v3.26.1
Note 13 - Income Taxes
 6 Months Ended
Jun. 30, 2026
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

NOTE 13. Income Taxes

 

Income Tax Expense (Benefit)

 

The following table presents the Company’s income tax expense (benefit) (in thousands):

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2026

    

2025

    

2026

    

2025

  

Current income tax expense:

                                

Federal

   $ —     $ —     $ —     $ —  

State

     —       —       —       —  

Total current income tax expense

     —       —       —       —  

Deferred income tax expense (benefit):

                                

Federal

     15,612       7,262       (11,377 )     16,834  

State

     836       401       174       768  

Deferred income tax expense (benefit)

     16,448       7,663       (11,203 )     17,602  

Total provision for income taxes

   $ 16,448     $ 7,663     $ (11,203 )   $ 17,602  

 

The income tax (benefit) expense differed from the amounts computed by applying the U.S. federal income tax rate to (losses) earnings before income taxes as a result of the following (in thousands, except rate):

 

   

Three Months Ended June 30,

    

Six Months Ended June 30,

  
   

2026

    

2025

    

2026

    

2025

  

Income tax expense (benefit) at U.S. federal statutory rate

   $ 20,732       21 %   $ 7,106       21 %   $ (11,839 )     21 %   $ 16,824       21 %

State income tax, net of federal income tax effect (1)

     836       1       401       1       174       —       768       1  

Tax Credits

     —       —       —       —       —       —       —       —  

Changes in valuation allowances

     —       —       —       —       —       —       —       —  

Nontaxable or nondeductible items:

                                                                

Limited tax benefit due to compensation

     81       —       108       1       248       1       (4 )     —  

Annualized loss limitation

     (5,433 )     (5 )     —       —       —       —       —       —  

Other

     232       —       48       —       214       —       14       —  

Changes in unrecognized tax benefits

     —       —       —       —       —       —       —       —  

Other, net

     —       —       —       —       —       —       —       —  

Income tax expense (benefit)

   $ 16,448       17 %   $ 7,663       23 %   $ (11,203 )     20 %   $ 17,602       22 %

 

 

(1)

State taxes in Texas make up 100% of the tax effect of this category.

 

Income taxes were (received from) paid to the following jurisdictions (in thousands):

 

   

Three Months Ended June 30,

    

Six Months Ended June 30,

  
   

2026

    

2025

    

2026

    

2025

  

Federal

   $ —     $ —     $ (230 )   $ —  

State

     (12 )     —       (12 )     —  

Total income taxes paid

   $ (12 )   $ —     $ (242 )   $ —  

 

 

On July 4, 2025, the “One Big Beautiful Bill” (“OBBB”) was signed into law. The OBBB is a significant piece of tax legislation that includes provisions that restore 100% bonus depreciation under section 168(k) for certain property placed in service after January 19, 2025, allow for the expensing of domestic R&D expenditures beginning in 2025, and allow for the deduction of intangible drilling costs as part of the computation of the corporate alternative minimum tax beginning in 2026. The OBBB did not have a significant impact on the Company’s income tax expense.

 

Deferred Tax Assets and Liabilities

 

The following table presents the tax effects of temporary differences that give rise to the Company’s deferred tax assets and liabilities (in thousands):

 

   

June 30,

2026

     December 31,

2025

  

Deferred tax assets:

                

Interest expense limitations

   $ 104,548     $ 94,623  

Net operating loss carryforwards

     34,355       28,360  

Stock-based compensation

     3,383       3,322  

Other

     —       44  

Less: Valuation allowance

     —       —  

Deferred tax assets

     142,286       126,349  

Deferred tax liabilities:

                

Crude oil and natural gas properties, principally due to differences in basis and depreciation and the deduction of intangible drilling costs for tax purposes

     (370,194

)

     (358,853

)

Unrecognized derivative gains, net

     (352 )     (7,132 )

Other

     (173 )     —  

Deferred tax liabilities

     (370,719

)

     (365,985

)

Net deferred tax liabilities

   $ (228,433

)

   $ (239,636

)

 

As required by ASC Topic 740, “Income Taxes,” (“ASC 740”) the Company uses reasonable judgments and makes estimates and assumptions related to evaluating the probability of uncertain tax positions. The Company bases its estimates and assumptions on the potential liability related to an assessment of whether the income tax position will “more likely than not” be sustained in an income tax audit. Based on that analysis, the Company believes the Company has not taken any material uncertain tax positions, and therefore has not recorded an income tax liability related to uncertain tax positions. However, if actual results materially differ, the Company’s effective income tax rate and cash flows could be affected in the period of discovery or resolution. The Company also reviews the estimates and assumptions used in evaluating the probability of realizing the future benefits of the Company’s deferred tax assets and records a valuation allowance when the Company believes that a portion or all the deferred tax assets may not be realized. If the Company is unable to realize the expected future benefits of its deferred tax assets, the Company is required to provide a valuation allowance. The Company uses its history and experience, overall profitability, future management plans, tax planning strategies, and current economic information to evaluate the amount of valuation allowance to record. As of June 30, 2026 and December 31, 2025, the Company had not recorded a valuation allowance for deferred tax assets arising from its operations because the Company believed they met the “more likely than not” criteria as defined by the recognition and measurement provisions of ASC 740.

 

The Company is also subject to Texas margin tax. The Company realized zero in current Texas margin tax in the accompanying consolidated financial statements for the six months ended June 30, 2026 and 2025. The Company has recognized a net deferred Texas margin tax liability of $9.9 million and $9.7 million as of June 30, 2026 and December 31, 2025, respectively, in the accompanying condensed consolidated balance sheets.