Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

The components of the income tax expense (benefit) for each of the periods presented below are as follows:

	Successor						Predecessor
	Year Ended December 31, 2023		Year Ended December 31, 2022		Period from February 10, 2021 through December 31, 2021		Period from January 1, 2021 through February 9, 2021
Current
Federal	$	264	$	37	$	—	$	—
State	6		10		—		—
Current Income Taxes	270		47		—		—
Deferred
Federal	381		(1,112)		(45)		(54)
State	47		(220)		(4)		(3)
Deferred Income Taxes	428		(1,332)		(49)		(57)
Total	$	698	$	(1,285)	$	(49)	$	(57)

The income tax expense (benefit) reported in our consolidated statement of operations is different from the federal income tax expense (benefit) computed using the federal statutory rate for the following reasons:

	Successor						Predecessor
	Year Ended December 31, 2023		Year Ended December 31, 2022		Period from February 10, 2021 through December 31, 2021		Period from January 1, 2021 through February 9, 2021
Income tax expense (benefit) at the federal statutory rate of 21%	$	655	$	767	$	188	$	1,119
State income taxes (net of federal income tax benefit)	56		75		(86)		238
Change in valuation allowance due to Acquisitions	—		19		(49)		—
Change in valuation allowance excluding impact of Acquisitions	(33)		(2,147)		(179)		(1,191)
Reorganization items	—		—		60		(173)
Transaction costs	—		2		11		—
Removal of stranded tax effects in accumulated other comprehensive income	—		—		—		(57)
Other	20		(1)		6		7
Total	$	698	$	(1,285)	$	(49)	$	(57)

Our state income tax provision is affected by changes in our state apportionment, changes in state tax rates, as well as state specific tax adjustments. Shifts in our state apportionment factors may cause our deferred taxes to be remeasured. The 2021 Successor Period resulted in a state tax benefit as a result of the Vine acquisition causing an increase to our Louisiana deferred tax asset. We recognize certain permanent book-to-tax differences relating to reorganization items such as differences in the treatment of the extinguishment of liabilities and differences due to the non-deductibility of certain expenses associated with administering the plan of reorganization.

Deferred income taxes are provided to reflect temporary differences in the tax basis of assets and liabilities and their reported amounts in the financial statements. The tax-effected temporary differences, net operating loss (“NOL”) carryforwards and excess business interest expense carryforwards that comprise our deferred income taxes are as follows:

	Successor
	December 31, 2023		December 31, 2022
Deferred tax liabilities:
Property, plant and equipment	$	(295)	$	(253)
Derivative instruments	(166)		—
Right of use lease asset	(25)		(30)
Other	(4)		(5)
Deferred tax liabilities	(490)		(288)
Deferred tax assets:
Net operating loss carryforwards	848		870
Carrying value of debt	25		29
Excess business interest expense carryforward	646		665
Capital loss carryforwards	78		101
Asset retirement obligations	65		91
Investments	1		11
Future lease payments	25		30
Accrued liabilities	15		21
Derivative instruments	—		137
Other	32		29
Deferred tax assets	1,735		1,984
Valuation allowance	(312)		(345)
Deferred tax assets after valuation allowance	1,423		1,639
Net deferred tax asset	$	933	$	1,351

As of December 31, 2023 and 2022, we had deferred tax assets of $1.735 billion and $1.984 billion, respectively, upon which we had a valuation allowance of $312 million and $345 million, respectively. The net change in the valuation allowance of $33 million is primarily due to the expiration of a capital loss carryforward and is reflected as a component of income tax expense in the consolidated statements of operations.

A valuation allowance against deferred tax assets, including NOL carryforwards and disallowed business interest carryforwards, is recognized when it is more likely than not that all or some portion of the benefit from the deferred tax assets will not be realized. To assess that likelihood, we use estimates and judgment regarding our future taxable income, and we consider the tax consequences in the jurisdiction where such taxable income is generated, to determine whether a valuation allowance is required. Such evidence can include our current financial position, our results of operations, both actual and forecasted, the reversal of existing taxable temporary differences, tax planning strategies, as well as the current and forecasted business economics of our industry. Management assesses all available evidence, both positive and negative, to estimate whether sufficient future taxable income will be generated to permit the use of deferred tax assets.

For the year ended December 31, 2021, we maintained a full valuation allowance against our deferred tax assets based upon the conclusion that it was more likely than not that the deferred tax assets would not be realized. An item of negative evidence consisted of the cumulative pre-tax book losses over rolling three-year periods, primarily due to recurring operational losses and impairments of proved natural gas and oil properties recorded in 2020. For the cumulative three-year period ended December 31, 2022, we were in a cumulative loss position, but given the magnitude of the 2020 losses rolling off relative to the 2021 and 2022 positive pre-tax book income, we anticipated a return to cumulative pre-tax income during 2023. The expectation of future earnings along with reversals of existing taxable timing differences provided us with sufficient positive evidence to conclude that $1.351 billion of our federal and

state deferred tax assets were more likely than not to be realized. Accordingly, we released the valuation allowance for this amount during 2022. We continue to maintain a partial valuation allowance of $312 million against a portion of our federal and state deferred tax assets such as NOLs, credit carryovers, and capital losses, which may expire before we are able to utilize them due to the application of the limitations under Section 382 and the ordering in which such attributes may be applied.

Our ability to utilize NOL carryforwards, disallowed business interest carryforwards, tax credits and possibly other tax attributes to reduce future taxable income and federal income tax is subject to various limitations under Section 382 of the Code. The utilization of such attributes may be subject to an annual limitation under Section 382 of the Code should transactions involving our equity result in a cumulative shift of more than 50% in the beneficial ownership of our stock during any three-year testing period (an “Ownership Change”).

As a result of emergence from bankruptcy on February 9, 2021, the Company did experience an Ownership Change. The amount of the annual limitation has been computed to be $54 million. The limitation applies to our NOL carryforwards, disallowed business interest carryforwards and general business credits until such attributes expire or are fully utilized. As we were in an overall net unrealized built-in loss position at the Effective Date, the limitation also applies to any recognized built-in losses incurred for a period of five years but only to the extent of the overall net unrealized built-in loss. Recognized built-in losses include a portion of our tax depreciation, depletion, and amortization deductions along with a portion of our realized hedging losses. We incurred sufficient recognized built-in losses during the 2021 tax year such that we have no further restriction on the company’s deduction for such items. Some states impose similar limitations on tax attribute utilization upon experiencing an Ownership Change.

In Chapter 11 bankruptcy cases, the cancellation of debt income (“CODI”) realized upon emergence from bankruptcy is excludible from taxable income but results in a reduction of tax attributes in accordance with the attribute reduction and ordering rules of Section 108 of the Code. The amount of our CODI was $5 billion, all of which reduced our NOL carryforwards. As a result of the Section 382 limitation, $307 million of federal NOLs remaining after the CODI reduction were estimated to expire before they would become utilizable and, as such, were removed from our deferred tax assets. The states we operate in generally have similar rules for attribute reduction and Section 382 limitation which resulted in the reduction of certain of our state NOL carryforwards.

On November 1, 2021, we completed the acquisition of Vine. For federal income tax purposes, the transaction qualified as a tax-free merger under Section 368 of the Code and, as a result, we acquired carryover tax basis in Vine’s assets and liabilities. In the 2021 Successor Period, we recorded a $49 million net deferred tax liability determined through business combination accounting. Upon the completion of Vine’s tax returns in the 2022 Successor Period, the net deferred tax liability was adjusted to $30 million. As a result of this adjustment to the deferred tax liability, we increased our valuation allowance and recorded $19 million of income tax expense in the 2022 Successor Period. Additionally, we acquired NOL and interest expense carryforwards which are subject to a base annual Section 382 limitation of approximately $2 million. The base annual limitation is estimated to be increased over the first five years for recognized built-in gains of approximately $12 million per year resulting in approximately $14 million per year of available utilization in those years.

The Marcellus Acquisition during the 2022 Successor Period was treated as a taxable asset acquisition with no tax carryovers acquired.

As of December 31, 2023, and after taking into account each of the foregoing matters, the federal NOLs and excess business interest attributes are as follows:

	Attributes subject to Section 382 base annual limitation				Attributes not subject to Section 382 limitation
	$54 million		$2 million
Net operating losses, by year of expiration:
2037	$	760	$	24	$	—
Indefinitely lived	2,268		102		—
Total federal net operating losses	$	3,028	$	126	$	—
Excess business interest expense (indefinitely lived)	$	1,381	$	75	$	1,277

We had state NOL carryforwards of approximately $3.712 billion. Several states adopt the federal NOL carryforward period such that our more recent state NOLs do not expire. The state NOL carryforwards are subject to apportioned amounts of the federal Section 382 limitations.

Should we complete the Southwestern Merger as further discussed in Note 21, we anticipate triggering a Section 382 Ownership Change for purposes of both Southwestern’s tax attributes as well as for our own. Assuming that generally higher long-term tax-exempt rates continue to apply as compared to prior years, we believe that the annual limitation will be less restrictive than the annual limitations that resulted from prior ownership changes. As a result, the new limitation would generally only apply to those attributes generated subsequent to the previous ownership changes.

As of December 31, 2023 and 2022, we have an income tax receivable of $33 million and $168 million included in other current assets within our consolidated balance sheets, respectively.

On August 16, 2022, the President of the United States signed into law the Inflation Reduction Act of 2022 (“IRA”) which, among other things, includes provisions for a 15% corporate alternative minimum tax on book income for companies whose average book income exceeds $1 billion for any three consecutive years preceding the tax year and a 1% excise tax on stock buybacks. These changes are generally in effect for tax years beginning after December 31, 2022. Based on our book income in the past three years, we do not believe we are subject to the corporate alternative minimum tax in 2023. However, we may become subject to the corporate alternative minimum tax in future years. It is our policy that we view the alternative minimum tax as an excess tax over regular income tax and therefore, our deferred tax assets will continue to be assessed for realizability on the basis of whether they reduce a regular tax liability. Should we pay alternative minimum tax in the future and thus acquire credit carryovers related thereto, such deferred tax assets on these will be separately evaluated for valuation allowance purposes.

Accounting guidance for recognizing and measuring uncertain tax positions requires a more likely than not threshold condition be met on a tax position, based solely on the technical merits of being sustained, before any benefit of the tax position can be recognized in the financial statements. Guidance is also provided regarding recognition, classification and disclosure of uncertain tax positions. As of December 31, 2023 and 2022, the amount of unrecognized tax benefits related to NOL carryforwards, tax credit carryforwards, and tax liabilities associated with uncertain tax positions was $68 million and $69 million, respectively. As of December 31, 2023, $24 million is related to state tax receivables not expected to be recovered, $10 million is related to a liability for tax credits taken, and the remainder is related to NOL carryforwards. As of December 31, 2022, $29 million is related to state tax receivables not expected to be recovered, $4 million is related to tax credit carryforwards, and the remainder is related to NOL carryforwards. If recognized, $34 million of the uncertain tax positions identified would have an effect on the effective tax rate. As of December 31, 2023 and 2022, we had no amounts accrued for interest related to these uncertain tax positions. We recognize interest related to uncertain tax positions as a component of interest expense. Penalties, if any, related to uncertain tax positions would be recorded in other expenses.

A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows:

	Successor						Predecessor
	Year Ended December 31, 2023		Year Ended December 31, 2022		Period from February 10, 2021 through December 31, 2021		Period from January 1, 2021 through February 9, 2021
Unrecognized tax benefits at beginning of period	$	69	$	74	$	74	$	74
Additions based on tax positions related to the current year	3		2		—		—
Additions to tax positions of prior years	3		2		—		—
Settlements	(5)		—		—		—
Expiration of the applicable statute of limitations	—		—		—		—
Reductions to tax positions of prior years	(2)		(9)		—		—
Unrecognized tax benefits at end of period	$	68	$	69	$	74	$	74

Our federal and state income tax returns are subject to examination by federal and state tax authorities. Our tax years 2020 through 2023 remain open for all purposes of examination by the IRS as well as the Vine 2020 federal income tax return and the Vine short period return for January 1, 2021 through November 1, 2021. However, certain earlier tax years remain open for adjustment to the extent of their NOL carryforwards available for future utilization.

In addition, tax years 2020 through 2023 as well as certain earlier years remain open for examination by state tax authorities. We do not anticipate that the outcome of any federal or state audit will have a significant impact on our financial position or results of operations.