INCOME TAXES

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES As a result of the Plan in 2020, the company experienced an ownership change under Sec. 382 of the Internal Revenue Code (IRC). Under IRC Sec. 382, the company’s tax attributes, most notably its net operating loss carryovers, are potentially subject to various limitations going forward. The company believes it has satisfied the requirements of Sec. 382(l)(5) whereby our tax attributes are generally not subject to limitations under Sec. 382(a) and have reflected that result in our financials accordingly. While cancellation of debt income (CODI) is generally considered taxable income under IRC Sec. 108, it provides an exception to that rule for CODI realized under a Title 11 case of the United States Code. In exchange for this exception, the taxpayer must reduce certain tax attributes including its net operating loss carryovers, credit carryovers, and tax basis in its assets in the amount of the CODI not recognized under the IRC Sec. 108 exception. The amount of CODI not recognized as a result of the IRC Sec. 108 exception was $506.3 million. As a result, our net operating loss carryovers were reduced by $456.3 million and the tax basis of our assets were reduced by $50.0 million.

A reconciliation of income tax expense (benefit) computed by applying the federal statutory rate to pre-tax income (loss) to our effective income tax expense (benefit) during the periods indicated is as follows:

	Successor				Predecessor
	Year Ended December 31, 2021		Four Months Ended December 31, 2020		Eight Months Ended August 31, 2020
	(In thousands)
Income tax expense (benefit) computed by applying the statutory rate	$	12,772	$	(3,001)	$	(190,103)
State income tax expense (benefit), net of federal benefit	2,129		(500)		(31,684)
Warrant liability revaluation	4,640		—		—
Restricted stock shortfall	—		—		7,404
Non-controlling interest in Superior	(3,046)		(1,017)		7,504
Goodwill impairment	—		—		—
Valuation allowance	(16,612)		4,047		177,284
Reorganization adjustments	—		—		14,152
Statutory depletion and other	290		169		813
Income tax expense (benefit)	$	173	$	(302)	$	(14,630)

The company's total provision for income taxes consisted of the following during the periods indicated:

	Successor				Predecessor
	Year Ended December 31, 2021		Four Months Ended December 31, 2020		Eight Months Ended August 31, 2020
	(In thousands)
Current taxes:
Federal	$	—	$	—	$	(917)
State	173		(302)		—
	173		(302)		(917)
Deferred taxes:
Federal	—		—		(16,663)
State	—		—		2,950
	—		—		(13,713)
Total provision for income taxes	$	173	$	(302)	$	(14,630)

Net deferred tax assets and liabilities are comprised of the following as of December 31:

	Successor		Successor
	2021		2020
	(In thousands)
Deferred tax assets:
Allowance for losses and nondeductible accruals	$	23,819	$	22,051
Net operating loss carryforward	94,441		100,236
Depreciation, depletion, amortization, and impairment	68,001		80,947
Alternative minimum tax and research and development tax credit carryforward	1,738		1,738
	187,999		204,972
Deferred tax liability:
Investment in Superior	(3,626)		(3,987)
Net deferred tax asset	184,373		200,985
Valuation allowance	(184,373)		(200,985)
Non-current—deferred tax liability	$	—	$	—

We concluded that it is more likely than not that the net deferred tax asset will not be realized and has recorded a full valuation allowance, reducing the net deferred tax asset to zero. The company has maintained this conclusion as of December 31, 2021 and 2020. The company will continue to evaluate whether the valuation allowance is needed in future reporting periods and it will remain until the company can conclude that the net deferred tax assets are more likely than not to be realized. Future events or new evidence which may lead the company to conclude that it is more likely than not its net deferred tax assets will be realized include, but are not limited to, cumulative historical pre-tax earnings, sustained significant improvements in commodity prices, a sustained significant increase in rig utilization and/or rates, a material and sizable asset acquisition or disposition, and taxable events that could result from one or more future potential transactions. The valuation allowance does not prohibit the company from utilizing the tax attributes if the company recognizes taxable income. As long as the company continues to conclude that the valuation allowance against its net deferred tax assets is necessary, the company will not have significant deferred income tax expense or benefit.

We file income tax returns in the U.S. federal jurisdiction and various states. We are no longer subject to U.S. federal tax examinations for years before 2017 or state income tax examinations by state taxing authorities for years before 2016. As of December 31, 2021, and after consideration of the tax attribute reductions of IRC Section 108 and finalization of the company’s 2020 federal income tax return, the company has an expected federal net operating loss carryforward of $385.5 million of which $190.5 million is subject to expiration between 2036 and 2037. As of December 31, 2021, our tax basis in UPC's properties was approximately $475.0 million.