Coterra Energy Inc.CTRA
Coterra Energy Inc. Income Taxes Disclosure
Income Taxes
Income tax expense is summarized as follows:
| Year Ended December 31, | |||||||||||||||||
| (In millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | 99 | $ | 343 | $ | 387 | |||||||||||
| State | 12 | 26 | 42 | ||||||||||||||
| 111 | 369 | 429 | |||||||||||||||
| Deferred | |||||||||||||||||
| Federal | 372 | (72) | 52 | ||||||||||||||
| State | 63 | (73) | 22 | ||||||||||||||
| 435 | (145) | 74 | |||||||||||||||
| Income tax expense | $ | 546 | $ | 224 | $ | 503 | |||||||||||
Income tax expense was different than the amounts computed by applying the statutory federal income tax rate as follows:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| (In millions, except rates) | Amount | Rate | Amount | Rate | Amount | Rate | |||||||||||||||||||||||||||||
| U.S. federal statutory tax rate | $ | 475 | 21.00 | % | $ | 283 | 21.00 | % | $ | 447 | 21.00 | % | |||||||||||||||||||||||
State and local income taxes, net of federal income tax effect (1) | |||||||||||||||||||||||||||||||||||
| Statutory state income tax, net of federal benefit | 45 | 1.99 | % | 9 | 0.71 | % | 29 | 1.35 | % | ||||||||||||||||||||||||||
| Blended deferred rate adjustment | 33 | 1.48 | % | (26) | (1.96) | % | 16 | 0.73 | % | ||||||||||||||||||||||||||
| Changes in state valuation allowances | (11) | (0.51) | % | (27) | (2.00) | % | 3 | 0.13 | % | ||||||||||||||||||||||||||
| Other | — | — | % | (1) | (0.08) | % | — | — | % | ||||||||||||||||||||||||||
| Tax credits | (13) | (0.57) | % | (14) | (1.06) | % | (14) | (0.65) | % | ||||||||||||||||||||||||||
| Changes in valuation allowances | — | — | % | (15) | (1.09) | % | — | — | % | ||||||||||||||||||||||||||
| Nontaxable or nondeductible items | 10 | 0.44 | % | 9 | 0.67 | % | 10 | 0.47 | % | ||||||||||||||||||||||||||
| Changes in unrecognized tax benefits | 7 | 0.33 | % | (4) | (0.29) | % | 6 | 0.31 | % | ||||||||||||||||||||||||||
| Other adjustments | — | (0.02) | % | 10 | 0.76 | % | 6 | 0.30 | % | ||||||||||||||||||||||||||
| Effective tax rate | $ | 546 | 24.14 | % | $ | 224 | 16.66 | % | $ | 503 | 23.64 | % | |||||||||||||||||||||||
(1) State taxes in New Mexico, Oklahoma, and Pennsylvania make up the majority (greater than 50 percent) of the tax effect in this category.
The Company's overall effective tax rate increased in 2025 compared to 2024, primarily due to deferred tax adjustments related to changes in the overall state tax rate and lower benefits from valuation allowance releases in 2025. The Company’s overall effective tax rate decreased in 2024 compared to 2023, primarily due to benefits from valuation allowance releases and deferred tax adjustments related to changes in the overall state tax rate.
Cash paid for income taxes, net of refunds, is summarized as follows:
| Year Ended December 31, | |||||||||||||||||
| (In millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Federal | $ | 266 | $ | 309 | $ | 348 | |||||||||||
| State | |||||||||||||||||
New Mexico | 15 | 20 | 17 | ||||||||||||||
Other states | 10 | 10 | 19 | ||||||||||||||
| Total State | 25 | 30 | 36 | ||||||||||||||
Cash paid for income taxes, net of refunds | $ | 291 | $ | 339 | $ | 384 | |||||||||||
The composition of net deferred tax liabilities is as follows:
| December 31, | |||||||||||
| (In millions) | 2025 | 2024 | |||||||||
| Deferred Tax Assets | |||||||||||
| Net operating losses | $ | 157 | $ | 166 | |||||||
| Incentive compensation | 38 | 44 | |||||||||
| Deferred compensation | 1 | 1 | |||||||||
| Leases | 36 | 19 | |||||||||
| Derivative instruments | — | 2 | |||||||||
| Other | 48 | 45 | |||||||||
| Less: valuation allowance | (61) | (72) | |||||||||
| Total | 219 | 205 | |||||||||
| Deferred Tax Liabilities | |||||||||||
| Properties and equipment | 3,828 | 3,456 | |||||||||
| Leases | 40 | 22 | |||||||||
| Derivative instruments | 53 | — | |||||||||
| Other | 1 | 1 | |||||||||
| Total | 3,922 | 3,479 | |||||||||
| Net deferred tax liabilities | $ | 3,703 | $ | 3,274 | |||||||
At December 31, 2025, the Company had federal net operating loss carryforwards of approximately $338 million, of which $273 million is subject to expiration in years 2035 through 2037, and of which $65 million does not expire. The Company had a valuation allowance on $38 million of the federal net operating loss carryforwards, but believes the remaining $300 million will be fully utilized prior to expiration. The Company had gross state net operating loss carryforwards of $2.5 billion at December 31, 2025, primarily expiring between 2026 and 2043, with all but $1.2 billion covered by a valuation allowance. The Company also had other credit carryforwards of $15 million at December 31, 2025 that are offset by $4 million of valuation allowances.
As of December 31, 2025, the Company had $8 million of valuation allowances on the deferred tax benefits related to federal net operating loss carryforwards, $49 million of valuation allowances on the deferred tax benefits related to state net operating loss carryforwards, and $4 million of valuation allowances on the deferred tax benefits related to other credit carryforwards. The Company believes it is more likely than not that the remainder of its deferred tax benefits will be utilized prior to their expiration.
Unrecognized Tax Benefits
A reconciliation of unrecognized tax benefits is as follows:
| Year Ended December 31, | ||||||||||||||||||||
| (In millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Balance at beginning of period | $ | 16 | $ | 20 | $ | 13 | ||||||||||||||
| Additions for tax positions of current period | 8 | 3 | 4 | |||||||||||||||||
Additions for tax positions of prior periods | — | — | 3 | |||||||||||||||||
Reductions for tax positions of prior periods | — | (7) | — | |||||||||||||||||
| Balance at end of period | $ | 24 | $ | 16 | $ | 20 | ||||||||||||||
During 2025, the Company recorded an $8 million reserve for unrecognized tax benefits related to estimated current year research and development tax credits and Pennsylvania state apportionment matters. As of December 31, 2025, the Company’s overall net reserve for unrecognized tax benefits was $24 million, with a $6 million liability for accrued interest on the uncertain tax benefits. If recognized, the net tax benefit of $24 million would not have a material effect on the Company’s effective tax rate.
The Company files income tax returns in the U.S. federal, various states and other jurisdictions. The Company is no longer subject to examinations by state authorities before 2012 or by federal authorities before 2018. The Company believes that appropriate provisions have been made for all jurisdictions and all open years, and that any assessment on these filings will not have a material impact on the Company’s financial position, results of operations or cash flows.
Recent U.S. Tax Legislation
On July 4, 2025, the U.S. enacted significant tax legislation under H.R. 1, the One Big Beautiful Bill Act (“OBBBA”). The effects of the provisions of the OBBBA have been reflected in the Company’s financial statements for the year ended December 31, 2025. While the enactment of the OBBBA did not result in a material change to the Company’s total income tax expense, it had a material impact on the allocation between current and deferred taxes. Specifically, the reinstatement of 100 percent bonus depreciation and immediate expensing of domestic research and development costs resulted in a significant reduction to current tax expense, with a corresponding increase in deferred tax expense.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.