Note 6. Income Taxes
Our income tax provision (benefit) is as follows:
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2017 | | 2016 | | 2015 |
Current income tax expense (benefit) | | | | | | |
Federal | | $ | (19,485 | ) | | $ | — |
| | $ | (8,515 | ) |
State | | (1,388 | ) | | (785 | ) | | 160 |
|
Total current income tax benefit | | (20,873 | ) | | (785 | ) | | (8,355 | ) |
| | | | | | |
Deferred income tax expense (benefit) | | |
| | |
| | |
|
Federal | | (113,863 | ) | | (521,519 | ) | | (1,853,517 | ) |
State | | 18,084 |
| | (21,866 | ) | | (78,662 | ) |
Total deferred income tax benefit | | (95,779 | ) | | (543,385 | ) | | (1,932,179 | ) |
Total income tax benefit | | $ | (116,652 | ) | | $ | (544,170 | ) | | $ | (1,940,534 | ) |
At December 31, 2017, we had tax-effected federal net operating loss carryforwards (“NOLs”) totaling $18.6 million, state NOLs and tax credits totaling $51.5 million and $1.9 million, respectively (before provision for valuation allowance), an estimated $51.5 million of enhanced oil recovery credits to carry forward related to our tertiary operations, an estimated $21.6 million of research and development credits, and $20.3 million of alternative minimum tax credits. Under the Tax Cut and Jobs Act (“the Act”) signed by the President on December 22, 2017, all of our alternative minimum tax credits are fully refundable by 2021. We consider our assessment of the recorded tax benefit associated with the impacts of the Act to be substantially complete, which is reflected in the table reconciling income tax expense below. Uncertainty of potential state tax impacts of the Act, as well as additional regulatory guidance that may be issued, could result in further tax effects, which are not expected to be material to our financial statements. Our state NOLs expire in various years, starting in 2019, although most do not begin to expire until 2024. Our enhanced oil recovery credits and research and development credits begin to expire in 2024 and 2031, respectively.
Deferred income taxes reflect the available tax carryforwards and the temporary differences based on tax laws and statutory rates in effect at the December 31, 2017 and 2016 balance sheet dates. As of December 31, 2017, we had $51.1 million of deferred tax assets associated with State of Louisiana and Mississippi net operating losses and tax credits. A tax valuation allowance was recorded in 2015 to reduce the carrying value of our Louisiana deferred tax assets as the result of a tax law enacted in the State of Louisiana, which limits a company’s utilization of certain deductions, including our net operating loss carryforwards. As of December 31, 2017 tax valuation allowances totaling $35.3 million were recorded for our State of Louisiana deferred tax assets, a reduction of $1.3 million during 2017 due to adjustments of prior year balances. Based on recent losses from falling commodity prices and lower future forecasted income related to our Mississippi deferred tax assets, we concluded it was not more-likely-than-not that the deferred tax assets would be realized. Accordingly, we recorded a valuation allowance against our Mississippi deferred tax assets in the amount of $6.8 million during 2017. Furthermore, as a result of the Act, our deferred tax assets associated with State of Louisiana and Mississippi net operating losses and tax credits were increased by $9.1 million due to a reduction in the federal benefit of state taxes paid. This change was fully offset by an increase in the valuation allowance, resulting in a total increase in valuation allowance during 2017 of $14.6 million. The valuation allowances will remain until the realization of future deferred tax benefits are more likely than not to become utilized.
As of December 31, 2017, we had an unrecognized tax benefit of $5.4 million related to an uncertain tax position. The unrecognized tax benefit was recorded during 2015 as a direct reduction of the associated deferred tax asset and, if recognized, would not materially affect our annual effective tax rate. The tax benefit from an uncertain tax position will only be recognized if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based upon the technical merits of the position. We currently do not expect a material change to the uncertain tax position within the next 12 months. Our policy is to recognize penalties and interest related to uncertain tax positions in income tax expense; however, no such amounts were accrued related to the uncertain tax position as of December 31, 2017.
In connection with the transaction in which we exchanged a portion of our existing senior subordinated notes for senior secured and senior notes, we realized a tax gain due to the concession extended by our note holders during the second quarter of 2016 and fourth quarter of 2017. This tax gain was offset by net operating losses and other deferred tax asset attributes.
Significant components of our deferred tax assets and liabilities as of December 31, 2017 and 2016 are as follows:
|
| | | | | | | | |
|
| December 31, |
In thousands |
| 2017 |
| 2016 |
Deferred tax assets |
| |
| |
Loss carryforwards – federal |
| $ | 18,581 |
|
| $ | 27,078 |
|
Loss carryforwards – state |
| 51,510 |
|
| 42,625 |
|
Tax credit carryover |
| 20,270 |
|
| 41,132 |
|
Business credit carryforwards |
| 74,914 |
|
| 72,748 |
|
Derivative contracts | | 23,024 |
| | 27,261 |
|
Stock-based compensation |
| 2,873 |
|
| 13,887 |
|
Unrecognized gain and original issue discount on debt exchange | | 85,951 |
| | 108,659 |
|
Other |
| 29,481 |
|
| 44,422 |
|
Valuation allowance |
| (51,134 | ) |
| (36,510 | ) |
Total deferred tax assets |
| 255,470 |
|
| 341,302 |
|
|
|
|
|
|
|
|
Deferred tax liabilities |
| |
|
| |
|
Property and equipment |
| (450,629 | ) |
| (628,359 | ) |
Other |
| (2,940 | ) |
| (6,821 | ) |
Total deferred tax liabilities |
| (453,569 | ) |
| (635,180 | ) |
Total net deferred tax liability |
| $ | (198,099 | ) |
| $ | (293,878 | ) |
Our reconciliation of income tax expense computed by applying the U.S. federal statutory rate and the reported effective tax rate on income from continuing operations is as follows:
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
In thousands | | 2017 | | 2016 | | 2015 |
Income tax provision (benefit) calculated using the federal statutory income tax rate | | $ | 16,275 |
| | $ | (532,121 | ) | | $ | (2,214,094 | ) |
State income taxes, net of federal income tax benefit | | 2,764 |
| | (25,351 | ) | | (117,624 | ) |
Impairment of goodwill with no related tax basis | | — |
| | — |
| | 363,666 |
|
Tax shortfall on stock-based compensation deduction | | 5,567 |
| | 9,557 |
| | — |
|
Valuation allowance | | 5,562 |
| | 2,910 |
| | 33,600 |
|
Enhanced oil recovery tax credits generated | | (11,307 | ) | | — |
| | — |
|
Re-measurement of deferreds related to federal tax rate change | | (132,224 | ) | | — |
| | — |
|
Other | | (3,289 | ) | | 835 |
| | (6,082 | ) |
Total income tax benefit | | $ | (116,652 | ) | | $ | (544,170 | ) | | $ | (1,940,534 | ) |
We file consolidated and separate income tax returns in the U.S. federal jurisdiction and in many state jurisdictions. The statutes of limitation for our income tax returns for tax years ending prior to 2014 have lapsed and therefore are not available for examination by respective taxing authorities. The statute of limitations for tax year 2012 remains open as a result of our 2014 carryback claim. We have not paid any significant interest or penalties associated with our income taxes.