Granite Ridge Resources, Inc.GRNT
Granite Ridge Resources, Inc. Income Taxes Disclosure
Income Taxes
In 2022, the Company became the sole owner of GREP. GREP is a disregarded entity for U.S. federal income tax purposes. As a result of the Business Combination, the Funds' net assets were transferred to the Company resulting in carryover tax basis of those assets. The Company is a C corporation and subject to U.S. federal income tax and state and local income taxes.
The Components of income tax expense were as follows for the periods indicated:
| Year Ended December 31, | |||||||||||||||||
| (in thousands) | 2024 | 2023 | 2022 | ||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | — | $ | — | $ | — | |||||||||||
| State | 249 | 209 | — | ||||||||||||||
| 249 | 209 | — | |||||||||||||||
| Deferred | |||||||||||||||||
| Federal | $ | 6,449 | $ | 22,314 | $ | 11,444 | |||||||||||
| State | (491) | 1,960 | 1,406 | ||||||||||||||
| 5,958 | 24,274 | 12,850 | |||||||||||||||
| Income tax expense | $ | 6,207 | $ | 24,483 | $ | 12,850 | |||||||||||
The Company's effective tax rate was 24.9%, 23.2% and 4.7% for the years ended December 31, 2024, 2023 and 2022, respectively. For 2024, the effective tax rate differs from the enacted statutory rate of 21% primarily due to the impact of certain discrete items, state income taxes and changes in state tax rates. For 2023, the effective tax rate differed from the enacted statutory rate of 21% primarily due to the impact of certain discrete items and state income taxes.
The following reconciles the income tax expense included in the consolidated statements of operations with the income tax expense that would result from the application of the statutory federal tax rate:
| Year Ended December 31, | |||||||||||||||||
| (in thousands) | 2024 | 2023 | 2022 | ||||||||||||||
| Income before income taxes | $ | 24,966 | $ | 105,582 | $ | 275,194 | |||||||||||
| Income tax expense at federal statutory rate | 5,243 | 22,172 | 57,791 | ||||||||||||||
| Net (income) loss prior to Business Combination - non-taxable | — | — | (46,051) | ||||||||||||||
| Impact of prior tax returns | 1,487 | 142 | — | ||||||||||||||
| State income taxes, net of federal benefit | 524 | 2,169 | 1,110 | ||||||||||||||
| Impact of tax rate and apportionment updates | (1,047) | — | — | ||||||||||||||
| Income tax expense | $ | 6,207 | $ | 24,483 | $ | 12,850 | |||||||||||
| Effective tax rate | 24.9 | % | 23.2 | % | 4.7 | % | |||||||||||
Significant components of deferred tax assets and liabilities are included in the table below:
| Year Ended December 31, | |||||||||||
| (in thousands) | 2024 | 2023 | |||||||||
| Deferred tax assets | |||||||||||
| Net operating loss carryforwards | $ | 14,152 | $ | 13,677 | |||||||
| Disallowed interest expense carryforward | 5,410 | 1,335 | |||||||||
| Asset retirement obligations | 2,459 | 2,169 | |||||||||
| Unrealized derivatives | 1,118 | — | |||||||||
| Unrealized loss on investment | 3,327 | — | |||||||||
| Other deductible temporary differences | 831 | 495 | |||||||||
| Total deferred tax assets | 27,297 | 17,676 | |||||||||
| Less: valuation allowance | — | — | |||||||||
| Net deferred tax assets | $ | 27,297 | $ | 17,676 | |||||||
| Deferred tax liabilities | |||||||||||
| Property, plant and equipment | $ | (107,243) | $ | (88,870) | |||||||
| Unrealized derivatives | — | (2,795) | |||||||||
| Total deferred tax liabilities | (107,243) | (91,665) | |||||||||
| Net deferred tax liability | $ | (79,946) | $ | (73,989) | |||||||
As of December 31, 2024, the Company had accumulated federal net operating loss carryforwards of $63.7 million, none of which are expected to expire, and state net operating loss carryforwards of approximately $63.7 million in states that allow net operating loss carryforward, some of which begin to expire in 2042. Utilization of these net operating losses may be limited if there were to be an ownership change as defined by Section 382 of the U.S. Internal Revenue Code. As of December 31, 2024, the Company does not believe any of its net operating losses were limited under these rules.
The Company is subject to the various taxing jurisdictions in the United States, including federal and certain state jurisdictions. As of December 31, 2024, the Company has no current tax years under audit. The Company remains subject to examination for federal income taxes for tax years 2020 through 2024 and state income taxes for tax years 2019 through 2024.
The Company has evaluated all tax positions for which the statute of limitations remains open and believes that the material positions taken would more likely than not be sustained upon examination. Therefore, as of December 31, 2024 and 2023, the Company had no unrecognized tax benefits and did not recognize any interest or penalties during those respective periods related to unrecognized tax benefits.
On August 16, 2022, the Inflation Reduction Act (the "IRA") was enacted into law and includes significant changes related to tax, climate change, energy and health care. The provisions within the IRA, among other things, include (i) a new 15% corporate alternative minimum tax on certain large corporations, (ii) a new nondeductible 1% excise tax on the value of certain stock that a company repurchases, and (iii) various tax incentives for energy and climate initiatives. Each of these provisions are effective for tax years beginning after December 31, 2022. The Department of the Treasury is expected to continue to publish regulations relevant to many aspects of the IRA. In addition to no 2023 or 2024 impact on income tax expense, the Company currently does not believe that there will be a material impact on its cash taxes or income tax expense for future periods but will continue to monitor.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.