$(257)$51 $— 
The components of the Company’s deferred tax balances as of December 31, 2023 and 2022 were as follows:
(in millions)20232022
Deferred tax liabilities:
Differences between book and tax basis of property$255 $379 
Derivative activity137 — 
Right of use lease asset34 41 
Accrued pension costs— 1 
Other3 3 
429 424 
Deferred tax assets:
Accrued compensation53 50 
Accrued pension costs1 — 
Asset retirement obligations27 24 
Net operating loss carryforward450 469 
Future lease payments35 41 
Derivative activity— 340 
Capital loss carryover26 27 
Interest carryover93 41 
Research and development credits17 — 
Other17 21 
719 1,013 
Valuation allowance(52)(589)
Net deferred tax asset$238 $— 
In 2023, the Company made federal and state income tax payments of approximately $12 million and $1 million, respectively. In 2022, the Company made federal and state income tax payments of approximately $36 million and $5 million, respectively. In 2021, there were no material tax payments or refunds.
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, 2023, 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 and accordingly, no value has been ascribed to these NOLs on the Company’s balance sheet. 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 which were approximately $856 million as of December 31, 2023. 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 2042. The Company also had a statutory depletion carryforward of $13 million and $415 million related to interest deduction carryforward as of December 31, 2023.
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.
For the year ended December 31, 2022, the Company maintained a full valuation allowance against its deferred tax assets based on its conclusion, considering all available evidence (both positive and negative), that it was more likely than not that the deferred tax assets would not be realized. A significant item of objective negative evidence considered was the cumulative pre-tax loss incurred over the three-year period ended December 31, 2022, primarily due to impairments of proved oil and gas properties recognized in 2020. The Company sustained a three-year cumulative level of profitability as of the first quarter of 2023 which was maintained through the end of 2023. Based on this factor and other positive evidence such as forecasted income, the Company concluded that $512 million of its federal and state deferred tax assets were more likely than not to be realized and released this portion of the valuation allowance in 2023. Accordingly, for the year ended December 31, 2023, the Company recognized $269 million of deferred income tax expense related to recording its tax provision which was offset by $526 million of tax benefit, including $14 million that was reclassified from OCI, attributable to the release of the valuation allowance. The Company expects to keep a valuation allowance of $52 million related to NOLs in jurisdictions in which it no longer operates and against a portion of its federal and state deferred tax assets such as capital losses and interest carryovers, which may expire before being fully utilized due to the application of the limitations under Section 382 and the ordering in which they may be applied.
A reconciliation of the changes to the valuation allowance is as follows:
(in millions)20232022
Valuation allowance at beginning of year$589 $1,079 
Return to accrual adjustments(12)(36)
State rate and apportionment changes(13)(66)
Current period deferred activity— (388)
Release of valuation allowance(512)— 
Valuation allowance at end of year$52 $589 
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, 2023, there were no unrecognized tax positions identified that would have a material effect on the effective tax rate. 
The Inflation Reduction Act of 2022 (the “IRA”) was enacted on August 16, 2022 and may impact how the U.S. taxes certain large corporations. The IRA imposes a 15% alternative minimum tax on the “adjusted financial statement income” of certain large corporations (generally, corporations reporting at least $1 billion average adjusted pre-tax net income on their consolidated
financial statements) for tax years beginning after December 31, 2022. The Company was not impacted by the alternative minimum tax during 2023. The Company will continue to monitor updates to the IRA and the impact it will have on the Company’s consolidated financial statements.
The Internal Revenue Service closed the 2016 and 2017 audits of the Company’s federal returns in 2021 with no change. The 2018 and 2019 income tax years expired and the income tax years 2020 to 2022 remain open to examination by the major taxing jurisdictions to which the Company is subject.