NORTHERN OIL & GAS, INC.NOG
NORTHERN OIL & GAS, INC. Income Taxes Disclosure
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses and tax credit carry-forwards. Under this method, deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that includes the enactment date.
The One Big Beautiful Bill, which was enacted in July 2025, primarily makes permanent the tax implications of the Tax Cuts and Jobs Act from 2017. The income tax provisions include the reinstatement of the 100% additional first-year “bonus” depreciation deduction, updates to the calculation of disallowed interest, and updates to the determination of whether the Company is subject to the Corporate Alternative Minimum Tax.
The income tax provisions for the years ended December 31, 2025, 2024, and 2023 consist of the following:
| (In thousands) | 2025 | 2024 | 2023 | ||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | — | $ | — | $ | — | |||||||||||
| State | 374 | 959 | 915 | ||||||||||||||
| Total Current Tax Expense (Benefit) | $ | 374 | $ | 959 | $ | 915 | |||||||||||
| Deferred | |||||||||||||||||
| Federal | 16,435 | 145,224 | 209,168 | ||||||||||||||
| State | 7,499 | 14,402 | 22,035 | ||||||||||||||
| Valuation Allowance | (364) | (76) | (154,345) | ||||||||||||||
| Total Deferred Tax Expense (Benefit) | $ | 23,570 | $ | 159,550 | $ | 76,858 | |||||||||||
| Total Tax Expense | $ | 23,944 | $ | 160,509 | $ | 77,773 | |||||||||||
The following is a reconciliation of the reported amount of income tax expense for the years ended December 31, 2025, 2024, and 2023 to the amount of income tax expenses that would result from applying the statutory rate to pretax income.
| (In thousands) | 2025 | 2024 | 2023 | |||||||||||||||||||||||
| Income Before Income Taxes | $ | 62,705 | $ | 680,817 | $ | 1,000,742 | ||||||||||||||||||||
| Tax Provision at the U.S. Federal Statutory Rate | 13,168 | 21.0 | % | 143,026 | 21.0 | % | 210,156 | 21.0 | % | |||||||||||||||||
State Income Taxes, Net of Federal Income Tax Benefit (1) | 7,400 | 11.8 | % | 15,027 | 2.2 | % | (3,382) | (0.3) | % | |||||||||||||||||
| Nontaxable and Nondeductible Items: | ||||||||||||||||||||||||||
| Nondeductible Compensation | 1,218 | 1.9 | % | 1,638 | 0.2 | % | 1,175 | 0.1 | % | |||||||||||||||||
Reclassification of Productions Taxes (2) | — | — | % | (3,123) | (0.5) | % | — | — | % | |||||||||||||||||
| Federal True-Up Adjustments | 3 | — | % | 3,108 | 0.5 | % | (1,532) | (0.2) | % | |||||||||||||||||
| Other Nontaxable or Nondeductible Items | 2,155 | 3.4 | % | 834 | 0.1 | % | (455) | — | % | |||||||||||||||||
Change in Valuation Allowance (3) | — | — | % | — | — | % | (128,189) | (12.8) | % | |||||||||||||||||
| Reported Tax Expense | $ | 23,944 | 38.2 | % | $ | 160,509 | 23.6 | % | $ | 77,773 | 7.8 | % | ||||||||||||||
__________________
(1)The jurisdictions that make up the majority of the state income taxes are North Dakota, New Mexico and Texas, inclusive of changes in valuation allowances ($26M release in 2023).
(2) Refer to Note 2 Out-of-Period Adjustments in the 2024 Form 10-K.
(3) The valuation allowance balances presented are only for federal taxes. Valuation allowances for state taxes are netted with the state tax items.
Acquisitions, divestitures, and the prices received for crude oil, natural gas and NGL impact the apportionment of taxable income to the states where we own crude oil and natural gas properties. As these factors change, our state income tax rate changes. This change, when applied to our total temporary differences, impacts the total state income tax expense or benefit reported in the current year.
A valuation allowance is established to reduce deferred tax assets if it is determined that it is more likely than not that the related tax benefit will not be realized. On a quarterly basis, management evaluates the need for and adequacy of valuation allowances based on the expected realizability of the deferred tax assets and adjusts the amount of such allowances, if necessary. During 2025, in evaluating whether it was more likely than not that the Company’s net deferred tax assets were realized through future net income, management considered all available positive and negative evidence, including (i) its earnings history, (ii) its ability to recover net operating loss carry-forwards, (iii) the projected future income and results of operations, and (iv) its ability to use tax planning strategies. Based on all the evidence available, at December 31, 2025 and December 31, 2024 the Company recorded valuation allowances of $1.4 million and $1.8 million, respectively.
At December 31, 2025, the Company had a NOL carryforward for federal income tax purposes of $532.8 million, of which $121.7 million are limited by IRC Section 382, and gross state NOL carryforwards of $690.5 million. The determination of the state NOL carryforwards is dependent upon apportionment percentages, state income tax rates, and state laws that can change from year to year and that can thereby impact the amount of the deferred tax asset related to such carryforwards. Our $121.7 million IRC Section 382 limited federal NOLs expire in 2037, and the remaining $411.0 million of federal NOLs have an indefinite life. If unutilized, all of the state net operating losses will expire from 2025 to 2045, except for $194.9 million of state net operating losses that have an indefinite life.
The significant components of the Company’s deferred tax assets (liabilities) were as follows:
| Year Ended December 31, | |||||||||||
| (in thousands) | 2025 | 2024 | |||||||||
| NOLs and Tax Credit Carryforwards | $ | 136,682 | $ | 117,035 | |||||||
| Share Based Compensation | 358 | 477 | |||||||||
| Accrued Interest | 1,022 | 1,005 | |||||||||
| Crude Oil and Natural Gas Properties and Other Properties | (412,647) | (434,486) | |||||||||
| Interest Carryforwards | 47,118 | 68,926 | |||||||||
| Derivative Instruments | (28,647) | 13,181 | |||||||||
| Other | 9,911 | 7,630 | |||||||||
| Total Net Deferred Tax Liabilities Before Valuation Allowance | (246,203) | (226,232) | |||||||||
| Valuation Allowance | (1,442) | (1,806) | |||||||||
| Total Net Deferred Tax Liabilities | $ | (247,645) | $ | (228,038) | |||||||
Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. The Company has no liabilities for unrecognized tax benefits.
The Company’s policy is to recognize potential interest and penalties accrued related to unrecognized tax benefits within income tax expense. For the years ended December 31, 2025, 2024 and 2023, the Company did not recognize any interest or penalties in its statements of operations, nor did it have any interest or penalties accrued in its balance sheet at December 31, 2025 and 2024 relating to unrecognized benefits.
The tax years 2025, 2024, 2023 and 2022 remain open to examination for federal income tax purposes and by the other major taxing jurisdictions to which the Company is subject. Additionally, NOLs from 2011-2025 could be adjusted in the future when such NOLs are utilized.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2022 | Feb 24, 2023 | |
| 2020 | Mar 12, 2021 | |
| 2019 | Mar 12, 2020 | |
| 2018 | Mar 18, 2019 | |
| 2017 | Feb 23, 2018 | |
| 2016 | Mar 2, 2017 | |
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.